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ABOUT HPCL HPCL is a Fortune 500 company, with an annual turnover of Rs. 1,08,599 Crores and sales/income from operations of Rs1,14,889 Crores (US$ 25,306 Millions) during FY 2009-10, having about 20% Marketing share in India and a strong market infrastructure. HPCL operates two major refineries producing a wide variety of petroleum fuels & specialties, one in Mumbai (West Coast) of 6.5 Million Metric Tonnes Per Annum(MMTPA) capacity and the other in Vishakapatnam, (East Coast) with a capacity of 8.3 MMTPA. HPCL holds an equity stake of 16.95% in Mangalore Refinery & Petrochemicals Limited, a state-of-the-art refinery at Mangalore with a capacity of 9 MMTPA. In addition, HPCL is constructing a refinery at Bhatinda, in the state of Punjab, as a Joint venture with Mittal Energy Investments Pte. Ltd. HPCL also owns and operates the largest Lube Refinery in the country producing Lube Base Oils of international standards, with a capacity of 335 TMT. This Lube Refinery accounts for over 40% of the India's total Lube Base Oil production.

Supply Chain Process of HPCL

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ABOUT HPCL

HPCL is a Fortune 500 company, with an annual turnover of Rs.

1,08,599 Crores and sales/income from operations of Rs1,14,889 Crores

(US$ 25,306 Millions) during FY 2009-10, having about 20%Marketing share

in India and a strong market infrastructure.

HPCL operates two major refineries producing a wide variety of petroleum

fuels & specialties, one in Mumbai (West Coast) of 6.5 Million Metric Tonnes

Per Annum(MMTPA) capacity and the other in Vishakapatnam, (East Coast)

with a capacity of 8.3 MMTPA. HPCL holds an equity stake of 16.95% in

Mangalore Refinery & Petrochemicals Limited, a state-of-the-art refinery at

Mangalore with a capacity of 9 MMTPA. In addition, HPCL is constructing

a refinery at Bhatinda, in the state of Punjab, as a Joint venture with Mittal

Energy Investments Pte. Ltd.

HPCL also owns and operates the largest Lube Refinery in the country

producing Lube Base Oils of international standards, with a capacity of 335

TMT. This Lube Refinery accounts for over 40% of the India's total Lube Base

Oil production.

HPCL's vast marketing network consists of 13 Zonal offices in major cities

and 101 Regional Offices facilitated by a Supply & Distribution infrastructure

comprising Terminals, Aviation Service Stations, LPG Bottling Plants, and

Inland Relay Depots & Retail Outlets, Lube and LPG Distributorships. HPCL,

over the years, has moved from strength to strength on all fronts. The

refining capacity steadily increased from 5.5 MMTPA in 1984/85 to 14.8

MMTPA presently. On the financial front, the turnover grew from Rs. 2687

Crores in 1984-85 to an impressive Rs

1,16,428 Crores in FY 2008-09.

HPCL LUBRICANTS

HP Lubes is an integral part of Hindustan Petroleum Corporation Limited,

one of India's frontline oil majors, committed to providing energy and

fueling growth in every significant area of development. In pursuit of this

vision, there is a sustained emphasis on environment protection and

preserving the cultural heritage of India.

HPCL Lube market share is around 11%. The HP Engine Oils product range

covers over 300 brands of lubricants, greases and specialties catering to the

automotive as well as the industrial sector.

HPCL has six lube blending plants at Mumbai, Kolkata, Chennai and Silvassa.

HP Lubricants are borne out of an intense and unrelenting R & D effort, which

aims at producing quality products that enhance automotive performance

standards. The range of HP Lubes is comprehensive and catering to the

minutest needs; from new generation cars to ploughing tractors and

industrial machinery. The range conforms strictly to OEM specifications,

often taking the initiative in customization of products.

The various lubricant segments of HPCL are:

Since the study is focused on automotive lubricants and within automotive

lubricant, engine oils are taken under study within which Diesel engine oil,

passenger car motor oil and four stoke oils are taken. The various brands of

HPCL in automotive segment are:

HP

LUBR

ICAN

TS

INDSTRIAL SPECIALITIES

AUTOMOTIVE GRADES

INDSTRIAL GRADES

GREASES

HPCL AUTOMOTIVE LUBRICANT

ENGINE OIL

DIESEL ENGINE PASSENGER CAR FOUR STROKE OIL

MILCY 40 HP CRUISE RACER 4

LAL GHODA HP ACE RACER 4- EXCEL

CHAMPION

MILCY TURBO

HP NO1

AUTOMOTIVE LUBRICANT

ENGINE OILS

FIRST FILL ENGINE OILS

NATURAL GAS ENGINE OILS

PETROL ENGINE OILS

DIESEL ENGINE OILS

GEAR OIL DEFENSE AUTOSPECIAL

ITIESTRANSMISSION

GRADES OILS

AIMS AND OBJECTIVES

Hindusthan Petroleum Corporation Ltd. has large percentage of share in

lubricants market of India primarily it is playing a dominant role in industrial

segment. Though it has various advantages still company is unable to make

a strong presence in consumer segment of lubricant market. HPCL is thriving

hard to minimize its cost in supply chain process.

