Global Optimization Interactive Refinery Exploit Volatility Win & Keep Customers Individual Merchandising Energy Downstream Supply Chain Model Market & Distribute Wholesale Products Supply, Market & Transport Products Supply, Market & Transport Crude Sell Retail Products Refine & Process Feedstocks The Promise of the Web... At PricewaterhouseCoopers, we view e-business in the downstream as more than just another site on the internet. We approach e-business as a source of significant strategic advantage - one that will distinguish one company from another and transform business models as we know them today.
Exciting Future for Downstream Oil E-Business Global connectivity is the most "disruptive" technology to hit industry • It can enable a thoroughness in decision process and enrichment in staff never before available • Many tools & techniques available; no single solution dominant • Globality and dynamics of downstream make it a strong candidate to achieve dividends • Downstream behind other industries and there are lessons to be learned • New operating models must be driven by defensible business value improvement principles
E-Business is “In the Money” The www.pwcmoneytree.com survey tracks investments in USA by venture capitalists • Internet investments increased six-fold from $3.4 billion in 1998 to $19.9 billion in 1999 • B2C still captured largest share with $4.5 billion • B2B increased 908% over 1998 • Infrastructure companies rose 547% over 1998 “Shattering previous annual record by 150%, venture capital investment in US reached a new high of $35.6 billion in 1999.”
Six Forces Shaping the Future of Business European convergence required development of unique insights Corporate management is finding: • In converging industries, the customer rules • E-Business is business • Success in the knowledge economy requires new thinking • There is a revolution in corporate reporting • The battle for top talent will increase The sixth force is European convergence...
Elements of the Downstream Our subject is the entire downstream hydrocarbon supply chain Crude Acquisition and Transportation Bulk Distribution Refining MARKETING Final Distribution Terminals & Wholesalers Retailing RISK MANAGEMENT
Questions to be Answered for the Downstream E-Business is here and growing daily. Given all the options: • How will it affect my company? • What should we be doing now, next month and in 12 months? • What are the value creation leverage points? • How do we get started?
B2C Examples Provide Some Insight Technology leadership came from B2C innovators Convergence IndustryTransformation Degree of change to business model Value ChainIntegration Channel Enhancement Enabler Transformer Role of E-Business
Channel Enhancement Industry Transformation Convergence Secure Transaction Processing Online Catalogs Publishing Web Sites Integrated Industries e-Business Portals Transparent Integration Industry Consortiums Cybersourcing Industry Reengineering Virtual Organizations Value Chain Integration Disintermediation Reintermediation Value Chain Integration Business Process Outsourcing Four Box E-Business Development Model Every stage requires new organizational structure
A virtual market place channel, e-Chemicals has 20 major chemical suppliers, 1000 products and over 500 customers, and alliances with IBM, Suntrust and Yellow Services Another virtual market place channel, Chemdex offers laboratory chemicals and recently announced it will handle $85M as a third party source for VWR Scientific Products Chemical Industry Innovations - Page 16 New entrants have entered the marketplace
Downstream Outline Our downstream discussion is organized by supply chain components Relate top industry issues to: • Trade Crude • Refine • Trade Products • Market Wholesale • Sell Retail Trade Crude Trade Product Market Wholesale Sell Retail Refine Each sections is organized as follows: • Theme & key processes • Critical success factors (CSFs) • E-business vision theme and business issues • Web site catalog (industry and non-industry) • Value added by global E-Business approach • Sample problem definition
Five Forces Facing the Downstream Based on input from top executives at the CERA 2000 conference in Houston • Global market liberalization • Continued margin pressure across the chain • Re-balancing of refining-marketing by majors • Growing importance of trading competency • Size no guarantee of competitiveness Trade Crude Trade Product Market Wholesale Sell Retail Refine
Trade Crude - Web Value Added Enhance competitive edge through collaboration and reduced decision time Web allows traders to: • Integrate-optimize selection & cargo movement • Respond more rapidly to global conditions • Identify & manage selective quality premiums Websites • RedMeteor.com • Enrononline.com • Altra.com • JPMorgan - Cygnifi.com • BPUK: E-Energy trading site • GoCargo.com
Trade Crude - Industry E-Business Examples - Page 35 There are numerous examples of new trading channels developing: • www.RedMeteor.com - designed with the idea of offering the energy buyer/seller one neutral place to gather information, analyze and then execute a split-second trade, authorized users will initially transact crude oil, electricity, natural gas, and natural gas liquids. The capability is there to trade physical, financial and option products, RedMeteor offers the ability to customize a personal homepage. • Enron Online - (www.enrononline.com) enables companies to buy and sell the full range of wholesale energy products & services on the web. The site also provides free of charge access to hundreds of commodity prices across the globe. Paper instruments will be added this year. • Altra - (www.Altra.com) provides registered users a real-time, on-line exchange for trading natural gas, electricity and liquid fuels. For gas, Altra provides limited clearing services for anonymous buyers and sellers. Altra is counterparty to the trades. To limit exposure, Altra uses credit and forward exposure limits for its customers. Users have the ability to view: Live Chalkboard activity, Pricing Summary, Completed NGL Transactions and Completed Crude Transactions.
