Outsourcing Strategies For Oman Oil Marketing Company Essay.

Challenges faced by Oman Oil Marketing Company

Question:

Discuss about the Oman Oil Company and its Strategic Operations.

Oman Oil Marketing Company was established in 2003 and the company worked as a leader in the country’s energy sector. It is providing superior customer service in accordance to the international standards. There are several of the core business activities of the organization, such as marketing and distribution of the fuel and the lubricant product, direct selling to the public and the private sector, aviation refueling and storage and distribution of the product. It has the highest number of human resources in the country and has developed several long-term objectives. Several business units have been developed which supports the overall strategy and the long-term business objectives of the organization.

In the present times, the organization is facing several challenges due to the changes in the marketplace. The major rivals of the company are Shell Marketing and Al Maha petroleum which provides similar services and product offering. However, with the decline in the international oil prices, the profitability of the government has also reduced. It has resulted in decline in the company’s income. The company is actively seeking different cost reduction methods to maintain the profitability of the organization. A strategic decision has been proposed to outsource some of the activities of the organization, so that the overall profitability of the company can be maintained. The activities conducted in house are outsourced so that the fixed cost of the organization can be transformed into variable cost. The outsourcing decision is the strategic issue of the organization as the company needs to determine which activities will be outsourced from the organization.

The focus of the present report is to identify the best organizational activities which can be outsourced to external organization. The primary aim of outsourcing is to make the organization more resilient to the economic changes. There are several services which can be outsourced to different companies. It includes energy trading and risk management (ETRM), supply chain management, enterprise asset management, IT infrastructure and the retail automatic solutions. Other than that, there are also several secondary activities such as finance, accounting and human resources which can be outsources to the foreign companies.  The company can avail the benefits of cost containment by two services, namely, outsourcing manufacturing engineering services or outsourcing the activities related to the data center.

In the oil and petroleum industry, the manufacturing process planning is a significant step in the success of the manufacturing process of the company. It is the process of selecting and sequencing different processes so that the manufacturing process can achieve the goals of the organization and satisfy the demand constraints. In this regard, a process plan document is designed which contains the information regarding sequencing of operations, work centers, cycle times and the production resource tools. It is mandatory that these routers are generated irrespective of the work load, quantity and the scheduling constraints. It provides timing of different operations and cost estimation of different components. It is also important in matching the operations, selecting the most suitable machines and determining the optimal time for the product quality requirements.

Best organizational activities for outsourcing

There are several challenges in designing the process planning routers in the oil and gas industry, such as an increase in the competitive pressures, statutory regulations and the dwindling order sizes. These challenges require that there is close collaboration between the input providers and the customers. The document should be able to develop the core competency of the organization and develop its core competency in all of its future endeavors. The planning process is essential in optimizing the cost and delivery time of the product. Outsourcing the Process Planning Routers can make the manufacturing process cost-effective and efficient. It can increase the technical capabilities of the manufacturing process. The companies are using the orthodox approaches wherein the entire process planning team is working nearby the manufacturing site. This task could be handled efficiently in the remote location which can provide high cost-benefit analysis through the outsourcing of the services. The process map ensures high productivity without any sacrifice in the product quality.

In the business environment, there are different types of factors includes which can create an impact on business. The micro and macro environment of business are related to the external environment of the company. The Microenvironment is related to the internal and macro environment is related to the external environment of the company (Chen, Kim, and Yamaguchi, 2014). Following are the Micro and Macro environment of Oman Oil Company.

In the microenvironments of the company, SWOT analysis framework is used. The SWOT analysis helps to evaluate internal strengths and weakness of Oman Oil Company.

Strengths

The strengths of the oil company is that it is a leader in Oman oil industry. Due to its strategic choices, the company is getting an advantage to lead in domestic market and access the attractive export markets. The oil refinery has one of the largest production capacities, with a total oil refining capacity of approximately 10 million tons of crude oil per year. The company is mainly associated with downstream oil activities and provides service to customers according to international standards (Bohari, Hin and Fuad, 2017).