Looking the market trend and situation the study “Supply Chain of

Lubricants in HPCL” has been undertaken to find the following:

To portray the lubricant market in India liberalization and current

state of competitiveness.

To understand and analyze the supply chain process of lubricants in

HPCL particularly in Budge Budge Terminal.

Application of Porter’s Five Force Analysis and SWOT Analysis to

identify HPCL’s advantages and disadvantages in lubricant market.

REVIEW OF LITERATURE

1. HPCL Annual Report: It describes about company profile, new project, company structure, financial data and future developmental plan of company.

2. Research on HPCL: It describes company details about various products, company strategy and company’s long-term planning.

3. www.crisil.com/Ratings/Commentary/CommentaryDocs/lubart.pdf: It describes about the global and Indian scenario about lubricant market

4. Dawson, Catherine : It describes steps, procedure and methodology of research.

5. www.hindustanpetroleum.com/: It provides information about company, product, market and other information.

Methodology

A structural representation of study methodology:

PROBLEM DEFINITION

DEVELOPMENT OF APPROACH TO

THE PROBLEM

RESEARCH DESIGN

FORMULATION

DATA COLLECTION

DATA PREPARATION AND ANALYSIS

RECOMENDATION

STUDY ON INDIAN LUBRICANT MARKET:

Introduction:

Global demand for lubricants in the world is estimated at around 41 million

KL. Automotive lubricants account for around 54%, Industrial lubricants at

around 41% and marine for the balance.

Globally the lubricants industry has been growing 2.0 to 2.5% per annum in

the past 5 years. In developed countries automotive lubricants have been

growing at slower rate of 1.0% per annum on account of the saturation of

vehicle population, improved engine technology and better quality oil.

Asia is the 3rd largest market for lubricants in the world and is expected in

future to grow at a faster rate as compared to other developed markets.

Asia’s share in the world lubricant market has increased from 22% in 1993 to

25% in 1998.

25%

35%

12%

28%

AREA WISE DEMANDAsia Paciic EuropeCentral- Southern America Northern America

INDIAN SCENARIO

India is the 6th largest lubricant market in the world, with a consumption of

around 1.12 Million KL. In 1998-1999 as against a installed capacity of 1.6

Million kl and has grown at a CAGR of around 7.0% over the period between

1993-1998. However with the industrial down turn an also slower growth in

the automobile sector, the growth of the industry has slowed down to around

4.0% in the last few years.

Till 1993, the Indian lubricant industry was totally controlled by the Govt.

with the Oil Coordination Committee (OCC) controlling all aspect of the

industry. Thus, the industry was dominated by the oil public sector units

(PSUs)-IOCL, BPCL, & HPCL. Castrol was the only major private sector in the

industry.

HPCL24%

BPCL8%

IOC30%

CASTROL19%

GULF OIL6%

TIDE WATER4%

ELF3%

OTHERS6%

COMPANY WISE MARKET SHARE

RECENT TRENDS

Increasing industry competition:

In 1993 the Govt. liberalized the lubricant sector and announced a number of

regulatory changes. This included

The entry of foreign companies into the Indian market

Decanalisation of imports of base oil.

Decontrol of pricing of base oil.

Reduction of custom duties on base oils.

REASONS FOR DECLINING LUBE TO FUEL RATIO

TECHNOLOGICAL DEVELOPMENT

Automotive engineering technology has improved significantly in past few

years, with a corresponding impact on the improvement of lubricant quality.

Improving engine and lubricant technology has resulted in the decline in the

lube to fuel ratio. Additionally, there has been demand from both the OEMs

and the customers for better quality lubes with longer life, better properties

and lower deposit formation, meeting the stringent emission standard

required.

