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Executive summary
It goes without saying that business and strategic planning is a very important aspect in the successful business development. Every business person should have a determined strategic plan of business steps that should be taken according to different types of business operations, companies actions, corresponding information about companies, industry, marketing, organization of the operations and, as a result, the effectiveness.
Businesses can no longer ignore the importance of business planning and strategic planning because they are a key pillar of success for both startup and mature business organizations. It is important to develop plans and ensure that formulated operational strategies are implemented in time. Moreover, businesses need to continuously evaluate progress of their business plans and also make strategic adjustments when necessary in order to achieve overall organizational objectives.
This case study takes a careful look at how operational and strategic inefficiencies accompanied by harsh economic conditions led to the closure and taking over of the EPPCO and ENOC (Emirates National Oil Company and the Emirates Petroleum Products Company), by National oil company Adnoc. By mid 2011, many ENOC and EPPCO petrol stations in Dubai located in Sharjah, Ajman, together with other Emirates were either partially or fully dry and as a result not only were the employees of the organization disappointed but also their regular customers.
The flow of goods and services along the industries supply chain from the point of production to the point of consumption is part of the supply chain management process (Wisner 112). In the absence of supply chain and logistic activities it would become difficult for goods to arrive at the right place, on time and condition. Hence, a series and sequence of activities usually have to occur so that raw materials can be converted into useful finished goods that can be used to satisfy consumer needs. Supply chain activities are not activities of a single organization and these activities often involve many different organizations coming together to form a special relationship that will ensure the movement of raw materials and work in progress and finished goods strategically move from their points of origin to where they are needed efficiently.
High degrees of inefficiency that arose out of their supply chain and poor supply chain strategy made it impossible for petrol tankers from Jebel Ali to reach their destinations in time. This case study hence takes a look at particular sources of this commercial strategy from a strategic point of view. In an ideal economy, petrol and other petroleum products are essential to citizens but the move of ENOC and EPPCO to attempt to raise prices of petrol were met with maximum opposition.
Strategic management is a key part of business operation but this organization failed to put in place the necessary operation framework to get rid of inefficiencies that normally arise in the process of carrying out business (Michael & Jude 23; Wisner 112). In the absence of suitable operational strategies in various functional areas such as the supply chain, the organizations are most likely to increase supply shortages and increase cost structure (Worthington, Britton & Chris 115). This paper takes a look at the events that took place when stations belonging to ENOC and EPPCO ran dry in certain parts of the United Arab Emirates and what could have been done to avoid this crisis.
Introduction
Facilitating the movement of goods and services from the point of production to the point of consumption is the main role of supply chain management within an organization. In the absence of supply chain and logistic activities it would become very difficult for goods to arrive for consumption at the right place, time and condition. Hence supply chain management which is an integral part of operations management enables managers to carry out a series and sequence of activities that enable raw materials to be converted into finished goods so that they can reach their final destination of consumption (Baumol & Alan 84).
Supply chain activities are not actions of a single organization and these activities often entail many different organizations coming together to form a unique relationship that would ensure the movement of raw materials, work in progress and finished goods strategically progress from their points of origin to where they are needed with high degrees of efficiency (Porter 44). For this reason different organizations usually come together to make the supply of goods and services a success thus planning and designing supply chain activities are compulsory at all management levels within these organizations.
The demand of petroleum products has been on the rise over the past few years with the increased global expansion of population and economies; this trend is not likely to go down. Ever Since the 2008-2010 global economic meltdown hit many economies of the world causing a financial contagion, the prices and availability of petroleum products in numerous parts of the world has been negatively affected (Reid 44).
Due to increased levels of risk and costs associated with trading within the petroleum industry, many participants of this industry have been forced to push their pump prices up in order to cushion the effects of high costs that their business models are facing (Case 72). This recent development, that is as a result of the unpredictable nature of the dollar has led to international participants who are in this industry to face unprecedented loses and cuts in profits especially in situations where they import petroleum products from other nations (Ford, 59).
Strategic management is an important part of businesses, especially operations management which is a crucial element of todays business environment because it enables careful planning of each aspect of operation in order to ensure every business process is executed with high degrees of accuracy (Wisner 56). The projected success or failure of organizations is directly linked to the various strategies that the management formulates and implement within their organizations and therefore when poor strategies are set in any functional area of business as a result of poor planning, then the organizations are more likely to fail to realize their business objectives.
