Abstract.3
Introduction..3
Literature Review.4
Brief History of the Company..6
Discussion7
Lean Manufacturing.7
Capacity Planning Issues..8
Building New Oil Refinery or Extending Existing Capacity9
Managing Oil Refinery9
Delivery of Different Fuels to the Filling Stations.9
Recommendations..10
Stages of New Strategy Implementation.10
Conclusion11
Appendices14
References.15
Operation Management in ADNOC
Abstract
The current paper relates implementation of lean manufacturing at ADNOC – national oil company operating on the territory of UAE. The necessity of implementation of operations management techniques is conditioned by increasing competition in the world markets and cost pressure. There were several aspects of the proposed operations strategy outlined with regard to the culture and structure of ADNOC. Operations management strategy was developed for the following areas: capacity management, managing oil refinery, and delivery of different fuels. The implementation plan was developed in order to elaborate project implementation.
Key words: oil industry, enterprise, oil refinery, lean manufacturing.
Introduction
Enterprises operating in UAE oil and gas industry are currently facing unique challenges. In addition, they have to react to a number of variable factors. The industry is project- and schedule-driven similar to construction industry. The enterprises operating in oil and gas industry are considered more traditional and conservative, but recently tend to implement advances of computer technology and modular design that are the approaches of lean manufacturing. Lean manufacturing help improve productivity and satisfy customer demand.
The challenges that oil and gas companies face are connected with optimization of resources, effective utilizing equipment, and varying cycle and setup times. This is the reason why lean manufacturing is a viable approach for the process of continuous operations like oil refinery. Lean manufacturing offers an opportunity to develop competitive advantage because delivery of quality products within the agreed time frame leads to increased market share. Thus, transformation of refinery processes into a source of generating revenues through waste reduction and process control using lean manufacturing approach can create a foundation for the long-lasting success of the company (Stevenson, 2008).
The current paper will be related Abu Dhabi National Oil Company ADNOC operating in oil and gas industry in UAE. The main concern will be improvement of operations with the help of lean manufacturing (Schroeder, Goldstein and Rungtusanatham, 2010).
There are several reasons why implementation of lean manufacturing should be utilized at ADNOC. Implementation of lean manufacturing facilitates saving time, financial resources, and quality improvement if applied for improvement of performance of the oil and gas enterprises. For example, production lines might have unnecessary processes because wrong design. Wasteful activities can be eliminated and the work can be completed in shorter time if lean manufacturing is implemented. Lean manufacturing can be used for quality improvement. This approach might help eliminate mistakes in the process of production thus improving quality of products. Lean manufacturing can help save financial resources spent on human resources (Womack and Jones, 2003).
Literature Review
The majority of the literature analyzed in this literature review relates operations management. However, each of the book concern different aspects of operations management.
Goldratt, Cox and Whitford (2012) is a revolutionary novel that appeals to leaders whose companies are stuck in complacency and bureaucratic thinking. The author emphasized continious organizational learning and improvement describing approaches that could be used to achieved long-term organizational success. The book interlinks with the work of Womack anf Jones (2003) in terms of new business thinking.
The book of Kamauff (2010) concerns operations management connected with supply chain, planning, and lean manufacturing issues. The book was of great use when developing recommendations for ADNOC since planning section was carefully elaborated. There was little information about financial side of the problem. However, this gap was filled up by the book of Schroeder, Goldstein and Rungtusanatham (2010).
The work of Schroeder, Goldstein and Rungtusanatham (2010) is worth particular attention because the authors represented not only concepts of operations management, but supported their arguments by appropriate evidence by the cases. It was very useful for analysis of the company that was chosen. The ideas expressed in the book are similar to those found in the book on operations management by Stevenson (2008). The most interesting insights were offered in the case studies because they helped understand practical side of the issue.
