The future solution from SAP under Connected Hydrocarbon Logistics (CHL) solution for Oil and Gas companies would seamlessly integrate with demand plan, inventory plan, trade execution and supply chain logistics. The solution would incorporate the advanced SAP HANA features along with better user experience.

1. CONNECTED HYDROCARBON LOGISTICS – WHITE PAPER
Connected
Hydrocarbon
Logistics
CONNECTED HYDROCARBON LOGISTICS WHITE PAPER
Abstract
The connected world demands smarter
business patterns. The best way to
achieve it is to have seamless and
streamlined business operations. With
this, there is a digital over haul where
industries are trying to digitize and
optimize the way they function. The oil
and gas industry too has been steadily
progressing in digitizing and
streamlining its complex procedures.
SAP is aiming to bring in simplicity as
well as providing a seamless connected
solution to the oil and gas logistics
business practitioner.
The logistics for hydrocarbon is a
complex process being handled by
various departments of the oil and gas
company.
Trading division ensures that crude is
procured at the right price satisfying the
refinery margin by minimizing various
risk exposures.
The demand planning team creates a
demand-driven supply chain ensuring
that near-term forecasting is improved
thus ensuring efficient operations.
The inventory planning team ensures
that sufficient inventory is available
satisfying the customer service level
perspective by considering factors such
as capacity constraints across locations
and product lines
The logistics planner ensures that right
mode of transport is scheduled to ensure
that material is available within the
constraints of vessel, berth and tank
plans.
Because of the various streams of
operations, the business usually relies on
different applications to map the
business processes. This results in
inefficient operations as well as in lack of
full visibility of the entire supply chain.
The paper looks into the various steps
needed for a connected logistics process
with respect to the primary distribution.
The secondary distribution processes
involving movement of product from
terminal to retail fuel station is not part
of this paper.
It is anticipated that the new solution
would make the User Interface layer of
the business users easier with visually
pleasing screens containing drill down
analysis and forward looking operational
analytics.
Theviews expressed in this articlearethe
personal views of the author based on
the experience and research.
The intent of the article is not to delve
into finer details of each of the solution
mentioned in the topic.

2. CONNECTED HYDROCARBON LOGISTICS – WHITE PAPER 2
Supply chain division of an oil company
handles various complex processes spanning
from Demand planning to Logistics
execution. A well harmonized and integrated
operation results in optimized operations.
The four key units of supply chain are:
Trading
Trading covers all processes related to the
purchase&saleof energyproducts(feedstock
& refined products) as well as the purchase &
sale of energy financial instruments (futures,
options, swaps, etc.) to & from
counterparties. The purpose of Trading is to
maximize the business Gains.
Refinery needs to purchase oil from the crude
producer to have continuous production and
to utilize its full facility. Refinery also needs to
ensure that procurement cost is minimum.
The crude producer has to ensure that there is
a buyer for the crude and also needs to ensure
that at times of falling prices, the producer
gets minimum price for it.
Crude price is quite dynamic. How do you
manage price Volatility for this commodity?
How do you ensure that you get the crude at the
right price satisfying your refinery margin?
Which future options is profitable? Does the
option consider transport risk and time factor?
Which option has the minimum risk? What is
your risk exposure if you are considering a put
option as against another? Have you factored
in risk due to currency exchange rate? There is a
need to quickly and accurately assess these
parameters and identify risk exposures and
then hedge them.
A solution is needed to integrate deal
execution and physical purchase processes
impacted by crude price volatility. It has to
account for high volumes of commodity
transactions in real time. It has to help the
trader in deciding the right option with
minimal risk.
In the case of a trader dealing with refinery
operation, the solution has to integrate
various processes such as crude procurement
along with financial applications for account
settlement.
In the case of physical trade, the solution has
to integrate with logistics execution and
supply chain operations. Crude procurement
is relevant for refinery and crude selling is
relevant for upstream producer.
Procurement is about crude contract creation
and subsequent activities of settlement and
logistics execution. Within procurement, the
solution should provide decision framework
to help the trader and scheduler with the
buying decision after considering the
inventory position. The solution should
automatically determine the crude price by
referring to the external quotation sources
along with commodity pricing formula. In the
case of physical trade, it should then carry out
the movement of the crude followed by
settlement in the book of accounts. The
envisaged solution would enhance the
existing SAP Commodity Management by
integrating with SAP Traders and Schedulers
Workbench (TSW).
Demand Planning/Sensing
The refinery has to ensure maximum
utilization of its assets while optimizing the
demand. The demand for finished refinery
product comes from various sources - fuel
retail station and commercial customers such
as power plant, aviation etc. The trader feeds
in this consolidated demand into the
commodity (crude) procurement tool to place
the physical trade.
There are multiple challenges to demand
forecasting. These are seasonal demands,
promotional demands, and limited
understanding of historical trends and
statistical analysis etc.
