Production and Operations Management
Analyze Marathon's product process and determine which phase is open to the greatest number of efficiency improvements. Explain your rationale.
Louisiana Offshore Oil port (LOOP) is an underwater oil port in the Gulf of Mexico, and it is 110 feet under water. It is an unusually large port, which transports approximately one million barrels of crude oil through a forty-eight-inch pipeline. Fifty- point- seven of LOOP belongs to the marathon. In the crude oil extraction and transportation process, my suggestion is that marathon should construct a storage capacity at the LOOP offshore port. This will ease the cost of transportation and save time that we loose in transportation. There should also be an oil refinery near the storage, which will facilitate the processing of the crude oil into the diverse petroleum products. Constructing an oil refinery will improve the system in that; it will decrease the cost of production hence, leading to more profits. In addition, transporting finished products is easier and more efficient in that the pipelines are being made specifically for different products. This will ease distribution of the products. This will also increase the efficiency of the system as a whole.
The consumption rate of oil is increasing by the day and by 2030 the minimum amount of fuel that will be able to satisfy the needs of the world will be ninety-nine barrels of oil. For the world to be able to meet these needs, new ideas and methods should be put in place, to provide for this crucial demand. In addition, the existing suppliers of the commodity should increase their production rates. For the remaining amount of oil, other methods of attaining, the product should cater for this.
In phase two of the crude oil pipeline, a lot of time is vanishing in the name of transportation of crude oil. The crude oil takes approximately twelve days to reach an oil refinery. This time can be immensely useful in processing the crude oil to the different products. If there is an oil refinery at the LOOP shore, transportation would be involving finished products. This will decrease the production cost in that, the cost that is normally there in the transportation of crude oil will decrease. The reason behind this statement is the transportation of finished products is easier in that, the distributors have data regarding the consumption of different products in different areas. Some areas have a high consumption of diesel more than petrol especially in areas with many agricultural activities; hence, direct transportation of a specific amount of petroleum products from the oil refinery to the destination place. This will substantially cut the cost of transportation and production as a whole. Still, in phase two, the transportation of barrels of crude oil per day could be made easier if only the transportation is of finished products.
In phase three, the process of refining crude oil into various petroleum products takes four to eight days. When we look at history, we see that there is a notable reduction in the number of oil of refineries. Hence, considering that the refinery process takes a maximum of eight days, it means that the more refineries available the faster the process. In addition, crude oil consists of oil hence the water has to settle so that the refining process can continue, and this takes an approximate of two days. The crude oil producers should come up with a way of extracting the oil with the extremely minimum amount of water or no water at all to reduce the workload for the refineries. In the world different countries are at different climatic conditions hence, petroleum products cannot function the same way. Therefore, due to the different types of processes of making different products a lot of time is in use. The solution for this issue can be to come up with a way of processing all products in a way that meets all these requirements.
In the fourth phase, there are fifty different types of reformulated oils, which take up a lot of space in the distribution process. If all products are similar then distribution will be much easier and faster. Therefore, marathoner as a company should come up with ways of producing products that are the same in characteristics.
Discuss the relationship between the retail price of gasoline and the world demand for crude oil.
The price of gasoline has an exceptionally strong relationship with crude oil, and as we know, America imports crude oil. Selling, and buying of crude oil changes on a daily basis because it is a product. The price of products changes depending on supply and demand. The more the availability of a product is, the lower the demand so the cheaper the product. Therefore, the less abundant a product is the more the demand hence the prices shoot up. The interaction of a product with internal and external factors affects the price of a product. Problems occurring during processing, war, political unrest and problems in transportation of product can cause an increase in the cost of fuel. These factors affect a commodity. The factors that affect the demand of a commodity include the weather conditions, season, driving habits and the economic growth all over the world.
The other main reason for price hikes is market assumptions when there are signs of political unrest, especially in oil producing countries. The other is the approach of a harsh winter the prices go up because people use fuel to warm up their houses, for electricity production and for cooking and for growing plants in greenhouses, hence the need for a lot of fuel. If the stock, of fuel, is, low in price will increase and hence cause many people to hesitate to buy. Therefore, this process controls the fuel industry so that they do not run out of the resource. This causes a decrease in demand so the prices increase to balance with the decrease in demand.
Explain what Marathon could do to keep the price at the pump the same without losing profits if global crude production decreased by 10%
Marathon as a company should ensure that they have enough stocks at all times to reduce the cases of shortages, which trigger price hikes. They should also ensure that their transport system is remarkably efficient when it comes to transporting their products. They should also have backup plans ready in case of any emergencies. They should invent ways of processing all the fuel in one way such that there will be no reformulated fuels. Marathon should construct a refinery at the offshore of LOOP to ease the production and distribution of fuel. They should try to reduce the operation expenses. If there are any unnecessary comforts, that do not assist in the growth of the company. In addition, they should try to buy in large quantities and in wholesome so that they can be able to get discounts.
In June 2010, President Obama imposed a six-month deep-water drilling moratorium. Determine the impact of the continuous moratorium on deep-water drilling for retail gas prices in the U.S
A number of petroleum products decreases and the overall production decreases. This means that the demand for petroleum products will increase hence an increase in the fuel price. The cost of fuel increases by a small margin but there is an estimate that by the time six months the impact will be bigger. The moratorium has lead to loss of job by people who rely on the job directly or indirectly the continued moratorium also has a huge effect on the countries economy. This is a very serious issue for people with children who rely on them wholly. The cost of living is becoming unbearable since the dollar is losing value. As it looses value, the economy of the United States of America is also feeling the impact. Structural damage may be an issue resulting from job losses in the gulf community.
The community will mostly feel the effects even though now they are receiving some pay a week; in the end, the community incurs the cost. The band that originally is one month long is then now six months long. The government intends to conduct a thorough investigation into the causes of the accident in underground water drilling. This accident causes a lot of damage to the whole ecosystem. The party that suffers most is the aquatic wildlife, which cannot be able to breathe with a thick layer of crude oil blocking the air.