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ABOUT HPCL
HPCL is a Fortune 500 company, with an annual turnover of Rs.
1,08,599 Crores and sales/income from operations of Rs1,14,889 Crores
(US$ 25,306 Millions) during FY 2009-10, having about 20%Marketing share
in India and a strong market infrastructure.
HPCL operates two major refineries producing a wide variety of petroleum
fuels & specialties, one in Mumbai (West Coast) of 6.5 Million Metric Tonnes
Per Annum(MMTPA) capacity and the other in Vishakapatnam, (East Coast)
with a capacity of 8.3 MMTPA. HPCL holds an equity stake of 16.95% in
Mangalore Refinery & Petrochemicals Limited, a state-of-the-art refinery at
Mangalore with a capacity of 9 MMTPA. In addition, HPCL is constructing
a refinery at Bhatinda, in the state of Punjab, as a Joint venture with Mittal
Energy Investments Pte. Ltd.
HPCL also owns and operates the largest Lube Refinery in the country
producing Lube Base Oils of international standards, with a capacity of 335
TMT. This Lube Refinery accounts for over 40% of the India's total Lube Base
Oil production.
HPCL's vast marketing network consists of 13 Zonal offices in major cities
and 101 Regional Offices facilitated by a Supply & Distribution infrastructure
comprising Terminals, Aviation Service Stations, LPG Bottling Plants, and
Inland Relay Depots & Retail Outlets, Lube and LPG Distributorships. HPCL,
over the years, has moved from strength to strength on all fronts. The
refining capacity steadily increased from 5.5 MMTPA in 1984/85 to 14.8
MMTPA presently. On the financial front, the turnover grew from Rs. 2687
Crores in 1984-85 to an impressive Rs
1,16,428 Crores in FY 2008-09.
HPCL LUBRICANTS
HP Lubes is an integral part of Hindustan Petroleum Corporation Limited,
one of India's frontline oil majors, committed to providing energy and
fueling growth in every significant area of development. In pursuit of this
vision, there is a sustained emphasis on environment protection and
preserving the cultural heritage of India.
HPCL Lube market share is around 11%. The HP Engine Oils product range
covers over 300 brands of lubricants, greases and specialties catering to the
automotive as well as the industrial sector.
HPCL has six lube blending plants at Mumbai, Kolkata, Chennai and Silvassa.
HP Lubricants are borne out of an intense and unrelenting R & D effort, which
aims at producing quality products that enhance automotive performance
standards. The range of HP Lubes is comprehensive and catering to the
minutest needs; from new generation cars to ploughing tractors and
industrial machinery. The range conforms strictly to OEM specifications,
often taking the initiative in customization of products.
The various lubricant segments of HPCL are:
Since the study is focused on automotive lubricants and within automotive
lubricant, engine oils are taken under study within which Diesel engine oil,
passenger car motor oil and four stoke oils are taken. The various brands of
HPCL in automotive segment are:
HP
LUBR
ICAN
TS
INDSTRIAL SPECIALITIES
AUTOMOTIVE GRADES
INDSTRIAL GRADES
GREASES
HPCL AUTOMOTIVE LUBRICANT
ENGINE OIL
DIESEL ENGINE PASSENGER CAR FOUR STROKE OIL
MILCY 40 HP CRUISE RACER 4
LAL GHODA HP ACE RACER 4- EXCEL
CHAMPION
MILCY TURBO
HP NO1
AUTOMOTIVE LUBRICANT
ENGINE OILS
FIRST FILL ENGINE OILS
NATURAL GAS ENGINE OILS
PETROL ENGINE OILS
DIESEL ENGINE OILS
GEAR OIL DEFENSE AUTOSPECIAL
ITIESTRANSMISSION
GRADES OILS
AIMS AND OBJECTIVES
Hindusthan Petroleum Corporation Ltd. has large percentage of share in
lubricants market of India primarily it is playing a dominant role in industrial
segment. Though it has various advantages still company is unable to make
a strong presence in consumer segment of lubricant market. HPCL is thriving
hard to minimize its cost in supply chain process.
Looking the market trend and situation the study “Supply Chain of
Lubricants in HPCL” has been undertaken to find the following:
‘
To portray the lubricant market in India liberalization and current
state of competitiveness.
To understand and analyze the supply chain process of lubricants in
HPCL particularly in Budge Budge Terminal.