Leading multinational organizations within the oil Industry have over time understood that their operations spread throughout the globe or vast regions and as a result develop the necessary strategies to ensure that petroleum and other related petroleum products reach where they are needed in good time in order to match demand and supply patterns of the market. It is consequently compulsory that these organizations operate in such a way that will allow the company to be highly efficient and dependable because once the availability of petrol is interrupted, many citizens as well as the economy are likely to suffer negatively.
The supply chain and logistical framework of the oil industry organizations is very complicated since it is made up of numerous subsystems which consist of semi-autonomous and autonomous organizations. This as a result makes it necessary that managers in this field carefully plan and map all processes in order to ensure petroleum products follow a simplified path in order to reach where they are needed at the right time and price.
An industrys value chain consists of activities that aim to take in inputs and convert them into outputs that are of high quality in order to cater for the needs of the end consumer (Worthington, Britton & Chris 85). Value chain activities are highly imperative because they add value and quality to the end product so that customers can use the good/service and obtain contentment but in this case ENOC and EPPCO failed to realize this by denying towns that highly depended on petrol from getting that precious commodity.
Value chain activities are often carried out by numerous departments which all work together to achieve high levels of synergy in order to produce the best products. Some of the departments that work together in order to add value to raw materials/goods as they move down the industry value chain include; the exploration department, manufacturing department, inbound and outbound distribution department, sales and marketing department, after sales department and the administration department ( Wisner 35).
The need for creating value along the distribution chain has forced supply chain management managers to integrate planning and use proper strategies to ensure that raw materials, work in progress and finished goods reach where they are destined at the right time and in good quality in order to reduce the chances of increased inventory costs. Moreover, it is important for supply chain experts to formulate contingent strategies and tactics that will permit their distribution networks obtain high degrees of flexibility as goods move either forward or backwards for them to reach the consumers in good time (Wisner 65).
Company Profile
The Emirates National Oil Company has been in existence since 1993. The Emirates National Oil Company Limited (ENOC) is a company that entirely belongs to the government of Dubai Government Company and the company is also the parent company of Emirates Petroleum Products Company (EPPCO). This organization is a key player within the energy sector of the various Emirates within Dubai; ENOC plays a major role in the energy sector and is responsible for ensuring that oil and gas products are able to move upstream and downstream within Dubai and to all its clients through all its subsidiary group of companies.
Emirates National Oil Company is an international energy group in service through 30 active subsidiaries and numerous joint ventures. Emirates National Oil Company limited provides numerous services within the energy sector ranging from services such as oil and gas exploration, refining and marketing in Dubai and the Middle East. The company is also plays a big role within the Oil supply chain by shipping and offering terminal services besides other numerous energy related services in Dubai.
Emirates National Oil Company provides a wide variety of services to other members of the oil industry. The organization provides petroleum-based chemicals, gas, petroleum for the aviation industry, shipping and transportation of petroleum related products, petroleum storage facilities, information technology services and retail of petroleum products. Emirates National Oil Company limited has joint ventures with other like-minded organizations which are major global companies such as Caltex, Vopak and Total.
Resources
The government of Dubai owns the whole of ENOC and EPPOC. The government company is on the fore front in leading other energy companies in economic diversification. ECON and EPOC is in every respect a worldwide energy group by virtue of the fact that it is operational in not less than thirty very active subsidiaries as well as joint ventures, most of which were formed with major international companies.
It has a wide range of services, from real estate to retail. Its network of ENOC and EPPOC service station is extremely expansive that extend across the whole of Dubai all the way to the northern Emirates. These service stations meet the needs of motorists in terms of fuel as well as a wide range of other products and services that are vehicle related. These service stations have got other facilities within them that do not fall under their core business of providing fuel and other related products that are used to power motor vehicles. The stations have got car wash and oil change facilities in them as well as convenience stores.
The ENOC is a very significant player in the field of fuel, various chemicals, as well as lubricants. These operate internationally and have even opened offices in places as far as London and Singapore.
The core work of this division is to develop and subsequently distribute products locally as well as internationally. This division is also charged with operating bunkering as well as trading services. The underlying activities in the groups shipping, terminalling, and liquid and petroleum gas operations include the manufacturing of liquid petroleum gas as well as the containers that are used to store and ferry the gas. The group is also responsible for distributing the products that it has produced both locally and internationally.
Its operations also include the terminalling at Jebel Ali and Fujairah. The group also deals with the international fleet of chemicals, as well as oil tankers through its Gulf Energy Maritime joint venture . The group has partnered with Caltex an international energy group also- and taken their shares to the United Arab Emirates aviation refueling and lubricants marketing department. ENOC is the holder of 51.9% of Dragon oil plc which is listed in the Dublin and London stock exchanges.
