A brief profile of Caltex Australia limited and why I choose to study the company
A supply chain can be defined as a network between a company with its suppliers (Sawik, 2018). This network involves producing and distributing specific products. The supply chain is simply a representation on the steps taken to get a certain product to a customer. Every activity in the supply Chain should be able to sustain a company. Supply chain management is very important because when a supply chain is optimized it will always result in lower costs and a faster production cycle (Rosengarten, 2009). Logistics management can be termed as a production and distribution process within a business. While supply chain management can be defined as how suppliers, manufacturers, and retailers distribute a certain product to the final customers (Hugos, 2010). Thus Caltex Australia Limited always try to adapt and improve their supply chain based on the changing markets to make sure that they continue to have a secure, quality and reliable quality fuel supply to its different customers. 2014 happened to be one of the most important years for Caltex because it was able to change the Kurnell site from being a refining station to a fuel import terminal (Mcnally, 2017). This transition is an indication that during that year Caltex supply chain increased to approximately 50% of fuel products which had been sourced from various supply business who included third-party Australian refineries and terminal together with imports by Ampol Singapore
Sourcing of products
A business must make a decision on whether they should make or buy a product. The decision to either make or buy a product usually depends on tangible and intangible factors which keep changing over a period of time (Myerson, 2012). Sometimes making a product seems to be a very good strategy but it may also bring inconveniences than buying a product from a manufacturer who is specialized in that area. There are various factors that determine whether to make or buy a product (Sarkar, 2017). One of those factors is quality. If a company can be able to come up with a high quality product at a cheaper price than how you could buy it, then a company should make the product in-house. However, if the company is not able to make such a product then it should buy from a vendor (Rosengarten, 2009). The second factor that determines whether to buy or make a product is quantity (Joshi, 2016). The amount or volume of a product company needs may influence it to buy or make the product. If little quantities of a product are needed then the company may choose to buy. When a large quantity is needed then the company may choose to manufacture the product. Convenience is the other factor that determines whether to make or buy a product (Kilubi, 2017). If it seems convenient to either but or make the product the company should go for either. Convenience depends on different factors such as infrastructure, raw material or labor. Marketing is another factor which can determine whether to make or buy. A company that makes and sells its own product happens to have a strong brand, not as a company that buys from manufacturers and later sells (Mcnally, 2017). There are various types of outsourcing strategies which can be further referred to as engagement models (Delbufalo, 2018). They include comprehensive BPO, selective BPO, licensing agreement and contracting
Caltex sources crude oil from various Australian and international producers. However, values of crude oil sourced have gone down since Kurnell refinery was closed down. In 2014 million barrels of crude oil had been sourced from both the Kurnell and Lytton refineries. However, this quantity reduced by 2015. The reduction in the crude oil purchased by Caltex was replaced by an increase in refined fuels which were imported by Caltex. In 2014 Caltex is said to have produced a lot of high-value products. The other subsidiary of Caltex is Ampol Singapore, which sources refined fuels and other shipping requirement s to Australia. Apart from sourcing the different refined fuels from various providers, Ampol Singapore is also able to manage the various shipping services.
Caltex be thought to be using outsourcing as a major sourcing strategy. Global outsourcing is thought to promote a business without barriers in the global world. However, outsourcing does not automatically reduce the cost of Caltex Company. Thus global outsourcing uses nearshore, offshore and onsite outsourcing strategies to have a strategic business objective for Caltex Australia limited (Rosengarten, 2009).In fact in most companies that have embraced global outsourcing strategies they usually have people named as strategic services manager or chief globalization officer . This demonstrates that the organizations take the issues of global outsourcing very much serious. Customers may demand more of a product thus making the competition to increase and making the product lifecycle to shrink lastly pleasure is increased in operating margins (Stanton, 2017). Thus global cross-border business can cause a lot of challenges to a company if not well managed thus proper management is needed. However, outsourcing also helps various companies to be able to achieve some enterprise strategic goals making it focus on the core competencies. Global outsourcing also reduces risks to customers because it usually not based on geographical location or a country thus allowing more freedom and flexibility when making decisions and also when operations are done during the outsourcing process. Thus a business can learn, evolve, grow and adapt while also making sure that predictability in quality is achieved.
