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THE IMPACT OF TRANSPORTATION ON THE DISTRIBUTION OF PETROLEUM PRODUCT FROM DEPORT TO SALES OUTLET


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Abstract

Transportation plays a key role in the development of a nation. This factor has long been seen as a major element helping the Economy to grow rapidly. It has recently been observed that transportation assist other sectors of the economy in carrying out their functions. In the course of this research work, it was discovered that much needed attention is not been given to transportation. In the course of this research work, NNPC depot is chosen as a case study for the research work. A theoretical analysis, backed by observations, oral interview at depot and review of so many authors contributed to the successful of this research work after which hypothesis were formulated and tested with response from the sample size.

 

 

 

 

 

 

 

 

CHAPTER ONE

INTRODUCTION

  • Background of the study

Development is made possible by many factors. Transport is the leading factor. Economic and social progress can only take place if the determinants of a satisfactory life that is food, health, education and employment are generally available. In recent years, transport have seen a revolution with the advent of mass air travel, high and rapidly rising of personal mobility based on car ownership as well as public vehicles and restructured distribution channel. All these have encouraged the growth of industries and commerce in a country. This can be summed up in this quote that say: transport provided the formative power of economic growth and the differentiating process” (Voigt 1967). The Economy is now looking at transportation to provide rapid growth. The Nigerian National Petroleum Corporation (NNPC) depot Apata was established in 1979. It is controlled by the products and pipelines marketing company (PPMC). This Company is a subsidiary company of the NNPC while NNPC is a Federal Government Corporation.

 

In the last two decades, petroleum industry has occupied strategic importance in the Nigerian economy accounting for as high as 78 percent of Gross Domestic product and up to 90 percent of the country’s total annual revenue and foreign exchange earnings as given in Table 1(National Bureau of Statistics, 2008). . In Table 1 a breakdown of the federally collected revenue from 1965 till 2007 shows that the oil sector maintained and continues to maintain its dominance accounting for over 90 percent of total revenue in some years. At any rate since 1980, the percentage contribution of the oil sector to the total government revenue has not fallen below 70 percent of the total receipt. This tends to demonstrate the strategic importance of the petroleum resources in the Nigerian economy. The petroleum industry can be classified by type of actors or by sector. The actors in the Nigerian industry consist of both private and public organizations. The public actors are the government agents and functionaries such as the Nigerian National Petroleum Corporation (NNPC) and its subsidiaries, the Department of Petroleum Resources (DPR), the petroleum products pricing regulatory authority (PPPRA), among others. The private segment consists of both indigenous and foreign actors. The indigenous sector consists of private independent marketers. As far back as 1978, the concept of independent petroleum products marketing was introduced with a view to bringing indigenous independent marketers to that sector of the industry. According to Edoreh (1997), in 1979 a year after the scheme of independent marketers was introduced, there were not more than 20 (twenty) “independent marketers”. By 1993, the number had risen to 1000. Today, the indigenous independent marketers are well over 7,948 (according to the Petroleum Product Pricing Regulatory Authority, PPPR, 2010). As a measure of the growing involvement of the indigenous petroleum products marketers in the economic development process of Nigeria, it is interesting that in 1981, they accounted for less than half – percent in terms of volume of petroleum products marketed in Nigeria. By 1998, they had captured about 25 percent of the market. Today, they account for nearly 40 percent of the volume of products marketed in country. (NNPC, 2010). In terms of outlets, the major marketers have 2218 while the Independent marketers have 7948 outlets. The NNPC has 18 mega stations nationwide as at June, 2010. (See Table 2). These indigenous independent marketers are competing with the established big (foreign) multinational enterprises usually referred to as the major oil marketers comprising:

  • Mobil Oil Nigeria Plc
  • MRS Nigeria Plc
  • Total Nigeria Plc
  • Con oil Plc
  • Oando Nigeria Plc
  • African Petroleum Plc

