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21 April 2012
SHELL AUSTRALIA LIMITED
SUPPLY CHAIN AND LOGISTICS
Geetinder Singh-
Shell Australia Limited-Supply Chain and Logistics
Faculty of Law & Management Graduate School of Management
MARKETING LOGISTICS AND SUPPLY CHAIN
MANAGEMENT
SEMESTER: 1 YEAR: 2012
CAMPUS: Melbourne
LECTURER: Navin Veerapa
Title: Shell Australia Limited: Supply Chain and Logistics
Assignment: Individual
Due date: 21 April 2012
Student name: Geetinder Singh (17297688)Geetinder Singh-17297688 Page 1
Shell Australia Limited-Supply Chain and Logistics
Table of Contents
Introduction 2
1. Background 4
Supply chain and Supply chain management 4
2. Company Background 4
Shell Worldwide 4
Shell Australia 5
3. Supply Chain Shell Australia 6
3.1 Manufacturing 6
3.2 Distribution Centers 7
3.3 Warehousing and Storage 7
3.4 Shipment and Transportation 8
3.5 Customers 8
3.6 Inventory management and Order fulfillment 9
3.7 Materials handling 9
4. Comparison with the Competitors 10
5. Performance measurement 10
5.1 Balanced Score card approach 12
5.1.1 Measurement and evaluation of financial metrics 12
5.1.2 Measurement and evaluation of customer perspective 12
5.1.3 Measurement and evaluation of internal business perspective 12
5.1.4 Measurement and evaluation of innovation and learning perspective 12
5.2 Benchmarking 13
5.2.1 Comparing refineries 13
5.2.2 Determining improvement opportunities 14
Conclusion and Recommendations 15
References 16
Geetinder Singh-17297688 Page 2
Shell Australia Limited-Supply Chain and Logistics
Introduction
Shell is a global group of energy and petrochemical companies. It has approximately 101,000
employees in almost 140 countries and territories. The parent company of Shell group is Royal
Dutch Shell plc. which is incorporated in England and Wales. Shell is a superior brand with
approximately more than 100 years history in the business. The company’s main strategy is to
generate profitable growth, deliver sustainable growth and provide competitive returns to its
shareholders. The company has upstream and downstream operations. The upstream operations
explore and extract natural gas and crude oil. The downstream operations refine, trades, supplies
and ship the oil worldwide and produce petroleum products for industrial customers. Overall,
Shell is serving people at high level of standard by fulfilling the requirements of the customers
(Shell Global Homepage 2012).
Shell Brand is the most popular commercial symbols in the world. If we look at the revenue,
Royal Dutch Shell is the largest private sector oil company in the world. Even though the
company mainly runs its business in United States, it also produces crude oil and natural gas for
the other countries. Shell has five main businesses such as refining and marketing, gas and
power, production and exploration, trading and shipping and chemicals. Basically Shell provides
oil change service, gas, petrol and convenience stores (Khan et al. 2011).
This report mainly talks about the supply chain performance of the Shell Australia Limited. The
first part of the report explains the supply chain process of shell in Australia. It mainly focuses
on the Shell’s refineries, distribution centers, warehouses and storage areas. The transportation,
material handling, inventory management and order fulfillment are also included in the process.
In the second part, the comparative analysis of Shell with its two main competitors such as BP
and Caltex is explained.
The later part of the report talks about the performance evaluation and measurement of supply
chain of Shell Australia. There are two main approaches that can be used for the measurement of
supply chain such as Balanced Score card and benchmarking. It also explains the methods of
improvement of supply chain process.
Geetinder Singh-17297688 Page 3
Shell Australia Limited-Supply Chain and Logistics
1. Background:
Supply chain and Supply chain management: Supply chain is defined as a
chain that refers to the flow of materials, payments, information, services from raw
materials suppliers to the customers through warehouses and factories. Basically supply
chain is a network of various activities that provides a service and delivers finished
product to the end customer. It includes various tasks such as materials handling,
purchasing, logistics, production planning and control, payment flow, warehousing,
inventory control, delivery and distribution. All the supply chain activities are planned,
organised and coordinated by Supply chain management.
From the entire supply chain point of view, Supply chain management addresses the
fundamental business problems of supplying product to meet demand in a complex and
uncertain world.
