Shell Geet

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


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


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.



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%



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:



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



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).



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:



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



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



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



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



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



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



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.


http://microsites.caltex.com.au/annualreports/2010/fullyear/supply_chain.html


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/>


http://www.shell.com/home/content/globalsolutions/media_centre/special_supplements/technology_and_innovation/benchmarking_best_practices/

http://www.shell.com/home/content/globalsolutions/media_centre/special_supplements/technology_and_innovation/benchmarking_best_practices/

http://www.shell.com/home/content/commercial_fuels/our_services/touchless/

http://www.shell.com/home/content/aboutshell/at_a_glance/

http://www-static.shell.com/static/aus/downloads/fuels/petrol_pricing/shell_subm_to_accc_petrol_price_inquiry_july07.pdf

http://www-static.shell.com/static/aus/downloads/fuels/petrol_pricing/shell_subm_to_accc_petrol_price_inquiry_july07.pdf

http://www.shell.com.au/home/content/aus/aboutshell/who_we_are/shell_au/operations/downstream/supply_distribution

http://www.shell.com.au/home/content/aus/aboutshell/who_we_are/shell_au/operations/downstream/supply_distribution

http://www.shell.com.au/home/content/aus/aboutshell/at_a_glance/

http://www.shell.com.au/home/content/aus/aboutshell/who_we_are/shell_au/operations/downstream/manufacturing/

http://www.shell.com.au/home/content/aus/aboutshell/who_we_are/shell_au/operations/downstream/manufacturing/

http://www.slideshare.net/sabajaveid/shell-6508176

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