Value Chain Analysis Examine Factors Behind Any Changes in the Structure or Geographical Location Essay

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  • Subject: Business
  • Type: Essay
  • Paper: #37139884

Excerpt from Essay :

Value Chain of Marathon Oil

When considering the ever-changing and highly competitive global landscape of business today, firms must stay at the cutting edge of their respective fields in order to sustain profitability in the long-term. Accordingly, companies are faced with the continuous task of finding new ways to understand and subsequently accommodate market demands, while simultaneously securing lucrative business models and job environments. The Marathon Oil Corporation and its counterparts in the global petroleum industry are facing a multitude of barriers on the road to the maintenance of profitability. While trying to contend with ever-increasing crude oil prices, Marathon and its cohorts must find a way to maintain competitive prices at the pump. Marathon Oil, along with its subsidiary Speedway SuperAmerica LLC, operates over 6,000 locations spanning across 18 states in the Midwest and Southeast United States (Marathon Oil Corporation, 2008). Therefore, failing to maintain reasonable retail prices for its customers could mean significant profit losses. Considering that the bulk of the retail gas price is attributable to the price of crude oil, and the price of crude oil is determined by global demand, Marathon has been forced to make significant structural changes in its value chain by implementing innovative measures in order to offset prospective losses from fluctuations in crude oil prices. Knowing that a company's value chain is comprised its primary operating and logistical activities, current threats and geopolitical initiatives have been the cause for intense reexamination of Marathon's pre-existent operational tactics (Walters & Lancaster, 2000). Traditional value chains in the petrochemical industry are rapidly becoming obsolete and innovation seems like the only way for firms like Marathon Oil to secure profitable positions in the future. What is more, new threats to current business practices in this industry are cause for immediate action. On such recent danger occurred in June 2010, when President Obama issued a six-month deep sea drilling moratorium (Davis, 2010). Being that such a large percentage of the United States' domestic oil is currently sourced from deep-water wells, this presents an urgent cause for concern at Marathon in order for it to preserve its viability. However, this corporation insists that it's prepared for such daunting challenges. Through the geographic and structural diversification of its operations and the investment into new technologies aimed at increasing productive efficiency, Marathon strives to drastically restructure its value chain and ultimately uphold its reputation as an industry leader far into the future.

As one of the foremost names in Petroleum and one of the largest gas station operating entities, the Marathon Oil Corporation stands to lose significant revenues as a result of spikes in the price of crude oil. As a predominant refiner and vendor of crude oil and other Petroleum-based products, the price of crude oil affects this company on both the supply side and the demand side of the economic value equation. The close and interconnected relationship between the per-barrel price of crude oil and the retail price of gasoline present quite the dilemma for companies like Marathon Oil. As of April 2009, the breakdown of the average gallon of gas has been as follows:

(Chevron Corporation, 2005-08, p. 1)

The difficulty of this reality for oil companies is born by the fact that the price of crude oil is determined by the various and numerous factors of global demand. Obviously, Petroleum companies do not dictate the monetary value of such factors. Thus, with approximately 57% percent of the price of a gallon of gasoline determined by the price of crude oil, Marathon and its fellow gas station operators have little control over the price of their own product (Chevron Corporation, 2005-08). All of these factors have been critical in mandating the subsequent changes in this company's current value chain. Specifically, this data illustrates the need for value chain adjustments on the basis of company protection and preservation (Walters & Lancaster, 2000). And as will be further elucidated, Marathon strives to increase its value through both structural and geographic value chain changes and expansions. These operational amendments will primarily take place in the critical value chain areas of logistics, marketing, operations and human resource management (Rainbird, 2004).

As can be inferred from the data presented above, aside from undertaking the unenviable task of lobbying to the United States Government for tax reform Marathon Oil Company is only in complete control of one out of the three determinants of the retail cost of a gallon of gasoline (which is its primary revenue generating product in its retail operations). Therefore, in order for Marathon to keep the price of gas the same at the pump, without losing profits if the price of crude oil continues to increase, would be through innovation-based value chain modifications or cost-cutting tactics implemented in the value chain areas of distribution, marketing and refining (Rainbird, 2004). The Marathon Oil Corporation has already made substantial value-adding investments into future technologies that will reduce its dependence on crude oil and increase its productive efficiency (Marathon Oil Corporation, 2008). The fruits of such spending will certainly help Marathon to maintain a competitive price at the pump in the future. Nevertheless, until the bulk of such value chain advances are employed, this company needs to have a contingency plan to combat present surges in the price of crude oil. Cutbacks in marketing expenditures could be one such measure (Rainbird, 2004). Also, the company could heighten its efforts in the sharing of production costs through the creation of new value adding partnerships and the strategic utilization of its various pre-existing partnerships. For instance, Marathon is currently engaged in a momentous joint venture known as the Athabasca Oil Sands Project (AOSP) located in Alberta, Canada (Marathon Oil Corporation, 2010). In this collective undertaking, Marathon and its partners are forgoing their crippling dependence on crude oil by mining a naturally occurring substitute known as bitumen (Marathon Oil Corporation, 2010). Thus, through the bolstering of its 20% share in this operation, Marathon Oil could effectively gain greater control over the point-of-sale price of one of its most valuable products (Marathon Oil Corporation, 2010). Conversely, in the case of an unforeseen impending disaster, Marathon could minimize its share in the alliance as a means of cost-cutting and emergency revenue generation. As the ASOP represents only one of Marathon's many joint ventures, such tactics could easily be implemented across the board allowing Marathon the ability to maintain a steady and competitive price at the pump. All of the value chain manipulations described above have taken place or would take place at the logistical and/or demand level of the value chain (Rainbird, 2004).

Another value chain-based way to ensure greater control over the price of their product would be to independently restructure and innovate at the production level (Walters & Lancaster, 2000). Not only would this help to stabilize the price of gasoline, it would also help Marathon reduce the time involved in the production process and thus increase productive efficiency. By systematically integrating its entire massive network of refineries, Marathon is able to transfer immediate stock between refineries as well as optimize feedstock and raw material inputs (Marathon Oil Corporation, 2010). According to Marathon's own researchers, such advances have already resulted in "…economies of scale that reduce capital expenditures and optimize capacity" (Marathon Oil Corporation, 2010, p. 2). In line with this thought process, Marathon Oil has also begun to utilize its vast pipeline system more intensely as a means of transporting oil and fuels from the refineries to the customer. This value chain improvement through the intensification of available resources has certainly provided a better means of timesaving and cost-cutting as compared to the more traditional outbound logistical methods of transport like rail or roadways. Yet another means of enhancing the value chain at the production level has already been implemented by Emerson Process Management, which is another leading oil producer in North America and one of Marathon's closest competitors. Emerson has installed pressure instruments in almost all of their wells, which are accompanied by devices that monitor pressure levels (Emerson Process Management, 2010). Such tools have allowed Emerson to achieve "5% less time spent at the well-site due to dramatically reduced failure rates and troubleshooting, increased field production because of time saved and reduced personnel risks with less time spent at the well" (Emerson Process Management, 2010, p. 1). This type of production based innovative value chain enrichment would surely also benefit Marathon in its efforts to save time and funds in the production process.

Despite their historic dominance in America, oil companies in the United States face yet another threat resulting from President Obama's 2010 six-month deep water drilling moratorium (Davis, 2010). Noting that over 35% of domestic crude oil is sourced from deep water drilling, this poses a serious danger to American oil companies (Savage, 2010). Moreover, with catastrophes like the one that recently occurred in the Gulf of Mexico, the future prospects for political support in this type of extraction seem rather bleak (Savage, 2010). While some oil…

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