Stevenson (2008) represented a number of latest concepts and applications related operations management. The author provided several detailed examples of applications of operations management concepts. Also, Stevenson (2008) offered problem solutions, case studies supported by applied tools and methods. In addition, the author provides quantitative support of the operations management concepts. More detailed information regarding wealth creation can be found in the book of Womack and Jones (2003). The authors provided a thoughtful expansion upon value-based systems based on Toyota model. Lean model described in the book is seen from the perspective of the increasing globalization. The author emphasized value creation as well as other authors of the books included in this literature review. The lean model demonstrated in the book relates manufacturing enterprises mostly offering practical guidelines for achieving manufacturing efficiency and accelerating processes.
The book of Nicholas (2010) was of particular use for the current paper because it offered a number of lean methodologies that were used in the analysis and recommendations part of the paper. The author provided a comprehensive information regarding implementation of lean management practices design especially for manufacturing enterprises. The book can be highly recommended for those interested in practical side of lean manufacturing.
Brief History of the Company
Abu Dhabi National Oil Company (ADNOC) was founded in 1971. The Company is referred as ADNOC Group Companies. It has 15 specialist subsidiaries that is a significant competitive advantage of the Company. The operations of ADNOC include all aspects of petroleum industry, such as exploration of crude oil and natural gas, refining, processing, distribution, marketing, and manufacturing petrochemicals (ADNOC, 2013).
As of 2011, ADNOC produces more than 2.5 million barrels of oil per day. In 2011, ADNOC produced over 7.8 billion cubic feet of natural gas per day. The Company is ranked among the top ten oil and gas companies of the world. ADNOC has made significant achievements in the development of gas fields to meet the customers’ needs. The Company is constantly working on the techniques of improvement of producing fields. It is committed to sustainable production ensuring balance between people needs and natural resources.
There were 1,637,900 feet drilled by the Company. In 2011, ADNOC exported 10 million tonnes of refined oil products to international markets and produced 2 million tonnes of polyethylene and polypropylene. At the same time, the Company spent 602 million AED on improvement of environment. ADNOC actively participates in charitable activity, takes care about its employees, and supports national suppliers. There were 25 million spent on community sponsorships, the expenditures on man power increased on 10 billion AED, and 77% of the service procurement budget was spent on local suppliers (ADNOC, 2013).
More than 31,000 employees are currently working for the Company and 37,000 contractors. Also, ADNOC employs 66.5% Emiratis. The Company provides high ethical standards for its employees having no incidents related using compulsory child labor and giving opportunity for female engineers to start career at ADNOC. Besides, ADNOC provided training for its employees that made 930,000 man-hours as of 2011 (ADNOC, 2013). Being aware of the current world tendencies ADNOC pays particular attention to the corporate social responsibility.
Recently, ADNOC succeeded to enhance competitive position in the UAE market, expanded business activities, and became the world leading oil company. Business interests of ADNOC are in transportation, marketing, shipping, and distribution areas. Currently, the Company allocates a lot of efforts on optimization of hydrocarbon recovery aiming to improve exploration and production areas (ADNOC, 2013).
In 2009, ADNOC first implemented Sustainability Performance Initiative aiming to achieve balance between resource consumption and satisfaction of customer needs. The Initiative is directed at recovery of oil and condensate. Its track record in HSE is setting standards for other oil enterprises in Arabian Gulf. ADNOC gives priority to education establishing institutions training and developing qualified employees for the energy sector of UAE (ADNOC, 2013).
The choice of the company is not a matter of chance. UAE is known for its oil companies. Probably, the recommendations developed in this paper will help oil companies in UAE to better organize their operations.
Discussion
Lean Manufacturing
Lean manufacturing principles were chosen to improve operations at ADNOC. Lean manufacturing principles are as follows: specify value-creating and customer-oriented factors, identification of the steps within the operations chain, making operations processes flow, emphasize on factors stimulating customer-oriented value creation processes, and striving for quality perfection through waste removing (Nicholas, 2010).
The main task of lean manufacturing is to reduce time span between receiving orders from customers and receiving payment for the orders. In lean manufacturing it is achieved through eliminating waste including waste of time through perfection of the processes. Having this in mind, the next four sections are devoted to capacity planning aiming to reduce waste of time and resources.
