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  • Subject Name : Logistics and supply chain management

Logistics and Supply Chain Activities

Executive Summary of Shell

The report discussed the case of Shell which is an American company that Operates in the oil and gas industry with the company headquarters located in Texas, America. The report presented a number of sections that include the background of the company, the supply chain structure, sourcing of material, distribution system and the demand management system. Along with this, the report has provided improvement steps that would assist Shell in adding to its operations and performance. The report covered the existing system and operations that Shell undertakes to cater to the demand in the market and further maintains its position and share in the global marketplace.

Table of Contents

Background of the company

Supply chain structure

Sourcing of material

Distribution system

Demand and inventory management

Conclusion

References

Background of Shell

Shell is an American company that is considered to be a wholly-owned subsidiary company of the Royal Dutch Shell. The company operates in the oil and gas industry with the company headquarters located in Texas, America. The company was founded back in the year 1912 and has a number of subsidiaries. The lists of subsidiaries include Aera Energy, Jiffy Lube, Limejump, Motiva Enterprises and many more. The business operations of the company are divided into a number of areas that include upstream, integrated gas, downstream and new energies (Zhang et al., 2019). The project technology and innovation is a key factor of projects undertaken by Shell and further strives for more research. The upstream company is responsible for the management of extraction and the exploration of crude oil, natural gas liquids and natural gas. The company further undertakes the tasks of marketing as well as transporting gas and oil while ensuring that the infrastructure that is responsible for delivering it to the market is optimum.

Along with this, the integrated gas company as an integral part of the overall business unit is responsible for the management of all the activities that are related to the liquefied natural gas commonly termed as LPG. Along with this, it also regulates the production of the gas to liquids fuels and other similar products. On the other hand, the downstream company is into the management of the chemical activities and the oil products where it is an integral part of the value chain for the trading and further the refining of crude oil. This includes products such as diesel, gasoline, marine fuel, aviation fuel, sulphur and bitumen (Bridge& Bradshaw, 2017). Lastly, the projects and technology company is not the management of research drives and also the major projects that help in the development of technology solutions. The company also provides for the capacity of the above-highlighted units.

The list of customers that Shell caters includes companies that operate in the polymer manufacturing, aviation sector, companies requiring commercial; fuels for the purpose of power generation, manufacturing, home energy, transportation and mining as well. The company currently employees an estimated 90,000 employees where the management style that is followed by the company is that of Autocratic leadership.

Supply Chain Structure

The supply chain network for any company ensures that the goods and services reach the right customers at the right point of time. In this respect, the supply chain forms an integral part of the overall operations of the business. Furthermore, the supply china and its structure differ from one industry to another where it is dependent upon a number of internal and external factors.

Supply chain management in Shell is very crucial as it is considered to be one of the sources of competitive advantage for the company. The supply chain management and its activities as undertaken in Shell ensure the delivery of one of the key inputs named Hydrocarbon particularly covering the oil and gas products. The company relied on the mantra “More upstream, profitable downstream”. This way the company undertook the standardisation of technology as well as the practices in the area of supply chain management.

Till the year 2005, Shell relied on the third party operations for all its logistics needs (Charter, 2017). This way it led to a lack of command over the process of procurement. To overcome this, Shell collaborated with one of the companies named Accenture where it helped it in building a fourth party logistics operation. The company terms it as the Logistics Management Services. Logistics Management Services undertakes the management of all the covering operations along with the upstream operations and the projects and wells. Logistics Management Services also ensures full control over all outsource providers of Shell.

Furthermore, another section within the business named as the Shell trading is also responsible for the distribution activities, this section controls the distribution of all the products to the external customers. The distribution facilities of Shell are estimated to be 300 in number with the number of tanks exceeding 3000 in more than 70 countries in the world. Along with this, it owns more than 7000 trucks which further assist in the delivery of products. The company relies on a number of modes of transportation for the delivery of all its products to the customers (Kasiraman et al., 2016). The mode of transportation as utilised by the company include pipeline transport, ship transport, railway transport and trucks.