Weakness

The main weakness of the company is the decrease in the financial position of the company. Oman Oil Company’s income is continuously decreased in the global market. Despite net losses, its long-term liabilities have shown no signs of reducing and as such, they are causing worry to the company. The competition from the foreign companies is also reducing the profitability of the organization.

Role of process planning routers in manufacturing cost-effectiveness

Opportunities

The strategic plan of the company’s investment helps the company to expand its business in the global market. The company also has an opportunity to take advantage to increase its position in the new energy market and to establish a Hydrocracker to improve the refinery’s diesel and jet fuel yields (Chen, Kim and Yamaguchi, 2014).

Threats

The main threat is the decrease in demand for oil products. In the last few years, due to increase in environmental awareness and the use of clean energy sources has resulted in decrease in demand for oil. In addition, rising cost in the refinery sector can also increase the operation costs. The foreign and the local competitors are using new strategies to increase their productivity and increase the profits of the organization. The declining profit margins is another threat for the business organizations.

It can be deduced from the macro-environmental analysis that the external market conditions are ideal for the organization. It can be analyzed from the appendix that the country is supportive of the oil and the gas industry. The government supports the oil and gas industry as economy of the country relies on the oil and gas industry. The economic conditions of Oman are fairly good and the GDP of the country is one of the highest. As such, the people consumes petroleum and the oil industry products at a very high rate.  As the income level of the people is very high; people consumes the energy products which is beneficial for the organization.

The technical infrastructure and the technology in the country is fairly developed. Due to oil and the gas industry, the gross income and the profitability of the country is very high. The government has invested in developing the infrastructure which will be beneficial for the companies in the oil and gas industry. With the wide prevalence of the oil companies in the industry, the infrastructure of the country has been developed. The company can perform its actions with ease and efficiency in the presence of this infrastructure.

The internal business environment is in control of the company (Liu, 2013). The internal environment emphasize on developing effective business strategies so the company can ensure long-term business growth. Following are the internal environment framework which defines the internal environment of Oman Oil Company.

It refers to company assets, attributes or abilities which is difficult to duplicate or exceed. It provides a superior or favorable long-term position over a competitor. The sustainable competitive advantage helps the business in creating a sustainable advantage over its competitor's. The main competitive advantage of the company is to provide unique and quality products to its customers.  The major rivals of the company are Shell Marketing and Al Maha petroleum, but the Oman oil company have a large share in the market. Due to its larger share market, the company is able to maintain its profit (Vanpoucke, Vereecke and Wetzels, 2014).The products which are offered by the company are also different and unique. The company focuses more on quality; therefore it can retain customers for the long term.

Micro and macro environment of Oman Oil Marketing Company

In addition, Oman Oil Company’s competitive advantage also includes experts in the production and distribution team which helps the company in maintaining its supply chain management

The oil and gas industry is a highly complex business. In the today’s economy, oil has become essential products and it essential in all the energy requirements. These products are in high demand in industry, commerce, retail, and commercial/domestic purposes. The value chain of the oil company is divided into two parts primary activities and secondary activities.

The primary activities of the company include its core activities. The inbound activities of the company include storage and distribution of oil products.  Oman Oil Company exports its oil products in the many countries. The inbound activities help the company in oil production. In the operation, the company turns raw-material into the finished goods. At this stage, the company refines and process oil through the different production process. The outbound logistics of the company is associated with selling final products to consumers. Through the effective supply chain management and distribution network, the company manages its outbound logistics. The marketing and sales activities of the organization are done through the distribution channel and effective sales techniques (Olson, 2014). For selling and marketing oil, company offer low-cost products to its targeted customers. In the services, the company makes focus on building customer’s loyalty through a high level of customers services. The oil company provides quality products and services to its customers so they can retain customers for the long terms.