Capacity Planning Issues
Enterprises in the UAE oil industry often face issues related capacity planning. These issues are connected with infrastructure and financial resources. Searching for new oil fields requires substantial financial resources to pay overheads, labor, and equipment. ADNOC can make forecasts regarding possible oilfields locations being based on historical data by analyzing the number of prospective parcels that were drilled and the number of parcels verified as profitable. For example, when a financially viable oilfield is discovered, capacity will be increased meaning increase in infrastructure needed for processing oil from the new oilfield. Also, additional human resources will be needed to facilitate oil flow to the refinery and then to the customers.
Another issue faced by the ADNOC related capacity planning is lifetime of the oilfield. The assessment of projected income that can be derived from the oil resources in the oilfield is needed to determine its viability. The assessment should include projected, current, and past oil prices to determine the availability of financial resources ensuring appropriate cash flow on each phase of oil extraction. Capacity management should include factoring of unsustainable and unviable drilled locations.
The main priority in drilling for oil is environmental concern. The capacity of the local infrastructure, including facilities and roads, should be determined in order to be informed when capacity is saturated or exceeded. Optimization of capacity planning can be realized within local infrastructure up to the saturation point. There should be balance found between infrastructure loading and ensuring efficiency whilst ensuring implementation of safety and regulation procedures.
Building New Oil Refinery or Extending Existing Capacity
Significant attention should be paid to utilization of infrastructure thus reducing the risk of over-capitalization as environmental and conservation control is much tougher nowadays. If ADNOC has potential to increase oil refinery capacity, the assessment of existing infrastructure maintenance will be needed. For example, load capacity and durability of existing equipment, such as plant and technical hardware. Other factors, such as availability of human resources and environmental concerns should be included in capacity planning assessment. For example, if the community accepts production increase and enlargement of capacity. Moreover, educational and health facilities should be assessed to serve the needs of local population and the increased workforce.
Managing Oil Refinery
Managing the oil refinery at ADNOC requires integrating communication channels between the oil refinery and the local community. In this case capacity planning is to ensure the availability of all emergency services, such as accident facilities, medical facilities, fire control, and law enforcement. A system of cooperation of community and plant managers should be developed in order to manage unpredictable events in case of emergency. In addition, the capacity of on-site and outside emergency services should be supplemented by additional services to ensure effective communication and rapid response to the circumstances in the case of need.
Delivery of Different Fuels to the Filling Stations
Delivery of different fuel grades to the stations is a vital aspect of oil refinery management. This procedure will require evaluation of existing railway and road infrastructure, and shipping facilities. Specialized transport systems are needed to deliver different fuel grades to the customers. For example, oil tankers with defined loading capacity. Also, time management approach will need to be incorporated to ensure delivery in time without any delays. Thus, decrease in fuel and labor cost during delivery process can be achieved. There is a need to ensure efficient integration of monitoring systems. Therefore, hardware should be programmed so that it could reduce errors and manage unpredictable circumstances, such as extreme weather conditions and breakdown.
Recommendations
Stages of New Strategy Implementation
New operations strategy should be developed carefully because it needs to be integrated into organizational history, culture, and structure. There is no any universal strategy because each company is unique. Application of experience of another similar company is impossible (Kamauff, 2010).
According to Kamauff (2010), development of the strategy of implementation lean manufacturing principles includes the following steps: assessment of the present operations strategy, definition objectives of new operations strategy, environment analysis of operations, internal operations analysis, identifying alternative operations strategies, evaluation of alternatives, elaboration of chosen operations strategy, and implementation of the new operations strategy (Appendix 1).
It is necessary to assess the current operations strategy in order to reveal the current issues related operations management. Identification of inputs is crucially important on this stage of formulating strategy. Also, it is important to identify objectives to plan the outcomes and changes that are necessary to obtain the results planned. Analysis of operations environment and internal operations is necessary to receive more information about the problem. Identification of alternatives is important to outline possible solutions of the problem. Evaluation of alternatives is needed to identify their advantages and disadvantages related the new operations strategy. Elaboration of the new strategy will help assess the risks related strategy implementation and control consistence with the objectives set.
