Oman Oil Company: Logistics and Transportation Management

Subject: Logistics
Pages: 17
Words: 4717
Reading time:
17 min
Study level: College

Introduction

Achieving competitiveness in the market requires the establishment of appropriate strategies in the supply chain process. The amount of revenue generated by a company determines the competitiveness and long term survival of the company in the market. To achieve high level of competitiveness and revenue generation, it is important to properly manage resources. Managing supply chain is important because it enhances timely delivery of products and reduces wastes. This requires establishing appropriate transport management systems; managing materials appropriately and developing better logistics in the entire supply process. The supply chain should be planned, organized and controlled in an appropriate manner to ensure that all stakeholders are satisfied with the products of a company. In addition, proper decision making should be adhered to in order to ensure that logistical processes are complied with (Sehgal 2011).

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In the modern economic environment, competition has intensified in all sectors around the world. The oil industry has not been an exception because there are huge profits made in the industry. This has attracted many investors and several companies have been established in the industry. In addition, the increase in global oil prices has made the industry to be attractive. As such, establishing cost effective logistic mechanisms has been inevitable. Therefore, the management of any company in the industry has reason to improve on its logistical systems to ensure that costs are reduced while efficiency is improved. Efficiency should be achieved in the production and marketing systems. Logistics and transport systems are included in the marketing mix of a company. They represent the place aspect in the marketing mix strategy. This shows that logistics and transport management is an important aspect in the production and marketing of products and services (Thompson & Martin, 2010).

To investigate the efficiency of logistics and transport management in the Sultanate of Oman, two companies were selected. These companies include the Oman Oil Company and the Oman Shell Company. The two companies were selected to show the capacity to apply strategies which fulfill supply needs, processes and control while satisfying the demand of customers. Therefore, efficiency in logistic and transportation management would provide a smooth flow of information in organizations so as to maintain reduced costs in the production processes. This would help maximize profits and achieve a competitive advantage not only in the domestic market, but also internationally.

Oman is located in the Middle East and the main economic activity is the oil production. The country’s economy has grown tremendously over the years with most of the resources having been obtained from the oil industry. The oil industry has generated a lot of income to the economy after an increase in oil prices started to take effect in the 1990s. The country has privatized most of its utilities to enhance public participation in the nation building activities. The laws of the country have been amended to accommodate foreign investment. The domestic market has been opened up to allow for the exchange of products and services with other countries. This policy was facilitated when the country agreed to join World Trade Organization (WTO) in the year 2000. Initially, the country was dependent on slave trade and the sales of arms. Afterwards, the country started to rely on agriculture following a ban that was imposed on slave trade. The economy of the country was not attractive because the economic activities were not generating a lot of income. In the 1960s, oil was discovered and the economy of the country started to rise up (CIA 2012).

Approximately seventy eight percent of the economic income of Sultanate of Oman is made up of petroleum products and gas. In 2010, the country produced an average of 810,000 barrels per day. This means that oil and gas products are the main sources of income to the country. Therefore, effective distribution of petroleum products and gas in the country is important to provide sustainable supply and demand (CIA 2012).

The government of Oman has established an appropriate infrastructure to enhance proper transport systems. The country has 130 airports, 3 helicopters, 53,430 km of tarmacked roadways and 4 merchant marines. The communication systems are efficient because the country has 283,900 telephone lines in use; 4.606 million mobile phones in use; internet services; broadcast media; and other facilities. Oman has made several transnational agreements to open up trade (CIA 2012).

Oman Oil Company

The Oman Oil Company was established by Sultanate of Oman government. The government has exclusive ownership of the company and all employees are civil servants. The main aim of creating the company was to invest in the oil sector and to expand the investment opportunities in this sector. The company was not restricted to operate inside the country, but also in other foreign countries. The company has improved the participation of the country in the energy sector and has also helped diversify the economy of the country. Both domestic and foreign investments have been promoted by establishing the Oman Oil Company (Oman Oil 2011). The main function of Oman Oil Company is to market and distribute products related to fuels and lubricants in all sectors of fuel retailing. This is achieved by direct sales of fuel to government and other commercial enterprises. The company sells its products in bulk, as well as in small packages. Oman Oil Company sells lubricants, aviation fuel, storage and distribution of oil and fuel products.