40%

60%

MARKET SHAREAutomative segment Industrial Segmnt

Country Per Capita Consumption

America 31

China 14

Europe 2

India 1

Supply chain Process of HPCL:

A typical lubricnt manufacturing process:

IMPORT OF CRUDE OIL (IN FSL)

IMPORT OF ADDITIVES (IN FCL)

MATERIALS ARE STORED IN TANKS

ADDITIVES ARE UNLOADED & TRANSPORTED THROUGH TRUCKS

CRUDE OIL ARE UNLOADED IN FEDDER VESSELS OR ARE TRANSPORTED THROUGH PIPELINE

IN-HOUSE PROCESS (EXPLAINED IN FIGURE)

FINISHED PRODUCTS ARE STOCKED IN CAPTIVE

INDUSTRIAL CONSUMER(DIRECT SALES)

DISTRIBUTORS/ WHOLESELLER

RETAILERS

SMALE GARAGE

DEPOT(STOCK STRANSFER)

ADDITIVES

Plain mineral oils cannot provide all the necessary functional properties that

an engine requires. These plain mineral oils need fortification with

chemicals/additives which when used in small quantities, import or enhance

the desirable functional properties. Some of the types and reasons for their

use are as follows:

Dispersants: Keeps sludge, carbon and other deposit- precursors

suspended in oil. Detergents: Keeps the engine parts clean from

deposits.

Rust/Corrosion Inhibitors: Prevents or controls oxidation of oil,

formation of varnish, sludge and corrosive compounds, limit viscosity

increase.

Extreme Pressure (EP), Anti wear and friction modifiers: These form

protective film on the engine parts and reduce wear and tear.

Metal deactivators: Forms surface films so that metal surface does not

catalyze oil oxidation.

Pour Point Depressant: Lowers freezing point of oils assuring free flow

at lower temperatures.

Anti-foamants: Reduces foam in crankcase and blending.

Base Oils

The name given to lubrication grade oils initially produced from refining

crude oil (mineral base oil) or through chemical synthesis (synthetic base

oil). Base oil is typically defined as oil with a boiling point range between 550

and 1050 F, consisting of hydrocarbons with 18 to 40 carbon atoms. This oil

can be either paraffinic or naphthenic in nature depending on the chemical

structure of the molecules.

Mineral oils (paraffinic, naphthenic), synthetic hydrocarbons (PAO, Alkylates)

and other synthetic compounds (Esters, Polyglycols, etc.)

Logistics process of crude oil in HPCL:

The crude oil is coming from various countries Iran, UAE etc. The crude price

is controlled by various bodies like The Organization for Petroleum Exporting

Countries (OPEC).

The crude comes in full ship load and gets unloaded in deep mooring in to

feeder vessel. Then feeder vessels ship the crude oil from transshipment

point to destination i.e. refineries like Mumbai, Vizag.

The crude oil then transfer in to tanks of refineries through pipeline which

are located in storage area of plant.

As requirement and production plan the refining process starts. Base oil is

prepared in refineries HPCL has the largest lube refining plant in Mumbai. It

has a capacity of 6.5 MMTPA which is 40% of India’s total capacity.

Logistics process of Base Oil in HPCL:

The processed oil is shipped in different terminals i.e. the blending units in

different parts of country.

Logistics process of Additives in HPCL:

There are two option to acquire the additives (Source)

Local Vendors

Import

Both the option has its own merits & demerits.

PRIME ACTIVITIES OF LOGISTICS:

The key activities of logistics are:

1) Inventory Maintenance

It is usually not possible or practical to provide instant production or instant

delivery to customers. In order to achieve a reasonable degree of product

availability, inventories need to be maintained as buffers between supply

and demand. The extensive use of inventories results in the fact that, on the

average, they account use of approximately on third of logistics costs,

making inventory maintenance a key logistics activity.

2) Order Processing

Order processing cost tends to be minor as compared to transportation or

inventory maintenance costs. Nevertheless, it is a primary logistics activity.

Its essential nature comes from the fact that there is a critical time element

in getting goods and services to customers. Also it is the primary activity

that triggers product movement and service delivery.

3) Transportation:

For most firms, transportation is the most important logistics activity, simply

because it absorbs, on the average, approximately two thirds of logistic

costs. “Transportation” refers to the various methods for moving a product.

Road, rail, water and air are just a few of the popular choices.

Management of the transportation activity usually involves in making choices

regarding the method of shipment, the routings, and the utilization of vehicle

capacity.

TRANSPORTATION AT HPCL

Effective transportation management can help to reduce the total cost. It

functionally provides two major functions: product movement and

product storage.