Higher demand forecast accuracy and
inventory control helps the business to better
synchronize their supply chain processes. This
results in improved profitability and more
efficient operations. This also results in low
inventory carrying cost, minimal incidents of
out of stock and lost sales. Optimized product
flow along the supply chain results in
improved order fulfillment rate, low inventory
level, reduced ‘slow moving, obsolescence &
dead stock’ and enhanced customer service.
Improve near-term forecasting and creating a
demand-driven supply chain can result in
improved supply chain planning. Instead of just
using historical trends to predict weekly or
monthly sales, the business needs to capture
patterns in shipments and orders and other
daily demand information from multiple
sources. The business has to review granular
forecasts by item, location and customer
segment. Using proper demand analytics,
business has to assess the correctness of
forecasts and create more effective demand-
response strategies.
Use of what-if analysis in real time can help in
speedy and quality decision making
processes.
The solution has to provide built in algorithms
for demand, inventory and supply planning.
The existing SAP Integrated Business
Planning (IBP) addresses these. It provides
the supply chain personnel with visibility
across the supply chain and ability to take
actions on real time.
The business needs a solution which has to:
 Integrate sales forecast, inventory
targets, supply plans and financial plan
into a single operational level
 Provide a collaborative environment
with the demand planner and inventory
planner
 Minimize the demand forecast error by
accurately planning for daily demands.
This solution has to create accurate short
term demand forecast and efficient inventory
deployment with in service level targets
SAP Integrated Business Planning has
multiple components such as supply chain
control tower, Sales and Operation Planning
(S&OP), Demand Planning, Inventory
Planning and Supply Planning.
The current IBP solution has no integration
between demand planning and TSW as well
as Inventory planning and TSW solution. This
gap would be addressed in the future solution
from SAP. This would aid collaborative
decisions between planner and scheduler.

3. CONNECTED HYDROCARBON LOGISTICS – WHITE PAPER 3
Inventory Planning
Having understood the near-term demand,
the refinery feeds in the information to the
trader who initiates the crude procurement
process. Simultaneously, the supply chain
planner looks into the inventory position
across the supply chain. The primary
responsibility of the inventory planner is to
bring in harmony amongst refined product
demand, the raw material or the crude supply
coming from the vendors or the producers,
theplantorthe asset thatensuresthatrefined
product are produced with in customer
satisfactory level and the logistics or
transportation team which carries out
in/outbound logistics.
Inventory planning scenario is very complex
because in addition to multiple locations, there
are multiple gradients of products like gasoline,
diesel, petrol, aviation fuel etc. In addition to
the customer service level perspective,
inventory planning has to consider other
factors such as safety stock, retail merchandise
stock, pipeline stock, in-progress stock etc. For
each gradient of final products, the solution
also has to capture the correct raw material
(crude feedstock) inventory position which
helps in material requirement planning.
Is the refinery having the right quantity of raw
material or is it over stocking? Whether there
is sufficient storage space to store them?
Whether the lead time to procure them is
sufficient? These are the few questions that
inventory planner would like to get answers
from the solution.
The solution has to plan for inventory level
that optimizes the customer service level
across the supply chain. For each inventory
item, solution has to determine what quantity
is needed on what date on which location
given the variances and given the different
service level and different risk exposures.
Companies need to implement an integrated
inventory planning solution that can
simultaneously perform multi stage
optimization of the inventory across the
supply chain. This brings in right balance
between inventory and customer service
levels. This can bring in multiple benefit to the
business such as:
 Preventing stock out situations results
in better asset utilization of the plant
and machinery
 Keeping a low safety stock reduces the
inventory carrying cost.
 By minimizing the safety stock and not
carrying extra buffer stock results in low
working capital
 By ensuring that customer service level
is achieved, it brings in increased
customer satisfaction resulting in
additional revenue through preventing
lost sales.
 Within the supply chain planning
organization, the quality of operations
are improved through better inventory
planning. The planning lead times are
reduced through quality data. The
planners have improved experience
through technology augmented
information as well as visualizations
resulting in improved productivity
From the supply chain perspective, SAP IBP
for inventory provides robust solution with
respect to multi stage inventory optimization.
This is an integrated solution taking into
account of demand and supply disruptions
and other uncertainties. IBP is compatible
with native HANA data model and the
transactions are optimized.
Inventory planning has to work closely with
production planning and detailed scheduling.
For example, based on the market demand,
what is the inventory needed for production
or whether existing inventory position is
sufficient to meet up the production schedule
or what inventory has to be sourced from
suppliers to the production demand.
The demand planning decides the crude that
has to be planned as there are various types of
crude. Along with the production capacity
constraints, the production planning and
detailed scheduling are then carried out.
However, this topic is not in the scope of
Logistics.
Logistics Planning
Another major component in planning the
supply chain involves the planning for the
logistics or the transportation. Normally a
refinery sources different grades of crude oil
for its feedstock.
