How a New Crude Oil Procurement Strategy Boosted the Bottom Line

An oil-refining company faced the prospect of declining margins owing in part to a changing regulatory landscape. The company needed to improve profitability by reassessing how it was making decisions about the types of crude to use in its operations and reducing periods of under utilization.

BCG did an analysis of crude oil available in the marketplace and the economic impact of adjusting the company’s current slate of 10 to 15 different types of crude.

At the start of the effort, BCG did a deep dive into the company’s crude procurement processes. Armed with that insight, we developed a custom model that allowed the company to analyze all the crudes in the market with physical and chemical properties similar to the stock the company was already using and determine the financial impact of switching a portion of the slate.

The model also allowed the company to assess the risks associated with altering its crude supplies. In some cases, for example, buying crude on the spot market would allow the company to take advantage of lower prices—but would increase the risk of potential shortages or in some cases the need to carry larger-than-normal inventory levels.

An Impact on Profits—and Culture

At the same time, the model helped the company understand how adjusting its crude slate could address the issue of periodic excess capacity. Given that the use of certain types of crude can be a drag on refinery utilization, the company needed to integrate that potential impact into its overall approach to selecting from the 80-plus types of crude available every week on the market.

In addition to boosting profitability, the effort drove a cultural change at the company. There was a mindset shift from favoring predictability and routine to focusing on dynamic optimization of the crude slate based on shifting economics.

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