Posted: April 20th, 2022

The Global Oil Company is an international producer, refiner, transporter

The Global Oil Company
The Global Oil Company is an international producer, refiner, transporter and distributor of oil, gasoline and petrochemicals. Global Oil is a holding firm with subsidiary working firms which might be wholly or partially owned. A significant downside for Global Oil is to coordinate the actions of those numerous subsidiaries into an general company plan, whereas on the similar time sustaining an inexpensive quantity of working autonomy for the subsidiary firms.

To take care of this dilemma, Global Oil Headquarters develops an annual corporate-wide plan that gives the sample of shipments among the many numerous subsidiaries. The plan units annual targets for every of the subsidiaries. It doesn’t element their day-to-day operations. Inside the framework of this annual plan, the working firms could make their very own choices and plans. This corporate-wide plan is presently executed on a trial and error foundation and, sadly, this has a number of drawbacks. First, the administration of the subsidiaries usually complains that the plan doesn’t replicate correctly the working circumstances beneath which the subsidiary operates. The plan generally requires operations or distribution plans which might be unattainable to perform. Second, Global Oil’s CEO Pedro Kemikol is involved that the plan doesn’t optimize for the overall firm.

The truth is, Pedro Kemikol has made it his prime precedence to optimize all the provide chain, from the procurement of crude oil to the distribution of gasoline on the pump. Global Oil has employed not too long ago some younger graduates from the Northwestern. They’ve hinted to Pedro that linear programming can be utilized to optimize the move of uncooked supplies and completed merchandise by averaging over a yr. This fashion, they argued, a corporate-wide annual plan can be generated based mostly on a sound quantitative strategy. Though Pedro is considerably skeptical, he is open minded and keen to present it a strive. Earlier than embarking on the event of a world-wide mannequin, Pedro Kemikol asks you to construct a mannequin of the Far Japanese Operations. The particulars of the 12 months 2006 planning mannequin for the Far Japanese Operations are actually described.

( 1 )

Far Japanese Operations
There are two sources of crude oil, Saudi Arabia and Borneo. The Saudi crude is comparatively heavier (24 API), and the Far Japanese sector might acquire as a lot as 80,000 barrels per day (b/d) at a value of $62 per barrel throughout 12 months 2006. A second supply of crude is from the Brunei fields in Borneo. This is a lightweight crude oil (36 API). Beneath the phrases of an settlement with the Netherlands Petroleum Company in Borneo, a hard and fast amount of 30,000 b/d of Brunei crude, at a value of $67 per barrel is to be provided throughout 12 months 2006.

There are two subsidiaries which have refining operations. The first is in Australia, working a refinery in Sydney with the capability of processing 30,000 b/d of crude. The Australian subsidiary markets its refined merchandise all through Australia, in addition to having a surplus accessible for cargo to different subsidiaries. The Australian subsidiary doesn’t import refined merchandise.

The second subsidiary is in Japan, which operates a 50,000 b/d capability refinery. Refined merchandise are marketed in Japan, and extra manufacturing is accessible for cargo to different Far Japanese subsidiaries. The Japanese subsidiary doesn’t import refined merchandise.

As well as, there are two advertising and marketing subsidiaries with out refining capability of their very own. Considered one of these is in New Zealand and the opposite is within the Philippines. Their wants may be provided by shipments from Australia, Japan, or the Global Oil subsidiary in america. The latter is not an everyday a part of the Far Japanese Operations, however could also be used as a supply of refined merchandise.

Lastly, the corporate has a fleet of tankers that transfer the crude oil and refined merchandise among the many subsidiaries.

Refinery Operations
The operation of a refinery is a fancy course of. The traits of the crudes accessible, the specified output, the particular know-how of the refinery, and many others., make it tough to make use of a easy mannequin to explain the method. The truth is, administration at each Australia and Japan have complicated linear programming fashions involving roughly 300 variables and 100 constraints for making detailed choices on a each day or weekly foundation.

For annual planning functions the refinery mannequin is vastly simplified. The two crudes (Saudi and Brunei) are enter. Two normal merchandise are output – (a) gasoline merchandise and (b) different merchandise corresponding to distillate, gas oil, and many others. As well as, though the refinery has processing flexibility that allows a variety of yields, for planning functions it was determined to incorporate solely the values at highest and lowest conversion charges (course of depth). Every refinery might use any mixture of the 2 excessive intensities. These yields are proven in Desk 1.