Application of Porter’s Five Force Analysis and SWOT Analysis to
identify HPCL’s advantages and disadvantages in lubricant market.
REVIEW OF LITERATURE
1. HPCL Annual Report: It describes about company profile, new project, company structure, financial data and future developmental plan of company.
2. Research on HPCL: It describes company details about various products, company strategy and company’s long-term planning.
3. www.crisil.com/Ratings/Commentary/CommentaryDocs/lubart.pdf: It describes about the global and Indian scenario about lubricant market
4. Dawson, Catherine : It describes steps, procedure and methodology of research.
5. www.hindustanpetroleum.com/: It provides information about company, product, market and other information.
Methodology
A structural representation of study methodology:
PROBLEM DEFINITION
DEVELOPMENT OF APPROACH TO
THE PROBLEM
RESEARCH DESIGN
FORMULATION
DATA COLLECTION
DATA PREPARATION AND ANALYSIS
RECOMENDATION
STUDY ON INDIAN LUBRICANT MARKET:
Introduction:
Global demand for lubricants in the world is estimated at around 41 million
KL. Automotive lubricants account for around 54%, Industrial lubricants at
around 41% and marine for the balance.
Globally the lubricants industry has been growing 2.0 to 2.5% per annum in
the past 5 years. In developed countries automotive lubricants have been
growing at slower rate of 1.0% per annum on account of the saturation of
vehicle population, improved engine technology and better quality oil.
Asia is the 3rd largest market for lubricants in the world and is expected in
future to grow at a faster rate as compared to other developed markets.
Asia’s share in the world lubricant market has increased from 22% in 1993 to
25% in 1998.
25%
35%
12%
28%
AREA WISE DEMANDAsia Paciic EuropeCentral- Southern America Northern America
INDIAN SCENARIO
India is the 6th largest lubricant market in the world, with a consumption of
around 1.12 Million KL. In 1998-1999 as against a installed capacity of 1.6
Million kl and has grown at a CAGR of around 7.0% over the period between
1993-1998. However with the industrial down turn an also slower growth in
the automobile sector, the growth of the industry has slowed down to around
4.0% in the last few years.
Till 1993, the Indian lubricant industry was totally controlled by the Govt.
with the Oil Coordination Committee (OCC) controlling all aspect of the
industry. Thus, the industry was dominated by the oil public sector units
(PSUs)-IOCL, BPCL, & HPCL. Castrol was the only major private sector in the
industry.
HPCL24%
BPCL8%
IOC30%
CASTROL19%
GULF OIL6%
TIDE WATER4%
ELF3%
OTHERS6%
COMPANY WISE MARKET SHARE
RECENT TRENDS
Increasing industry competition:
In 1993 the Govt. liberalized the lubricant sector and announced a number of
regulatory changes. This included
The entry of foreign companies into the Indian market
Decanalisation of imports of base oil.
Decontrol of pricing of base oil.
Reduction of custom duties on base oils.
REASONS FOR DECLINING LUBE TO FUEL RATIO
TECHNOLOGICAL DEVELOPMENT
Automotive engineering technology has improved significantly in past few
years, with a corresponding impact on the improvement of lubricant quality.
Improving engine and lubricant technology has resulted in the decline in the
lube to fuel ratio. Additionally, there has been demand from both the OEMs
and the customers for better quality lubes with longer life, better properties
and lower deposit formation, meeting the stringent emission standard
required.
40%
60%
MARKET SHAREAutomative segment Industrial Segmnt
Country Per Capita Consumption
America 31
China 14
Europe 2
India 1
Supply chain Process of HPCL:
A typical lubricnt manufacturing process:
IMPORT OF CRUDE OIL (IN FSL)
IMPORT OF ADDITIVES (IN FCL)
MATERIALS ARE STORED IN TANKS
ADDITIVES ARE UNLOADED & TRANSPORTED THROUGH TRUCKS
CRUDE OIL ARE UNLOADED IN FEDDER VESSELS OR ARE TRANSPORTED THROUGH PIPELINE
IN-HOUSE PROCESS (EXPLAINED IN FIGURE)
FINISHED PRODUCTS ARE STOCKED IN CAPTIVE
INDUSTRIAL CONSUMER(DIRECT SALES)
DISTRIBUTORS/ WHOLESELLER
RETAILERS
SMALE GARAGE
DEPOT(STOCK STRANSFER)
ADDITIVES
Plain mineral oils cannot provide all the necessary functional properties that
an engine requires. These plain mineral oils need fortification with
chemicals/additives which when used in small quantities, import or enhance
the desirable functional properties. Some of the types and reasons for their
use are as follows:
Dispersants: Keeps sludge, carbon and other deposit- precursors
suspended in oil. Detergents: Keeps the engine parts clean from
deposits.
