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Changing Face of Oil Industry

Changing Face of Oil Industry. APM-DISMANTLE. PHASE I. Background. Report Of The Study Group On Hydrocarbon Perspective : 2010 (Sunderrajan Report) Report Of The Strategic Planning Group On Restructuring Of Oil Industries (R Group) Policy Announcement On September 2, 1997

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Changing Face of Oil Industry

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  1. Changing Face of Oil Industry


  3. Background • Report Of The Study Group On Hydrocarbon Perspective : 2010 (Sunderrajan Report) • Report Of The Strategic Planning Group On Restructuring Of Oil Industries (R Group) • Policy Announcement On September 2, 1997 • Import Parity for HSD, FO, Naphtha and LSHS • Bitumen Pricing Freed Feb 1998 Corp pricing

  4. Refineries: Retention Pricing - Abolished W.E.F. April 98 • N0 12 % POST TAX RETURN ON RETENTION CONCEPT • Crude Cost: Import parity including Customs Duty • Crude Imports: • PSU’s: Canalised thru IOC JV& Private Refineries: Allowed thru Actual User Licensing • Crude Transportation: Decontrolled Feb 1998 Corp pricing

  5. Refineries: Retention Pricing - Abolished W.E.F. April • Product Realisation • Existing Refineries: Adjusted Import Parity Price for Controlled Products • Controlled Products • MS, HSD, SKO, LPG and ATF • Other Products:Market Driven Prices • Naphtha, FO, LSHS, Bitumen, Waxes etc. • New Refineries: Tariff Adjusted Import Parity Price • Pool Adjustments: Abolished Feb 1998 Corp pricing

  6. Marketing-Phase I • APM for Controlled Products • Product Prices to be brought in line with Import Parity in phases • Products to be decontrolled w.e.f. April 98 • Naphtha, FO, LSHS & Waxes • ATF decontrolled from April 2000 • Import Restrictions • NGL, ATF, MS and HSD • Other products decanalised Feb 1998 Corp pricing

  7. Marketing-Phase II • APM Dismantled for • Petrol, Diesel, Kerosene & LPG • Product Prices to be brought in line with Import Parity • No Import Restrictions • Investment Threshold for Marketing Feb 1998 Corp pricing

  8. Deregulation in Oil Industry • Crude producers to get import parity price of crude • Complete deregulation effective April 1, 2002 • Petrol, Diesel, Kerosene & LPG deregulated • Government to monitor prices through regulator • Duty structure to be used as a tool for monitoring wide fluctuations • Subsidy on LPG & Kerosene to be removed in a phased manner • Retail Prices to be reviewed fortnightly by Oil Companies • Marketing Rights given to private players • Marketing Companies given freedom to appoint their own dealers • Refineries permitted to hedge their margins

  9. DEREGULATION Impact on marketing • Marketing and industry structure • Product pricing • Product distribution • Retail operations • Realignment of markets • Regulatory framework

  10. DEREGULATION • What deregulation can bring • For the nation – efficient fuel distribution for maximising economic growth and sources of capital investment • For the Industry – world class efficiency and the ability to compete in a global economy • For the customers • Higher customer service standards • Choice and value of products

  11. Free Market Controlled Market Market Comparisons Low High Efficiency / Productivity Efficiency / Productivity Facility Standards Facility Standards Customer Focus Customer Focus Non-Fuel Income Non-Fuel Income High Low Investment Investment

  12. Energy Scene India


  14. Hindustan Petroleum Corporation Limited Overview

  15. Marketing 20% Market Share Retail Outlets 4729 SKO / LDO Dealership 1638 LPG Customer Holding 16 mn LPG Bottling Capacity 1532 TMTPA LPG Bottling Plants 39 Terminals / TOPs 35 Depots 90 EXTENSIVE NETWORK

  16. Market Sales (incl. Exports) • HPCL CAGR : 7.20 % • Industry CAGR : 5.12 % MMT

  17. Marketing : Business Mix of 2001-02

  18. CAGR – At a Glance (FY 1974 to FY 2002) %

  19. Refineries & Pipelines Punjab Refinery (Under Implementation) 9.0 mmtpa Pipelines Capacity (MMT) • Mumbai – Pune 161 kms long 3.67 • Visakh – Vijaywada 349 Kms long 5.38 • Vijaywada – Sec’bad extention 223 Kms long 1.94 • Mangalore– Hassan– Bangalore 364 Kms long 5.60 Refineries N Visakh 7.5 mmtpa Mumbai Fuels 5.5 mmtpa Lubes 335 tmtpa MRPL (JV) 9.0 mmtpa