Trade Crude - E-Business Examples Page 36 There are other examples of how far it can go: • BP Amoco launched an internet-based gas trading service in an effort to assist its UK business customers in managing their gas portfolios more efficiently. The service, called "e-EnergyTrade," is available to all existing customers contracted to buy gas on a risk-managed basis. The service allows customers to buy/sell physical quantities of gas in accordance with their contractual arrangements. • JPMorgan - announced plans to launch an online derivatives service company called Cygnifi (www.cygnifi.com) to be complete by the end of Q1 2000. • GoCargo.com - (www.gocargo.com) is a neutral exchange manager between shippers and qualified transportation service providers. They provide a solution for buying and selling container shipping services. Similar initiatives are underway in crude & products tonnage.
Refine Web Value Added Utilizing the web can enhance decision processes • Collaboration across plants or functional departments • Consistent performance management with accountability • Improved knowledge management & best practice sharing • Improved data consistency • Faster decision processes Websites • OilMonitor.com • Honeywell - Myplant.com • AspenTech - ProcessCity.com • Refiningonline.com
Refine - E-Business Examples Page 40 There are numerous examples of E-Business offerings developing: • PricewaterhouseCoopers - (OilMonitor.com) is a web-based crude oil evaluation service that provides crude oil characterization data, whole crude property trending, discussion forums for topics related to oil quality and US petroleum import reports. The site will add functionality related to standardized and customized assay-cutting, assay formats and linear programs. • Honeywell - (www.myplant.com) Microsoft recently joined Honeywell in an alliance to accelerate the growth of MyPlant.com by increasing the site’s reach and offerings significantly. It is a forum for plant managers, engineers, and other operations people to exchange ideas, use Honeywell software to simulate their processes, buy Honeywell products and even view banner ads from other manufacturers.
Refine - E-Business Examples Page 41 There are numerous examples of E-Business offerings developing: • AspenTech - (www.processcity.com) provides a collaborative B2B portal for many process industries, with content and services directed at refining, petrochemical, chemical, polymers, life sciences, specialty chemicals and others. Members can interact, share ideas, get news & information, find jobs, buy books, access software, tools, services and other resources relevant to their process work. • RefiningOnline - (www.refiningonline.com) provides a web-based value-added information on refinining. The website is aimed at refining industry professionals ranging from engineers to consultants to business managers. One of the main features of the site is an online Q&A for refining-related issues.
Websites • NRGline.com. • Houston Street.com - with Equiva • FuelSpot.com • Enrononline.com - expand to products Trade Product - Web Value Added A lot of activity and announcements in last 60 days • Anonymous matching of buyers & sellers • Many competing initiatives, majors & brokers • Custom front-ends and some back office capabilities developing
Trade Product - E-Business Examples - Page 63 Newest commodity E-Trading channels developing in refined products: • NRGline - (www.nrgline.com) provides online brokerage services for energy products, feedstocks and petrochemicals trading. This system provides a neutral, fair and true marketplace for energy price discovery. It was built to optimize simplicity, effectiveness, security and ease of use for the typical oil industry professional. Clearly designed by brokers with an intimate knowledge of USA product trading complexities. • HoustonStreet - (www.HoustonStreet.com) will launch a web exchange for trading of crude oil and refined products at the wholesale level after Equiva Trading Company announced it will invest $6 million as an equity stake in HoustonStreet to help develop the exchange. The exchange will allow all industry traders to participate - anonymously. • FuelSpot.com - when it debuts, will provide an internet platform for trading gasoline and other fuels on the web for refiners, commodities traders and wholesalers. Headed by former traders and Citgo personnel.