One of the products that are sold by Shell is transported through the use of pipelines where it is drawn from wellheads and goes to the refineries, tanks and plants. Along with this, ship transportation is also considered as a mode through which the company distributes its products. It is considered to be inexpensive and the large capacities ensure that a large volume of products can be transported at a single point of time.

In addition to this, Shell makes use of trucks from the transportation of the oil from the refineries to the fuel stations. Trucks are used in those locations where it is not possible to ensure transportation through pipelines, rails or ships. Each of the mode of transportation that is used by the company for the delivery of the products ensures that there us effective supply chain management.

Sourcing of Material

Sourcing the materials for the final delivery of the required products and services is very important for any company. It ensures that the company has the right quality and the right quantity of material at the right point of time. Therefore, each and every company has realised the importance of managing its supplies from the supplier that in turn aims to control the supplier relationship.

Shell has a special department in place that is responsible for buying its products. This department is named Shell Contracting and Procurement where it ensures that all the benefits that the projects offer reach the suppliers in some way or the other. To ensure local development of areas, the sourcing of material is done at the local level. The locally produced materials are used wherever it is possible. In this respect, the company ensures that the local suppliers and the global suppliers are introduced with each other. This facilitates the provision of business opportunities and the sharing of experience in this area of operations (Skjærseth & Skodvin, 2018). These usually take place in the supplier forums organised by Shell that the company has already organised in some of the countries such as India, China, Mexico and Nigeria. Shell aims at strategic collaboration with its suppliers where it has joined BP, Total and Equinor to help in the creation of supplier assessment in the energy sector. The supplier management further relies on the key principle that includes the integrity of the business, health, security, environment, social performance and the safety of the suppliers. Along with this, Shell also works hard to ensure the protection of human and labour rights through all its supplier contracts. In this respect, it is noticed that none of the suppliers makes use of child labour or forced labour. The Shell Contracting and Procurement is therefore responsible for the management of suppliers and the sourcing of material for various activities that are a part of project and technology, downstream and upstream.

Shell further ensures investment across all the suppliers where in Malaysia it has invested an estimated $3 billion across an estimated 150 local suppliers. This investment has helped the local suppliers in the funding their operations and thus supply material to Shell as and when required (Eze, 2018).

Improvement

It is very important that a company has a good relationship with its supplier that would assist in the effective sourcing of all the required materials. The following are some of the points which can be implemented by Shell in order to ensure the improvement of the sourcing of material and the production of the products and services:

  1. Building customer fit procurement processes- Shell is recommended to build a custom fit procurement process where the process would help in effectively engaging the suppliers and at the same time, it would provide clarity of the processes to the supplier while the company tries to source the material. Furthermore, it is also recommended that Shell ensure follow up throughout the operations and at the time of execution of the projects with the local suppliers to monitor the sourcing of materials.
  2. Onsite assessment of the risk- the company is also recommended to undertake an onsite assessment of the risks while managing the suppliers and further sourcing material. This should cover the assessment of delivery, cost, cycle time and the quality of the material as supplied by the supplier. A cross-functional team should be devised where it should take forward the responsibility of assessing the risk and also considering the weaknesses, strengths and the risk involved with a specific supplier.
  3. Improved performance of suppliers- It is very important that the company operating in the oil and gas industry recognises the need for the improvement in the performance of the suppliers. In this respect, the supplier management should undertake activities such as the supply base rationalization and supplier evaluation. All of these should add to the improved performance of the suppliers and in turn ensure that these are driven by the demand of the products required by the end customer. This should further cover the key areas such as delivery, technology, quality and the cost with a broader focus of competitive priorities, supply base deficiency and the high level of competition at the global level.