Rust/Corrosion Inhibitors: Prevents or controls oxidation of oil,
formation of varnish, sludge and corrosive compounds, limit viscosity
increase.
Extreme Pressure (EP), Anti wear and friction modifiers: These form
protective film on the engine parts and reduce wear and tear.
Metal deactivators: Forms surface films so that metal surface does not
catalyze oil oxidation.
Pour Point Depressant: Lowers freezing point of oils assuring free flow
at lower temperatures.
Anti-foamants: Reduces foam in crankcase and blending.
Base Oils
The name given to lubrication grade oils initially produced from refining
crude oil (mineral base oil) or through chemical synthesis (synthetic base
oil). Base oil is typically defined as oil with a boiling point range between 550
and 1050 F, consisting of hydrocarbons with 18 to 40 carbon atoms. This oil
can be either paraffinic or naphthenic in nature depending on the chemical
structure of the molecules.
Mineral oils (paraffinic, naphthenic), synthetic hydrocarbons (PAO, Alkylates)
and other synthetic compounds (Esters, Polyglycols, etc.)
Logistics process of crude oil in HPCL:
The crude oil is coming from various countries Iran, UAE etc. The crude price
is controlled by various bodies like The Organization for Petroleum Exporting
Countries (OPEC).
The crude comes in full ship load and gets unloaded in deep mooring in to
feeder vessel. Then feeder vessels ship the crude oil from transshipment
point to destination i.e. refineries like Mumbai, Vizag.
The crude oil then transfer in to tanks of refineries through pipeline which
are located in storage area of plant.
As requirement and production plan the refining process starts. Base oil is
prepared in refineries HPCL has the largest lube refining plant in Mumbai. It
has a capacity of 6.5 MMTPA which is 40% of India’s total capacity.
Logistics process of Base Oil in HPCL:
The processed oil is shipped in different terminals i.e. the blending units in
different parts of country.
Logistics process of Additives in HPCL:
There are two option to acquire the additives (Source)
Local Vendors
Import
Both the option has its own merits & demerits.
PRIME ACTIVITIES OF LOGISTICS:
The key activities of logistics are:
1) Inventory Maintenance
It is usually not possible or practical to provide instant production or instant
delivery to customers. In order to achieve a reasonable degree of product
availability, inventories need to be maintained as buffers between supply
and demand. The extensive use of inventories results in the fact that, on the
average, they account use of approximately on third of logistics costs,
making inventory maintenance a key logistics activity.
2) Order Processing
Order processing cost tends to be minor as compared to transportation or
inventory maintenance costs. Nevertheless, it is a primary logistics activity.
Its essential nature comes from the fact that there is a critical time element
in getting goods and services to customers. Also it is the primary activity
that triggers product movement and service delivery.
3) Transportation:
For most firms, transportation is the most important logistics activity, simply
because it absorbs, on the average, approximately two thirds of logistic
costs. “Transportation” refers to the various methods for moving a product.
Road, rail, water and air are just a few of the popular choices.
Management of the transportation activity usually involves in making choices
regarding the method of shipment, the routings, and the utilization of vehicle
capacity.
TRANSPORTATION AT HPCL
Effective transportation management can help to reduce the total cost. It
functionally provides two major functions: product movement and
product storage.
Here at H.P.C.L. Budge Budge and Ramnagar Terminal the main model used
for transportation are well managed and effective in cost. The transportation
is done by road. The road transportation is used for lubricants products. For
delivery of the products, mainly 3 transporters are selected through bidding
which covers each and every region of India. Various regions of India are
allocated to particular transporter. After selecting transporter, the contract
procedure takes place. In contract, the contract conditions are written which
are prepared by expertise of H.P.C.L.
CONDITIONS FOR THE CONTRACT IN HPCL
1. The corporation reserves the right of accepting or rejecting the whole or
any part of the tender. The tenderer should code competitive or workable
rate for operating throughout the contract period.
