Case Study

Presented by

Bharat Oil Company

Name Roll No.

Amit Kumar Pandit 1211167

Amrendra Kumar 1211168

Ankur Yadav 1211169

Anshul Pratap Singh 1211170

Anubhav Tiwary 1211171

Arshad Hakkim 1211172

Problem Definition

Crude Oil

Sulphuric Acid

Oil Refinery OUTPUT INPUT

Gasoline, Kerosene

etc.

Sludge

Bharat Oil Company is facing difficulty in disposal of sludge.

Current Status

Manufacturers are unable to accept the used acid

immediately because of lack of space

Shortage of old tank cars

Company is forced to use new tank cars at

considerable expense

Loss in Returning Acid Sludge To Manufacturers

Sludge has got value after reclamation.

Freight Charges of Rs 250 /

Month

Advancement in technology has enabled the company to set up its

own acid reclaiming unit.

Possible Solution

Setup a new acid reclaiming unit.

Create extra storage space.

Evaluation of possible solutions

Cost determination of reclaiming unit

Given DATA

• Handling Capacity – 10 Tons of sludge/day

• Life of Reclaiming Unit – 20 Years

• Initial Investment – Rs 30,000

• Labor Cost – Negligible

• Supervision Cost – Negligible

• Conversion Quantity factor – 75%

Assumptions

• Price of Acid = 17 Rs/Ton

• Scrap Value of Reclaiming Unit = Zero

• Oil Refinery works for 365 days.

Cost determination of reclaiming unit

o Total Annual Sludge Handling Capacity = 10 T/day x 365 day = 3650 T

o Annual Acid Production Capacity = 3650 x 75 % = 2737.5 T

o Annual Acid Requirement = 1800 T

o Annual Acid production from reclaiming unit = 1800 x 75% = 1350 T

o Reclaiming unit utilization = 1350

2737.5× 100 % ~ 50%

o Production cost = Rs 8/ Ton of acid

o Total Annual Acid Production Cost = 8 x 1350 = Rs 10800

o Annual Cost of Acid procured = (1800 – 1350) x 17 = Rs 7650

o Depreciation = 30000 −0

20= 𝑅𝑠 1500 / 𝑌𝑒𝑎𝑟

o Total Annual Expense on Sulphuric Acid = 10800 + 7650 + 1500 = Rs 19950

Previous Expenditure on Sulphuric Acid

Annual Acid procurement cost = 1800 T x 17 Rs/T = Rs 30,600

Annual Freight Cost = (12 Months) X (250 Rs/Month) = Rs 3,000

Expense of using new tank car

Total Annual Expense on Sulphuric Acid > Rs 33,600.

Conclusion

Creating a new storage space will reduce only the expense of

buying new tank cars and thus incur minimum annual expense of

Rs. 33,600.

Setting up a new reclaiming unit will cause minimum annual profit

of Rs 13,650 to the company.

Company should set up a new reclaiming unit.

Action Plan

Set up a new acid sludge reclaiming unit.

Procure 1.23 Tons of acid per day from

manufacturer (450 𝑡𝑜𝑛

365 𝑑𝑎𝑦𝑠= 1.23 𝑇𝑜𝑛/𝑑𝑎𝑦).

Contingency Plan

Situation: Failure of acid reclaiming unit -

Keep 25 tons of Sulphuric acid as buffer.

Use the existing sludge tank cars as sludge storage units. Ensure that it has

got total minimum capacity of 25 tons.

Renew the contract with the manufacturer to supply additional acid and

accept the sludge in case of emergency.

Assumption: Revival Time for acid reclaiming unit is less than 5 days.

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