Keys to Supply Chain Excellence


BALTIMORE – When Hurricane Humberto briefly stopped Chevrons production at Port Arthur, Texas,after its Sept. 13 landfall, the company was able to put its contingency plans to a good test. This is why you have a supply chain network, said Chevron Global Lubricants Barbara Burger, to have back-up supply. Sound emergency planning is just one of the key steps to meetingchallenges that can disrupt the lubricant supply chain network.

Burger, vice president for global supply chain with Chevron Global Lubricants in San Ramon, Calif., spoke Sept. 17 to the fall meeting of the Petroleum Packaging Council about meeting the packaging challenges her company faces daily in its efforts to achieve supply chain excellence.

Lubricants is the most far-flung business for most oil companies, said Burger. Chevron has 4,000 employees in Global Lubricants, plus numerous contractors, Burger said. It markets in 180 countries and has operations in 100. The company does most, but not all of its own lubricant blending at 42 proprietary blend plants, producing 60,000 barrels per day. Its three major brands are Chevron (used in North America and recently launched in India), Texaco (the Americas and Europe) and Caltex (South and East Africa, Middle East and Asia).

Although it is a net buyer of base oils, Chevron produces API Group II and III base oils in Richmond, Calif.,and its GS Caltex Group II and III joint venture in Korea will launch in early 2008, noted Burger.

World demand for lubricants is increasing at less than 1 percent annually, Burger noted, and flat demand makes lubes a challenging business. Flat demand, coupled with pressure for higher quality lubricants at the same time raw material prices are rising, make finished lubricants a challenging business indeed.

Emergency and contingency planning is at the top of Burgers list of challenges to overcome, addressing not just interruption of your own production, your customers and/or your suppliers, but also interruption of routes and carriers. You must have contingency plans for earthquakes, fires, etc. First, where are your employees? Are they safe? Second, secure your plant. Third, communicate with customers to meet their needs.

Trend to Standardization
The secondchallenge that lubricant packagers face is standardization in a global marketplace, Burger said. Among the problems are finding suppliers with global capabilities; cultural differences regarding colors, sizes and shapes [They want square tins for lubes in Turkey, shesighed.]; locally appropriate label sizes, text and graphics [Putting 25 languages on the label for the EU is a challenge!]; and different container sizes for different markets.

But the benefits to packaging standardization are considerable: reduced design and manufacturing costs; the ability to supply product from multiple locations, for both planned and unplanned reasons; and universal customer recognition.

You need a strategy for where to standardize and where to differentiate, Burger continued. Consumers care most about packaging differentiation, she said, so it may make sense to focus on distinctive bottles and labels for consumers, while using a generic container and label for industrial customers.

Unfortunately, were not starting with a blank piece of paper when it comes to optimal packaging differentiation, said Burger. You have to take opportunities where you can save costs with minimal hit to customer value perceptions. For example, she said, Chevron had more than 40 different grease cartons, requiring a great number of change-overs on the packaging line. We went from 40 to 20, and that meant significant savings.

Wal-Mart Mandates
Wal-Mart is leading the initiative in sustainable packaging, Burger said. Introduced in November 2006, Wal-Marts packaging scorecard will be used to measure and reward suppliers beginning Feb. 1, 2008.

The goal is to reduce packaging in the Wal-Mart supply chain by 5 percent by 2013; criteria include reducing greenhouse gases and product-to-package ratio. Wal-Mart has estimated that its sustainable packaging program in the United States alone will take 213,000 trucks off the road annually, save nearly 67 million gallons of diesel fuel, and prevent emission of 667 million metric tons of carbon dioxide.

Radio frequency identification, or RFID, is another Wal-Mart initiative that, like sustainable packaging, is increasingly being adopted by Wal-Marts competitors and others. RFID is an automatic identification method that relies on storing and remotely retrieving data using devices imbedded on each pallet, carton or package. As of June 2007, Burger noted, Wal-Mart had implemented RFID requirements in 1,000 of its 6,500 stores, covering 200,000 SKUs supplied by 600 vendors.

Chevron has started a pilot program, Burger noted, and adopting RFID technology is not just a Wal-Mart compliance issue. Its an opportunity for Wal-Mart vendors to realize the supply chain benefits of RFID. The technology can improve inventory accuracy, reduce stock shortages, reduce labor costs, simplify business processes, and aid in counterfeit identification, because the RFID tag can certify that a product is yours.

Counterfeiting and intellectual property infringement, prevalent in Asia and particularly in China, present a final packaging challenge, Burger said. You spend a lot of time and cost assuring customers that your product is genuine. Names, logos and identities can be altered, and counterfeiters often operate three to six months before they are caught. In some markets, we have to shrink wrap every individual package, Burger said. It is difficult to quantify the losses, including loss of sales and loss of reputation. Its an ongoing challenge.

Overcoming packaging challenges is directly linked to supply chain excellence, which Burger defined as reliably and safely producing and delivering products at the agreed-upon service level and quality, at the lowest total cost. You need a relentless focus on safety, no negative impact on the environment, low cost and high efficiency, reliability, consistent quality and adherence to service level agreements, Burger concluded. Perhaps then, she suggested, youll be ready to take on the disruptions, rising raw material costs, consolidations and competition that characterize the lubricants business.

Related Topics

Market Topics