2. Company Background:
Shell Worldwide: Shell is a company of energy and petrochemicals. It has
approximately 90,000 employees. It is headquartered in The Hague, the
Netherlands. The company is established in almost 80 countries and territories. The
parent company of Shell group is Royal Dutch Shell plc which is incorporated in
England and Wales. The company’s main strategy is to generate profitable growth,
deliver sustainable growth and provide competitive returns to its shareholders. The
company has upstream and downstream operations. The upstream operations
explore and extract natural gas and crude oil. The downstream operations refine,
trades, supplies and ship the oil worldwide and produce petroleum products for
industrial customers. Some facts and figures of Shell Worldwide in 2011:
Countries of operation 80+
Number of employees 90,000
Natural gas production 48%
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Shell Australia Limited-Supply Chain and Logistics
Sale of LNG(Liquid Natural Gas) 18.8 million Tonnes
Gas and Oil production 3.2 million barrels
Shell service station worldwide 43,000
Refineries and chemical plants 30+
Source: Shell Australia 2012.
Shell Australia: Shell in Australia is being in action since 1901. It has divided its
business into two main operations upstream and downstream. The main function of
upstream business is to develop and supply liquefied natural gas and condensate liquefied
petroleum gas to international markets and natural gas to local customers in Western
Australia. The downstream business basically manufactures petroleum products and
supply to Australian customers. It fulfills almost 25% of the Australia’s petroleum
requirements. The company’s head office is in Melbourne. Some facts and figures of
Shell Australia:
Shell branded service stations in Australia 850+
Refineries in Australia 2
Lubricants blending plants 1
Terminals throughout Australia 16
Years of service in Australia 100+
Source: Shell Australia 2012.
3. Supply Chain Shell Australia:
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Shell Australia Limited-Supply Chain and Logistics
Shell Australia’s downstream operations consist of manufacturing, supply, logistics, fuels,
marine and chemicals. We will focus mainly on the supply and distribution process of petrol in
Australia. The whole supply chain process of Shell is explained as below:
3.1 Manufacturing: Refineries in Australia manufacture almost quarter of the Australian
petroleum products such as petrol, LPG, diesel, aviation fuel, propylene, solvents and
bitumen. At two refineries Geelong, Clyde and New South Wales petrol is refined and
distributed locally and internationally. From the Refineries the petrol is distributed to its
distributions centers such as Newport, North Fermantle, Parramatta and Pinkenba
terminals.
Geelong refinery is one of the largest refineries in Australia. It supplies 30% of South
Australia and 50% of Victoria’s fuel. Petrol is one of the main products at this refinery. It
is distributed to the Shell Newport terminal by pipeline. It is carried by ship to Australia’s
coastal cities and Newzealand and by road to its local customers such as Coles express
and shell service stations. The petrol is produced very clean at both of the refineries to
Geetinder Singh-17297688 Page 6
Shell Australia Limited-Supply Chain and Logistics
comply with Federal Government requirements to minimise sulphur levels in premium
unleaded petrol (Shell Australia Manufacturing, 2012)
3.2 Distribution Centers: After refining, the petrol is distributed to the Shell distribution
centers. It has four distribution centers in Australia such as Newport, North Fermantle,
Parramatta and Pinkenba terminals. Newport terminal is a major distribution point in
Victoria. This terminal distributes million liters of petrol throughout Victoria and New
South Wales Riverina district. North Fermantle is located near Perth and Western
Australia. This terminal receives stores and distributes petrol to Perth and Western
Australia. The petrol distribution facilities at this terminal are operated by Shell logistics
under joint terminal arrangement between Shell and Caltex.
Parramatta terminal is located close to Clyde refinery. It is a largest distribution center for
Shell’s operations in New South Wales. Shell Pinkenba terminal is major fuel distribution
center in Queensland. This terminal distributes product domestically and also export
throughout Newzealand, Africa, Asia and Pacific islands.
(Shell Australia Supply and Distribution, 2012)
3.3 Warehousing and Storage: Shell supply logistics is determined from its storage
infrastructure. Basically the market determines the location and scale of its infrastructure.
Shell does not have any kind of barriers for additional storage facilities. Mostly its
storage areas are available on the distribution centers of the region. Newport terminal has
warehousing facilities for the packaged fuel. There are 40 storage tanks available with
storage capacity of 100 million liter of refined petrol in Pinkenba terminal. Basically
these distribution centers stores the packaged fuel in these storage facilities before
distribution (Shell Australia’s Submission on Petrol Prices, 2007).
