Speciality Oils Supply Chain Optimization: From a Decoupled to an Integrated Planning Approach

Abstract

We study a problem of tactical planning in a divergent supply chain. It involves decisions regarding production, inventory, internal transportation, sales and distribution to customers. The problem is motivated by the context of a company in the speciality oils industry. The overall objective at tactical level is to maximize contribution and, in order to achieve this, the planning has been divided into two separate problems. The first problem concerns sales where the final sales and distribution planning is decentralized to individual sellers. The second problem concerns production, transportation and inventory planning through refineries, hubs and depots and is managed centrally with the aim of minimizing costs. Due to this decoupling, the solution of the two problems needs to be coordinated in order to achieve the overall objective. In the company, this is pursued through an internal price system aiming at giving the sellers the incentives needed to align their decisions with the overall objective. We propose and discuss linear programming models for the decoupled and integrated planning problems. We present numerical examples to illustrate potential effects of integration and coordination and discuss the advantages and disadvantages of the integrated over the decoupled approach. While the total contribution is higher in the integrated approach, it has also been found that the sellers' contribution can be considerably lower. Therefore, we also suggest contribution sharing rules to Email addresses: mario.guajardo@nhh.no (Mario Guajardo), martin.kylinger@liu.se (Martin Kylinger), mikael.ronnqvist@nhh.no (Mikael Rönnqvist) Preprint submitted to NHH Discussion Series March 20, 2012 achieve that both the company and sellers get a better outcome under the integrated planning.

An integrated gas-oil and bio-diesel supply network model with strategic and tactical applications considering the environmental aspects

“…In another paper, they [13] developed their work with a dynamic MILP model for collaborative design and tactical planning. Guajardo et al [14] presented a model for a company's downstream oil supply chain and determined the optimal plan for it. Fiorencio et al [15] presented a MILP-based Decision Support System (DSS) that enables strategic planning of the oil supply chain.…”

“…MILP maximizes profit of petroleum companies and is tested with a real PSC network in Portugal. Guajardo et al [14] addressed tactical issues related to decision making in production, distribution to customers, and inventory. The decision levels of other papers are also listed in Table 1.…”

Oil refining and delivery in the Western European region

“…Yang and Chen (2016) reviewed the port logistics centres and developed criteria to assess competitiveness. Guajardo et al (2013) proposed the model for comprehensive planning of refined product production, transportation and sales to minimise the refineries’ aggregate costs. The article by Al-Othman et al (2008) presents a stochastic model of planning the oil companies’ delivery chains.…”

Third Party Logistics Outsourcing: An Exploratory Study of the Oil and Gas Industry in Nigeria

“…Logistics services constitute a critical aspect of the operations and supply processes in the oil & gas business (O&G). O&G operations involve crossborder transactions; exploration and drilling equipment are frequently moved around locations; O&G personnel travel round local and international asset locations and research and development centers; and oil products are also transported internationally, involving long-term global supply agreements (Guajardo, Kylinger, & Ronnqvist, 2013;Shyshou, Gribkovskaia, Laporte, & Fagerholt, 2012).…”