Trade Product - E-Business Examples - Page 64 Downstream commodities are following financial market developments • Bank of America - (www.bankamerica.com) signed a contract with Fundtech to use their payments vendor's web interface into a new Continuous Linked Settlement (CLS) service for settlement of foreign exchange trades. The service, scheduled to go live in 2000 with 62 of the largest foreign exchange trading banks, should eliminate foreign exchange settlement risks. • Barclays - (www.internationalbanking.barclays.com) has innovated two electronic projects, XTAS (eXchange Traded Access System) and CB Webinfo. XTAS is an web-based futures trading platform that allows users to directly enter orders. CB Webinfo and CB Webtrade are two phases of an web trading system for convertible bonds. • GlobalNet and NexTrade - (www.matchbookfx.com and www.nextrade1.com) announced they would launch an web ECN for spot foreign exchange trading. Chief of NexTrade said, "If you look at the forex market today, it operates essentially the same way as it did 80 years ago. We aim to bring ECN technology the same type of algorithms and order matching will bring price transparency, firm quotes, tighter spreads and direct market access to an electronic forum, taking the dealer out of the equation."
Market Wholesale - Web Value Added Enhance relationships with jobber, dealer and national account channels • Push pricing and product availability • Major account or auto stock replenishment • Become the channel for all customer needs Websites • Chevron Reseller Alliance (CBEST) • OceanConnect.com • Sunoco Lube Distributors • Citgo MarketNet • PettitOil.com • BP Amoco Chemical • Eastman Chemical
Market Wholesale - Industry E-Business Examples - Page 73 Numerous examples of new web channels are being initiated: • Chevron - (www.chevron.com) provides distributors with CBEST (Chevron’s Business Electronic Support Tools) - a suite of web applications designed for marketers to provide access to functions needed to conduct day-to-day business with customers and Chevron. Marketers will soon be able to run D&B checks and use Chevron’s clout to cut trash bills and even electricity rates under a deal the major is negotiating with utilities. By 8/99, 850 marketers had signed up, and Chevron wants to see all 1,750 branded jobbers and retailers on line by year's end 2000. • www.oceanconnect.com - BPMarine, Chevron/Texaco JV (FAMM LLC) and Shell Marine announced a marine industry web portal that will feature an auction site and e-mail enabled transactions for the purchase and sale of marine fuels. Called OceanConnect.com, the site will be an independent marketplace for all buyers and sellers of marine fuels and services. It will also provide users with up-to-the-minute market information, weather updates and other services ship owners rely on to run their businesses successfully.
Market Wholesale - Industry E-Business Examples - Page 74 There are numerous examples of new web channels developing: • Sunoco - Developed a web-site for its lubricant distributors using a Harbinger catalog to automate buy-backs, claim processing, quick access to MSDS sheets, and information to trading partners on marketing and business development programs; implemented Ariba e-Procurement application for packaging division • Citgo MarketNet - designed to allow jobber marketers to view all credit card transactions for daily settlement. Jobbers will also be able to download data, eliminating current re-entry processes. Also available are updates on station management programs, info on ATMs, computers, car washes, pay phones, grocery distribution and financing. Jobbers can use system also to order promotional materials, view image manuals, track terminal allocations and download training programs. Jobbers will soon switch from satellite price notification and invoicing to cheaper web service and phase out use of the DTN system.
Market Wholesale - Industry E-Business Examples - Page 75 Numerous examples of new web channels are being initiated • www.PettitOil.com - a website developed by a large USA pacific coast multi-brand (5 major oil companies) jobber. A full service residential commercial fuels distributor with 8 C-stores, 8 radio controlled trucks 3,000 home heat customers. • www.bunkerworld.com - in the UK aims to be the best online resource for those who deal with the international marine fuels industry. Access to over 7,000 web pages all relevant to buying, selling, brokering and trading of marine fuels. Site operated by Telemarine, Ltd., a web startup focusing on supply industry. • BP Amoco Chemical (www.bpamocochemicals.com) - announced it has chosen ChemConnect as its preferred third-party platform for internet. BP Amoco Chemical plans to perform all chemical business trading online and 95% of their supplies via the Web by year-end of 2000.
Websites Sell Retail - Web Value Added Enhance customer loyalty by treating them on a “one-to-one” basis • Individual merchandising by site and customer • Extend and integrate credit card data with POS data • Improve category management & item replenishment • Mobilstations.com -Traveler website • UDS: Billserv.com • Valuecards.com • HEB - San Antonio
Sell Retail - Industry E-Business Examples - Page 82 Representative examples of new industry web initiatives: • Mobilstations.com - allows consumers not only to find their nearest Mobil outlet, but also to preview location offerings, schedule repair appointments, retrieve coupons and contact either the station operator or Mobil. Future plans will allow dealers to use post or e-mail to target customers through direct advertising. There are 27 company-operated outlets on Mobilstations.com as part of a test and Mobil says it's working with its C-store merchandising group to develop & extend the site strategies. • UDS Billserv.com - will provide electronic bill presentment and payment to 825,000 active credit card customers. The end-to-end electronic billing service will include transmission to Billserv.com of UDS customer billing data, delivery to electronic billing services such as CheckFree, NetDelivery and Cybercash, and processing payments. • Evans systems, a (public) USA Midwest C-store operator - purchased I-Net holdings an internet startup. Sold the c-stores and plans to providing web marketing & sourcing to C-store industry.
