Establishing a risk reduction model for the inbound supply chain in an oil refinery

Thesis (M.B.A.)--North-West University, Potchefstroom Campus, 2011.Companies are in business to make money; money is not there just to be taken. The drive should be on Cash Focus and Project Excellence, the ultimate goal and first price is always to grow stakeholder value sustainability. To be able to achieve just that, the focus should be on: - Operations excellence - Functional excellence - Capital excellence - Value-driven leadership The mission of the oil refinery is to refine crude oil utilising high conversion capability, generating sustainable financial growth and delivering a competitive return on investment, while focusing on sustainable profitability, costs, efficiency, reliability and flexibility. How does the supply chain function fit into all of this and what is their role to play? The objective of any supply chain function should be to support the company's? vision and strategic objectives and by means of risk reduction strategies ensure that the risks that the oil refinery is exposed to in the supply chain function are identified and managed to acceptable levels. Due to the major impact of supply chain activities on a business, a combined programme and project approach should be followed, which will include the understanding of the potential reward, vision clarity, management support, will grow internal ownership and accountability, training, communication and a formal change management programme. The purpose of this study was to determine whether there is an existing risk reduction model within the inbound supply chain within the oil refining process. A literature and empirical study was conducted and the conclusion was made that although a risk management framework and processes exist within the operational and maintenance functions, it was not evident in the supply chain function. The supply chain function, together with the operations function (maintenance and plant reliability), is about understanding risk created within equipment and supporting the maintenance strategies by implementing sourcing strategies that will contribute to ensuring the effective supply of materials and services. During the literature study, three models were discussed, namely: - The Deloitte Touche Tohmatsu model of Understanding Risk and the value of Flexibility; - The KPMG Methodology for Implementing Risk Management; and - The Supply Chain Operations Reference model for Business Process Reengineering. The recommendation was made that all three models are combined and proposed to implement as a supply chain risk reduction model with potential risk reduction strategies. Why would any company want to manage and mitigate risk? It links strategic objectives to risks and controls in order to improve corporate performance, increase transparency, provide an early warning system and enhance business sustainability. Once the top risks have been selected, an appropriate risk strategy is defined to optimally manage these risks to enhance and safeguard the company's performance and value. The steps recommended to be followed by the combined and proposed risk reduction model are: Step 1 All role-players should understand where the supply chain function fits into the business and what its reason for existence is. Step 2 Understanding the impact of macro-environmental factors on the supply chain. Step 3 Implementing the proposed risk management framework for supply chain Phase 1 Planning and establishing context of risk management process Phase 2 Risk identification and risk exploration Phase 3 Risk assessment and risk treatment Phase 4 Implementation, monitoring and review Phase 5 Risk reporting and communication Step 4 Establishing sustainable business processes to support the supply chain strategies and the risk management framework Step 5 Implementing performance measurement and reporting processes Step 6 Proper training and awareness should be given to all parties involved The biggest barriers for modifying a supply chain system within a company are internally and people related. Decision-making must become fact based and because companies depend on the measurement and analysis of performance, measurements must derive from the company's strategy and provide critical data and information about key processes, outputs and results. Sustainable business processes will link continuous management activities together, which will contribute to an overall outcome. Implementing a pro-active risk management system will assist in the efficient management of the business risk, which can then lead to constituting value in the business. To be able to function within all the ongoing changes occurring all the time, it requires balancing multiple links concurrently to have an effective supply chain function as a result. With the unpredictability in the supply chain, comes increased risk, which may result in disruptions to the supply chain. These disruptions may be unexpected and statistically rare, but they must be understood, identified and managed. For any business, it is first prize to have a risk reduction model in place that can prevent or mitigate a risk before it can actually happen.Master