Halima Sadia

Supply chain
Management

Date: March 16, 2021

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Table of Contents
Company Background............................................................................................................................1
a) Competitive Strategy of the Organization.................................................................................2
Strategic Location..............................................................................................................................2
Pipeline Network...............................................................................................................................3
Quality Standard................................................................................................................................3
b) Supply Chain Map..........................................................................................................................4
...............................................................................................................................................................4
c) Major Players in the Supply Chain.................................................................................................5
d) Supply Chain Strategy of the Organization....................................................................................6
Strategic fit........................................................................................................................................6
e) Supply Chain Strategy and Competitive Strategy...........................................................................7
f) Push-Pull Boundary in the Organization........................................................................................7
g) Supply Chain Issues and Challenges...............................................................................................8
Theft..................................................................................................................................................8
Cost of Inventory...............................................................................................................................8
Lead Time..........................................................................................................................................8
Price Fluctuations..............................................................................................................................8
h) Supply Chain Initiatives..................................................................................................................8
Company Background
Pak-Arab Refinery Limited is a Joint Venture between Government of Pakistan and the
Emirate of Abu Dhabi, incorporated in 1974 with 60% of shareholding by Government of
Pakistan and 40% by Emirate of Abu Dhabi through its Mubadala Investment Company.
PAK ARAB REFINERY LTD (PARCO) is a fully integrated energy company and is one of the
largest companies in Pakistan’s corporate sector. It is involved in midstream refining
operations as well downstream marketing of the its products. Through its subsidiary, PARCO
is also involved in oil transportation business. Its modern refinery has a capacity of 100,000
Barrels Per Day, combined storage capacity of over one million tons, a marketing joint
venture with TOTAL (France) and a technical support venture with OMV (Austria). PARCO is
a member of Oil Companies Advisory Council of Pakistan.
PARCO is one of the key players in the Pakistan’s oil supply due to its location and logistics.
It is the only oil refinery with a widespread and oil pipeline network and employs a modern
refining facility. Due to its logistics, location and manufacturing capabilities, PARCO is seen
as the strategic fuel supplier to the country.
PARCO's achieves its competitive advantages with the help of vast and expanding pipeline
operation, storage facilities, modern refining and an important share in petroleum products
marketing. Together, all these factors help the company achieve a unique standing in the
country’s energy supply chain.
PARCO operates a widespread oil pipeline that is used to transport not just crude oil but
also refined product to various regions in the country. It starts from Karachi’s port where it
takes imported crude from and transports the product to the company’s Mid Country
Refinery. This pipeline network is also used to transport imported refined product from
Karachi to various parts of the country. The 16", 18" and 20" diameter pipeline further
extends 1228 KM from its refining facility to Faisalabad, Machhike. This network is
monitored through highly sophisticated Telecommunication facilities and a comprehensive
Supervisory Control and Data Acquisition (SCADA) System. The crude oil pipeline from
Karachi to Mahmood Kot is 864 km long and has been upgraded to pump up to 6.0 million
tons of product.

Furnace
Bitumen
OIl

MOGAS Diesel

Keros Petrol
ene

Figure 1PARCO's Products

a) Supply Chain Map
 b) Competitive Strategy of the Organization
Petroleum products derived from crude oil fall in the category of basic commodities in the
country and a major part of our transportation system relies on these products. Up to 70%
of the petroleum need of the country is met by local refineries. Petroleum market is
considered to be a captive market where there are relatively low number of suppliers and
low product diversification. Oil refining being a capital-intensive business, there are
significant barriers to new entry. Furthermore, petroleum products are highly regularized
with prices being controlled by the government through Oil and Gas Regulatory Authority
(OGRA).
Currently, there are 5 major refineries operating in the country that are operating in various
locations country wide.
1. Pak-Arab Refinery Limited
2. Attock Refinery Limited
3. National Refinery Limited
4. Pakistan refinery Limited
5. Byco Oil Pakistan Limited 

Strategic Location
PARCO’s refining facility is the country’s second largest facility by design capacity with
average throughput ranging from 75% to 95%. The refinery was strategically located at mid-
country location of Multan, Qusba Gujrat, earning it the name “Mid-Country Refinery”.
Considered a strategic asset for the country, the facility was located mid-country essentially
to cater to fuel needs of Pakistan’s forces. The facilities location gives it an added advantage
over other refineries in terms of logistics which is complimented by its unique pipeline
network.

Pipeline Network
The company’s efficient pipeline network allows it to transport crude oil from Karachi’s port
to the refining facility and refined product to various locations across the country. The
pipeline facility gives PARCO a logistics advantage over other companies by cutting its
transportation cost as well as reducing the transportation time. Most importantly, it ensures
environment friendly transportation of petroleum products in an efficient manner. The
network does not only facilitate the refining business of the company but is also an
additional source of revenue since it also transports white oil from Port Qasim to various
locations throughout the country. The network is operated by its subsidiary Pak-Arab
Pipeline Company Limited.

Quality Standard
Established as a state-of-the-art refinery, the facility has gone through various upgradations
to keep up with global standards of petroleum products. It is the only refinery in the country
that produces EURO III Diesel which does not only has lower environmental pollution impact
but also promises better health of vehicles.
Compared with other refineries in the countries, PARCO’s refinery has a higher and better
White to Black oil ratio. This ratio denotes the quantity of white oil (final product) produced
from a certain quantity of black oil. The higher ratio cuts down the cost of production and
leads to higher revenues.
Based on the above analysis of PARCO’s operations and industry characteristics, we can
conclude that although there is little to no room for price-based competition, the company
has been able to achieve higher margin by reducing its cost. Moreover, the company has
been practicing differentiation by leading adoption of latest quality standards. Since the
company caters to a broader market, its competitive strategies mostly work around broad
differentiation.