The prices of working the refinery rely considerably upon the kind of crude and course of depth. These prices are proven in Desk 1. Additionally proven are the transportation prices from both Borneo or Saudi Arabia.

Desk 1: Refinery Operations
Australia

Japan

Capability (b/d of enter)

30000

50000

Saudi Crude

Transportation Price ($/b)

zero.75

zero.eight

Excessive Course of Depth ($/b)

1.19

1.26

Yield of Gasoline

zero.31

zero.three

Yield of Distillate

zero.61

zero.62

Low Course of Depth ($/b)

zero.89

zero.88

Yield of Gasoline

zero.19

zero.18

Yield of Distillate

zero.76

zero.77

Brunei Crude

Transportation Price ($/b)

zero.35

zero.35

Excessive Course of Depth ($/b)

zero.93

zero.91

Yield of Gasoline

zero.36

zero.35

Yield of Distillate

zero.58

zero.59

Low Course of Depth ($/b)

zero.61

zero.55

Yield of Gasoline

zero.26

zero.25

Yield of Distillate

zero.72

zero.73

Advertising Operations

Advertising is performed in two dwelling areas (Australia and Japan) in addition to in New Zealand and the Philippines. Demand for gasoline and distillate in all areas has been estimated for 12 months 2006.

12 months 2006 Demand
Space (thous. of b/d)

Gasoline

Distillate

Australia

6

15

Japan

eight

21

New Zealand

5.four

14

Philippines

three

eight

TOTAL

22.four

58

The variable prices of supplying refined merchandise to New Zealand and the Philippines are as follows:

( Variable prices of cargo of gasoline/distillate in $/b To: New Zealand Philippines From: Australia zero.2 zero.2 Japan zero.45 zero.25 )

Tanker Operations
Tankers are used to convey crude from Saudi Arabia and Borneo to Australia and Japan and to move refined merchandise from Australia and Japan to New Zealand and the Philippines. The variable prices of those operations are included above.

Nevertheless, there is a restricted capability of tankers accessible. The fleet has a capability of 6.5 equal (normal sized) tankers.

The quantity of capability wanted to ship one barrel from one vacation spot to a different relies upon upon the gap traveled, port time, and different elements. The desk under lists the fraction of 1 normal sized tanker wanted to ship 1,000 b/d over the indicated routes.

Tanker Utilization Elements

(Fraction of Normal Sized Tanker Wanted to Ship 1000 b/d)

Between

and

Australia

Japan

Saudi Arabia

zero.11

zero.14

Borneo

zero.05

zero.05

New Zealand

zero.04

zero.08

Philippines

zero.05

zero.04

It is additionally potential to constitution impartial tankers. The fee for this is $eight,500 per day for the standard sized tanker.

United States Provide
United States operations on the West Coast count on a surplus of 12,000 b/d of distillate throughout 12 months 2006. The price of distillate on the loading port of Los Angeles is $74 per barrel. There is no extra gasoline capability. The estimated variable transport prices and tanker necessities of distillate shipments from america are:

Variable prices

of shipments

Tanker necessities

New Zealand

1.three

zero.15

Philippines

1.2

zero.13

Your Job
Formulate a linear program which can be utilized to generate a complete plan for the entire Far Japanese Operations. Clearly outline each variable utilized in your formulation, and clearly write the target and constraints in algebraic kind. Then it’s good to use EXCEL SOLVER (or ANALYTICAL SOLVER PLATFORM) to search out the optimum choice and worth. Your whole report needs to be at most four pages lengthy (Occasions New Roman, 12pt, double spaced). Please submit your report and Excel file digitally by way of Blackboard hyperlink.

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The Global Oil Company
The Global Oil Company is a multinational oil, gasoline, and petrochemical producer, refiner, transporter, and distributor. Global Oil is a holding firm with wholly or partially owned subsidiary working firms. The coordination of the actions of those numerous subsidiaries into an general company plan, whereas sustaining an inexpensive quantity of working autonomy for the subsidiary firms, is a serious downside for Global Oil.

To handle this quandary, Global Oil Headquarters creates an annual corporate-wide plan outlining the sample of shipments among the many numerous subsidiaries. The plan establishes annual objectives for every subsidiary. It doesn’t go into element about their day-to-day operations. The working firms could make choices inside the framework of this annual plan.

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