The Hindu Business Line : IOC aims to save Rs 700 cr thru software packages

INDIAN Oil Corporation expects to achieve cost savings of Rs 700 crore through an investment of Rs 63 crore on software packages. The cost savings will bolster the profitability of the company during 2004-05 when the software will be operational, according to company officials.

In a presentation before the board, the senior management pointed out that this will be possible with the implementation of the optimisation packages both at the refinery end as well as the entire supply chain - from sourcing of crude to the delivery of products to the consumers.

The software, developed by Tata Honeywell, consists of two parts - the refinery optimisation process and the supply chain optimisation process. The refinery optimisation process has been tested at five of IOC's seven refineries located at Koyali, Mathura, Panipat, Haldia and Barauni. It has also been tested in the LPG business. Currently, the software is being fine-tuned while it is undergoing site acceptance tests at the refinery sites.

The second part of the process, supply chain optimisation, involves integrating the refineries with the rest of the supply chain - the crude sourcing department to the corporate office to the product demand centres.

What does the software package do? In regard to refinery optimisation, the software digests the profile of refinery products and their quantities to be produced and throws up the optimal quality of crude required.

For instance, in the case of the 13 million tonne Koyali refinery, the company has tested the software, made according changes in the crude quality and found a gain of 20 cents per barrel. This translates into a Rs 45 crore per annum benefit.

In this way, IOC is looking at benefiting to the tune of Rs 300 crore per annum from installation of the refinery optimisation package at all its refinery sites.

The other major gains are expected to come from the supply chain optimisation model that will be put in place by April this year. In the case of the LPG business, the software was tested this month.

The gains from use of the software package are to the tune of Rs 35 crore per month. Since the product is subsidised by the Government, LPG distribution is being done across the industry on a common basis.

Hence, IOC is planning to share the distribution model with the other public sector oil marketing companies.

Here the gains have been largely realised by reorganising the sourcing of products to demand centres from different refineries and depots.

The scope of the optimisation package will include removal of bottlenecks in tankages, pumps and storage systems. The software will also factor in a demand forecast model, which will forecast the changing demand pattern.

For instance, if there is a festivity coming round the corner, the software will raise the short-term demand forecast and suggest the `least-cost' sourcing of products from different refineries.

IOC expects to gain around Rs 400 crore per annum from the supply-chain optimisation model, which along with the projected gains from the refinery optimisation process, takes the total gains to Rs 700 crore per annum.

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