Distribution System

As highlighted the operations of the company exist in a number of countries across the world where Shell has made a huge sum of investment in infrastructures and other vital inputs to support the operations. The network of operations exists in more than 90 countries of the world where the average production by the company in one day is considered to be an estimated 3.1 million barrels of oil (Zhang et al., 2019). This way the company caters to a large list of its customers throughout the world with the use of a well-defined system of distribution of the products from the source to the end customers. To distribute one of the key products- petrol, the company has its own outlets where these outlets provide convenience to the customers in the best way possible.

One of the key customers of Shell is convenience retail markets. The company makes use of its pre-defined system of distribution to ensure that the right kind of product reaches this customer in the right quality and quantity and at the right point of time. This way the operations of the business are organised to support the distribution activities that form an integral part of the overall business operations. The distribution system involves the use of pipelines, rail, ships and trucks to ensure that the product reaches the customers. The crude oil is transported from the refineries to the fuel stations through the pipelines. The company throughout the contract manages these pipelines with the customer. To ensure the aspect of safety, regular maintenance is done and safety norms are followed. Furthermore, oil is transported in barrels through ships that help in saving huge money due to the inexpensive cost of ship transportation (Verma & Abdelrehim, 2017). Along with this, to reach to the customers in locations where all of the above modes cannot be used, trucks are employed. These trucks are able to transport a very small quantity of products but are effective in some of the key scenarios and locations.

Improvements

It is very important that a company ensures the transportation of the right quality and quality of the product at the right customer at the right point of time. In this respect, distribution plays a crucial role where it ensures that the channel used by the company so that the end product reaches the customer. The following are some of the key points that Shell should consider for improvement in the current distribution system as adopted by it:

  1. Developing measures and tracking performance- One of the key ways for Shell to improve the existing distribution system is through the development of measures and further tracking performance of orders the total revenue and the volume at the same time. In this respect, the distribution channels that are used by the company should be tracked at several point of time. The use of technology would be more suitable for the company as it will help in the automated tracking of orders at all times.
  2. Vertical integration- vertical integration can be another step that can be taken by Shell in order to ensure improvement. The vertical integration in this industry will real to infrastructure optimization, supply chain efficiencies and will also offer some of the other added advantages to the customer and the company.
  3. Use of technology- Shell should further aim to expand and improve the advanced services such as logging while drilling, rotary steerable drilling and the use of digital technologies in order to add to the capacities of delivering products to the customers.

Demand and Inventory Management

Demand management is defined as the process that is undertaken in order to forecast the demand and further manage the demand for products and services. Demand management is therefore very crucial for any company to ensure an adequate supply of the required product. In the absence of demand management, there may be situations of low supply or oversupply of products that are dangerous for the profitability of the products. Demand management is considered to be an important aspect for Shell as well. Shell leverages the aspen one supply and distribution solution including the Aspen Collaborative Demand Manager in order to manage demand and further add to the level of customer services (Romero et al., 2016). Shell future makes use of the inventory buffers in order to keep it away from the bullwhip effect that may have an adverse impact upon the supply chain of the company. The demand-driven planning as undertaken in Shell ensures that all its operations are driven by the demand of the products in the market. For this, the company in the year 2011 entered into a partnership with Terra Technology that has assisted the company in sensing demand to adapt to the SAP culture. This has further helped the company in reducing the working capital by almost 50 % in the next few years after the implementation. Furthermore, another step that is undertaken by Shell in the area of demand management is the launching of the analytical platform where it has led to the reduction of the safety stocks and also the improvement of the demand signal (Pandian et al., 2018).

Shell has also adopted the DDMRP that stands for the demand-driven materials requirements planning. This has assisted Shell in building buffer strategies by the sensing of orders that has further led to the reduction of variations. Shell has thus been able to have an immediate and positive impact upon the levels of inventory and also that on the working capital (Meyer-Gutbrod et al., 2019). With years of continuous improvement, the demand-driven materials requirements planning has led to positive changes in the logistics cost and also the cost that was involved in the production of the products and delivery of these to reach the end customers.