Geetinder Singh-17297688 Page 7
Shell Australia Limited-Supply Chain and Logistics
3.4 Shipment and Transportation: from refineries to distribution centers and from
distribution centers to service stations: The petrol is carried by pipelines to the terminals
from Geelong and other refineries for distribution throughout Victoria State. For
shipment to Australian coastal cities and New Zealand it is usually carried by ship. The
rest of the petrol is carried by road to the local customers such as Coles express sites and
Shell service stations.
Shell uses road transport to distribute petrol to its customers. From North Fremantle
terminal, Cootes transport is the one that delivers petrol to the customers. Cootes
transport is a shell hired carrier. On Paramatta terminal, shell hired carriers and Shell
logistics own fleets are used to distribute the product (Shell Australia’s Submission on
Petrol Prices, 2007).
3.5 Customers: Today Shell branded sites fall into two categories such as dealer owned
sites and Coles express site. Shell supplies petrol to around 600 Coles express and Shell
branded sites. Coles express operates the service stations as well as convenience stores
and car washes. Coles express independently sets the retail price for petrol at their sites.
Shell sells to Coles express on a pricing mechanism which contains TGP (Terminal Gate
Price) and the other charges such as delivery and branding (Shell Australia’s Submission
on Petrol Prices, 2007).
3.6 Inventory management and Order fulfillment: Inventory management deals
with the direct to store delivery. The supply team of Shell is responsible for the planning
of supply of petrol throughout Australia in a timely manner. The shell has set up the
schedules for refinery production in order to meet market requirements. Shell has
developed some systems to maintain its inventory and order fulfillment. Those are as
follows:
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Shell Australia Limited-Supply Chain and Logistics
i. Shell eServe: It is a web base tool for online transactions which is very easy to use and
safe. It is available 24/7 for the customers to place orders.
ii. Shell eRouter: It is an Electronic Data Interchange (EDI) for accurate and efficient
transactions. It is helpful in saving time to process orders and minimise procurement
costs.
iii. Interactive Voice Response (IVR): It is a self service system to order fuels, deliver
checks and inquire for accounts. It is a 24/7 available telephone service.
iv. Vendor managed inventory: Shell has developed a vendor managed inventory system for
stocks of fuel. It lowers the procurement cost and maintains the ordering process. The
inventory levels of storage tanks are monitored easily using this system. It also monitors
the required stock quantity.
(The Shell Global, 2012)
3.7 Materials handling : Supply and distribution team of Shell manages all aspects of
storage and transportation of petrol by road, rail, sea and pipeline. The priority of the
company is to make sure that petrol reach the end customers safely. Shell distribution
centers such as Newport terminal follows the objectives of no harm to people under its
health, security, safety and environment policy (HSSE). The HSSE policy is basically
developed to comply with law and gain continuous performance improvement (Shell
Australia Supply and Distribution, n.d.)
4. Comparison with the Competitors:
There two main competitors of Shell Australia and these are BP and Caltex. BP has its own
supply chain system. It undertakes the activities across its supply chain and also its brand owner
Geetinder Singh-17297688 Page 9
Shell Australia Limited-Supply Chain and Logistics
and retailer of non BP branded products and packaging. It operates more than 200 service
stations throughout Australia. In Australia, BP priced its petrol based on three major transparent
and contestable markets. It priced its petrol based on Singapore product price, Terminal gate
price and retail price. However Shell Australia uses the terminal gate price and Singapore
benchmarking price.
The other major competitor of Shell Australia is Caltex. Caltex has its own strong supply chain
which is derived from effective integration of refining and supply and distribution. It has two
refineries in Australia which produces fuel and fuel products. It has built a supply chain from
crude to the customers or from scratch to the finished product throughout Australia. Caltex
supply chain provides efficient supply to major oil companies in Queensland and New South
Wales. Throughout Australia, Caltex operates twelve storage terminals. However Shell has four
storage terminals. It distributes its products from the distributions centers to the customers via its
own truck fleet. It also uses the fleets of third party contractors. So with the two refineries, two
large capacity coastal product tankers, Caltex has developed a capable and high quality supply
chain in Australia (Caltex Australia, 2010)
5. Performance measurement:
Performance evaluation of company’s supply chain can be done by using two models such as
Benchmarking, and Balanced Score Card. Before we do the performance measurement,
company’s goals and objectives should be defined. The goals and objectives of Shell are
explained in the table below:
Performance metrics
for internal business
perspective
Performance metrics
for innovation and
learning perspective
Performance metrics
for financial
perspective
Performance metrics
for customer
perspective
Geetinder Singh-17297688 Page 10
Shell Australia Limited-Supply Chain and Logistics
Total supply chain
cycle time
Supplier cost saving
initiative
Net profit Vs
productivity ratio
Level of customer
perceived value of
product
Total cash flow time Supplier booking in
procedures
Delivery performance Order lead time
Supplier lead time
against industry
norms
Product development
cycle time
Delivery reliability Delivery performance
Product development
cycle time
Buyer supplier
partnership level
Information carrying
cost
Delivery reliability
Purchase order cycle
time
Capacity utilization Buyer supplier
relationship level
Information carrying
cost
Supplier rejection rate Accuracy of
forecasting techniques
Rate of return on
investment
Response to urgent
deliveries
Frequency of delivery Order entry methods Cost per operation
hour
Buyer supplier
partnership level
Source: Sharma and Bhagwat, 2007
5.1 Balanced Score card approach: Balanced score card has four perspectives such as
financial, processes, innovation and customers. These four perspectives of balanced score
card are applied to the four performance metrics discussed above in the table. Each of the
four perspectives should be translated to the same metrics and measures that reflect
strategic objectives and goals.