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The core values of the company are: promoting economic diversification in the Oman country; facilitating investment in both private and public sectors; generating government revenues; and creating jobs as well as training opportunities. Numerous products are offered by the Oman Oil Company, and the main products are oil and gas. To support the production of these products, the company has maintained and equipped its facilities. This has been achieved by establishing workshops, warehouses, and offices. In addition, an effective distribution network has been created and staffed with skilled personnel. The employees offer solutions to problems facing the customers. Customers are offered with the best services possible to improve the competitiveness and profitability of the company (Oman Oil 2011).

The Oman Oil Company focuses on developing projects related to oil and gas. Partnerships with international companies have been established by the company to enhance effectiveness in the production and marketing of oil products. The company has majored in exploring and producing oil and related services. It also develops infrastructure, ships, refines and markets petrochemical products, aluminum and power products and services. Oman Oil Company has created many job opportunities for many citizens in the country by establishing various projects. More investment opportunities have been pursued by the company and this has offered income to many individuals, companies and the economy as a general (Oman Oil 2011).

Oman shell

Oman Shell has been in operation since 1958. The company transports and markets fuel and lubricants. The company has more than 142 service stations which are located in strategic locations across the country. The company has about 54 selection stores in the country (Shell Company 2012). Oman Oil Company performs the drilling and production of oil while Oman Shell is involved in the distribution and marketing of oil and oil products. Logistics and supplies management has been very important to Oman Oil Company, as well as Oman Shell Company. The two companies have managed to improve on the supply of oil and oil products (Shell Oman, 2012).

The Oman government has opened up its boundaries to international trade. This offers opportunities for the two companies to trade with other countries. As such, the two companies can outsource logistics systems from other countries more easily. This will offer the companies opportunities to improve their products. Outsourcing has helped the two companies acquire personnel from different countries. The demand for oil products has been increasing in the global markets. This offers the two companies an opportunity to expand their production systems. The logistics and supply systems have been efficient because cases of delayed supplies have not been experienced. The management of the company has been able to coordinate the logistical systems with minimal challenges (Plunkett 2007).

Oman oil has established joint ventures with other companies to improve its logistics systems. For instance, “another current project is the $2.2 billion contract for Sohar Aluminium, a joint venture between Oman Oil and Abu Dhabi Water and Electricity, for the construction of an aluminium smelting plant and other facilities in Northern Oman and the UAE” (Plunkett 2007, p. 124). The company has also applied outsourcing strategies to achieve better market share in the global scene. For instance, Oman Oil Company has established offshoring strategy with A.P. Moller-Maersk. This has facilitated the operations of the company in foreign countries and has also improved the performance of the company in the global markets. Maersk Tankers are used by Oman Oil Company to provide deep sea transport. The company also provides roll-on/roll-off ferry related services. It has been noted that “Companies including Maersk Supply Service and Maersk Contractors offer offshore services such as anchor-handling, platform supply, cable laying, drilling activities and operation of floating production units” (Plunkett 2007, p. 126).

Oman Shell Company has also been efficient in logistics and transport processes. The company has developed a global network of activities and has established partnerships with other companies in the global scene. The management of the company has predicted that the performance will improve in the near future because there has been an improvement in the logistics and transport systems. The company has applied necessary leadership in the management of resources to achieve optimal results in the supply chain management processes. It is expected that the revenues will improve by 10.2% in 2012. This will be “bolstered by favorable demographics, emphasis on infrastructure development and the thrust on the non-oil sector. With improved efficiency and cost controlled mechanism, we expect the company to maintain the margins at current levels (H1 2010- Net margins: 4.5%),” (Gulf Base 2012, para 1). It is expected that the profits will increase to RO 14.279 million, an increment of 9.7 percent. This will be accompanied by an increase in the yield on dividends of the company to RO 2.159. This is an indication that the company has applied the necessary logistics and transport strategies to improve the performance. The management team has pledged to create better policies which will guide the stakeholders towards realizing the goals and objectives of the company (Gulf Base, 2012).

