Exploiting supply and distribution

Decisive moves by the multinational oil company Rompetrol to reduce costs in its supply and distribution operations are set to enhance its bottom line by over $10 million, senior company officials have told Impact.

Rompetrol, which has been fully owned by Kazakhstan’s state-run producer KazMunaiGaz since 2009, is active in 12 countries and has a retail network of almost 1,100 sale and distribution points.

Its aim is to become one of Europe’s largest independent oil companies, but in 2009, management became concerned about the magnitude of the organisation’s supply and distribution expenditure. They felt that the annual bill of $50 million in the main Romanian market was uncompetitive, and that there were many areas with potential for efficiency improvements. Moreover, there was a belief that, by redesigning supply and distribution, the function could serve as a value-adding element of the business.

Yerzhan Mukashev, Retail Managing Director, Rompetrol, took the initiative. He recognised that, although Rompetrol was a strong performer in many business functions, it could benefit from the introduction of global best practices in this area. This led him to commission a six‑month supply and distribution optimisation programme from Shell Global Solutions.

“The programme was strategically vital for us,” Mukashev explains. “We needed to find a way of reducing our cost base in order to sharpen our competitive edge and strengthen our market position. We also wanted to take the opportunity to enhance our safety focus.”

Shell Global Solutions consultants worked closely with key Rompetrol staff to identify opportunities for improvement, estimate their value and form a robust plan to close performance gaps, including implementation plans. Improvement opportunities were also ranked according to their ease of implementation and the capital expenditure required.

Open and timely communication has been key to the programme’s success, Mukashev reflects: “Key Rompetrol staff worked with Shell Global Solutions personnel, who helped to promote the transfer of skills and experience. In addition, constructive challenging helped them to get the best out of each other.”

The Shell Global Solutions review covered a series of key areas, including network optimisation, the planning and organisation of supply and distribution, depot configuration, road and rail transport, and hydrocarbon losses.

One of the first areas to be tackled was the reorganisation of Rompetrol’s logistics operations into a new supply and distribution organisation led by Marius Ghica, Retail Group Finance Director, Rompetrol. As a result, teams have been established to implement all the key areas for improvement identified during the review.

Supply and distribution diagnostics

The joint team that examined Rompetrol’s operations identified several opportunities for improvement. Their analyses revealed that all the depots were underperforming: costs were fourth-quartile, stocks were mismatched with demand and there was spare capacity.

The team proposed that the spare capacity could be used to generate income, and formulated plans for how to do this. It also identified that exchange deals with other companies could be exploited whereby, for example, another organisation nearer an end customer would produce and distribute on Rompetrol’s behalf to increase efficiency and save transportation costs.

Moreover, the team recommended the closure of one depot. “Decommissioning the depot has cut operating costs by $2.1 million a year,” says Radko Stamenov, Supply and Distribution Director, Rompetrol, who was closely involved in the project. “But it was vital that this did not impact on customer service and sales volumes, and we have been able to achieve that.”