5.1.1 Measurement and evaluation of financial metrics: Financial performance
measure indicates the effective contribution of company’s strategy, execution and
implementation for the firm improvement. Financial goals are identified as
profitability achievement and liquid maintenance. Basically company’s survival is
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Shell Australia Limited-Supply Chain and Logistics
measured by cash flow and company’s success is measured by sales growth, equity
return and capital employed.
5.1.2 Measurement and evaluation of customer perspective: How do customers look
at the business: The balanced score card wants that the management of the firm
should translate their customer service mission statement into the measure that
specifically reflect the factor that has a great meaning for the customers. In general,
the customers are always concerned about quality of products and services and
company’s performance.
5.1.3 Measurement and evaluation of internal business perspective: The internal
measures for the balanced score card comes from the business process. Customer’s
satisfaction factors are impacted by business process that affects cycle time,
employee’s skills, quality and productivity. Companies should make their own
decision about the processes and competencies.
5.1.4 Measurement and evaluation of innovation and learning perspective: The
question is can we create and improve the value: Company’s value is directly related
to the company’s ability for improvement, innovation and learning. Innovation and
learning brings efficiency in the operations of the business. It also maintains the
financial ability through higher profitability earnings (Bhagwat and Sharma, 2007).
Shell services has used the balanced score card method to develop multiple level of
service to fulfill the needs of customers and business units it is serving. It has
changed the mind of customers and business units so that they focus on the service
related concerns instead of cost relating factors.
(Kaplan & Norton, 2001)
5.2 Benchmarking: Benchmarking is a process for evaluation of product, services and
organisation’s workload which is recognised as best practices for the improvement of
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Shell Australia Limited-Supply Chain and Logistics
organisation. In other words it is a method that helps companies to identify opportunities
for performance improvement. By learning and comparing from other’s experiences,
companies can easily adopt best practices to identify their short term and long term
opportunities for improvement. Some of the Shell benchmarking concepts are discussed
below:
5.2.1 Comparing refineries: Shell has approximately 800 refineries in the world and
four refineries in Australia. There is no way that all the refineries are same in capacity
and complexity. The first part of the Shell benchmarking process is the calculation of
refinery complexity in NSP (normalized shift position). The calculated NSP counts for
shell refineries are approximately from 10 to more than 120. The second part is
mechanical unit count which converts the physical number of pieces of any equipment
into count. This count is weighted for the cost of maintenance task and complexity for
that piece of equipment. The last part of the benchmarking is to normalize refinery
performance that is the total intake, feedstocks and crude for processing. It is very
important for any business to maintain the positive margin between income from
products sold minus cost of raw materials and minus the cost of production.
Shell worldwide benchmarking has always concentrated on cost per bbl, the
competitiveness metrics. The operating cost is divided in to subcategories such as
energy costs, maintenance costs, personnel costs and other fixed costs.
5.2.2 Determining improvement opportunities: Once company’s operational
efficiency gaps are determined, it is important to identify the solutions to close these
gaps. The poor performance of shell refineries could be either amount of labour
employed in the maintenance activities or the cost of these resources. These two areas
such as mechanical availability and maintenance cost in each refinery should be
improved (Shell Global Solutions, 2012)
Now-a-days, Shell global benchmarking group has provided a comparison of
operational performance for almost 80 refineries. Using these benchmarks, the company
Geetinder Singh-17297688 Page 13
Shell Australia Limited-Supply Chain and Logistics
has assigned the shell to conduct an asset management improvement study. It has
involved the connection between Shell employees and Statoil to increase plant
availability, reliability and minimise the maintenance costs. Under the benchmarking
program, all the facility operations are analyzed such as health and safety, asset
management, operating costs, asset utilization and availability, energy and
environmental impact, production and personnel. Sustainable improvements in the
company’s performance can be achieved in different areas throughout the organisation.
