Supply Chain Management in Petroleum Industry Quandary and Countermeasures

Wang Jiashan , Wang Jingzhong Daqing Petroleum Institute, P.R.China, 163318 Abstract: In our country, the supply chain management of petroleum industry is not perfect, and it has some problems: the operation flow is not reasonable enough, it lacks the crosswise integration, the degree of informatization is low, the organizational structure is not reasonable enough, and the estimate system of supply chain is not perfect. Some suggestion are given as follows: To reorganize the petroleum enterprises and reforge the operation flow; To strengthen the crosswise integration of the supply chain; To optimize the supply chain operation by using he information systems; To establish the new performance appraisal system of the supply chain, and so on. Key Words: supply chain management,petroleum industry, informatization, operation flow

1 Introduction
As a sort of new management idea, supply chain management is still on the starting stage in our country. Some domestic enterprises or industries have attached importance to supply chain management gradually. In recent years, idea of supply chain management has been introduced to petroleum industry. The integrative management system which is from oil and gas exploitation to storage, refining, chemical industry, transportation, and sale, has been formed, but compared with more perfect supply chain system of overseas petroleum companies, it still has many problems to be researched home.

2 The Present Situation of Supply Chain Management of Petroleum Industry and the Existing Problems in Our Country
2.1 The present situation of the supply chain management Along with the development of petroleum industry, each big petroleum company also studies the advanced management idea in the world, and introduces gradually the supply chain management into the enterprise management. In order to optimize the resources disposition, reduce the cost, and enhance the competitive ability, three big petroleum companies in our country are all pressing on with the supply chain construction. For instance, in 2000, SINOPEC China Petroleum & Chemical Corporation chose the supply chain management PIMS series software of the Aspen Tech Corporation, and organized personnel to carry on the secondary development, began its own supply chain construction. Now, as the main body of informatization construction, EPR is kept on. Up to March, 2005, ERP system has succeeded to be operated in 24 enterprises, covering oil field, oil refining, chemical and sale four operation plates. And in addition, construction of ERP project in 26 corporations will be started soon [1]. CNPC (China National Petroleum Corporation) started to strengthen the e-business construction in 2000. In 2001 the website energyahead was put into operation officially, it symbolized the formation of supply chain management thought of CNPC. Until June, 2005, the first phase of construction of the "integrative management information systems of sale and logistics", which was invested approximately RMB50000000 and exploited cooperatively by CNPC and Shanghai boke, overpass acceptance. This project united the advanced international theory and method about logistics management, and closely combined the integrative theory and application of enterprise in our country. Directly towards the characteristic and status of petroleum and chemical enterprises, it gave the thought of integrative logistics supply chain management with Chinese characteristic [2]. Each big petroleum company has already seen the benefit in reducing the cost and saving the expense by constructing their own supply chain. They optimize the sale network by implementing the supply chain management. They reduce the work strength simultaneously enhance the management efficiency. But in the petroleum industry, there are long industry chains, overfull correlative vocations,

