HARLOUD CONSULTANCY COMPANY

CONSULTATION REPORT ON THE TEXAGO CORPORATION SUPPLY CHAIN

ON OIL PROCESSING AND DISTRIBUTION
Contents
INTRODUCTION....................................................................................................................................... 3
1.1What Is a Distribution Network? ..................................................................................................... 4
1.2 DISTRIBUTION AND LOCATION ............................................................................................... 5
1.21Extensive Distribution Strategy .................................................................................................. 5

2.1 POTENTIAL SITES ............................................................................................................................. 7

3.0 COST IN DIFFERENT REGFINERIES OR POTENTIAL SITES ................................................ 9

3.1 COST ON DIFFERENT DISTRIBUTION CENTRES ................................................................ 9

4.0 TOTAL SHIPPING COST FOR CRUDE OIL WITH EACH POTENTIAL CHOICE OF A
SITE FOR THE NEW REFINERY ........................................................................................................ 10

5.0 TOTAL SHIPPING COST FOR FINISHED PRODUCT WITH EACH POTENTIAL CHOICE
OF A SITE FOR THE NEW REFINERY. .............................................................................................. 11
5.1 IN CONCLUSION( FINAL DICISION): ..................................................................................... 12

REFERENCES/BIBLIOGRAPHY ......................................................................................................... 13
1.0 INTRODUCTION
The Texago Corporation is a large, fully integrated petroleum company based in
the United States. The company produces most of its oil in its own oil fields and
then imports the rest of what it needs from the Middle East. An extensive
distribution network is used to transport the oil to the company’s refineries and
then to transport the petroleum products from the refineries to Texago’s
distribution centers. The locations of these various facilities are given in Table 1.

Table 1. Location of Texago’s current facilities

Type of Facility Locations
Oil fields 1. Texas
2. California
3. Alaska
Refineries 1. Near New Orleans,
Louisiana
2. Near Charleston, South
Carolina
3. Near Seattle,
Washington
Distribution 1. Pittsburgh,
centers Pennsylvania
2. Atlanta, Georgia
3. Kansas City, Missouri
4. San Francisco,
California

Texago is continuing to increase market share for several of its major products.
Therefore, management has made the decision to expand output by building an
additional refinery and increasing imports of crude oil from the Middle East. The
crucial remaining decision is where to locate the new refinery.
1.1What Is a Distribution Network?
A distribution network refers to the system and processes involved in getting
products from manufacturers or suppliers to customers or end-users. It encompasses
various channels, intermediaries, and logistical operations that ensure the efficient
flow of goods or services. The primary purpose of a distribution network is to bridge
the gap between production and consumption, making products available to
customers at the right place, right time, and in the desired quantity (Smith, J. D.,
2022).
Here's a breakdown of how a distribution network typically works:
1. Manufacturers/Suppliers: The process begins with manufacturers or suppliers
who produce or procure the goods. They create the products and package them
for shipment.
2. Warehousing: Goods are often stored in warehouses or distribution centers
before they are sent to the next stage. Warehouses act as intermediate storage
points where inventory is managed and prepared for distribution.
3. Transportation: The transportation stage involves moving the goods from the
warehouse to various distribution points or directly to customers. This can
include different modes of transportation such as trucks, ships, airplanes, or a
combination of these depending on the nature of the product and the
geographic scope of the distribution network.
4. Distribution Points: Distribution points can include retail stores, wholesalers,
or distributors. These entities receive the products from the manufacturers or
suppliers and hold inventory for further distribution to end-customers.
5. Retailers: Retailers are the final link in the distribution network, selling
products directly to consumers through physical stores or online platforms.
They manage inventory, display products, and facilitate the purchasing
process.
6. End-Customers: The ultimate consumers of the products are the end-
customers who purchase and use the goods. They can be individuals or
businesses, depending on the nature of the product.
1.2 DISTRIBUTION AND LOCATION
The company decided to use the extensive distribution strategy which is a
distribution strategy that aims to spread the word about a specific product or product
line to multitudes of people. Because of its complexity, this distribution strategy can
target a few delivery channels for maximum results. It’s often used when a company
wishes to target as many potential customers as possible. However, this can be quite
tedious if you don’t have a proper plan in mind. Using multiple deliver channels
ultimately increases product awareness, ensuring that a maximum number of people
have information about the product. This is practically the opposite of selective
distribution which targets specific channels (Gary, J. H., & Handwerk, G. E., 2001).
1.21Extensive Distribution Strategy

Selecting the right distribution strategy is a pivotal decision that could either steer
your business to success or plunge it down. While an extensive distribution strategy
initially sounds like a good idea, it requires a plethora of resources to execute, not
making it a suitable choice for small businesses (Gary, J. H., & Handwerk, G. E.,2001).