In the support activities, the first step includes infrastructure. This includes management, finance and legal etc. Oman Oil Company has well designed an efficient production process. In this, the company offer quality services and also offer effective infrastructure to its employees. In HR, the organization’s workforce committed towards growth and success. The HR of Oil Company is providing training to employees so they can keep control on employee’s turnover. The Oman oil company is well aware of the technology not only in the production process but also in the provide customers services (de Souza and Márcio de Almeida, 2013). In the procurement, the company extracts oil through its refinery.  Mainly the support activities are outsourced to the foreign company. 

The 7s framework of Oman oil company is as follows.

Structure

Business needs to be organized in a specific way. The structure of the Oman oil company is hierarchical with several divisions. All the decisions are moved from top to bottom and each task is performed by specific department (Singh, 2013). 

Internal environment of Oman Oil Marketing Company

Systems

The system of the company is associated with the strategy and internal process. This system assists in building day to day strategy and operations. In the Oman oil company, bureaucratic-style process model are followed where all decision are taken by the top management.

Skills

It applied in the all 6s process. For designing the internal environment of the company more successful the Oman Oil Company has led innovative ideas in the system and shared values with staff members. The skills of the company is based on providing quality products to end users and increasing efficiency in the production process (Szeto, 2017).

Style

The style of the company is to emphasize the organization culture. Each business firms has its own culture of complete its tasks and responsibility with that culture. The Oman oil company provide an open, innovative and friendly environment. The company follows hierarchical structure; therefore, it also has a high chain of command so it can establish high ethical standards within the workplace.

Staff

For the human resources, the company hires best employees and workforce.  It is the central position of strategy (Gyepi-Garbrah and Binfor, 2013). The Oman oil company is providing extraordinary emphasis to the training and development program so they can take advantage of the competitive business environment.

Shared Values

All members of the organization share some common fundamental ideas or guiding concepts upon which the business is established. The shared value of Oil Company is to focus on providing excellent services and products to customers. 

Strategy

It refers to the plan of action which prepares a company to respond its external environment. The strategy of the company is to focus on developing long term tactics and outsourcing (Mwangi, Nyamori and Maina, 2015). Through the outsourcing, the business can control over its cost of products and services.

Each business organization has different market segment and according to these segments, strategies are developed. Following are the porter generic strategies.

The cost leadership structure is based on providing low-cost products to the customers. When the company has large scale of business and large production then it can increase the market share use this strategy (Tanwar, 2013). In this strategy, the company offers low cost budget products to customers so they can retain them for the long term. In the present situation, cost containment strategy is important as the profitability of the organization has declined.

The generic strategy focuses to provide different types of products and services which are totally unique as per the need of customers. Such type of services are offered by the company when customers are not price sensitive and firms have unique resources and capabilities regarding the target market (Wicker, Soebbing, Feiler and Breuer, 2015). Differentiation drives profitability when the added price of the product outweighs the added expense to acquire the product or service.

Primary activities of Oman Oil marketing Company

It refers to the niche strategy. The focus strategy is based on a combination of above strategy. In this segment, the company offers low-cost products and services to customers. Such type of strategies are adopted by the company when it wants to target few market.

Oman Oil Company follows the products differentiation strategy. The company is solely focused to offer quality of products (Brenes, , Montoy and Ciravegna, 2014). Thus, the company focuses on high-quality products and services to consumers.

The Bowman’s strategy clock model analyzes the current market requirements. This strategy focuses to offer low-cost products and services as compared to its competitors. Bowman’s strategy is used to analyze the competitive position of the organization in the market. It explores the relationship between the customer value and the price. From the above appendix, the best position for the company is to offer products and services which are differentiated and unique. In this segment, the company maintained its profit and also it can offer high-value service to its buyers so they can enjoy a large share in the market.

The oil and the gas industry is unique and different from other industries. The companies in the petroleum industry are heavily regulated, requires intensive investment and highly proficient workforce. In the recent years, several companies in the public and the private sector have emerged which has intensified the competition in the industry. Several actions such as selling the marginal reserves, cutting back the operating and the overhead cost, reducing the return on investment have been applied by the business organizations; however, these strategies have been insufficient in increasing the competitive advantage of the organization. The strategy of backward integration in an appropriate method to enhance the competitive advantage of the organization. It can increase its focus on the oil exploration and production methods to increase the core competency. In the present, the manufacturing process planning will be outsourced to the foreign organizations. This process can be conducted at foreign locations; therefore, it can be used to reduce the overall cost to the organization.