Strengths, weaknesses, opportunities and threats facing ENOC and EPOC (SWOT Analysis)
A firms strength are usually the resources and the capabilities that it has which can subsequently be used to develop the firms competitive advantage over its competitors. ENOC and EPPOC group, which is owned by the government of Dubai, is among the leaders in the United Arab Emirates in terms of economic diversification. The group has a comparatively strong brand name. This can be considered as one of the groups strengths. The fact the group has a strong brand name implies that its products and services are widely recognized hence it will not have to fret or spend a lot to publicize its products to the market as they are relatively well known. Those resources can be channeled elsewhere where they will enhance the growth of the company.
The government owned outfit has invested significant amounts of money in research and development in an effort to increase efficiency and effectiveness in their production and distribution of its products. Recently, its scientists came up with a cutting edge invention that earned them their first American patent. The scientists had discovered a method of preserving jet fuel structured to save airlines substantial amounts of money. The process makes it possible for refineries and transporters to move different types of jet fuel from tankers to tracks and to aircrafts without the quality of the fuel degenerating. This emphasis on research and development leads to invention of cutting edge technology that gives the group a competitive edge over its competitors
The most glaring of ECONs strength is in its diversification exploits. The group is involved in numerous number of business activities ranging from manufacturing of petroleum and gas to real estate. This business ventures are not only limited to their local or regional markets but extend to as far afield as virtually the whole world. This opens up new opportunities for the group that did not exist at home. Their target market also increases significantly because they will have access to a new group of customers for their products.
Having mentioned the above strengths associated with ENOC group, we shall also highlight some of the weaknesses that bedevil the group. Some of ENOCs fiercest competitors have exclusive access to natural resources such as oil and gas because of their affiliation with individuals who are highly placed in the government. This gives them undue advantage compared to ENOC who have to source for the same resources internationally at inflated prices. This gives their competitors undue advantage over them.
As a result of incurring losses following directive by the executive council to sell petroleum at prices lower than what ENOC had spent to purchase the same, the group decided to stop selling fuel in all its stations in northern emirates. This lowered their credibility in the eyes of their customers due to the shortage that was experienced in the region as a result. Good reputation among the customers of any firm is regarded as a key strength. ENOCs market share dwindled as a result, when many of their customers opted to purchase fuel from ENOCs competitors. What is worse is the fact that winning back the customer confidence will not be an easy task considering the vital role that fuel plays in the United Arab Emirates economy. Therefore, customer apathy is regarded as a weakness on the part of ECON (Ian, et al 154).
Nevertheless, there are numerous opportunities that come ECONs way as a result of its activities. Cutting edge technology such as the discovery by its scientists of a method of transferring jet fuel without compromising on its quality presents an opportunity for ECON to provide a service that did not exist before. There are also a few restrictions in terms of trading internationally. This presents ENOC with the opportunity to access diverse international markets for its products and services and hence increase its sales volume and consequently its profits.
Among the threats facing ECON include regulations by the executive council to sell petroleum at a price lower than that it purchased the same products. This resulted to ECON incurring significant losses. Another threat emerges from the nature of core products that ECON is involved in producing. There many other companies that are in the same business as them therefore it is not hard for customers to switch their loyalty from one company to the other depending on which is more convenient.
Competitive Advantages of Superior supply chain management strategies among Oil companies
Costs
Good supply chain distribution strategies within the oil industry supply chain can assist in reducing costs especially if participants within the oil industries are able to form the right relationships and partnerships with other companies (Zahorsky, n.d). Using ships as the main mode of transport is quite expensive and takes a long time for crude oil to be delivered and using trucks as compared to pipelines can be quiet risky and inconveniencing.
It is hence necessary for marketers of various oil companies to carefully plan their inventory levels and operate with buffer stocks that will allow them to smoothly operate for periods close to six months as they await fleets of oil ferrying ships to arrive in their destined markets (Baumol & Alan 34). Poor network design within the supply chain would therefore increase the lead time and therefore lead to undesirable consequences (Edward 93).
Designing global supply chain networks is a very important part of international business management. A well designed supply chain is able to reduce additional costs, operate with flexibility and ensure that the quality of goods being delivered is high and time schedules are adhered to. Designing supply chains can be achieved by use of trial and error method which may be gained after a lengthy period of operations and statistical planning to come up with the most appropriate supply chain routes and alternatives (Edward 68).