  20. New ChallengesLeveraging Technology • Robust Accounting & Business Process • Enterprise Resource Planning • Efficient Logistics Management • Supply Chain Management System • Consumer Interphase • Customer Relationship Management • E-Commerce • B2B B2C

  21. New ChallengesLeveraging Technology • Establishing Demand/Supply Trends • Predicting Pricing of products • Street Pricing of Retail products • Along with Industry • Free competition • Reacting to competition changes • Data collection/Pricing

  22. PRICING-Challenges Pricing Fundamental • “Price” is the value that two parties to a transaction place upon the product or service being exchanged • Monetary component (economic) • Non-monetary components (time, hassle, etc.) • “Pricing” is the systematic process that establishes the price of a good or service

  23. PRICING Importance of Pricing • Pricing is of critical importance in the marketing mix • Only element that produces revenue without incurring additional costs • Positions your company in the minds of consumers • Pricing influences short- and long-term profit performance

  24. STRATEGIES Pricing Strategies • Cost plus • Customer value • Market driven • Channel distribution • Capacity driven

  25. PRICING POLICIES The Problem • Adoption of skewed pricing policies • Damaging to the company • Erodes services to customers and community • Desperate attempt to “hang on to customers” • Fend off new rivals • Grab or maintain market share • The hope does not square with the reality • Price is but one weapon in the marketing battle

  26. The Pricing Equation Elasticity Cross Elasticity VP VCP CE  E  Demand P Supply V • Seasonality • Shifts in demand

  27. Elasticity of Demand • Regression won’t work • Measure using modeling techniques • Gasoline is a commodity • Purchase decisions are made based upon perceived value • Location • Traffic/Accessibility • Facility • Merchandising

  28. What is needed? A decision support system that improves profitability while maintaining volume objectives through better pricing decisions.

  29. Systems Flow Current retail prices Key Competitor List PriceTracker Prices that adhere to established pricing strategies  Back-office systems  Hard copy Retail Explorer  GIS-based Consumer Behavior Model  Price Sensitivity Curves PZS• Price Zones• Outlets in Zone StreetBackPricing System Current • Product Cost• Sales Volumes


  31. Introduction • The portal is named as • Highlights • Place Orders Through the Portal. • Online Tracking of Orders, Payments and Delivery Details. • Home Page for Customers With Various Facilities. • Customers Can Participate in the Auction Through Net. • Knowledge Bank to the Users • Various Customer -Friendly Facilities. • Adequate Security and Firewalls

  32. Feature List • New/Existing Customer Registration/Profile • New/Existing Distributor Registration/Profile • Goods Ordering • Automating Work-flow for Order approval • Online approval of Order • Goods fulfillment by the Depots • Online Order Tracking • Customer Sales History • Customer Payments History • Auctions • Customer-Service – FAQs, Online Servicing and / or New Product Developing

  33. Additional Features • Auctions • Product Price List • Sale History • Discussion Forum • Product Specification • Frequently Asked Questions • Tools/Search • Customer Support and Query

  34. Enterprise Resource Plan Project Parivartan

  35. Project Parivartan Implementation of ERP in HPCL Introduction • To Meet the Identified Challenges, • Leveraging the Use of Information Technology, • ERP Software, Licensed From J.D.Edwards. • Implementation in All Our Offices and Operating Locations. • Coined As “Project Parivartan”.

