Marathon Oil: PRODUCTION AND OPERATIONS MANAGEMENT

This document presents a discussion about the production and operations management for an oil company. One of the sides of this document is to analyze how our physical environment can be a challenge for business purposes.

Marathon Oil Corporation is a worldwide oil and natural gas exploration and production company. Principal exploration activities are in the United States, Norway, Equatorial Guinea, Angola and Canada. Principal development activities are in the United States, the United Kingdom, Norway, Equatorial Guinea, and Gabon.

In addition, Marathon operates other businesses that market and transport its own and third-party natural gas, crude oil and products manufactured from natural gas, such as liquefied natural gas and methanol, primarily in the United States, Europe and West Africa.

How to reduce the time involved in the production process?

One key element to speed up the production process would be accelerating the pipeline transport. Pipelines are generally the most economical way to transport large quantities of oil, refined oil products or natural gas over land. Compared to shipping by railroad, they have lower cost per unit and higher capacity.

Although pipelines can be built under the sea, that process is economically and technically demanding, so the majority of oil at sea is transported by tanker ships.

Oil pipelines are made from steel or plastic tubes with inner diameter typically from 4 to 48 inches (100 to 1,200 mm). Most pipelines are buried at a typical depth of about 3 to 6 feet (0.91 to 1.8 m). The oil is kept in motion by pump stations along the pipeline, and usually flows at speed of about 1 to 6 meters per second (3.3 to 20 ft/s).

Multi-product pipelines are used to transport two or more different products in sequence in the same pipeline. Usually in multi-product pipelines there is no physical separation between the different products. Some mixing of adjacent products occurs, producing interface. At the receiving facilities this interface is usually absorbed in one of the product based on pre-calculated absorption rates.

The relationship between the retail price of gasoline and the price of crude oil

When you go to the gas station, and see the prices, you might want to know: Why is it that gasoline prices seem to rise so quickly, but fall so slowly?

When you see the price of Crude Oil sell for $46, that barrel of Oil will not make it to your car as gasoline for as long as 3-6 months. Recall in May 2008, the price of oil pulled back into the high $30s. That is why gas dropped in price by more than a few cents in July.
There is actually a good reason for the phenomena of retail gasoline prices rising quickly, but falling so much more gradually. It is strictly a function of competition in the marketplace.

When crude prices rise, all the gas stations raise their prices accordingly. They have no choice; otherwise they would be losing money on each sale. They all pay (more or less) the same prices for refined gas, and make a relatively small mark up on the fuel they sell. As wholesale prices rise, they pass along the increase.

When the price of Crude eases, however, what forces gasoline prices back down is simply competition. One station lowers prices a few cents, and pulls in more traffic; that forces others to do the same, until prices gradually work their way back down to the earlier prices (assuming crude returns to its prior price).

While the retailers may make a greater profit for a few days, competition eventually forces them back to their original margins.
You may be surprised to learn that gas stations make the bulk of their profits on the quick mart or convenience store, or on automobile repairs, and not on fuel. They are greatly incentivized to keep the prices low enough to draw you in as a customer, where they can make their profits on.

How can Marathon keep the price without losing profits?

There are many strategies to keep the price without losing profits. One of them would be ordering materials in bulk. It is hard for Marathon to price their products competitively if they are buying materials from an expensive vendor. But also, they must be sure not to over buy – having too much money tied up in materials can cause cash flow problems.

Another way to take advantage of bulk discounts without the stress of extra materials is buying co-op. Marathon could join forces with several other oil companies to order similar products to get quantity breaks. Marathon can get a better price than what they would get if they were buying alone. I will suggest reviewing the cost of gas transportation.

Reducing labor time; this is where the old adage, work smarter, not harder comes in. Corporate offices should keep detailed time studies of their processes to see where they can reduce time. Other simple changes, like the layout of their workspace, can create huge time savings in the long run.

It is important to have talented people, but also, Marathon might need to hire employees at a lower hourly rate. If you need to pay $50 an hour, you can find someone to make the same job for you for $10 an hour; this can reduce your costs. But beware; if you hire an employee that works out of your company, you will have to pay additional costs such as taxes and insurance.

Instead, we recommend looking for an independent contractor, someone who can do the work for Marathon from their own plant or facility.

