Petrol Company Case - Supply Chain

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Petrol Company – Case – Background Petrol Company is a large, fully integrated petroleum company based in the United States. The company produces most of its oil in its own oil fields and then imports the rest of what it needs from the Middle East. An extensive distribution network is used to transport the oil to the company’s refineries and then to transport the petroleum products from the refineries to Petrol Company’s distribution centers. The locations of these various facilities are given in Table 1. Table 1. Location of Petrol Company’s current facilities Petrol Company is continuing to increase market share for several of its major products. Therefore, management has made the decision to expand output by building an additional refinery and increasing imports of crude oil from the Middle East. The new refinery should have the capacity to process 120 million barrels of crude oil per year. This then would increase the total capacity of all the corporation’s refineries from 240 million barrels to 360 million barrels. According to marketing forecasts, Petrol Company would be able to sell all its finished product once this new capacity becomes available, but no more. Therefore, the choice of 120 million barrels as the capacity of the new refinery would enable all the corporation’s refineries to operate at full capacity while also fully meeting the forecasted demand for Petrol Company’s products. The crucial remaining decision is where to locate the new refinery. The addition of the new refinery will have a great impact on the operation of the entire distribution system, including decisions on how much crude oil to transport from each of its sources to each refinery (including the new one) and how much finished product to ship from each refinery to each distribution center. Therefore, the three key factors for management’s decision on the location of the new

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