Both Oman Oil and Oman Shell have embraced stringent measures to reduce risks in their business activities. This has been achieved by hiring the insurance services to cover logistic and transport activities. This strategy has helped manage risks in all operations of the companies. In addition, people management has been effective in both organizations. For example, Oman Shell has values that are directed towards team working, professionalism and valuing people. Logistical strategies have been applied in managing human resources to reduce the rate of turnover (Gulf Baader Capital Markets 2012). The two companies can improve on the quality, delivery, efficiency, and flexibility in an ever-changing environment by conducting research on market changes. The companies should employ a team of experts to research on changes in the environment. This will help improve on the technological base of their operations. As such, the efficiency, flexibility and quality delivery will be enhanced because modern logistical and transport strategies will be adopted. This will improve the competitiveness of the companies in the global markets. The profits of the two companies will be improved after applying appropriate logistic measures because resources will be optimally utilized.

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Literature Review

According to Button, Hensher and Brewer (2001), streamlining transport and logistics systems of organizations has been a major challenge in modern business environment. This has been accelerated by the need to achieve efficiency in the production and marketing processes, improving customer satisfaction levels and creating better profit margins. In a perfect competitive market, companies establish strategies to overcome stiff competition in the market. However, in a monopolistic market, competition is low and companies have no driving force to establish competitive strategies. Nevertheless, the oil industry has been experiencing many economic changes over time. Initially, companies in the industry had a competitive structure which allowed individual them to explore the market without considering activities of other companies (Jamshidi 2011).

After the formation of OPEC, all companies were integrated and their economic strategies were determined by cartels. A monopolistic system started to operate and the pricing of oil and oil products was the mandate of OPEC. This aspect has given companies in the industry a stronger bargaining power in the global markets. The increase in demand for oil and oil products has made the industry to be profitable and this has attracted many investors in the industry. As a result, many companies have been established in the industry. Even though OPEC has controlled the pricing process and the industry has assumed an oligopolistic competition structure, competition among companies in the industry exists. It is therefore important to have effective and efficient strategies to manage processes by individual companies. Hence, logistics and transport network are important in the industry because each company must have sufficient strategies to sustain their operations in the global markets (Jamshidi 2011).

Logistics is defined as the effective management of the system of current of materials, info and services in an organization. Logistics involves managing inventory and transport systems in an organization. In addition, handling of materials in an organization, which include warehousing and the management of the distribution processes, is involved in the logistics process. Other aspects involved are disposal of scrap materials, movement between and among plants, and the movement of people within an organization (Button, Hensher & Brewer, 2001).

Inventory management involves the control of stock levels of goods and services required in an organization. Managers have an obligation to monitor the movement of inventory so that production processes are not delayed. In addition, the produced goods should adhere to movement at the end to avoid overstocking. As such, the suppliers should be communicated to in a timely manner to ensure that they supply materials without delays. Choosing the best and efficient supplier is an important decision that managers need to make to ensure the organization runs effectively. Holding inventory is a cost that should be avoided at any moment. Purchasing inventory involves a lot of resources; and when the inventory is held up within the organization, the company makes losses because there are no profits generated from such inventory. The costs of holding inventory are measured in terms of interest rates. The money invested in purchasing inventory generates no income within the organization. It is until the inventory moves out of the organization as sales that the organization will benefit by getting profits. Additionally, it is worth noting that inventory management involves monitoring the forces of supply and demand in the market. The managers should determine when the demand is high so that inventory can be ordered in large volumes. Low demand will force the management to reduce the amount of inventory ordered (Plunkett & Plunkett Research, Ltd 2009).

Plunkett and Plunkett Research Ltd (2009) provide that managing the supply chain is important in ensuring that resources are fully utilized for the benefit of all stakeholders. An effective network of logistic and distribution has benefits to an organization. Efficiency in supply logistics and distribution processes affects the entire supply chain. Failure in establishing effective supply chain network causes an organization to lose ground to its competitors. The supply chain network is the backbone of all processes in an organization and connects various organizational functions. An effective network of logistics and distribution lowers the costs incurred because resources are better utilized. In addition, the speed of cash-to-cash rotation is improved. The amount of inventory levels is also reduced. An organization also improves its efficiency and reliability in delivering services and products to customers. Also, the response time is increased such that the organization delivers services and products in a timely manner. In addition, the risk element should be attached to the inventory held up in an organization. Risk is cost which should be allowed when holding inventory in an organization. Such risks include obsolescence and costs of storing the inventory among others. Therefore, maintaining sufficient inventory is an important factor that managers should consider (Stadtler & Kilger 2008).