The backwards integration strategy is the strategy of vertical integration in which the company merges with the suppliers in the supply chain. In this method, the companies merges with the suppliers. The backward integration strategy is adopted to increase the efficiency and the cost saving of the organization. It can reduce the transportation cost, increase the profit margins and increase the core competency of the organization. The supply chain is the sequence of organizations, suppliers, resources, activities and technology which can increase the manufacturing and the sales of the product. The supply chain begins with the accumulation of the raw products and ends with the sale of the manufactured products. However, there are several challenges in the vertical integration of the supply chain (Hill, Schiling & Jones, 2016). Several times, the vertical integration is not beneficial as it does not make the supply chain more efficient and cost-effective. If the supply chain could not achieve high economy of scale and provide input at low cost, then the backward integration is not appropriate.

In such situations, the process of outsourcing can be used to reduce the overall cost to the organization. The outsourcing process entails the process of transferring the process-intensive and capital-demanding operations of the organization. Several functions which can be handled from distant locations can be transferred to the different companies who specializes in such operations. These functions are payroll designing, customer care, research and development and licensing.

In the oil industry, vertical integration refers to the ownership or management of two or more stages in the supply chain of the business organizations. In the oil industry, the various states of the supply chain can be categorized as oil and gas exploration and production, processing crude oil and sale of the refined products (Sadler, 2003). Other than that, the oil industry production can be categorized as upstream, midstream and downstream production. The upstream operations refers to the oil and gas exploration process which includes drilling. Other than that, the midstream level refers to the processing of the oil at the production point which refers to the removal of gases, crude oil storage and transportation of oil to the refinery. The downstream operation process refers to the process of oil refining, storing refined products and transporting the products to the retail outlets.

With outsourcing, the business organization will focus on the exploration of the oil in the country. Oman is an oil rich country and the exploration in the oil with advanced techniques can enhance the oil production of the organization. The organization should focus on the development of the techniques of oil exploration such that it can enhance business or establish competitive advantage.

The diversification is the strategy of creating a competitive advantage of the business by diversifying the product portfolio. With the help of diversification, the companies can create new revenue streams, new capabilities and new solutions. The outsourcing process can also reduce the overall profitability of the organization. It is important in responding to new challenges and opportunities. The supply chain can address the challenges of other sector if they are not well-established. The oil and gas industry can reduce the risk and cost associated with the production with the help of adopting a diversified approach and efficient work practices. The oil and gas commissioning, carbon capture and storage, offshore wind, nuclear decommissioning, energy storage, thermal generation are some of the diversification approaches of the oil and gas industry (Scottish Enterprise, 2010). When the company invests in outsourcing decisions, it can reduce the overall cost to the organizations. As such, Oman oil can invest in other areas for risk diversification and profitability enhancement.

The SAF criteria refers to the criteria of suitability, accessibility, feasibility of the strategic operations. In the present, the strategic option of outsourcing is proposed. This strategic option is evaluated with the help SAF criteria.

The strategy is suitable as the company is currently can increase its profit ratios with this strategy. Other than that, the organization can also invest in other areas as it will reduce the overall cost to the organization.

It is an accessible strategy as there are several companies which take outsourcing projects and can complete hem in a small time (Kenny, 2009).

The strategy is feasible as it will diversify the operations of the organization and will increase the profitability of the organization.

Conclusion

Conclusively, it can be stated that Oman oil is a leading business organization in oil and petroleum industry. The company has several competitors and is one of the largest organization in Oman. It has been identified that the company has ideal internal and external conditions and should invest in outsourcing to reduce its expenditure. The decision is evaluated under SAF criteria. It is examined that the decision is appropriate for the organization.

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