Hydrocarbon Processing - June 2022 - 16

Supply Chain
when the market activity reduces?
Such was the case with Philadelphia
Energy Solutions, which had to pay $30
MM quarterly to North Yard Logistics-
based on the terms of the deal-even if the
refinery was receiving little to no crude.
The best protections against long-term
costs that burden a company are visibility
and transparency. The implementation of
a digital strategy allows for the total cost
to serve customers to be calculated and
evaluated continuously. Digital transformation
does not mean having one single
enterprise resource planning (ERP) system
that replaces all the best-of-breed
logistical
solutions.
Instead,
focus on
the interfacing of the logistical systems
into a central hub where the costs can be
analyzed and compared against the sales.
Chances are that the commercial deals
and transactions may be missing some of
the costs to serve customers. Simply put,
logistics can make or break the trade.
On the offensive: Strategic cost
management. It is important to be strategic
in the analysis of the supply chain,
rather than purely defensive. In the end,
controlling costs is not about gutting your
supply chain and disposing of assets at the
first sign of a downturn in activity. Rather,
it is a continuous insight into the true
embedded costs and constant discussion
as to how to manage those costs through
different commercial terms. It is about
developing critical insight into the underlying
factors that drive your supply chain
and setting up the business processes to
maximize the investment. It can also be
the foundation for asset-backed trading
and increased commercial sophistication.
By maintaining clear insight into the
supply chain network and the true cost
to serve, management can focus on maximizing
profit. The implementation of
optimization software is critical to model
and create a digital twin of the supply
chain. The optimization software ingests
the inputs from logistical systems, trading
systems and operations, and solves for
objective functions like maximizing profit
or minimizing costs. Armed with these
results, management can now gain insight
into their customers and better forecast
demand. They can tweak the model to ensure
that the supply chain is used most efficiently
over time. A strong management
team will notice signals and patterns in the
data by watching the forecasted demand
and analyzing where to take the product
for the best netback price. Additionally,
by recognizing where the competitive advantage
may be lost or market share conceded
in a particular geography, a management
team can recognize when it must sell
down the capacity appropriately.
PATRICK LONG is a Director in Opportune LLP's
Process & Technology practice. He has more than
20 yr of experience in providing clients with energy
trading and risk management, packaged software
implementation, trading and risk processes, and
business process automation. Mr. Long focuses on
studying supply chain issues, implementing digital
twins and transforming capabilities to best-in-class
solutions. His current focus for clients is making
sense of inventory and the supply chain to address
management questions, and enjoys thinking of ways
to thwart irrational human behavior and its effects
on optimization. Before Opportune, he worked in the
energy consulting trading and risk systems practice
at Accenture, where he managed project teams
through the entire process of software selection to
the successful implementation of trading and risk
management systems for energy trading entities.
LIVE WEBCAST
Tuesday, June 7, 2022 | 9 a.m. CDT / 2 p.m. UTC
Sandeep Mohan
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Aspen Technology, Inc.
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Suresh R.
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Bharat Petroleum Corporation LtdMumbai
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Lee Nichols
Editor-in-Chief and
Associate Publisher
Hydrocarbon Processing
16 JUNE 2022 | HydrocarbonProcessing.com
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Hydrocarbon Processing - June 2022

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