Broad Differentiation
-Better white-to-black ratio
-EURO III products
Over-all low cost
provider -Efficient transportation

Focused
Focused Low Cost
Differentiation

c) Major Players in the Supply Chain

Upstream
 Oil Exploration Banks Shipping Company
Companies
(ARAMCO ADNOC) (Letter of Credit) (PNSC)

Bowser Sea port Insurance

Contractor authorities Company

Other Raw
Utilities company Refinery
Material supplier
(SNGPL) PARCO
(Catalyst etc.)

Downstream

OMCs/Industrial Bowser
Customers Contractor
 d) Supply Chain Strategy of the Organization
PARCO’s supply chain strategy can be considered more towards efficient supply chain.
However, due to the nature of product, the demand is stable throughout the year. In order
to avoid a shortfall in meeting the demand, the company is required to maintain minimum
60 days of safety stock. Since logistics are of critical importance in the supply chain, the
company maintains a crude oil stock of up to 30 days at its storage facility in order to avoid
any disturbances in raw materials supply.
Therefore, the company employs some of the risk hedging processes in its supply chain,
accounting for unexpected supply disruptions due to regional instability and weather
conditions.

Strategic fit
Supply Chain Strategy and Competitive Strategy
The company’s competitive strategy is to provide quality fuels conforming to international
standards while minimizing the cost of production oil and gas industry is characterized by
stringent regulations that deter price-based competition. Although there is little room for
refineries to reduce their cost of production and doing so requires intensive capital
investment, upgrading to upcoming standards is nonetheless inevitable. The company is
able to achieve competitive edge over other market players by upgrading its production
standards ahead of time. Currently, PARCO is the only refinery in Pakistan that produces
EURO III fuel blend. EURO III is a EURO Emission Standard that allows for even reduced
amount of pollution that is released into the environment.
The refinery’s modern facility also allows for a better white-to-black ratio which is the
quantity of white oil (final product) produced from a unit of crude oil. This higher ratio leads
to higher revenue for the company.
However, the most important feature of the company’s supply chain strategy that
distinguishes its operations from those in the industry is its transportation network. Its
pipeline network starting from Kemari Port to Qasba Gujrat and further extending to
Faisalabad and Machhike helps it reduce its transportation cost and reduce suppliers’ lead
time. It also ensures uninterrupted supply of product to the refinery unaffected by other
environmental factors that could halt supplies otherwise.
PARCO’s unique supply chain helps its operations to be responsive to market demand
irrespective of external disruptions.

e) Push-Pull Boundary in the Organization

PARCO has adopted push strategy for its supply chain. The entire procurement and refining
process is carried out based on demand forecast and the requirement for buffer inventory.
Orders are made with suppliers 3 months ahead of time in order to allow for transportation
and credit arrangements. These orders are placed based on demand forecasts data received
from customers i.e. OMCs. Demand from industrial customers is forecasted based on
historical data. Furthermore, orders are also placed for other raw materials like catalysts etc
ahead of time and an inventory is maintained for them. Once the crude oil reached
company’s storage tanks in it refining facility, product is blended based on the forecast and
sent forward to the refining unit. Refined product is then stored in storage tanks ready to be
delivered when an order is placed. When a customer places an order, product is dispatched
either through pipeline or bowsers.

f) Supply Chain Issues and Challenges

Theft
Although the company has implemented modern technology to control and monitor the
pipeline throughput, the transportation system is still prone to theft and leakages. The
SCADA network notifies the head office of any abnormalities and response is generated to
resolve the issue. However, a response too late leads to loss of product and failure in
curbing malpractices.

Cost of Inventory
Inventory cost is an inherent characteristic of petroleum products supply chain given the
nature of demand and supplier lead times. The company required to store safety stock in
order to avoid shortages at both ends. Higher inventory means higher storage capacity
maintenance and insurance costs.

Lead Time
Due to import of crude oil from gulf countries, transportation of product from Saudi Arabia
and Abu Dhabhi to Karachi Port and onwards to the company’s refinery facility takes upto
60 days. This requires the company to plan its procurement ahead of time. Due to
characteristic of product demand, company is required to maintain a level of safety stock in
its tanks, both for crude oil and refined product.

Price Fluctuations
Oil and gas industry is dominated by crude suppliers who can manipulate oil prices by
controlling oil supply. Furthermore, regional political conditions can also significantly disrupt
supply of crude and hence lead to prices hikes. Whereas price of final product is regulated
by the local government and does not always correspond to fluctuation in crude oil prices.

g) Supply Chain Initiatives

PARCO’s crude oil and white oil pipeline ensures efficient transportation of product that
would otherwise have been done through oil tankers. This significantly reduces oil tankers
movement resulting in less environmental pollution and improved logistic for the company.
The pipeline network of the company is equipped with leak detection system, emergency
shutdown system, corrosion protection, and microwave towers for communication, which
are management through latest SCADA (supervisory control and data acquisition) systems in
order to avoid leakages and thefts.
PARCO’s also uses Drag reducing agents (DRA), that are used to improve flow of fluid in the
pipeline by reducing the friction due to aerodynamic forces. Usage of DRA makes the entire
transportation process more economical and improves lead times.

h) Differentiating Factors in Supply Chain

Strategic Location
The refining facility is situated in the mid country region of Qasba Gujrat. Due to centrality of the
location, the company is able to approach its customers to supply products in minimum lead time.
Moreover, customers in up country area prefer to buy from the refining facility since it cuts down
transportation costs and time for them.

Transportation Network
The transportation network does not only save cost and time for the company when transporting
crude oil from Karachi to Qasba Gujrat, the pipeline also transports refined product for the
customers to various locations across the country.