Conclusion
Intensification of international competition and constant cost pressure makes implementation of lean principles a necessity at any oil and gas enterprise. However, adaptation of lean principles is sometimes problematic at these enterprises because of losing flexibility. There were several recommendations developed regarding capacity planning and managing oil refinery. There was the plan of implementation of the new operations management project developed. The main problem of the research is to find operations management tools that are consistent with the current operations strategy of ADNOC. ADNOC is a national oil company operating on the territory of UAE that requires improvement of its operations.
For the purposes of the current paper lean manufacturing principles were chosen to improve operations at ADNOC. Lean manufacturing was implemented in capacity planning and in financial area. Implementation of lean manufacturing will help reduce overhead costs and costs spent on labor and equipment. The recommendations were developed regarding capacity planning, building new oil refinery and extending existing capacities, managing oil refinery, and delivery of different fuels. Capacity planning can be regulated on the basement of evaluation of viability of new oilfields. Thus, capacities can be increased according to the need in infrastructure for processing oil. Human resources can be increased accordingly.
Another capacity issue relates lifetime of the new oilfields. Financial resources involved in new projects have to ensure stable cash flows during the whole process of oil extraction. Unsustainable projects should be rejected as early as it can be done. A particular attention should be paid to the community and environmental issues. The key role in capacity optimization belongs to the finding balance between loading of infrastructure and ensuring maximum efficiency while meeting the norms of safety.
Lean manufacturing was considered when applied to the process of decision making. There were two cases considered as follows: building new oil refinery and extending existing capacity. Increase in capacity will require assessment of infrastructure.
It was identified that management of oil refinery would require integration of communication channels between local community and oil refinery. The emphasis should be made on availability of emergency services. Also, it was identified that on-site and outside emergency services should be supplemented by additional services.
Particular emphasis was made on delivery of different fuel grades as a vital aspect of oil refinery management. Delivery of different fuel grades will require evaluation of road and railway infrastructure. Effective management of fuel delivery will help organize the process without delays. It is crucial moment in value-creating systems since this process must be customer-oriented because lean manufacturing suggests adherence to customer-oriented strategy that creates value for the company.
Lean manufacturing also includes effective time management that can be achieved through integration of monitoring systems. Hardware used for monitoring should be programmed to reduce errors and manage unpredictable circumstances.
It is important to ensure that the new operations management strategy is carefully integrated in the current organizational culture and structure. The plan includes eight steps of the project implementation. The current issues of the operations strategy should be assessed and considered during the development of the new operations plan. Identification of the project objectives is also essential in the process of the project development. Elaboration of the new strategy will help assess the risk related to the project.
Further research should include a detailed elaboration of implementation of lean manufacturing based on research data obtained from oil and gas enterprises operating on the territory of UAE. It is known that implementation of lean manufacturing in oil enterprises is a complex process that requires constant monitoring. It would be interesting to evaluate the results of the research and develop further recommendations regarding implementation of lean manufacturing.
Appendices
Appendix 1 Implementation of New Strategy
References
ADNOC. (2013). Abu Dhabi National Oil Company. Retrieved from http://www.adnoc.ae/
Goldratt, E.M., Cox, J. and Whitford, J. (2012). The goal: a process of ongoing improvement. 3d ed. Great Barrington, MA: North River Press.
Kamauff, J. W. (2010). Manager's guide to operations management. New York: McGraw-Hill.
Nicholas, J. (2010). Lean production for competitive advantage: a comprehensive guide to lean methodologies and management practices. New York: Productivity Press.
Schroeder, R., Goldstein, S. and Rungtusanatham, M.J. (2010). Operations management: contemporary concepts and cases. New York: Mcgraw-Hill/Irwin.
Stevenson, W. J. (2008). Operations management. New York: McGraw-Hill/Irwin.
Womack, J.P. and Jones, D.T. (2003). Lean thinking: banish waste and create wealth in your corporation. New York: Productivity Press.