Here at H.P.C.L. Budge Budge and Ramnagar Terminal the main model used

for transportation are well managed and effective in cost. The transportation

is done by road. The road transportation is used for lubricants products. For

delivery of the products, mainly 3 transporters are selected through bidding

which covers each and every region of India. Various regions of India are

allocated to particular transporter. After selecting transporter, the contract

procedure takes place. In contract, the contract conditions are written which

are prepared by expertise of H.P.C.L.

CONDITIONS FOR THE CONTRACT IN HPCL

1. The corporation reserves the right of accepting or rejecting the whole or

any part of the tender. The tenderer should code competitive or workable

rate for operating throughout the contract period.

2. EMD (Earnest Money Deposit) – EMD of successful tenderer shall either

be converted in to security deposit towards the fulfillment of contract or

refunded after submission of bank guarantee.

3. Security deposit – in case of cash security deposit the balance amount is

paid by way as under

· Demand Draft

· Bank guarantee from any nationalized bank or specified bank in favor

of HPCL.

4. Corporation shall pay interest @ 8% per annum on the cash/DD security

deposit.

5. FORCE MAJEURE – uncontrollable conditions like fire, explosion, and

natural causes like flood, earth wake, strikes etc. neither the corporation nor

the transport contractor shall be liable or deemed to be in fault.

6. Settlement of dispute/ arbitration – in case of any disputes the rules of

arbitration of Indian council of arbitration shall be binding of the party.

EXSISTING RIVALRY AMONG COMPETITORS

Lubricant market is highly competitive, with more than 30 players in the market

Major competitors are Castrol, BPCL, IOCL, Gulf, Valvoline

Strong product promotions through advertisements for example Castrol is doing for its CMO and FOUR STOKE (Castrol magnetec) segment

Quality of parent brand- quality of first brand

launched by the competitors have good impact

on customers mind, therefore driving the

customer to buy the current brand

Strong distribution channel- Castrol has strong hold on bazaar shops

BARGAINING POWER OF SUPPLIER

Lube base stock is obtained from its own (HPCL)

refinery, hence have some control over bargaining

power

Though in case of crude oil the supplier has higher power

and impact on price depends on various economical,

political and legal aspects.

In case of additives during imports it has stringent

process though supplier power is limited. As large

number of supplier are present in market.

BARGAINING POWER OF BUYER

Bargaining power of consumer in high because of large

number of competitors, therefore consumer has many

choices.

Margins for retailers and bazaar shop owners

Schemes provided for retailers, mechanics.

Product variety/ differentiation based on pack size, based on quality or

specification

Quantity/ volume purchased (KL) per month by buyer-

Based on the amount ordered the schemes can be provided to

the retailers and bazaar shop owners.

Importance of product to the buyer- Whether the brand is providing all

the benefits or not

Credit period to the buyer, whether the period is 1 month or more

Quality of pack- Attractive packaging (sticker, labeling), packaging

material

Cost of lubes is low as compared to Castrol, Valvoline, Gulf etc.

THREAT OF SUBTITUTE PRODUCTS

Infect no close substitute is present but recently bio-diesel is coming in the market. And in the present world where the environment is a pivotal concerned it can be a challenging situation for HPCL.

THREAT OF NEW ENTRANTS

Government policies- Decentralization of

lubricant industry in 1993 gave entry to

private players.

New technology- IOCL to launch biodegradable

lubricant.

Cost advantage- Provide same segment lubricant

brand at lower price.

Entry barrier- Brand name and image of existing

brand and distribution network.

SWOT ANALYSIS

STRENGTH

Prices are comparatively low.

Consumer have good image about the company.

Laal Ghoda has made position as low price DEO,

which is competitive as per cost of product is

concerned.

Schemes offered to consumers are good.

Manufactures raw material (LOBS) for lubricants thus

having control over margins.

Retail outlet as strong distributional channel.

WEAKNESS

Low above the line (ATL) activities such as advertisements

through media, hoardings, bill boards etc.

Since lubricant marketing is same as that of FMCG products

therefore requires continuous media promotion as a reminder to

the customers.

Packaging of Racer 4 is not attractive specially the label and sticker.

Laal Ghoda is used only for top-up purpose. Also, most of

customers use this brand for pressure jack oil, not as engine oil.

Has lower percentage occupancy of lubes in bazaar shop shelf, which is

around 10-12%.

OPPORTUNITY

Tie ups with OEMs (original equipment manufacturers)

such as with Eicher Motors, Tata Motors, Volvo etc

specifically in DEO segment.

Expansion in rural India, auto firms have begun

tapping the countryside. For instance, Maruti

Suzuki generates 10 per cent of its sales from

rural sales, amounting to 32,000 cars.