the market. There are two major classification of petroleum industry by sector. These are the “Upstream” and Downstream sectors. The commercial simulation environments that are available today focus primarily on the development of simulation models. They are designed for a single user. They provide animation during the simulation run and in most cases they provide outcomes of the simulation run in reports (Edwin et al., 2008). A key problem of a container terminal is the design and integration of the security procedures, such as the containers inspection, in the normal container terminal operations (Longo, 2010). Due to an increasingly competitive market, transportation operations are usually considered as one of the major bottlenecks in the oil production chain. Thus, petroleum companies are eager to find ways to pursue efficient transportation schedules within their operational planning so as to organize their activities to achieve better competitive advantages. To efficiently manage the available resources is, in other words, to have their products at the right price, in the right quantity, at the right place and at the right time. In the operations research and management science, this type of problem is called “inventory routing problem” (IRP), which is one of the core problems that have to be solved when implementing the emerging business practice called “vendor managed inventory replenishment” (VMI) (Kleywegt et al., 2000). As recent research focus on refineries food chain modeling reported in the literature only one address of the chain, such as crude logistics using discrete event simulation and optimal control (Neiro and Pinto, 2004; Reddy et al., 2004). Hughes (1971) sets up a network model to determine where to locate the terminals with respect to customer distribution sites. The efficient ways of loading and unloading into the storage tanks at oil terminals (Christofides et al., 1980). The transportation costs involved in loading and unloading these storage tanks are not investigated, additionally the article does not address the terminal profits. Simulation-based short-term scheduling of crude oil from port to refinery tanks and distillation unit, agent-based crude procurement (Cheng and Duran, 2004; Chryssolouris, 2005; Julka et al., 2002). External the refinery environment (Banks et al., 2002), supply chain management (SCM) simulation studies at International business machines (IBM) and Virtual logistics and talk about issues related to strategic and operational SCM, distributed SCM simulation, and commercial packages for SCM simulation (Kleijnen, 2005). In this paper, the main problems identified in reality include: (1) Overfilling a tank or having too many tanks filled with oil potentially caused a misuse of precious resources (Razman et al., 2010); (2) Inefficient location for production resulted in excess cost being incurred throughout the lifetime of the facility; (3) All oil derivatives were not economically sent from the refineries to the depots, considering high transportation cost under the same oil price around. Therefore, this study is mainly aimed at developing a decision support system to investigate and improve the combined inventory and transportation system in a representative oil refinery supply operation. Through the proposed model, crucial resources for oil terminal operations are identified such as the optimal number of tanks, tank size and truck arrival rate, etc. Accordingly, a user interface window and implementing software applications are also designed based on the simulation model. In this way, it helps to make more rational decisions on optimizing inventory, reducing operating costs and thus maximizing benefits. The remainder of this study is organized as follows. Subsequently, the study describes the operation systems which consist of Oil refinery terminal operations and oil product transportation from refineries to depots. After which, a brief explanation of adopted research methodology is presented. This was followed by the designed of the structure of the proposed model in the two aforementioned aspects. Then the study applies the model with simulation results provided and discussed behind. Finally, some conclusions are drawn in. SYSTEM DESCRIPTION The system deals with the fulfillment/procurement process in a supply chain (SC) that contains the oil refinery company (with multiple oil depots at different locations) and the supplier that transports the oil productions to the oil depots from a few larger warehouses in the refinery terminals. The main goals are similar to the usual supply chain (SC) goals: To offer good service to the final customer, while keeping: profits high, costs and lead-times low. As both the prices and quality of Oil in Iraq are regulated, the Abduljabbar and Tahar 4351 main quality indicator is the number of stock-outs. The main cost drivers are therefore: number of stock-outs, stock level at the oil depot and process execution costs (work, transport etc.). Lead-time is defined as the time between the start (measurement of the stock level) and the end (either the arrival of oil or the decision not to place an order) of the process. The description of the current system was divided into two categories which are oil refinery terminal operations and transportation of oil products to the depots.

  • STATEMENT OF THE PROBLEM

Transportation is the physical movement of passengers and goods from one geographical location to another to enhance their utility (Akintayo, 2010). Nigerian cities are facing rapid population explosion due to urban rural drift for the search of greener pastures. Transportation gets worst due to the increase in population without improvement on transport facilities. Economic transformation, and indeed, the development of any country are hardly possible without an efficient transport system (Lingaitiene, 2006; Tijjani and Nwankwo, 2013). This is because goods should be transported from origin to destination at minimal costs and time (Ubogu 2011). In Nigeria, refined petroleum products are transported from the refineries through a network of pipelines, coastal (marine) vessels, road trucks and rail wagons to the 21 regional storage/distribution depots, spread across the country. It is from these depots that the marketing companies used to obtain their supplies. NNPC is supplied through imports and locally refined products by both the major and the independent marketers. It is in view of the above that the researcher intends to investigate the impact of transportation on the distribution of petroleum product from depot to sales outlet.

  • OBJECTIVE OF THE STUDY

The main objective of the study is to investigate the impact of transportation on the distribution of petroleum product from depot to sales outlet, but to aid the completion of the study, the researcher intend to achieve the following specific objective;

  1. To investigate the impact of transportation on the distribution of petroleum product
  2. To examine the effect of transportation on the availability of petroleum product
  • To examine the role of transportation on the price of petroleum product
  1. To examine if there is any relationship between product availability and product transportation
    • RESEARCH HYPOTHESES

The following research hypotheses were formulated by the researcher to aid the completion of the study

H0: there is no significant relationship between product transportation and product availability

H1: there is a significant relationship between product transportation and product availability

H02: transportation channel does not have any effect on the availability of petroleum product

H2: transportation channel does have an effect on the availability of petroleum product

  • SIGNIFICANCE OF THE STUDY

It is believed that at the completion of the study, the findings will be of great importance to the owners of filling stations and the management, as the findings of the study will help in setting up a reliable transport system that will convey the product from deport to their respective sales outlet, the study will also be useful to the management of deport and refineries as the study seek to explore the crucial role played by the transportation unit in the distribution and availability of the petroleum product to the end users or consumers, the study will also be useful to researchers who intends to embark on studies in a similar topic  as the study will serve as a reference point for further studies. Finally the study will be of great use to academia’s, students, teachers and the general public as it will add to the pool of existing literature and contribute to knowledge.

  • SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the impact of transportation on the distribution of petroleum product from deport to sales outlet. But in the cause of the study, there were some factors that limited the scope of the study;

  1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
  2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
  3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities

1.7 OPERATIONAL DEFINITION OF TERMS

Transportation

Transport or transportation is the movement of humans, animals and goods from one location to another. Modes of transport include air, land, water, cable, pipeline and space. The field can be divided into infrastructure, vehicles and operations.

Distribution

Distribution is one of the four elements of the marketing mix. Distribution is the process of making a product or service available for the consumer or business user that needs it

Petroleum product

Petroleum products are materials derived from crude oil as it is processed in oil refineries. Unlike petrochemicals, which are a collection of well-defined usually pure chemical compounds, petroleum products are complex mixtures

 

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study

 

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Author: SPROJECT NG