2. EMD (Earnest Money Deposit) – EMD of successful tenderer shall either
be converted in to security deposit towards the fulfillment of contract or
refunded after submission of bank guarantee.
3. Security deposit – in case of cash security deposit the balance amount is
paid by way as under
· Demand Draft
· Bank guarantee from any nationalized bank or specified bank in favor
of HPCL.
4. Corporation shall pay interest @ 8% per annum on the cash/DD security
deposit.
5. FORCE MAJEURE – uncontrollable conditions like fire, explosion, and
natural causes like flood, earth wake, strikes etc. neither the corporation nor
the transport contractor shall be liable or deemed to be in fault.
6. Settlement of dispute/ arbitration – in case of any disputes the rules of
arbitration of Indian council of arbitration shall be binding of the party.
EXSISTING RIVALRY AMONG COMPETITORS
Lubricant market is highly competitive, with more than 30 players in the market
Major competitors are Castrol, BPCL, IOCL, Gulf, Valvoline
Strong product promotions through advertisements for example Castrol is doing for its CMO and FOUR STOKE (Castrol magnetec) segment
Quality of parent brand- quality of first brand
launched by the competitors have good impact
on customers mind, therefore driving the
customer to buy the current brand
Strong distribution channel- Castrol has strong hold on bazaar shops
BARGAINING POWER OF SUPPLIER
Lube base stock is obtained from its own (HPCL)
refinery, hence have some control over bargaining
power
Though in case of crude oil the supplier has higher power
and impact on price depends on various economical,
political and legal aspects.
In case of additives during imports it has stringent
process though supplier power is limited. As large
number of supplier are present in market.
BARGAINING POWER OF BUYER
Bargaining power of consumer in high because of large
number of competitors, therefore consumer has many
choices.
Margins for retailers and bazaar shop owners
Schemes provided for retailers, mechanics.
Product variety/ differentiation based on pack size, based on quality or
specification
Quantity/ volume purchased (KL) per month by buyer-
Based on the amount ordered the schemes can be provided to
the retailers and bazaar shop owners.
Importance of product to the buyer- Whether the brand is providing all
the benefits or not
Credit period to the buyer, whether the period is 1 month or more
Quality of pack- Attractive packaging (sticker, labeling), packaging
material
Cost of lubes is low as compared to Castrol, Valvoline, Gulf etc.
THREAT OF SUBTITUTE PRODUCTS
Infect no close substitute is present but recently bio-diesel is coming in the market. And in the present world where the environment is a pivotal concerned it can be a challenging situation for HPCL.
THREAT OF NEW ENTRANTS
Government policies- Decentralization of
lubricant industry in 1993 gave entry to
private players.
New technology- IOCL to launch biodegradable
lubricant.
Cost advantage- Provide same segment lubricant
brand at lower price.
Entry barrier- Brand name and image of existing
brand and distribution network.
SWOT ANALYSIS
STRENGTH
Prices are comparatively low.
Consumer have good image about the company.
Laal Ghoda has made position as low price DEO,
which is competitive as per cost of product is
concerned.
Schemes offered to consumers are good.
Manufactures raw material (LOBS) for lubricants thus
having control over margins.
Retail outlet as strong distributional channel.
WEAKNESS
Low above the line (ATL) activities such as advertisements
through media, hoardings, bill boards etc.
Since lubricant marketing is same as that of FMCG products
therefore requires continuous media promotion as a reminder to
the customers.
Packaging of Racer 4 is not attractive specially the label and sticker.
Laal Ghoda is used only for top-up purpose. Also, most of
customers use this brand for pressure jack oil, not as engine oil.
Has lower percentage occupancy of lubes in bazaar shop shelf, which is
around 10-12%.
OPPORTUNITY
Tie ups with OEMs (original equipment manufacturers)
such as with Eicher Motors, Tata Motors, Volvo etc
specifically in DEO segment.
Expansion in rural India, auto firms have begun
tapping the countryside. For instance, Maruti
Suzuki generates 10 per cent of its sales from
rural sales, amounting to 32,000 cars.
THREATS
Increasing market share of Valvoline and IOCL in Delhi NCR
region.
High duplicity in market leads to low pull for product.