Sell Retail - Non Industry E-Business Examples - Page 83 Watching for the next innovations: • IBM - (www.ibm.com) plans to roll-out the first web-enabled cash registers for retail stores. The new SurePOS line will let customers access orders that they placed online - while in the retail store. Staff will have access to supply chain replenishment information as well as order status. IBM currently controls 15% of registers sold worldwide. • 7-Eleven, Inc. - The largest C-store chain with over 5,000 sites has approached E-tailers to be their designated order fulfillment and return service provider. The store is a portal and the proposed internet kiosk is an electronic window to a broader range of goods. • Tosco - with 1million/day “hits” at their service stations is half of Yahoo site. • Valuecards.com - an online store which offers prepaid fuel and retail cards to customers at a discount for Arco, BP, Citgo and Exxon.
Sell Retail - Looking Ahead - Page 84 Ability to individually track grocery SKUs is the appropriate business model Scan-based trading (SBT) - uses retailer POS data with suppliers to drive settlement, replenishment and promotion for products sold to reduce trading partner costs, improve consumer service, and ultimately improve promotion performance. The innovation is to pay for product only when it is sold at point of sale, suppliers own inventories. Retailers improve cash flows. Suppliers bypass retailers' inventory processes. • HEB - (www.hebgrocery.com) has pilot study underway to explore SBT in San Antonio, involving seven manufacturers. Major results to-date: (1) Sales volume increased (2) Shrink fell within acceptable range (3) Unauthorized SKUs decreased (4) Backroom bottlenecks were eliminated Note: HEB now experimenting with gasoline hypermarket format
E-Procurement - Industry Example E-Procurement is most mature industry application to date • Chevron - Ariba - (www.petrocosm.com) The first global, independent, open internet marketplace to be owned by buyers and suppliers across the energy industry. Companies of all sizes can buy or sell products and services that span the oil & gas supply chain: drilling, electrical, pipes, valves and fittings; and professional, engineering, and construction services. Petrocosm estimates that net markets could drive $11 billion in industry savings. • Shell - Commerce One - (www.shell.com) Shell and Commerce One formed a joint venture to develop an internet market place for procurement in the oil, gas & chemicals industry. The aim is to establish an electronic exchange to link buyers and sellers of goods and services across the globe. The new global exchange, which will be based on the Commerce One MarketSite portal, will be open to all energy companies, their suppliers and their customers.
E-Procurement - Industry Example E-Procurement is most mature industry application to date • NetworkOil.com (www.networkoil.com) - A global Internet marketplace for petroleum services and new & used equipment. The electronic exchange provides a secure, neutral forum for conducting a variety of transactions, including requests for bid, auctions and reverse auctions. The NetworkOil management team and investor group is drawn from the oil and gas, e-commerce, technology and financial industries, including Belco Oil & Gas, Neuvo Energy, Ocean Energy, Wagner & Brown, Burlington Resources and many others. • CE Franklin (www.cefranklin.com) - Canada’s largest energy industry supply company will use MRO.com’s technology to create a marketplace that will allow customers to develop & implement a complete e-procurement strategy. It will ultimately integrate the entire planning, maintenance, repair and operating supply chain, streamline order management and save money on purchasing transactions. Manufacturers and suppliers will obtain preferential access to CE Franklin’s customer base.
E-Procurement - Industry Example E-Procurement is most mature industry application to date • SAP & Statoil - SAP & Statoil has formed a joint venture to build an online marketplace for the natural fuel industry. The exchange will provide hosting services for oil and gas companies to buy and sell goods and services. • Sparesfinder.com (www.sparefinder.com) - an internet exchange for high value, high risk engineering spare parts and equipment which offers a unique way to reduce member’s inventory without increasing risk. This site precisely locates an immediately available spare part in less than 90 seconds. It is built on existing ad hoc inventory sharing arrangements that have been in place between otherwise competitive companies for many years. Members can locate critically needed spares, either within their own group of companies or from other subscribers. Members can also sell surplus to other subscribers, or through Sparefinder’s Trade Centre with its links to buying organizations throughout the world.