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large enterprise scale and jumbled management. Additionally, in the process of oil and gas exploration and production, we must follow the rule that ground obeys underground. Risk and uncertain factors increase in the exploration course. All of these bring influence to the development of supply chain, and they also cause the supply chain of the oil-gas enterprise in the subhealthy condition. Therefore, it is heavy and far to optimize the supply chain management of petroleum industry. 2.2 The existing problems in supply chain management (1)The internal operation flow of the supply chain is not reasonable enough. After the reorganization in petroleum industry, it mainly establishes three big petroleum companies. Degree of the general adoption of the market principle is low, and the traditional logistics management pattern still exists in. The subsidiary companies or branch companies of each company have their own supply station, transport company or large-scale motorcade. This formed many logistics installation, increases the operational cost, causes the upriver, middle and downriver service integration of the supply chain to be not perfect enough. The partial benefit thought is serious. These caused the supply chain of the whole industry represents the subhealthy condition of the shape does not disperse but the spirit does. The core operation of enterprises is not prominent, the scale superiority is insufficient. Especially in some corporations, the management level is low, and they dont reforge the operation flow basing on the supply chain. They hinder the seamless links among enterprises within one supply chain, and affect the healthy development of the whole supply chain [3]. (2)The supply chain lacks the crosswise integration.The petroleum industry represents lacking the overall planning in the supply chain construction. In the process of conformity and construction, each company adopts the longitudinal integration pattern of annexation and self-construction, and constructs the supply chain of longitudinal integration, but neglecting the relationship between the crosswise supply chains. It causes that every company lacks the understanding on the competition and cooperation consciousness of supply chain management. They see the competition but neglect the cooperation. For example, CNPC & SINOPEC form excess inside competition in the finished oil product market, and represent some unordered phenomenon externally. It weakens the whole strength of petroleum industry. To the entire industry, the supply chain is constructed repeatedly, and massive financial resources and physical resources are wasted. As a result, no matter building new factories or investing proprietary, the investment burden of companies will increase. It compels companies to promote both core operation and non-core operation, and this wastes energy and resource of the companies. This modus operandi of considering their owns longitudinal supply chain construction only, but neglecting the crosswise integrated procedure, is disadvantageous to the development of the whole industry, and affects the international competitive ability of petroleum industry in our country. (3)The holistic informatization degree of the supply chain is low. At present, petroleum industry has already achieved a certain level in e-business, ERP construction, system of gathering and processing the exploration information and so on. But the informatization development of enterprise is not balanceable, and the obtaining of information is not complete and accurate enough. The level of sharing information should be enhanced. The integration level of application system is insufficient, and the coverage range, the speed, the security and the stability of the net are not well enough. Compared with some international big petroleum companies and some international project work companies, the disparity is very big in some aspects such as management informatization, optimizing the management flow, and decision-making informatization. It has not formed proper automated management system. Even if the exploration system and the exploitation system which are done well, the database construction and the synthesis development still have differences, which are basically that partial and dispersive network have not formed the scale. In addition, the informatization degree of every nodal point on the supply chain is weaker. It affects the systematization and integration of the whole supply chain construction and management. Simultaneously, during the process of informatization construction, the lack of overall arrangement, and repeated construction bring enormous difficulties to the supply chain integration, promotion and optimization [4]. 4 The organizational structure is disadvantageous to the supply chain management.The mechanism of petroleum industry is not flexible enough, and its ability of adapting the market change is weak. This causes the supply chain management to be limited largely. The organizational structure of oil-gas

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enterprise is established on the basis of function. Every function department maintains their own benefit as possible as they can, but they neglect the dynamical equilibrium of the whole supply chain. It caused the storage of the entire supply chain increases, the distribution of expense that relates to logistics in the cross-function field is not reasonable, and the resources waste. The present organizational structure is disadvantageous to exert the coordination relationships among each link on the supply chain, to forms the integrative competition predominance, and to exert the coordination effect of industry chain. Also, it cannot satisfy the effective information communication and information share among each enterprise. This will affect the decision-making ability of enterprise, and then affect the competition ability and the competition predominance of the whole industry. Therefore, the current organizational structure is illogical, and it becomes a big barrier to optimize the supply chain management. (5) The present estimate indexes of performance have difficulty to adapt the needs of supply chain management.As a so huge supply chain of the petroleum industry, it needs to establish effective and uniform estimate indexes, to discover the links in which problems exist on the supply chain, and thereby to compare and appraise the achievement of supply chain management of companies. Only in this way, could benefit be distributed impartially in the scope of supply chain. And then the industry development will be promoted. However, the present estimate indexes of performance are mainly based on the department function, and they emphasize on post analysis. Each department pursues their own benefits, and this makes the logistics and the information flow anamorphic. It also causes difficulties to unify the upriver, middle and downriver enterprises in the supply chain. It is not fit the performance estimate of run flow in supply chain. It neither can reflect the dynamic run situation of the supply chain, nor can estimate the run situation of the whole supply chain scientifically and objectively.

3 The suggestion on optimizing the supply chain management in petroleum industry

(1)To reorganize the enterprises and reforge the operation flow.In the face of the global economic integration, the reorganization and the operation flow of petroleum industry should face the operation flow rationalization of the entire supply chain. It should be developed from the interior flow reorganization to the exterior flow reorganization. On the basis of reorganization and reconstruction, largely in optimization, reform and adjusting structure of the stock assets, and with the asset as a ligament, each company should deepen the reform on management system, operation unit, production layout, product structure, organization form, the constitution of technology and the personnel, and so on. And then companies drive the reform and development of the whole industry, gradually establish and consummate the modern enterprise system. Under the organization structure of integration between upriver and downriver, combination between inside and outside trades, one dragon from production to sale, by deepening reform, reorganizing and coming to the market to finance, the whole strength will increase ceaselessly. Through strengthening management and implementing the low cost strategy, it could form integrative oversize transnational group companies, which could contend with the overseas big companies, take on the important burden of the civil economic pillar industry, and insure the national economic security. In order to make supply chain revolve efficiently and optimize the whole industry supply chain management, the efficient operation flow should be established as soon as possible. (2)To strengthen the crosswise integration of the supply chain.Due to adopting the integrated run pattern of production, supply and sale, the non-core operation of petroleum industry may enter the supply chain by the pattern of contracting the operation out, and establish supply chain system which pays equal attention to longitudinal and the crosswise integration. This makes the core enterprise centralize energy to develop the main operation, to throw off the historical cloth-wrappers, to reduce the burden of self-construction and annexation, and to enhance the resources efficiency. Simultaneously they establish strategic partnership with contractor by contracting the operation out, obtain knight service, and increase the operating speed of the whole supply chain. It makes the non-core enterprise develop independently. It improves the service quality by satisfying the request of the core enterprise unceasingly, forms the specialized and sweeping superiority, and perfects the function of the whole