FACTORS AFFECTING TOTAL CYCLE TIME OF TRUCK
The main purpose of any project is to study the system and find the
problems and loopholes, which exits in the system as here at HPCL Budge
Budge Terminal. We have been assigned the problem of high cycle time and
for that we have to observed the system and found out the solution for
reduction of cycle time. For that we observed the system from various
aspects and we found out some reasons that were increasing cycle time.
HPCL is dealing in a market, where optimum utilization of time is also very
important factor, as the profits equally depends on the production as well as
the time saved and optimally utilized time could add to more of the profit of
the company.
1. Improper handling of forklift and materials – The laborers at
different warehouses are not handling the material properly in the truck. In
every consignment sometimes product get damaged which increases the
time of loading and the cost because company has to replace this product.
2. Laborers – Over manpower in HPCL which is increasing cost.
3. Lack of Professionalism - People at HPCL are having casual approach
towards their work. They are passing their work to others which increase the
processing time. They also take long lunch breaks, frequent and long tea
breaks which hampers the system badly. Now the system is fully automated
because of SAP but adaptation of new technique is difficult for them and still
people don’t know much about it.
4. Improper distribution of laborers – Company is not placing laborers
properly at the ware houses.
5. Lack of supervision – There is lacks of supervision while laborers are
loading the trucks which results in improper handling.
6. Improper distribution of trucks – From the graph, we can say that
there is lack of proper distribution of trucks during the entire day. We have
divided the total time of loading and invoice of truck in three different ranges
so that we can see that maximum numbers of trucks came between 12:00 to
16:30 hours. This improper distribution of trucks is due to the transport
market which affects the logistic system very badly.
OBSERVATIONS
There is a lack of coordination between transporters and the warehouse
department. So the department is unaware of the exact status of the no of
trucks coming to HPCL and its arrival timing. Due to lack of coordination, the
labors are also not aware of the trucks arrival schedule. This results in less
no of laborers when the work load is more and vice a versa. Sometimes the
driver of the truck has to wait because there is no one to attend him when he
comes for loading. The fork lifter in order to finish off the work quickly,
damages the product while lifting two pellets simultaneously. This results in
increased loading time due to replacement of the damaged. It is also an
unsafe practice.
There is as such no regulation on the arrival and departure of the contract
laborers. They come and go as per their own wish. There is improper
distribution of laborers.
It is observed that during shift change, the movement of all the trucks comes
to a standstill so as to let the employee vehicles move freely. Moreover the
processing of loading and invoice also stops due to shift change. This factor
is unavoidable.
RECOMMENDATIONS
Supervisor should be there when trucks are getting loaded so that
laborers work properly and damage and loading time can be reduced.
Laborers sit idle until all the material is brought to the loading point.
Supervisor should force them to start loading as soon as the first pallet
or crate has been brought to loading point.
The overall performance of warehouse depends on staff at warehouse
but there is lack of co-ordination between dispatch staff.
·Warehouse person already have their dispatch plan. So they know
about their daily work well in advance. The warehouse person should
bring material at loading point in the morning before the truck comes
for loading instead of bringing material after the truck comes. This
would save time.
The warehouse department should keep themselves informed about
the no of arrival of trucks 1 day in advance so that the laborers can be
managed easily and the work can be carried out without any delay.
This would also help the labor contractor to place the no of laborers
required on a particular day.
·There lifting of 2 pellets by the fork lifter should be avoided which
would avoid any damage.
Proper food facility should be provided to the contractor so as to
increase the efficiency of the laborers.
The forklift truck can directly be taken near the truck to be loaded so
that the product can be directly paced inside. This would save time and
less number of laborers are required. This procedure has been
successfully implemented at RIL at Hajira. But for this the warehouse
infrastructure should be modified for the smooth operation of the
forklift truck.
LIMITATION OF STUDY
Used vary small sample size i.e. only four days out of 30 days of May.
Time period of study was during general shift hours i.e. between 8a.m.
to 5p.m. So could not observe the activities till 10p.m.
·
BIBLIOGRAPHY
1. Annual Report of HPCL of 2010-2011.
2. CRISIL, research on HPCL (2010) viewed on 12-5-2012.
3. www.crisil.com/Ratings/Commentary/CommentaryDocs/lubart.pdf
4. Dawson, Catherine, 2002, Practical Research Methods, New Delhi, UBS Publishers’Distributors
5. www.hindustanpetroleum.com/