Finally, Marathon should reduce expenses. Take a hard look at their costs and figure out where you can trim. Do you really need the giant corporate office in the high-rent district? Can they share a building or make some employees to work from home? They should look at every aspect of their business and ask themselves if there is a way to trim excess spending.

Strategies for US oil companies to remain competitive in the US market

Only the most fiscally fit companies can survive in the intensely competitive global marketplace for energy. A new study paints a troubling picture of how federal tax rules – and pending tax legislation – are weakening the ability of U.S.-based oil and natural gas companies to compete against international companies. This is putting American jobs in jeopardy at the very time we need to support, not undermine, American-based business.

The new study, “Fiscal Fitness: How Taxes at Home Determine Competitiveness Abroad,” found that American oil and gas companies have faced increasing challenges in competing with their international counterparts since the 1970s largely due to “the interaction between the fiscal arrangements in the home countries of IOCs [investor-owned companies] and the host countries in which they operate, and the home policy objectives.”

Simply put, U.S. oil and gas companies are at a competitive disadvantage because of tax policies in our home country, and we have been losing out to non-U.S.-based companies over the past several decades.

The study evaluated the competitiveness of U.S.-based oil and gas companies (including ExxonMobil, Chevron, and others) on a variety of factors and compared the results to those of our peers throughout Europe, Canada, Russia, and Asia (including BP, Shell, and others). Of the 10 countries studied, the researchers found that the U.S. government takes a larger share of oil and gas profits earned abroad than nearly all other governments, except for France and India.

The study also found that proposed tax legislation would make this already bad situation even worse: “Potential new rules to restrict credits for foreign taxes already paid to a host government, currently under discussion in the United States, would make the United States the least competitive among the analyzed peer group, excepting India.”

The study is referencing the Administration’s 2011 budget proposal to weaken or even eliminate the foreign tax credit only for U.S. oil and gas companies. This tax rule ensures that all U.S. companies can operate in other countries without being taxed twice – once by the host country and again at home. It helps to level the playing field when American businesses compete with non-U.S. companies whose countries have similar rules.

As the study shows, by removing it, the Administration would be imposing double taxation on our industry – and creating an enormous new competitive disadvantage on American companies.

Why does our ability to remain competitive globally matter? And why should the average American care if changing the tax rules for foreign income will disadvantage American companies competing for energy? Because if American companies can’t compete in these key areas, our national interest would be compromised on two fronts: our energy security would be compromised due to constraints on the industry’s ability to develop new supplies; and, we would lose jobs here at home that American companies provide, as there will be less need for American employees and contractors to support international operations.

If we are serious about American jobs and competitiveness, this is something that should concern all of us. Why should our own government offer BP, Shell, Total and many other international companies a head-start over U.S.-based firms?

References

http://www.score.org/business_toolbox.html
– Karlgaard Rich. (2004) Peter Drucker on Leadership. Forbes magazine. Retrieved October 17, 2010 from http://www.forbes.com/2004/11/19/cz_rk_1119drucker.html
http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2363
http://www.amanet.org/training/podcasts/James-Kouzes-on-rising-to-the-leadership-challenge-08-27.aspx

Has Amazon lost its identity by expanding into markets well beyond books?

Amazon.com started as an online bookstore, but soon diversified, selling DVDs, CDs, MP3, downloads, computer software, video games, electronics, apparel, furniture, food, and toys.

Amazon has established separate websites in Canada, the United Kingdom, Germany, France, Japan, and China. It also provides international shipping to certain countries for some of its products. A 2009 survey found that Amazon was the UK’s favorite music and video retailer, and third overall retailer.

Amazon’s initial business plan was unusual: the company did not expect a profit for four to five years. Its “slow” growth provoked stockholder complaints that the company was not reaching profitability fast enough.

When the dot-com bubble burst, and many e-companies went out of business, Amazon persevered, and finally turned its first profit in the fourth quarter of 2001: $5 million or 1¢ per share, on revenues of more than $1 billion, but the modest profit was important in demonstrating the business model could be profitable.

What Amazon should do to protect its brand?