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supply chain. They should establish the horizontal and longitudinal integrated supply chain system, avoiding the pitch point enterprises pursue local interest blindly but neglecting the overall benefits, and impel the optimization of the whole supply chain. (3)To optimize the supply chain operation by using the information systems.In order to enhance the overall effect of supply chain of the petroleum industry, the research and application on IT technology must be attached importance. To use the informatization to impel the industrialization, realize the conformity among the information flow, the logistics flow, the fund flow and value flow within the supply chain, support the petroleum industry to develop with high speed and large scope, and win the competition superiority. To speed up the process of enterprise informatization and the industry informatization, establish the information share platform of the supply chain, and realize the coordination revolution of each link on the supply chain. At the same time, to integrate the information systems, including the integration of the oil and gas exploration, the transportation, the sale, the finance and the equipment purchase. The interior pitch points of supply chain include cooperation among the petroleum companies and cooperation between the petroleum companies and the specialized service companies, such as the exploration, the purchase and the product transportation and so on. The communication must be strengthened to realize the uniformity of the data, soft ware and the communication agreement between the information systems of each company. Then a unified standard is formed. Therefore, it need attach importance to the application of information systems in the whole supply chain operation, unify the technical standard, and insure the sustaining development and the optimization of the supply chain. (4) To adjust and reform the organizational structure.After reorganization in the petroleum industry, the integrated management of upriver-downriver, product-supply-sale, and internal-external trade provides the condition for the supply chain management. But it still need adjust and reform the organizational structure. Firstly, its to change originally form that according to the function division, establish the organizational structure facing the market, and serve for the balance revolution of the whole supply chain. Simultaneously, to design standardized rules and regulations, strict information transmit mechanism and exact decision-making mechanism, smoothen the relationship of duty, power, and benefit among different departments and different management grade, perfect the inner audit system, strengthen the inner accounting, establish the healthy interior calculation system, and then enhance the standardized degree of enterprise operation. Secondly, its to perfect the management system. To put management system such as JIT (Just in Time), QR (Quickly Response), ECR (Expeditious Client Response), and so on into the supply chain management of the petroleum industry, unite the upriver enterprises and the downriver enterprises organically, form the integrated supply chain with the oil and gas exploration, the refinement processing, the transportation sale and so on [5]. The organizational structure should be adjusted and reformed. By doing so, the specialized division of labor becomes more reasonable, and the each enterprise on the supply chain could exert different effect. (5) To establish a new performance appraisal system of the supply chain.A proper performance appraisal system is the key to establish highly effective petroleum industry supply chain. Therefore, the whole petroleum industry establishes the performance appraisal system which aims at the satisfactory of customer, and involves three aspects: the interior performance measurement of each enterprise on the supply chain, the exterior cooperation degree of the enterprises on the supply chain, and the overall operation flow of the supply chain. To insure the effect of each trade partner, each pitch point enterprise on the whole supply chain could be appraised reasonably, then distribute the benefit of the whole supply chain advisably, accelerate the close cooperation between trade partners, and insure the whole supply chain to operate fluently and effectively. To establish a good performance appraisal system could cause each enterprise on the supply chain to think little on the local benefit but much on the overall situation [6] .

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References
[1] Enterprise information network, SINOPEC devotes to advance construction and applying of ERP. Available in: http://finance.sina.com.cn [2] The science and technology information, The first list of logistics in China- supply chain system of CNPC approves successfully. Available in: http://www.dlh.cn/DLHWeb/contentmanagement/mana_publish/publ_news/data/2005-05/5386.jsp [3] Ding Tao.(2005), Discussion on the optimization of supply chain management in our petroleum industry Journal of the University of Petroleum, China(Edition of social sciences), Vol.21, N0.3, pp5. [4] Ding Tao.(2005) , The Diagnoses and governing on the unhealthy condition of the supply chain of Chinese petroleum industry, China Petrochemical, NO.2, pp19. [5] The Chinese manufacturing industry management on-line, The supply chain management and its problems. Available in: http://www.51made.com/zzgl_show.asp?zid=1165 [6] Tang Fajun (2004),The present situation and development countermeasures of implementing the supply chain management in our country, Journal of Wuxi Institute of Commerce, Vol.5, No.2, pp29.

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