Supply Chain Characteristics of the Petroleum Industry: The Indian Context

By Varma, Siddharth; Wadhwa, Subhash et al. | South Asian Journal of Management, April-June 2007 | Go to article overview

Supply Chain Characteristics of the Petroleum Industry: The Indian Context


Varma, Siddharth, Wadhwa, Subhash, Deshmukh, S. G., South Asian Journal of Management


The process industry forms an important component of the Indian economy. The petroleum industry in particular plays an important role in the economic development of the country. After liberalization of this industry, performance of its supply chain has become all the more important. This paper looks at the importance of supply chain management in the process industry and further tries to distinguish the petroleum industry from normal discrete manufacturing industry. The unique features of petroleum industry call for a special treatment of the supply chain. This paper further tries to identify the non-value added activities in the petroleum industry, which makes it inefficient, and suggests some mechanisms, which could help in improving the supply chain performance.

INTRODUCTION

The process industry in India is a vital component of the rapidly growing Indian economy. It consists of industries like basic chemicals, petrochemicals, petroleum, fertilizers, pesticides, etc. Among the process industries, the petroleum industry holds critical importance with both industry and transportation depending upon it. In order to understand the level 0^ demand for petroleum products in India, in a global perspective a comparison of per capita consumption of petroleum products in the various parts of the world has been presented jn Table 1. With the per capita consumption level in India being only about 60% of that in China, a strong growth potential exists in India, given particularly a large population base of Over a billion.

The petroleum industry traditionally had prices decided by the Government of India. Effective from August 1, 2004, the Government put in a revised methodology allowing oil companies limited freedom to revise the prices of motor spirit and High Speed Diesel (HSD). The NELP (New Exploration and Licensing Policy) has been put into place and more and more international operators are considering investing in India.

The total investment estimated in the petroleum sector from 1995 till 2010, is expected to be Rs. 4,32,000 cr (US$120 bn), out of which Rs. 2,58,000 cr (US$80 bn), are for the upstream sector alone. The Petroleum, Oil and Lubricants (POL), product consumption is slated to touch 155 Million Metric Tonnes (MMT) by 2006-2007 and 200 MMT by the year 2010 (HPCLs perspective plan: Vision 2020).

Petrochemical industry in India employs around 40,000 people directly and around 4 lakh indirectly. This sector caters to a whole host of industries like oil, gas, plastics, agro chemicals, pharmaceuticals, clothing, housing, transportation, communication, healthcare, etc.

OBJECTIVES OF THE PAPER

Very limited literature is available on petroleum industry supply chains. This paper attempts to enhance the understanding of the petroleum industry supply chain. The paper has the following objectives:

* Understanding the importance of supply chain management in the petroleum industry.

* Identifying distinguishing features of the petroleum industry supply chain vis-à-vis discrete manufacturing supply chains.

* Discussing the petroleum supply chain in India.

* Identifying non-value added activities in the petroleum supply chain.

* Discussing the role of information technology in revamping the petroleum industry supply chain.

CONCEPT OF SUPPLY CHAIN MANAGEMENT

The Supply Chain Council defines a supply chain as a "collection of activities a company uses to plan, source, make and deliver a product or service". Supply chain management aims at managing the activities in the supply chain to improve profitability for the organization. Supply chain management as a new business paradigm was motivated by the interest in integrating procurement, manufacturing and distribution activities-integration made possible by advances in IT (Shapiro, 2004). SCM is more than a simple tool to evaluate and optimize a supply chain; it is a complex, structured business relationship model.

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