The crude is normally procured via Vessels,
Rails and pipelines. Once they reach port of
disembarkation, these products are stored in
large tanks (silo) from where they are
transferred to refinery via pipeline.
Containing the demurrage cost is the key
performance indicator of the logistics
division.
Common challenges faced by the logistics
planner are finding right docks (berths) or
ensuring that berth has the pipeline
connector to the tank or ensuring that there is
compatibility between vessel and the dock or
minimizing the containment of product mix
up.
From the solution stand point, the challenges
are:
 Bringing improvement in integrating
the dock schedule (assigning vessel to
legal berth considering vessel
characteristics and dock
characteristics)
 Ensuring that storage tank is available
for the type of the crude being
unloaded
 Ensuring that storage tank has the
capacity to offload the crude being
received from the vessel
 Ensuring that right product is available
as per refinery plan. Refinery
production planning operations has to
be synchronized with dock operations.
The primary aim of the logistics planner is to
ensure that the demurrage charges are
minimal while carrying out these operations.
Similar to the price volatility experienced by the
crude, the container rates also fluctuate. While
scheduling the vessel considering the price
volatility, the scheduler has to account for
other factors as well. There are different type of
vessel ranging from small to VLCC. The rates,
efficiency, dock compatibility varies with each.
The supply chain planner has to be cognizant
about parameters such as jetty, berth, vessel
type, pump rate, tank farms capacity,
demurrage rate etc. for optimized planning of
vessel operations.

4. CONNECTED HYDROCARBON LOGISTICS – WHITE PAPER 4
The knowledge of these factors helps to
schedule the shipment and thus receive the
feedstock. Assigning the vessels to a legal
berth considering all these factors needs
automated solution. Specialized solutions are
available to perform dock scheduling in an
optimized way.
While the ships are scheduled monthly, the
planner has to be cognizant of the tank
availability in the tank farm.
Therecommended solution is a mixofTraders
and Schedulers Work bench (TSW) and
Transportation Management (TM).
TSW caters to both trader push and scheduler
request. The trading arm of the company will
have to work closely with the supply division.
Both needs to have seamless connection as
well as visibility of the actual situation as is
currently available in the TSW stock
projection worksheet.
The transportation management related
activities such as carrier identification, vessel
schedule, capacity details, berth planning,
loading/unloading details etc. are effectively
captured in SAP TM. Once the nomination
partner (carrier) agrees to the quantity and
date mentioned in this nomination, the actual
movement (ticket) of product can take place.
The new solution has to be a seamless
solution between TSW and TM by removing
the redundancy. It has to consider the
production capacity constraint. This feeds
into vessel planning of how many of what
capacity at what time are needed. The tool
has to help the logistics planner in taking
decision such as arranging for spot vessel
contract in case of surplus production.
Currently, there is no real time integration
about some of the events such as actual
arrival time or actual lay time and other
events. Similarly, there is no prediction or
alerts if demurrage is certainly going to
happen so that the planner can take
corrective action. By interfacing these details
from TM along with simplified User Interface
(UI), the logistic planner will be able to
optimize the set of activities well.
Solution Summary
The future solution from SAP under
Connected Hydrocarbon Logistics solution
would seamlessly integrate with the above
four aspects mentioned in this article.
The solution would be a seamless solution
integrating with demand plan, inventory plan,
trade execution and supply chain logistics.
The solution would incorporate the advanced
HANA features along with better user
experience.
The crude demand forecast acts as the input
for the crude slate management. The
feedstock demand is forecasted and reviewed
in every quarter. Along with the traditional
demand forecast, the demand sensing brings
in greater accuracy and prediction to the
demand forecast. The output from demand
forecast goes to the supply chain planner to
plan for the inventory. The output also serves
the scheduler to interact with the trader to
initiate crude procurement.
The scheduler initiated crude trading results
in commodity contract. There are preceding
steps to contract creation such as risk
assessment, negotiation etc. The contract
refers to the commodity pricing quotes as
well as formula. The process ends with
invoicing and the account settlement in case
of paper trading and in the case of physical
trading, logistics execution precedes
invoicing.
The logistics execution has set of processes
such as bulk scheduling via different modes of
transport followed by the actual movement.
In the case of vessel movement, it also
involves berth planning. It is also needed to
interface the crude movement data with the
offshore tank system so that vessel can
discharge within the allowed lay time.
In the case of refined product, the demand
planning as well as demand sensing is done to
come out with the product forecast. The
forecast details are shared with the supply
chain planner to plan for the inventory.
Based on the inventory position, the planner
can request the trader to initiate product
procurement. The planner can also explore if
exchange with another oil company is
possible.
The trader can also look into the supply chain
position and initiates push sales.
The output as a result of demand
management serves as the input for the
refinery production planning which is not in
the scope of connected hydrocarbon logistics.
As a result of this solution, the logistics
operations would become leaner and
optimized. There is greater visibility of the
various operations happening across the
supply chain organization resulting in
optimization and agility.