Based on the location among oil fields, refineries, and distribution centers the choice
of some of the places are not conducive to the business especially when effectiveness
and efficiency of the business is concerned.
Least Cost Method (based on distance)
Near New Orleans, Near Near Seattle,
Louisiana Charleston, Washington
South Carolina

Texas 609.1miles 1, 208 miles 1,547.2 miles

California 1,947.9miles 2,213 miles 2,793.3 miles
Alaska 3,350 miles 4,381 miles 2,278.8 miles

Based on the distance provided the only cost-effective route to use from the oil fields
to refinery is the Texas to Louisiana route.
 Pittsburgh, Atlanta, Kansas City, San
Pennsylvania Georgia Missouri Francisco,
California
Near New 1,317.9 miles 550.8 miles 849.1 miles 1,945.1miles
Orleans,
Louisiana
Near 685.2 miles 204 miles 1,005.1 miles 2,366 miles
Charleston,
South Carolina
Near Seattle, 2,671.5 miles 639.2 miles 1,054.2 miles 2,807. 9 miles
Washington

Base on the least cost method emphasizing on the distance against cost, the best
route to use is from Near New Orleans, Louisiana to Atlanta, Georgia.
609.1miles +550.8 miles= 1,159.9 miles (minimum value among all)
Advice on location and distribution
The company can continue with the location chosen but they should maximize the
route from Texas (oil field) to Louisiana (refinery) and then to Georgia
(distribution centers). This is so because the distance between these locations is
less hence can lead to easy transportation with low cost used.

2.1 POTENTIAL SITES

On potential sites it is good that refineries must be opened close or near oil fields, as
it becomes so easy to transport the oil for processing according to Petroleum
Refining: Technology and Economics" by James H. Gary and Glenn E. Handwerk
2013. But Los Angeles California is the best potential site for this operation because
of the following according to James H Gary:
1. Cost Efficiency: Proximity between oil fields and refineries reduces
transportation costs. Oil can be transported via pipelines, which are the most
cost-effective mode of transportation for large volumes. Shorter distances
result in lower transportation expenses, as well as reduced risks associated
with shipping accidents or disruptions.
2. Operational Flexibility: Proximity allows for efficient coordination and
integration between oil field operations and refinery processes. This enables
better planning and scheduling, ensuring a smooth flow of crude oil to the
refineries. It also allows for faster response to market demands and changes
in supply, as oil can be readily transported for processing.
3. Reduced Infrastructure Requirements: When oil fields are located nearby,
there is no need for extensive infrastructure, such as long-distance pipelines
or tanker terminals, to transport crude oil over vast distances. This saves on
infrastructure costs and simplifies logistics, making the overall operation
more streamlined.
4. Timely Refining: Having oil fields near refineries reduces the time required
to transport crude oil and start the refining process. This results in shorter lead
times from extraction to production, ensuring a faster turnaround and quicker
availability of refined petroleum products in the market.
5. Environmental Benefits: Shorter transportation distances reduce carbon
emissions associated with oil transportation. By minimizing the need for long-
haul trucking or maritime transport, the environmental impact can be
significantly reduced. Additionally, a reduced risk of accidents during
transportation helps prevent potential oil spills or other environmental
disasters.
6. Employment Opportunities: The proximity of oil fields to refineries can create
employment opportunities in the local area. Both the extraction and refining
processes require skilled labor, and having these operations nearby can
stimulate job growth and support the local economy.
3.0 COST IN DIFFERENT REGFINERIES OR POTENTIAL SITES

Cost per Unit Shipped (Millions of Dollars per Million Barrels)

Refinery or Potential Refinery
New Los
Charleston Seattle Galveston St. Louis
Orleans Angeles
Texas 2 4 5 3 1 1
California 5 5 3 1 3 4
Alaska 5 7 3 4 5 7
Middle East 2 3 5 4 3 4
Total 14 19 16 12 12 16

Using the least coast method, potential sites like Los Angeles and Galveston are the
best sites to pick since that have the least sum of cost that other sites with a sum of
12 million.
3.1 COST ON DIFFERENT DISTRIBUTION CENTRES

Cost per Unit Shipped (Millions of Dollars)

Distribution Center
Pittsburgh Atlanta Kansas City San Francisco
New Orleans 6.5 5.5 6 8
Refinery Charleston 7 5 4 7
Seattle 7 8 4 3
Los Angeles 8 6 3 2
Potential
Galveston 5 4 3 6
Refinery
St. Louis 4 3 1 5
TOTAL 37.5 31.5 21 31
100 80 80 100
Number of units needed.

