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In continuation to Supply Chains in different Industries – Part 1 on Supply Chain models in different industries, this second blog gives an example of a Lubricant Supply Chain typical of Downstream Oil Industry. Before getting into the Supply Chain first some jargon busting. In Oil & Gas Industry the first two terms one comes across is Upstream and DownStream. Upstream consists of Exploration, Production (at wells) and Shipment of petroleum (crude oil and natural gas)from field (reservoir) to the Refinery. Once it is at the Refinery all subsequent activities are Downstream.

As one can visualise Downstream is big business including refineries, petrochemical complexes, distribution and retail operations. The output of Downstream products cover all three states of matter from liquids – petrol (gasolene), diesel, kerosene, naptha etc. to gas – cooking gas (LPG), commerical fuel (CNG) to solids – butimen, paraffin wax etc. not to mention the diverse polymer compounds that come out of petrochemical complexes. One of the commonly used products of Oil Industry is lubricants whose supply chain will be outlined in this blog.

From a Supply Chain perspective the Lubricant industry is fairly simple but as usual has its own terminologies and nuances. The primary constituent of all finished lubricants is Base Oils which is a produced from feedstocks obtained from refining Crude Oil. Typical lubricant is a blend of two or more Base Oils of different viscosity and a variety of additives. When a thickening agent is added to liquid lubricant you get grease that is solid to semi-solid material having a wide-ranging industrial usage.

Starting from the Supply side, cracking and subsequent distillation, de-waxing crude oil in refineries result in various feedstocks. These different distillates are inputs to Primary Manufacturing Plants called Base Oil Manufacturing Plants. The refinery complex itself can have the Base Oil Plant. Manufacturing the Base Oil is a complex process involving multiple steps of de-asphalting, solvent refining, hydrogen processing with catalyst, de-waxing and hydrofinishing. The next step is to mix (blend) the Base Oils with additives to get bulk lubricant. This is carried out in another manufacturing plant aptly called Lube Oil Blending Plant.

At the Lube Oil Blending Plants, Blending operation is carried out in tanks with specific quantities of two or more Base Oils and additives. The different additives (mostly chemical compounds) are sourced from Vendors or are by-products of the Refinery and/or Petrochemical Complex that the Oil company itself. Blend Optimization is a process to determine the correct quantity of the Base Oils to be blended to get certain viscosity of the Blended lubricant. Oil companies use custom programs to carry out Blend Optimisation based on some standard algorithms. The output blended lubricant is commonly termed as Blend or Bulk. This bulk lubricant can be transferred in tankers or railcars to business customers. But in most cases the Lube Oil Blending Plant will also carry out the filling operations to “fill” the bulk blend in suitable containers and ship the finished lubricant packs to the Distribution Centers from where it reaches retail outlets typically Service Stations and Auto Stores. Subcontract Manufacturing for blending and filling operations is quite common especially in countries where the Oil company does not have their own Blending Plant.

Distribution especially to Retail customers is a very important aspect of the Lubricant Supply Chain and involves a chain of Regional Distribution Centers, Distribution Centers, Depots supplying to the retail outlets. Much of the transportation is also handled by contracted hauliers. As a result in a Lubricant Supply Chain both Inbound and Outbound Distribution and Warehousing operations are of prime importance.

This brings us to the close of this blog. In a Mapping APO Functionalities to Different Supply Chains the different functionalities of APO as used in a Lubricant Supply Chain is outlined.

Reference: http://en.wikipedia.org/wiki/Lubricant

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  1. Srinivas krishnamoorthy
    Having worked briefly in a “Lubricant” supply chain context, I must also add that one of the typical characteristic of this supply chain is the different model of supply chain based on product movement volume. In this supply chain there are either fast moving products or slow moving ones. For the former, the forward supply chains are linear in nature representing echelons. Eg. A manufacturer sends the product to a Distribution Center and finally to a dealer or retailers where the product is sold. However in case of latter, the product goes to a RDC or a regional Distribution Center that aggregates the demand from various Distribution Centers. The mode of movement from RDC to DC is replenishment mode. One of the DCs in the region itself can be a RDC. This is called the hub-spoke model since one of the DCs becomes the hub. The whole S&OP cycle of Forecasting, Supply Assessment and Replenishment thus is dependent on the nature of movement of the product.
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