There is an example that the cost of operations, energy consumption can be minimised
once they are identified with the benchmarking process as those areas requires
improvement.
The benchmarking can also identify the opportunities for the improvement in the health,
safety and environmental performance area. The other areas such as asset utilization and
plant reliability are also included. After the improvement, the business focus will be
enhanced and the organisation will be more effective. So it is very important that
information collected by the benchmarking program can be used by the customers. Shell
is working hard to make sure it actually happens (Shell Global Solutions, 2012)
Conclusion and Recommendations:
Improvements in any company’s supply chain such as internal processes, production
effectiveness, service level and customer satisfaction can be achieved with supply chain
remodeling. However, the supply chain remodeling process is cost effective and needs great
amount of money investment.
It is very important for a company to measure its performance by using Balanced score card and
benchmarking tools. By evaluating performance metrics of Shell it has been identified that
company has already established metrics related to logistics, customers and supplier activities.
To obtain a complete report of performance metrics, the company should use Balanced Score
Card. Shell should always keep in mind that it is very important to maintain a Balanced score
card. The balanced score card is necessary to retain its existing customers also for the future
Geetinder Singh-17297688 Page 14
Shell Australia Limited-Supply Chain and Logistics
plans of its employees. The company has to know that strategy making is not very difficult but
implementation of strategy in present and stable environment is the toughest thing to do. It is
also very hard to communicate with the people who are already satisfied with the existing
environment. So the only way to bring change and strategies within this company is through
balanced score card.
References:
Bhagwat, R; & Sharma, M. 2007, Performance measurement of supply chain management: A
balanced score card approach, Science Direct, Vol. 53, PP43-62.
Caltex Australia 2010, ‘Supply Chain: Caltex Annual review and Annual Report’, Caltex
Australia, viewed 9 April 2012,
<http://microsites.caltex.com.au/annualreports/2010/fullyear/supply_chain.html>
Kaplan, R. S. & Norton, D. P. 2001, ‘The strategy focused organization’, vol. 23, no. 1,
Sound View: Executive Book Summaries.
Geetinder Singh-17297688 Page 15
Shell Australia Limited-Supply Chain and Logistics
Khan, Z, Azhar, K, Javeid, S & Tariq, R 2011, ‘Shell Petrol Pump: Islamabad’, Slide Share,
viewed 16 April 2012, <http://www.slideshare.net/sabajaveid/shell-6508176>
Shell Australia Manufacturing n.d., ‘Manufacturing’, Shell, Viewed 12 April 2012,
<http://www.shell.com.au/home/content/aus/aboutshell/who_we_are/shell_au/operations/
downstream/manufacturing/>
Shell Australia n.d., ‘Shell at a glance’, Shell, Viewed 12 April 2012,
<http://www.shell.com.au/home/content/aus/aboutshell/at_a_glance/
Shell Australia Supply and Distribution n.d., ‘Supply and Distribution’, Shell, Viewed 12
April 2012, <www.shell.com.au/home/content/aus/aboutshell/who_we_are/shell_au/
operations/downstream/supply_distribution>
Shell Australia’s Submission on Petrol Prices 2007, ‘Shell submission to ACCC Petrol Price
Inquiry’, Shell, viewed 9 April 2012,
<http://www-static.shell.com/static/aus/downloads/fuels/petrol_pricing/
shell_subm_to_accc_petrol_price_inquiry_july07.pdf>
Shell Global Homepage 2012, ‘At a glance’, Shell, viewed 15 April 2012,
<http://www.shell.com/home/content/aboutshell/at_a_glance/>
The Shell global 2012, ‘eBusiness’, Shell, viewed 10 April 2012,
<http://www.shell.com/home/content/commercial_fuels/our_services/touchless/>
The Shell global homepage 2012, ‘Benchmarking and best practices: Experience creates
more value’, Shell, viewed 10 April 2012,
<http://www.shell.com/home/content/globalsolutions/media_centre/special_supplements/
technology_and_innovation/benchmarking_best_practices/>
Geetinder Singh-17297688 Page 16