Mikulski and Katowice (2010) opine that transportation is an important aspect in the logistic processes of an organization. It involves the movement of goods and services from one point to another. In the marketing mix strategy, transportation lies in the ‘place’ component. This is because it involves the locational aspect of products. Transportation links the company with suppliers, customers and other stakeholders. Inaccessibility may cause delays in the movement of goods from one area to another. There are different methods of transporting products: train, roads, air, or any other mode of transport. Transportation has made it possible to separate the place in which products are produced and the place of consumption. Therefore, there is no need for the producers and consumers to reside closely because products can be moved from the warehouse to the consumers’ door steps. In addition, companies need not be located near the production zones because materials can be moved to the point of manufacture (Button, Hensher & Brewer 2001).

Efficiency in transportation improves the value of products because consumers get the benefits attributed to the products when they are in need of the products. This has made it possible to add value to products manufactured in distant places because consumers get satisfaction from the products manufactured. Companies spent a lot of money on transport and there is need to develop effective and efficient transport methods. Transport costs are incurred when materials and other resources are located far away from the area of production. To add value to the organization, transport systems should be fast enough, efficient and sufficient to enable the organization deliver products when needed. Flexibility is also required in the transport system because it offers alternative methods of moving products from one area to another. In addition, safety factors should be considered when choosing a specific transport system. The capacity of the transport system should be enough to accommodate the products being transported. Managers should work with the available transport systems because some regions cannot be accessed though the use of certain systems (Plunkett & Plunkett Research, Ltd 2009).

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The time spent when transporting products is very important and companies should identify the fastest method of transporting products. Delays in transport can cause a lot of damages to the company. Therefore, care should be taken when using certain means of transport. It is important to note that some transport systems are not appropriate for some products. For example, perishable products should be transported within the shortest time possible and delays should be avoided. In most cases, the point of production of goods is far from the point of consumption. This creates the need to make goods and services accessible to the consumers. It is also observed that goods and services are available during specific seasons of the year. Therefore, transport and storage facilities are very important in modern business setup. Managing logistics and transport systems enhances development of a country because all resources are appropriately used (Stadtler & Kilger 2008).

According to Wood (2002), moving people is another logistical aspect that managers need to consider when making decisions. People are directly involved in the production processes and they should be moved to areas where production is taking place. People movement requires the managers to take caution because there is need to satisfy all the needs that human beings deserve. The costs of travel arrangements can be assumed by the company or the individual employees. Organizations today are developing housing structures for their employees to reduce the burden of moving employees from their residents to the place of work. This reduces the cost of transporting people from the workplace to their living areas. As such, the employees cater for any other expenses incurred if they choose to reside away from the residential places offered by the employer (Plunkett & Plunkett Research, Ltd 2009).

It is worth noting that the labor market has been internationalized such that employees can seek jobs in countries all over the world. This offers the opportunity to seek labor force from different countries in the world. This has created the need to develop appropriate cultural management aspects so that cultural conflicts are avoided. With the establishment of trade agreements, countries are allowed to trade in other countries. This has brought about freedom for professionals to move to other regions and seek for better employment opportunities. Outsourcing has become a major scenario in many industries because companies are seeking ways of reducing employment liabilities. Outsourcing offers companies with the opportunity to obtain services without considering any logistical measures on how to handle employees. This reduces the costs of accommodating employees and the organization benefits from improved service delivery. Outsourcing companies have specialists in all fields who can offer better services than internal employees (Button, Hensher & Brewer, 2001).

Warehousing is an important process in logistics management. It involves storing materials before and during the production process. It also involves storing products after processing and before they are delivered to consumers. The process of warehousing is important in an organization because it provides opportunity to add value to materials, and increase the benefits accrued. Logistic management during warehousing should ensure that materials are readily available for processing. In addition, the organization should have products ready for use when the customers demand them (Stadtler & Kilger 2008).

Improvement in logistics has enhanced international trade because people can consume or produce products which are transported to other regions. Today, consumers and producers are well connected with the improvement on the transport and storage systems. International trade has contributed to specialization in production because a country can produce only a few commodities which it has production advantage. Other essential products can be imported from other countries. For example, countries in Middle East have specialized in the production of oil and related fuel products. The economies of these countries are reliant, to a large extent, on the oil production. Other products such as foods, machinery and others are obtained from other countries of the world. This system has created over-dependence on international trade. Governments have developed policies to encourage international trade (Stadtler & Kilger 2008).