Base on the least cost method Kansas City is the ideal distribution c entre that have
less cost incurred in comparison to other distribution centers regardless of the units
needed being less but the money saved is way more significant.
4.0 TOTAL SHIPPING COST FOR CRUDE OIL WITH EACH POTENTIAL
CHOICE OF A SITE FOR THE NEW REFINERY
Table 4. Cost data for shipping crude oil to a Texago refinery

Cost per Unit Shipped (Millions of Dollars per Million Barrels)

Refinery or Potential Refinery
New Los
Charleston Seattle Galveston St. Louis
Orleans Angeles
Texas 2 4 5 3 1 1
California 5 5 3 1 3 4
Alaska 5 7 3 4 5 7
Middle East 2 3 5 4 3 4

According to the graph above the total cost for shipping crude oil in each potential
sites is as follows:
FOR LOS ANGELES
3+1+4+4=12
The total cost is 12 million from the sources to the potential new refinery sites.
FOR GALVESTON
1+3+5+3=12
The total cost is 12 million.
FOR ST LOUIS
1+4+7+4=16
The total cost is 16 million.
NB: Base on the data and calculations made, it shows that only two potential sites
have the least coast and thus Los Angeles and Galveston. These two sites are the
right choice to incur less cost and maximize profits.
5.0 TOTAL SHIPPING COST FOR FINISHED PRODUCT WITH EACH
POTENTIAL CHOICE OF A SITE FOR THE NEW REFINERY.

Table 5. Cost data for shipping finished product to a distribution center.

Cost per Unit Shipped (Millions of Dollars)

Distribution Center
Pittsburgh Atlanta Kansas City San Francisco
New Orleans 6.5 5.5 6 8
Refinery Charleston 7 5 4 7
Seattle 7 8 4 3
Los Angeles 8 6 3 2
Potential
Galveston 5 4 3 6
Refinery
St. Louis 4 3 1 5
Number of units needed 100 80 80 100

FOR LOS ANGELES

8+6+3+2= 19 million
This means to ship distribution centers from Los Angeles refinery it will cost a sum
of 19 million.
FOR GALVESTON
5+4+3+6= 18 million
This means to ship to distribution centers from Galveston refinery it will cost the
sum of 18 million.
FOR ST. LOUIS
4+3+1+5=13 million
This means to ship to distribution centers from St. Louis refinery it will cost the sum
of 13 million.

NB: In distributing finished products to the distribution centers St. Louis has the
least cost of 13 million.
Putting together the cost from refinery to distribution on all these potential sites the
cost are as follows:

FOR LOS ANGELES

12 million + 19 million = 31 million

FOR GALVESTON
12 million + 18 million = 30 million
FOR ST. LOUIS
16 million + 13 million = 29 million

Hence the final best potential site to be used for this company to make more profits
and reduce cost is ST. LOUIS. It even has the least operating cost as per data
showcasing below in the table:
Table 6. Estimated operating costs for a Texago refinery at each potential site
Annual Operating Cost (Millions of
Site
Dollars)
Los 620
Angeles
Galveston 570
St. Louis 530

5.1 IN CONCLUSION( FINAL DICISION):

the last decision that the Hudson consultancy dwells on is the use of St. Louis
refinery as the best potential site for the business.
REFERENCES/BIBLIOGRAPHY

1. Books and Research Papers:

o Chang, A.-F. (2000). Refinery engineering: Integrated process
modeling and optimization. Gulf Professional Publishing.
o Gary, J. H., & Handwerk, G. E. (2001). Petroleum refining: Technology
and economics (5th ed.). CRC Press.
o Marketing: An Introduction" by Gary Armstrong and Philip Kotler
(Latest edition: 2021)
o Meyers, R. A. (Ed.). (2004). Handbook of petroleum refining processes
(3rd ed.). McGraw-Hill Professional.
o Smith, J. D. (2021). Advancements in oil refinery technology. Journal
of Petroleum Processing, 15(3), 45-60.
o Smith, J. D. (2022). Distribution Networks: Strategies and
Implementation. Publisher.