Amazon is allowing consumers to connect its website with Facebook. What is very interesting is the care Amazon is taking to inform consumers what this will mean to them and why they should do it. Given Facebook’s repeated stumbles on issues of consumer privacy, the approach being taken by Amazon is one every marketer should note and consider. What’s important about Amazon’s approach is that it’s not simply leaving the communication of important information to Facebook.

Trust is a vital brand attribute — even more so in today’s social world — and leaving issues of trust to Facebook’s “Permission” pop-up window is a pretty terrible idea. That is why Amazon’s approach demonstrates a best practice for offering the benefits of Facebook connections while still controlling the message and earning trust.

Amazon has launched a page where consumers can connect with Facebook, but more importantly this page is where consumers can learnabout the connection with Facebook. As you can see below, Amazon isn’t delegating important brand communications to Facebook but instead is controlling the message. Consumers are told in detail what will be shared and what will not, and the benefits are explicit and not assumed.

What Barnes & Noble and Borders should do to recapture some of their online market share?

Before Barnes & Noble created its web site, it sold books directly to customers through mail-order catalogs. It first began selling books online in the late 1980s, but the company’s website was not launched until May 1997. According to the site, it now carries over 1 million titles.

At the turn of the millennium, the biggest threat to Barnes & Noble’s position as the number one U.S. bookseller was clearly Amazon.com, which in mid-1999 had a market value of $18 billion, more than three times the value of Barnes & Noble and barnesandnoble.com combined.

In the Internet-crazed world of the late 1990s, the fact that Barnes & Noble held 15 percent of the total U.S. book market versus Amazon’s 2 percent mattered less than the companies’ respective online bookselling shares: 15 percent for Barnes & Noble, 75 percent for Amazon. Part of Barnes & Noble’s response to its upstart challenger was to slow its rapid rate of store expansion.

On the online side, Barnes & Noble in September 2003 bought out Bertelsmann’s interest in barnesandnoble.com. The company paid Bertelsmann $165.4 million to increase its stake in the venture to 75 percent. Then the following May, Barnes & Noble took full control of barnesandnoble.com, buying the publicly traded shares for an aggregate price of $158.8 million.

The shareholders received about $3 per share for a stock that had debuted at $18 a share during the Internet bubble and briefly traded above $25 a share. The online bookseller had yet to turn a profit, but its performance was steadily improving, and in 2004 its net loss narrowed by 18 percent.

Its revenues of $419.8 million were nevertheless far below those of Amazon.com, which remained the clear leader with about 70 percent of the online book market compared to Barnes & Noble’s 20 percent.

Will Amazon expanding its channel of distribution to include retail locations?

Amazon.com has transformed itself from the little bookstore on the corner to the mega-super-duper-full-of-stuff store that squats at the end of a monstrous parking lot, how good is the experience when you drop by for a visit? Well, the look and feel has stayed pretty much the same during the past eight years.

But the layout and navigation work well for a business like Amazon.com. There’s a big difference between mom-and-pops and monolithic retailers, but Amazon.com can increase its selection of products without intimidating the consumer with rows of products that stretch on forever.

Simply click the category you want and you’re whisked away to, say, the cell phone department, without wasting any energy trudging through the toy department.

One drawback to online retailing, though, is that you can’t browse the same way you can in a bricks-and-mortar store. Amazon.com tries to be helpful with plenty of recommendations based on the items you bought or even looked at recently.

The downside for the customer is recommendations based on gifts you bought for people whose taste is much different from your own; the downside for Amazon.com is missing the opportunity to introduce the customer to an out-of-category product or impulse buy along the way.

So what are the brand advantages of Amazon.com over other retail outlets? It excels at competitive pricing – an advantage of not having the overhead of a physical retail space. It makes up for the lack of in-store customer service by supplying reams of information about the product.

And it achieves global reach without a costly, risky roll out plan of physical storefronts. (Amazon.com includes four international sites— Amazon.com in the US, Amazon.co.uk in the UK; Amazon.de in Germany; Amazon.co.jp in Japan; and Amazon.fr in France.) When it comes time to check out, the company has done a fine job of streamlining the process for repeat consumers.

A click on “proceed to checkout” from the shopping cart screen brings you to a page with all your vital information on it, such as shipping address, payment method, and so forth. The shopper can easily revise the information before clicking “place your order,” which is a big improvement over the old method of clicking through several screens before completing an order.