Improvements

Understanding of the demand streams- It is recommended that Shell should undertake a clear understanding of the demand streams where the company should ensure the study of the differences that exist in various markets and customers. Along with this, it is also suggested that Shell should take note of the historical patterns that would assist in strategic planning in demand management.

Conclusion on Shell 

From the above discussion and explanation, it can be concluded that Shell is an American company that is considered to be a wholly-owned subsidiary company of the Royal Dutch Shell. The company operates in the oil and gas industry with the company headquarters located in Texas, America. The company was founded back in the year 1912 and has a number of subsidiaries. The list of subsidiaries includes Aera Energy, Jiffy Lube, Limejump, Motiva Enterprises and many more. The business operations of the company are divided into a number of areas that include upstream, integrated gas, downstream and new energies. The report has highlighted the key aspects that have a direct impact on the performance of the company. These include supply chain structure, distribution system, sourcing of material and demand and inventory management.

The report has also provided improvement strategies where these would help Shell improve its operations and activities in specific areas. The report has highlighted the aspect of Logistics Management Services where it undertakes the management of all the covering operations along with the upstream operations and the projects and wells. Logistics Management Services also ensures full control over all outsource providers of Shell. Along with this, the report has highlighted the use of demand management system where Shell has also adopted the DDMRP that stands for the demand-driven materials requirements planning. This has assisted Shell in building buffer strategies by the sensing of orders that has further led to the reduction of variations. Shell has thus been able to have an immediate and positive impact upon the levels of inventory and also that on the working capital.

References for Shell 

Bridge, G., & Bradshaw, M. (2017). Making a global gas market: Territoriality and production networks in liquefied natural gas. Economic Geography93(3), 215-240.

Charter, M. (2017). Greener marketing strategy: why and how to green the mix. In Greener Marketing (pp. 141-168). Abingdon: Routledge.

Eze, T. C. (2018). An Appraisal of the Justice Ability of Environmental Violations Arising from Pollution in Nigeria’s Oil and Gas Industry: Insight from the Cases of (Shell Petroluem Development Company (SPDC) Ltd V. Chief Joel Anaro and Others (2017) and (Joshua Gbemre V SPDC and Others (2005). Journal of Law and Global Policy3(1), 7-15.

Kasiraman, G., Geo, V. E., & Nagalingam, B. (2016). Assessment of cashew nut shell oil as an alternate fuel for CI (Compression ignition) engines. Energy101, 402-410.

Meyer-Gutbrod, E. L., Love, M. S., Claisse, J. T., Page, H. M., Schroeder, D. M., & Miller, R. J. (2019). Decommissioning impacts on biotic assemblages associated with shell mounds beneath southern California offshore oil and gas platforms. Bulletin of Marine Science95(4), 683-702.

Pandian, A. K., Munuswamy, D. B., Radhakrishanan, S., Devarajan, Y., Ramakrishnan, R. B. B., & Nagappan, B. (2018). Emission and performance analysis of a diesel engine burning cashew nut shell oil bio diesel mixed with hexanol. Petroleum Science15(1), 176-184.

Romero, A. M. (2016). “From oil well to farm”: Industrial waste, Shell Oil, and the petrochemical turn (1927–1947). Agricultural History90(1), 70-93.

Skjærseth, J. B., & Skodvin, T. (2018). The climate strategies of the oil industry. In Climate change and the oil industry. United Kingdom: Manchester University Press.

Verma, S., & Abdelrehim, N. (2017). Oil multinationals and governments in post-colonial transitions: Burmah Shell, the Burmah Oil Company and the Indian state 1947–70. Business History59(3), 342-361.

Zhang, Z., Du, X., Carlson, K. H., Robbins, C. A., & Tong, T. (2019). Effective treatment of shale oil and gas produced water by membrane distillation coupled with precipitative softening and walnut shell filtration. Desalination454, 82-90.

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