Productions and Operations Management America Produces Merely Essay

Excerpt from Essay :

Productions and Operations Management

America produces merely thirty seven percent of its oil demands, requiring sixty percent of its oil to be imported from additional countries, including Nigeria, Kuwait, Russia, Norway, and Canada (Marathon, 2010). With such high demands for oil, America has ports in which the imported oil can be brought in through vessels, carrying up to three million barrels on a very large crude carrier (VLCC). Once these crude oils have been brought to America's coast, it is loaded to a storage facility and then transported to a refinery to be processed into different types of products (Marathon, 2010). At Marathon, this is done through the Louisiana Offshore Oil Port, or LOOP. This entire process can take approximately one month to complete (Marathon, 2010). Marathon is in need of creating a new plan, designing new ways to be time efficient with the crude oil process. While creating the plan, Marathon should also devise a new marketing plan to overpower their competitors. With the potential for the banning offshore drilling to be finalized on America's coast, it is vital that Marathon immediately recreate their business model.

Marathon currently takes roughly thirty four days to deliver oil to many of their facilities across the East Coast and the Midwest. This process begins when a supertanker or other form of import vessel transports the crude oil product to LOOP, which is located between Louisiana and the Gulf of Mexico. When the product is brought to LOOP, it is then evaluated and put through a pipeline to be placed in a storage facility. The evaluation and storage process can take up to two days to complete. Once in the storage facility, a set of four pipelines distribute the crude oil to over fifty percent of America's refineries. From here, the oil is shipped to its retailers in its different forms (Marathon, 2010).

LOOP transports one million barrels of crude oil on a daily basis. It is "strategically positioned" (Marathon, 2010) as the only United States port to be capable of handling crude oil imports with supertankers. The supertankers can hold up to three million barrels and it can take up to three days to process just one supertanker. Because Marathon owns fifty percent of LOOP (Marathon, 2010), it should have a general concern in LOOPs' operations. Louisiana is known for natural disasters and LOOP could become inoperable in times when natural disasters take place. If or when this happens, other ports in the United States would not be able to handle the supertankers, causing a delay in the imported crude oil delivery process. This could be a financially risky situation for the company in possession of the supertanker, the oil company in charge of the supply being delivered, and the delay could cause a fluctuation in United States oil prices. The best solution to this potential dilemma would be for Marathon, along with other crude oil companies, to come together to invest in another oil port with the same capabilities as LOOP. Not only will this open another port up for the availability of supertankers when natural disasters or other delays happen at LOOP, but it will create new business opportunities for all parties. With a second large oil port open, supertankers will have an opportunity to move quicker through the unloading process. If the crude oil companies decide to pick a location further north on the East Coast, it could focus on distributing oil to the upper East Coast and upper Midwest, while LOOP focuses on the lower East Coast and lower Midwest. This will be more time efficient for the unloading, processing, and transporting process.

The relationship between the retail price of gasoline and crude oil price has many variables. According to Marathon, federal, state, and local taxes account for about forty to fifty cents on the total cost per gallon of consumer fuel. After this portion is deducted from the price, the cost of the crude oil can take roughly fifty five to seventy percent of the cost. As the oil is processed, the cost accounts for about twenty percent of the gasoline price. Lastly, the marketing, distribution, and retail stations take an estimated ten to twenty percent of the ending cost (Marathon, 2010).

Gasoline accounts for about half of the United State's consumption of petroleum products (Balke, Brown, & Yucel, 1998). Because gasoline is a commodity, the price is determined by supply and demand. When the supply is high, but the demand is low, the prices will lower in order to balance the market. However, if the supply is low and the demand is high the price will rise so as to help lower the risk that the product will run out. Certain variables can fluctuate the gas price, including inventory levels, political issues, wars, or refinery and shipment problems. The demand can fluctuate by variables such as weather, seasons, or national and international economic growth (Marathon, 2010). When there is uncertainty with these variables, the market may rise for security purposes. A reason that prices change on a local level is because local retailers are always at competition with each other. This is the change that consumers most often notice. The retailer is attempting to lure customers to their station instead of a competitor in the area.

At the height of the crude oil scare in 2010, United States president Barak Obama stated that deep water drilling would cease until December of 2010. If or when the United States decides to stop deep water drilling off the United States coast for good, the oil companies will need to refocus their marketing plan in order to remain competitive. With less revenue coming in, the companies should avoid spending as much. One big mistake would be taking money from irrelevant areas. Instead, the companies should determine what a reasonable amount to spend would be, then create a new marketing plan around it (Hernandez, 2010).

To begin, the companies should review all current advertising materials, including their website, brochures, and physical and electronic advertisements. They should ask themselves if the advertisements are relevant to their current customer (Hernandez, 2010). Because the market would be changing so dramatically if deep water drilling was banned, it is likely that the advertising and website should be redone. When doing so, the oil companies should try to be more noticeable than their competition, so evaluation of others' media assets is important. Once it is determined if advertisements should be recreated, the oil company needs to pick a market to target. In determining their target market, they should determine a direct way to advertise and message the customer. Though redoing their advertising could become costly, it will be a benefit to invest in messaging their target customers directly. Email and regular mail advertising can be quite cheap (Hernandez, 2010).

The oil companies should implement a "media buzz," increasing public exposure to remind customers that they exist and still care. This can be a quick, easy task if the company assigns someone to launch public relations campaigns and generates constant public releases to the industry and to media sources (Hernandez, 2010). Finally, the oil companies should focus on their existing customers, letting them know they are still of value to the company. One of the most expensive mistakes that a company can make is to attempt to gain new customers at the expense of their old customers. It is critical and less expensive to hold onto old customers (Hernandez, 2010).

In the event that Marathon experiences a change in the crude oil price and does not want that price to effect consumers, the recreation of their marketing plan will help Marathon suffer less losses. If losses are still strenuous, before considering raising prices for customers, Marathon should review their accounts receivable to see if any customers…

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