Consequently, further inefficiencies can prove more costly and therefore affect the goals and objectives of those participating within the oil industry simply because there is a ceiling limit upon which businesses can absorb costs before they start facing loses. It thus becomes necessary to strategically plan supply chain activities and other logistic components in order to avoid incurring any incremental costs. According to Wisner (304), this is why logistics and supply chain engineers use complex mathematical models such as mean time between failures (MTBF), mean time to failure (MTTF), mean time to repair (MTTR), failure mode and effects analysis (FMEA), statistical distributions, queuing theory to plan activities that take place throughout the supply chain (Edward 40).
The costs that are accumulated during shipment and channeling oil thorough pipelines make it necessary that additional costs are transferred from refiners and marketers to the end consumer. Due to the flammable nature of oil products, it is thus necessary to use specialized mechanisms to move these products from one region to another (Edward 105).
Flexibility
Larger oil mining companies like BP, Royal Dutch Shell, and Exxon Mobil operate many oil rigs within various on shore and offshore locations; this fact hence makes the supply chain activities become more flexible because of good supply chain strategies. In case one rig or supplier experiences difficulties that will delay the distribution of oil, other but if a company operates with contingent plans which involve multiple sourcing then the problem can be solved easily and quickly.
Flexible supply channels present consumers with numerous alternatives and therefore when an occurrence interrupts the supply of crude oil from one avenue other than existing contingent sources can be used to ensure that there is continuity in the supply of crude oil to whichever consumer who needs oil (Kotler 256). Therefore, it is hard to experience shortages if a supplying company is said to have flexible supply chains because if the first option fails then through strategic planning the company uses other means to make sure supply chain activities are not disrupted. Thus this is why it can be able to assist all its clients to acquire good transport and insurance facilities when transporting crude oil in the high seas, especially in a situation where a client has negotiation capabilities to negotiate on his/her on behalf.
Time/speed
The nature of crude oil and exploration of oil in the high seas usually makes it quite a challenge to move crude oil across the worlds waters to the respective countries on dry land. Ships are known to be very slow thus making the business cycle of the oil industry to become quite long. In some cases it may take close to 6-9 months to transport oil to certain parts of the world but this can further be delayed by piracy activities in certain parts of the world (Lambert 104). Therefore the further the country is from an oil rig belonging to Shell then the longer the lead-time, it therefore makes it necessary for this countries to order very large volumes that are above their consumption rates and consequently store the surplus as safety or buffer stock to avoid a future shortage of crude oil or other oil related products (Heide 46-51).
Due to the long time frame that is usually taken to deliver crude oil from where mining activities occur it therefore becomes very important to use supply chain design disciplines that incorporate mathematical and statistical models to ensure that delivery occurs by following the optimal route (Lambert 77-79; Bryson 68). This is done usually through increasing global operations, which involve more and more global coordination and strategic supply chain management planning to achieve global optimum performance.
Thus logistical operations like order tracking using globally positioned satellites can be incorporated within the supply chain so that ships and other modes of transporting crude oil can be easily located using real-time time techniques when in transit and during storage. Such a move will help companies meet supply chain expectations by carefully designing the steady and timely flow products at any level of the industries supply value chain (Kourdi 36; Case 56).
Quality
The quality of crude oil delivered when participants within the oil industry have developed the most appropriate supply chain management strategies usually remains un-altered because ships usually carry what they are given and thus do not attempt to alter the quality of the crude oil until it reaches to their respective destinations. While in other businesses, delicate products need extra care and may end up being compromised in the process of delivery this is highly unlikely because crude oil is a product which requires a lot of heat and various catalysts for it to change form (Wheelen & Hunger 43; Porter 56). The conditions and surroundings of ships are often customized and thus making it suitable to carry crude oil without affecting quality of oil.
Stake holder diagram
Organization chart
Operations locally and globally
ENOC and EPOC engage in a wide range of services both locally and abroad. The group manufactures oil, chemicals, gas, aviation, shipping, liquid storage, information and technology and real estate. It engages in developing and distributing aviation fuel, lubricants as well as chemicals, manufacturing and distributing liquefied gas together with the containers used to store them. They provide ship management services on top of supplying liquefied petroleum gas to industries, hotels and residential areas.
The group operates more than thirty vibrant subsidiaries as well as joint ventures. Many of these joint ventures were formed when the group partnered with international blue-chip companies. The group runs an extensive network of stations across the whole of Dubai and the northern Emirates supplying motorists with fuel. The Groups International Refining and Marketing division including the ENOC is considered to be a leader in the field of aviation fuel in London and Singapore. It is also a leader in lubricants and chemicals with international offices in the same cities.