THREATS

Increasing market share of Valvoline and IOCL in Delhi NCR

region.

High duplicity in market leads to low pull for product.

FACTORS AFFECTING TOTAL CYCLE TIME OF TRUCK

The main purpose of any project is to study the system and find the

problems and loopholes, which exits in the system as here at HPCL Budge

Budge Terminal. We have been assigned the problem of high cycle time and

for that we have to observed the system and found out the solution for

reduction of cycle time. For that we observed the system from various

aspects and we found out some reasons that were increasing cycle time.

HPCL is dealing in a market, where optimum utilization of time is also very

important factor, as the profits equally depends on the production as well as

the time saved and optimally utilized time could add to more of the profit of

the company.

1. Improper handling of forklift and materials – The laborers at

different warehouses are not handling the material properly in the truck. In

every consignment sometimes product get damaged which increases the

time of loading and the cost because company has to replace this product.

2. Laborers – Over manpower in HPCL which is increasing cost.

3. Lack of Professionalism - People at HPCL are having casual approach

towards their work. They are passing their work to others which increase the

processing time. They also take long lunch breaks, frequent and long tea

breaks which hampers the system badly. Now the system is fully automated

because of SAP but adaptation of new technique is difficult for them and still

people don’t know much about it.

4. Improper distribution of laborers – Company is not placing laborers

properly at the ware houses.

5. Lack of supervision – There is lacks of supervision while laborers are

loading the trucks which results in improper handling.

6. Improper distribution of trucks – From the graph, we can say that

there is lack of proper distribution of trucks during the entire day. We have

divided the total time of loading and invoice of truck in three different ranges

so that we can see that maximum numbers of trucks came between 12:00 to

16:30 hours. This improper distribution of trucks is due to the transport

market which affects the logistic system very badly.

OBSERVATIONS

There is a lack of coordination between transporters and the warehouse

department. So the department is unaware of the exact status of the no of

trucks coming to HPCL and its arrival timing. Due to lack of coordination, the

labors are also not aware of the trucks arrival schedule. This results in less

no of laborers when the work load is more and vice a versa. Sometimes the

driver of the truck has to wait because there is no one to attend him when he

comes for loading. The fork lifter in order to finish off the work quickly,

damages the product while lifting two pellets simultaneously. This results in

increased loading time due to replacement of the damaged. It is also an

unsafe practice.

There is as such no regulation on the arrival and departure of the contract

laborers. They come and go as per their own wish. There is improper

distribution of laborers.

It is observed that during shift change, the movement of all the trucks comes

to a standstill so as to let the employee vehicles move freely. Moreover the

processing of loading and invoice also stops due to shift change. This factor

is unavoidable.

RECOMMENDATIONS

Supervisor should be there when trucks are getting loaded so that

laborers work properly and damage and loading time can be reduced.

Laborers sit idle until all the material is brought to the loading point.

Supervisor should force them to start loading as soon as the first pallet

or crate has been brought to loading point.

The overall performance of warehouse depends on staff at warehouse

but there is lack of co-ordination between dispatch staff.

·Warehouse person already have their dispatch plan. So they know

about their daily work well in advance. The warehouse person should

bring material at loading point in the morning before the truck comes

for loading instead of bringing material after the truck comes. This

would save time.

The warehouse department should keep themselves informed about

the no of arrival of trucks 1 day in advance so that the laborers can be

managed easily and the work can be carried out without any delay.

This would also help the labor contractor to place the no of laborers

required on a particular day.

·There lifting of 2 pellets by the fork lifter should be avoided which

would avoid any damage.

Proper food facility should be provided to the contractor so as to

increase the efficiency of the laborers.

The forklift truck can directly be taken near the truck to be loaded so

that the product can be directly paced inside. This would save time and

less number of laborers are required. This procedure has been

successfully implemented at RIL at Hajira. But for this the warehouse

infrastructure should be modified for the smooth operation of the

forklift truck.

LIMITATION OF STUDY

Used vary small sample size i.e. only four days out of 30 days of May.

Time period of study was during general shift hours i.e. between 8a.m.

to 5p.m. So could not observe the activities till 10p.m.

·

BIBLIOGRAPHY

1. Annual Report of HPCL of 2010-2011.

2. CRISIL, research on HPCL (2010) viewed on 12-5-2012.

3. www.crisil.com/Ratings/Commentary/CommentaryDocs/lubart.pdf

4. Dawson, Catherine, 2002, Practical Research Methods, New Delhi, UBS Publishers’Distributors

5. www.hindustanpetroleum.com/