Coordinating logistics is an important aspect that organizations should possess. All the departments of a company should be well coordinated to ensure that there are no losses or wastage of resources. Managing logistics requires getting ideas from different stakeholders to ensure appropriate decisions are made in an organization. In modern days, companies are outsourcing logistics managers to plan and implement logistical processes in an organization. This reduces the burden of managing and coordinating various departments in an organization (Plunkett & Plunkett Research, Ltd 2009).

In any logistic process, communication is very important because it offers information about important processes in an organization. With the development of internet services, communication has improved a great deal. Efficiency in communication has been achieved by establishing better communication channels such as emails, social networks and other systems. The use of internet has increased in modern days and this has improved the efficiency in communication because people can deliver information faster. In addition, data storage has improved because there are many areas where organizations can secure important information. Important information about logistical processes can be obtained from the internet. This has improved knowledge about the management processes. Today, organizations perform better than before because communication has been improved and access to information has been simplified. Therefore, it is easier to manage international logistic network. As such, managers can control all activities taking place in different countries. The use of logistics intermediaries has also been realized in modern business environment. Hence, there is need to adopt better strategies of improving the processes of an organization to accommodate the changes being experienced in the global market (Wood 2002).

Inefficiency in logistics and distribution management is a cost to the company. When the systems of an organization are not operating according to plans, a lot of profits are lost. Inefficiency in the transport systems causes delays to the customer supplies. This may causes dissatisfaction among the customers; and in some cases, customers end up buying from other companies. Customer loyalty is lost when companies are inefficient in delivering supplies. It is observed that companies develop a bad image when their systems do not satisfy the needs of the customers. When customers are not satisfied, sales volume declines and other companies in the industry take advantage of such a situation. Therefore, the competitiveness of a company depends on its ability to establish operational logistics and transport system (Tanaka & Organization for Economic Co-operation and Development 2010).

Poor logistics and transport system also cause delays in the production process. When materials are delayed, the company fails to manufacture products in a timely manner and this ends up in delays in releasing the end products. When dealing with suppliers with inefficient systems, a company may experience delays in delivery of important materials required in the production process. In cases whereby production process is delayed, a company makes huge losses because the production process is delayed and all other processes that follow are affected too. Therefore, management of supplies is an important aspect which companies should consider; and the efficiency of suppliers should be a key aspect that should be considered when hiring supplier companies (Tanaka & Organization for Economic Co-operation and Development 2010).

Delays in logistics network cause many risks to happen. Risk management is an aspect that is determined by the time of delivering products and services. When a company is handling goods and services, there are many risks involved. When goods are moved faster from the company to other companies, risks are reduced. Therefore, delays in delivering products cause companies to experience a lot of losses especially when risks occur. Improving efficiency in the transport and logistics systems is a key element in risk management. For instance, fire may occur when goods are being warehoused by the company. This risk affects the company because the goods may end up being burnt. However, if the company transports the products to their respective destinations immediately after production, few losses would be experienced. It is important for managers to have an obligation to embrace time management when handling products to avoid incurring losses (Tanaka & Organization for Economic Co-operation and Development 2010).

Inefficiency in the supply logistics and transport system also affects the human resource management aspect of an organization. When employees are not properly handled, the performance of duties is affected. People transport to the areas of work is an important aspect that determines the time of delivering services and products. Companies with inefficient logistics in handling workers have reduced performance rates among employees. The morale of employees is also affected when their employers fail in delivering important resources that are required in production process. It becomes inevitable for managers to provide all necessary resources if they expect workers to perform effectively (Tanaka & Organization for Economic Co-operation and Development 2010).

Therefore, the competitiveness of a company in the global markets depends on the efficiency of logistics and transport systems. There are many companies in the global markets and they are placing competition to existing companies. This requires managers to be alert about the changes in the market to determine the best strategies to apply. Failing to monitor the logistics and transport systems can cause huge losses to an organization; and at the end of the day, a company may be forced to close (Tanaka & Organization for Economic Co-operation and Development 2010).

Thus, logistics and transport systems are important organizational aspects and they have their benefits and bottlenecks. Establishing effectiveness in the system improves the performance of an organization because all stakeholders are satisfied by the entire processes. On the other hand, inefficiencies in logistics and transport system may cause a lot of losses to an organization. It is an obligation for managers to ensure that the entire system is operational and that all stakeholders are satisfied with the system of logistics and transport (International Heinz Nixdorf Symposium & Dangelmaier 2010).

Reference List

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