Competition
State-owned (ADNOC) has over the years expanded its coverage over the United Arab Emirates. It is the fourth largest national reserve the world over behind Saudi Arabia, Iraq and Kuwait. The ADNOC group is involved in the production companies, support companies, maritime crude oil transport companies and refined product distribution company that runs not less than two hundred service stations in the wider United Arab Emirates. It is headed by the chairman of supreme petroleum council, His Highness Sheikh Khalifa Zayed Al Nahyan. ADNOC is ENOCs greatest and fiercest competitor in the energy business.
Initially, the government of United Arab Emirates used to subsidize demand for fuel in the northern Emirates. But this has since stopped; the government even went further to issue a directive to all fuel producers and distributors to sell fuel at a price which had been set by the government regardless of whether the said price was lower than what the oil companies had paid for when purchasing fuel. This is exactly what happened to ENOC. Their main competitors ADNOC has unlimited access to the countrys vast oil and gas resources.
ENOC decided to quit selling fuel at its service stations as they were experiencing immense pressure on their profits because they sourced for fuel at international rates which had gone over the roof at that point in time. The emirates executive council threatened to cancel their license if they did not resume operations in their stations within seventy two hours. ADNOC even expressed interest in taking over the operations of EPPCO and ENOC. It raised suspicion of a plot to take over the operations, more so because the supreme petroleum council doubles up as the board of directors for ADNOC.
Implications Poor supply chain management and operation strategies in the Petroleum industry
The smooth flow of goods from point of origin to its various destinations is very important and hence organizations within the oil industry should be able to receive its orders estimated from the market and make necessary arrangements to make the petrol and other products available to match demand. But when the strategic framework supporting supply chain management activities and operations is poor, then this may not be able to happen (Edward 93; Frey 64).
When an organization has poor strategies then it becomes impossible to plan accurately and supply accurate information where it is needed and this ultimately leads to inefficiencies (Ian & Chris 146). Logistical nightmare may therefore arise and petrol together with other products may fail to reach where they are needed and this will ultimately lead to loses and it portrays a bad image of the company.
Technology and its role in supply chain management strategy
Oil and petroleum companies have introduced systems whereby they place orders and receive responses through the special Electronic Data Interchange (EDI). It then becomes the responsibility of executives who are in charge of procurement and sales to come together and scrutinize the data and then quantify various orders and group them according to specific timeframes (Hiles 103). Large participants within this industry operate many oil rigs within various parts of the world and their customers are classified according to the various regions where they come from and the orders are dispatched from oil rigs which are nearest to the locations of origin (Hartmut 14).
The absence of EDI makes the entire business operation cycle time and lead time becomes longer (Hartmut 78). Technology is known to reduce workload and at the same time increase efficiency. Previously, before these systems came into existence, companies were forced to mail their orders in advance using postal services or email. These methods were not synchronized with the goals of supply chain management activities.
But with the introduction of EDI, specific supply chain management relationships concerned with ordering and dispatch can be handled in real-time to achieve a high degree of accuracy and efficiency (Worthington, Britton & Chris 42). Additionally, the bull whip-effect is a situation whereby order and demand forecasts become more and more inaccurate as information moves through the supply chain and therefore the introduction of an information system that incorporates an electronic data interchange can make it possible for order to be dealt with a high degree of accuracy that would otherwise have been somewhat individually achieved between Shell and its supply chain partners (Hartmut 83; Edward 93).
The problem and Crisis that arose out of wrong strategic decisions
In the first quarter of 2011, it proved to be a very challenging quarter for both the Emirates National Oil Company and the Emirates Petroleum Products Company and the numerous petrol stations located in Dubai, Sharjah, Ajman and other emirates since they started facing inconsistent supply of petrol. The effects of the inconsistent supply of oil as a result went from degree temporary shortages to full shortages in petroleum pumps and by mid march midnight petrol tankers which were responsible for carrying petrol from Jebel Ali failed to supply numerous petrol stations with petrol and as a result demand from the public increased and this brought negative publicity to the organization (Worthington, Britton & Chris 87).
Moreover Emirates National Oil Company and the Emirates Petroleum Products Company were forced to turn away customers who showed up at their petrol stations because the organization had run out of the most used fuel commodity in that region. By the end of March the company was still unsure as to whether they could steadily guarantee the timely and reliable supply of fuel using their trucks from Jebel Ali Port. This therefore forced the organization(s) to give some of their employees at these petrol stations some time off from their regular working positions.
The workers who were left behind were left to attend to regular customers and inform them that there was no petrol. In its reserves, the station had only high quality diesel and petrol. The bad news was that although super quality pet
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