  36. Project Parivartan Objectives • Improved Customer Focus • Improved Responsiveness • Flexibility to Adapt to Changing Needs • Enhanced Competitiveness • Adoption of Industry Best Practices • On-line, Timely & Accurate Information For Improved Decision Making • Improved Integration Across Functions and Processes • Reduced Data Cycles • Reduced Internal Reconciliation • Improved External Reconciliation • Improved Management Control Through Standardisation of Processes, Procedures and Systems • Transformation to Knowledge Based Organisation

  37. Project Parivartan Objectives(Cont.) • Increased Profitability • Improved Working Capital Management - Inventory, Credit Control and Cash Flows • Platform for Leveraging Technological Developments and Other Software Extensions (SCM, CRM, Etc) • Improved Human Resource Management • Role Clarity and Improved Effectiveness • Employee Empowerment • Harnessing Cross Functional Expertise

  38. Project Parivartan Scope Overall project scope includes : • Building of a Conference Room Prototype for the Complete Business of the Corporation. This Involves the Following Major Activities: • Conceptual and Detailed Design • Configuration • Customization • Solution Development and Testing • Interface Development • Implementation at the Selected Pilot Locations.

  39. Project Parivartan Scope(Cont.) • Post Go-live Support for a Period of 2 Months From the Last Pilot Site Rollout • Roll-out to the Rest of the Organisation • Change Management • Solution Assurance Through JD Edwards Modules to Be Implemented - • Sales • Distribution • Finance • Manufacturing • Project Management • Human Resources

  40. Supply Chain Management Supply Chain Management • Reduction in Manufacturing Costs • Reduction in Lead Times • Facilitates Customer Service Improvements Enables- Management of Inventories Logistics Plans and Costs. Distribution Network CUSTOMER SALES PURCHASE MFG. DELIVERY SUPPLIER A Simple Supply Chain Loop

  41. Supply Chain ManagementDMAIC Concept • DMAIC (Define – Measure-Analyze-Improve-Control) concept is widely used. • Flexible and useful tool for performance improvement. • Benefits in nutshell are- • Flexibility & Scalability • Powerful communication • Simplicity and ease of use • Effectiveness and efficiency • Iterative supply chain improvement.

  42. Supply Chain ManagementPerformance Improvement Concept Stages – • Define the Goals of the Improvement Activity. • Model and Measure Supply Chain Processes. • Analyze the System to Identify Ways to Eliminate the Gap Between the Current Performance of Supply Chain and Desired Goal. • Improve the Supply Chain. • Control the New Improved Supply Chain

  43. Supply Chain ManagementHPCL-Initiatives • In the Process of Finalising • SCM Software (Aspin Tech, i2 etc) • Identified the needs and Scope • To be implemented in phased Manner • SCM to integrate • Refineries, Terminal,Depots, Pipelines, Bottling Plants, Coastal Movement, Road/Rail Movements upto Retail outlets

  44. Customer Relationship Management Concept - CRM ( Customer Relationship Management) is a strategy used to learn more about customer's needs and behavior in order to develop stronger relationship with them. Goal- • Provide Better Customer Service. • Make Call Centers More Efficient. • Cross Sells Products More Effectively. • Help Sales Staff Close Deals Faster. • Simplify Marketing & Sales Processes. • Discover New Customers. • Increase Customer Revenues.

  45. Customer Relationship ManagementTypes of Data Required • Responses to Campaigns • Shipping and Fulfillment Dates • Sales and Purchase Data. • Account Information • Web Registration Data • Service & Support Records • Demographic Data • Web Sales Data.

  46. Customer Relationship ManagementKey to successful CRM Implementation • Break the CRM into manageable pieces. • Set up pilot programs and short term milestones. • Start with pilot projects that includes all necessary depts. • CRM plans include a scalable architecture framework. • Recognize the individuality of customers and respond appropriately. • CRM to have built in flexibility. CRM in HPCL is being integrated with ERP

  47. Direct Sales I&G

  48. Environment • Bulk Fuels No Differentiations • Low Growth Rates • Excessive Competition incl. Imports • Too Many Suppliers Chasing too few consumers • Demand Not in line with Projections • Poor Growth in core sectors • Power, Steel, Transport, Infrastructure

  49. Key Business Drivers • Price • Imported Landed Cost • Discounts • Credit • Duties/Taxes • Logistics • Free Delivery/Supply Chain Management • Easy Access to Product • Infrastructure • Inventory Management • Quick Response • Product Quality (Consumer Demand) • Sulphur, Trace Metal Content, Calorific value,CCR

  50. Product Pricing Strategies • Refineries are Paid at Import Parity • Marketing Costs, Margins and Logistic Costs Extra for Marketing BU • Consumer Expects Imported Landed cost • Local Taxes have adverse impact • High Margins in initial year of Deregulation

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