Island Petroleum
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Transcript of Island Petroleum
Application of Lean Six Sigma to Improve the Fuel Supply Process
Island Petroleum Ltd Profile IPL is a small petroleum
Company operating in Jamaica .
Sells Regular , Premium Gasoline and Diesel.
At its 80 retail stations. Has 110 employees and
contractors .
Has it’s own import terminal in Montego Bay.
Imports fuels from a refinery in Trinidad.
Buys fuel occasionally from local refinery in Kingston.
Introduction: Project Outline
Lean Sigma CharterGeneral Project Information
Project Name Fuel Supply Optimization
Project Sponsor Island Petroleum Executive Management
Project Managers Satish Harrylall and Hassan Mohammad
Email Address [email protected] & [email protected]
Phone Number 954-547-1185
Process Impacted Inbound Supply Logistics
Expected Start Date January 31st 2011
Expected Completion Date
April 27th 2011
Expected Savings Approximately $800,000 per annum
Description of Problem, Goals, Objectives, and Deliverables
Problem or Issue
Island Petroleum Limited is concerned about the large variance in its planned Operating Income and its actual Operating Income. The actual Operating Income in 2010 is 7% below plan or $949,000. If IPL continues to operate with these variances it will not be able to meet its shareholders obligations. IPL must evaluate what is causing these variances and address the issues.
Purpose of ProjectTo address management's concern of the large budget variances and improve the profitability of the business, this project aims to measure and analyze the causes of budget variances and profit loss through the use of Lean Sigma tools.
Business Case
Island Petroleum Limited is not meeting its profit objectives in the Jamaica fuel business and the company must make changes in order to remain competitive. IPL has two sources of supply for its fuels. The first and primary source of supply is by importing fuel from a refinery in Trinidad and deliver it into its own fuel terminal located in the North West of Jamaica. The second supplier is a local refinery located in the South East and is owned and operated by the Jamaican government. Although the second supplier is located within Jamaica, the acquisition cost of fuel is greater than bringing the fuel from the supplier in Trinidad.
Goals
The goal of this project is to review the Island Petroleum Limited's supply and distribution strategy to ascertain the root cause of budget variances and profit loss. The project will utilize Lean Sigma tools to find root causes that is contributing to IPL's budget variances including loss of profits.
Expected Deliverables
Project Charter, Supply Chain Activity, Flow Chart, Income Statement Analysis, Pareto Analysis, Cause and Effect Analysis, Root Cause Analysis, Mean, Standard Deviation, Confidence Limit and Project Summary
Definition of Project Scope and Schedule
Within ScopeThis project will focus on Island Petroleum Limited's fuel business in Jamaica and utilize the DMAIC Lean Sigma methodology. However, the main focus of the project will be on the Define, Measure and Analyze phases.
Outside of Scope
The project will not focus on optimizing the Jamaican government refinery since Island Petroleum does not own or operate it. Additionally, there will not be a focus on the Procurement, Marketing and Human Resources aspect of the business. Lastly, the project will not focus on the Improvement and Control aspect of the DMAIC Lean Sigma model due to time limitations.
Tentative Schedule
Key Milestone Start Complet
eForm Project Team / Preliminary Review / Scope
02/08/11 02/08/11
Finalize Project Plan / Charter / Kick Off 02/08/11 02/08/11
Define Phase 02/16/11 02/21/11
Measurement Phase 02/21/11 03/21/11
Analysis Phase 02/28/11 04/17/11
Project Summary Report and Close Out 03/07/11 04/27/11
Definition of Project Resources
Project Team Satish Harrylall and Hassan Mohammad
Prepared by: Satish Harrylall and Hassan Mohammad Date: January 31, 2011
Problem Statement Island Petroleum Limited is concerned about the large variance in its planned
Operating Income and its actual Operating Income. The actual Operating Income in 2010 is 7% below plan or $949,000. If IPL continues to operate with these variances it will not be able to meet its shareholders obligations. IPL must evaluate what is causing these variances and address the issues.
Project Selection – Pareto Analysis
PLANNED REPLENISHMENT CYCLE TIME ACTIVITIES
Activity Sequence Inventory Replenishment Activities
ActivitiesTime
Hours Days %
1 Order confirmation placed with refinery and ship 336 13.00 54%
3 Ship Sails to Refinery 96 3.50 15%
4 Ship Load at refinery 48 2.00 8%
5 Ship Sails to Jamaica 96 4.00 17%
6 Ship Discharge In Jamaica 36 1.50 6%
Total: 612 24.00 100%
Cause & Effect Analysis – Delay of Shipments
15
Discharging In Jamaica Sailing To Jamaica
Delay of Shipments
Placing Order To Refinery
Lack of training
Supervision
Uncertainty of sales
Ship has to divert
Ship breakdown
Pilot wait time
Tug boats wait time
Loading At Refinery
Contamination of fuel
Congestion at port
Refinery breakdown
Strikes
Congestion at portWeather delays
Resource availability
Preference given to shipper owners other customers
Bad weather
Ship doesn’t arrive in allocated time
Port clearance wait time
Lack of inventory data
StrikesSelecting the shortest and reliable route
Lack of synchronization
Unfavorable handling operation time
Longer fuel pumping & distribution time
Root Cause Analysis: 5-Why“Why do ships arrive late to load?”
Alternative Supply Evaluation
Recommendations