Modula service delivery through global delivery centers
In Caltex Australia Limited, global outsourcing usually takes a modular approach when delivering services. This is also experienced in some other manufacturing industries which have managed to have high profits. Caltex has broken down its business processes into small components which can further be referred to as modules which can be distributed across geographies and countries to make sure that work gets done in places where it will be cheaper and done at a faster rate (Sarkar, 2017). Through global delivery model, global outsourcing has become very much possible (Sarkar, 2017). The outsourcing providers usually hold responsibility for the whole project being managed and executed in different modular fashions across the different locations, time zones and countries through having partners, branch office or vendors. Each supplier holds responsibility and accountability in managing the outsourced business process which has been assigned to him. He must also deliver quality products that meet the industries standard levels. The completed modules are usually assembled and given to the client.
Caltex Australia Limited has achieved its strategic business objectives through the good use of global outsourcing strategies. However, outsourcing experts in Caltex usually make sure that the company business processes that differentiate them from other business and generate growth in the company are kept in-house (Delbufalo, 2018). However, all other business processes can be outsourced. The most important thing in outsourcing is having control and not ownership capabilities.
Type of outsourcing
Caltex Australia has engaged in global outsourcing after it decided to unbundle purchasing of crude oil as an internal supporting service which was assigned to Ampol Singapore (Kilubi, 2017). This can accurately be referred to as business process outsourcing because an entire business process was subjected to Ampol Singapore
Reasons why Caltex Australia decided to outsource some of its services
There are many reasons why companies prefer outsourcing. However, the main reasons include suppliers superior economy of scale or reduce cost. Cost saving happens to be the main reason why Caltex preferred to outsource some of its services. When the main objective of outsourcing a firms product is to reduce cost and within a short period of time the motivation can be thought to be tactical ( Cleary, 2011). Another short term motivation of outsourcing occurs when the required resources are not available. Lastly when some functions are not manageable outsourcing may be considered. However, it is usually supported by very many other reasons.
Lower administration, labour, and operations cost is one of the reasons that made the Caltex Australia limited to outsource its products. For companies that want to focus on some critical activities outsourcing becomes time-saving
The fact that some other companies are expert. The operation in which Caltex Australia outsourced, it is usually executed well when outsourced compared to when it is done internally. Through this, the company can expand its competence resources
Lack of expertise could have been the other reason that made Caltex Australia shut down the Kurnell refineries and thus preferring to source the product from somewhere else. Lack of internal resources within Australia could have also attributed this
As I stated earlier cost flexibility is what makes most of the companies to outsource their products (Khojasteh, 2008). Through cost flexibility, a company can adapt to any changes in the market without affecting its profitability
The effects of outsourcing usually depend on the industry. Caltex adopted outsourcing to make the company have a competitive advantage and also gain higher profitability (Cleary, 2011). What the company decided to outsource it is usually for the best of the company. However, it has a significant effect on the company (Khojasteh, 2008).
To what extent is global outsourcing sustainable to Caltex Australia Limited?
Because of economic fluctuations and increased competition in the oil and gas industry controlling cost has been one of the survival techniques used by Caltex Australia limited (Babin& Nicholson, 2012). The oil prices significantly affect the petroleum industry as a whole, and thus the sector becomes inconveniencing because of the instability. Other challenges that Caltex faces in this industry is reduced production capacities, changing compliance requirements and aging infrastructure. These factors make the Caltex Australia Limited look for options that will help in managing the situations. Thus to achieve these, the company has turned to the outsourcing strategy which has been very much beneficial
Due to fluctuating oil prices, the firms have been motivated to look for other ways that will help the business run smoothly. Caltex Australia Limited started outsourcing a while back, and there has been along sustainable development (Joshi, 2016). Today, however, there are many outsourcing support activities (Joshi, 2016). These activities include information technology activities and catering. However, the oil industry globally has been on a learning curve, and most of the companies depend on outsourcing for sustainability. The oil industry is divided into two sectors which include the oil companies who are struggling to define their core competencies and we also have service companies which have a pronounced technological power. There are both negative and positive aspects that these companies experience. Outsourcing has become very important for these companies because they can efficiently streamline their cost structure. The oil gas is critical sector because it supplies energy to two-thirds of the world.
Further the outsourcing decision is not usually based on a county or location. Usually work is done in the most effective place thus being able to deliver value based on resources, competence, and price (Stanton, 2017). Caltex Australia Limited also gains access to the different knowledge and technological infrastructure of the different service provider from all across the world. Nearshore solutions usually offer similar time zones, linguistic ability, and cultural compatibility.
On the other hand, if disaster is experienced in one region it is easier to transfer the business to be done in another region (Andreff, october2008) . Thus being able to mitigate risk and allowing the business to continue smoothly (Cleary, 2011). Global outsourcing has greatly assisted the company in mitigating risk thus being able to survive in midst of economic fluctuations
Outsourcing strategies for activities that are not core gives Caltex Australia limited a competitive edge. Other benefits include increased revenue, improvement in quality, cost restructuring time to focus on important business activities and speed to market
It also very important for a firm to have a strategic purchasing approach for a firms supply management practices. Strategic purchasing approach should be long-term l, co-ordinated and responsive (Andreff, 2008). Reliable and competitive supply of products and crude oil is important for Caltex given the fact that Australia is located in a remote place and the fact that the company operates over a wide geographical area. Due to the closure of the Kurnell refinery, Caltex was able to separate the supply business from the supply chain.
Companies come up with purchasing strategies to minimize their cost when making their purchases for manufacturers and vendors who are able to deliver quality goods on time and at the agreed time (Andreff, 2008). Caltex is involved in global sourcing purchasing strategy. Since it is a large multinational company it is able to buy its products from many vendors or manufacturers without caring much about their country of origin.
According to new south wales (2004) global sourcing which can further be referred to as central purchasing and local sourcing also known as local purchasing is the most common purchasing strategies used by Caltex Australia limited. Caltex Company Usually prefers global supply alternatives that offer better cost and quality conditions. On the other hand when companies want to purchase non-critical supplies which are locally available at high quality levels and competitive prices they usually turn to locally managed domestic supply to ensure that they respond effectively by using buyer-supplier relationship (Jacoby, 2012). However on various occasions, Caltex Australia Limited may choose global sourcing-local purchasing and local sourcing –Central purchasing (Roth, 2014). Caltex Australia Limited has a very strong centralized global strategy where the important material supply management is included in their global strategy while the purchasing approach is also aimed at reducing control risks. Global sourcing Help the Caltex Company to source products or raw materials from cheaper markets thus ensuring that the company is always making a good profit.
A legacy system can be defined as a context of computing or in other words outdated computers systems, application software or programming language that is used by an organization instead of an upgraded version
Legacy systems are usually associated with some terminologies or processes which are not applicable in the current context or content, therefore, creating confusion (Sawik, 2018). In theory, it is easier to a have organization using the recent information systems but in reality, this is not the case (Falola &Genova, 2005). Most of the legacy system is said to be problematic because of the lack of security and compatibility issues. A legacy system can be though to be a legacy platform as well (Roth, 2014). Caltex legacy system can be thought to be MRP, however, It was later integrated with ERP and the company has since outgrown the ERP system. MRP stands for material requirement planning while MRP II stands for manufacturing resources planning (Mauergauz, 2016). These are systems that control both production and inventory (Rosenberg, 2018). This means that they are only used in the production, purchasing, and delivery departments. However many people think that MRP systems are part of the ERP systems. MRP depend on manual inputs from the users to come up with a production schedule. However even after Caltex Australia Limited has outgrown the ERP systems it still uses the system. Continued use of legacy programmes usually originates from the risks associated with modernization. It might have cost the developers a lot of time to some with the said legacy programme another factor is the cost of coming up with the new system
- Caltex should consider outsourcing from international service providers.
Caltex should try and avoid lousy outsourcing experience that comes about because of poor delivery service by the outside firms. Global markets offer different service providers and also promotes competition
- Continual Business process auditing
- It is not enough to only outsource a product, but it's also necessary for Caltex to continue making some verification to make sure that it is not running at a loss. This will also help the company identify the area of the company that stills needs outsourcing and the way to go about it
- Benchmarking with other firms and parallel industries.
Caltex Australia Limited need to always do a benchmark in their operation with those other companies in the same industry. The reason behind this is that Caltex will be updated on issues that concern outsourcing (Mcnally, 2017). This can lead to profitability and competitive advantage. It is not right to assume that outsourcing is always the best strategy thus it is necessary to hear from other enterprises
Caltex Australia Limited should engage in short contracts with the various outsourcing companies (Babin& Nicholson, 2012).
It is not right to offer long deals to outsourcing companies (Stanton, 2017). This might make the company not to perform. It should be a one year contract so that the company does not strive to perform
Caltex Australia Limited can be said to be stable this is because of the company's marketing business (Chanticleer, 2017). However, it is still not clear whether Caltex can withstand economic crisis because it is greatly exposed to operational and significant asset concentration risks. This happens at its two refining stations (Roth, 2014).Based on my opinion the trading of the Caltex refining stations is just worsening thus demonstrating small size and lack of economies of scale and fuel flexibility (Myerson, 2012). It has also been affected by the Australian dollar which keeps on appreciating against the US dollar.
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