INTEGRATED MARGIN MANAGEMENT (IMM)

Ms. NISHI VASUDEVA

Chairman & Managing Director - HPCL

Dear Colleagues,

In the last decade, the downstream oil & gas environment has become more
challenging both globally and in India. Conventionally, downstream companies
have followed a 'silo-based' margin management system in which each Business
Unit managed processes within its realm. To keep our Corporation ahead of the
curve, we felt the need for greater cross-functional collaboration and adopted the
Integrated Margin Management (IMM) model.This model is a global standard for
oil & gas majors.

At HPCL, we identified nine cross-functional processes that are key to driving

margins across the crude to customer value chain. For the first time in October '13,
these processes were driven by pilot teams staffed with officers from across
functions.In addition, officers from HPCL across Sourcing, Planning, Refining,
Operations, and Distribution and Marketing functions identified a 'value pool' of
ideas which has substantial potential to generate additional margins. These ideas
are now being taken forward by the IMM team.

The pilots were a success. To continue the momentum, we set up a single IMM
team to take these processes forward, while incorporating our learning from the
pilots.I have seen early signs of this integrated margin mindset spreading across
our organization. Changing mindsets is never easy, especially in an organization as
vast and dynamic as ours. However, to take our Corporation to the next level of
performance, I believe it is critical that we do so. Please reach out to the IMM team
for any support you may require in this regard.

For IMM, and indeed HPCL, to succeed, we will all need to work together as one,
putting the interests of the organization first. Doing so will ensure we continue to
improve our performance, year after year.

"For internal circulation only"

01
 VISION
To be a World Class Energy Company known for caring and delighting
the customers with high quality products and innovative services across
domestic and international markets with aggressive growth and delivering
superior financial performance.
The Company will be a model of excellence in meeting social
commitment, environment, health and safety norms and in employee welfare
and relations.

MISSION
"HPCL, along with its joint ventures, will be a fully integrated company in
the hydrocarbons sector of exploration and production, refining and marketing;
focusing on enhancement of productivity, quality and profitability; caring for
customers and employees; caring for environment protection and cultural
heritage. It will also attain scale dimensions by diversifying into other energy
related fields and by taking up transnational operations."

CONTENTS
Context 3
An IMM organization will create value for HPCL in several ways 4
Integrated Margin Management 5
The IMM Group is responsible for 9 Key cross-functional processes 6
IMM Organization Structure 7
How does IMM work at HPCL? 8
Progressof Ideas under Implementation 9
Journey of IMM so far 9
My role !! 10
Way Forward 11

"For Internal Circulation Only"

02
 Context

The downstream value chain in HPCL is currently managed by respective

Business Units which are focused on SBU-specific metrics and performance
management systems to drive efficiency and profitability of the respective
SBUs.

Conventionally, downstream companies have followed 'silo-based' margin

management, where respective departments/ SBUs focus on managing
processes within their realm.In a deviation to this, a series of pilots of key
processes were implemented to verify the advantages that could accrue with an
overall margin improvement approach.

CFD, after due deliberations following implementation of pilots, decided to set up

the IMM group for realizing the potential value through cross-functional
collaborative approach by incorporating the learnings from the pilots.

"For internal circulation only"

03
 An IMM organization will create value for HPCL in several ways

IMM Design Principles

Setting up IMM as the 'nerve centre ' of the corporation, to ensure

assessment of full potential

Ensuring full separation of Planning and execution activities

Detailed evaluation and accelerated implementation of existing ideas for

realising value

Incorporating global best practices on IMM Organization strucutre and

setup.

Why IMM
Empower a single entity to have an end to end view on critical processes and
take all decisions to plan, enhance and deliver the NCR

Enable inter-functional deliberations by ensuring high visibility of relevant

data & providing a neutral forum

Facilitate continuous improvement by challenging and resolving of

constraints

Provide single window to management for reviewing NCR performance

through a central department

Add accountability by aligning KPIs of different BUs/deptts towards the

common goals of profit maximization.

"For Internal Circulation Only"

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 Integrated Margin Management

Supply
Overall Margins

Marketing IMM Refining Net Corporate Realization

Increases
Healthy Bottomline

Sales

The IMM team is the nerve center that tracks the organization's Net Corporate
Realization. It is a central planning cell that is responsible for creating the optimal
plan for refinery and distribution to maximize the profits of the company. IMM
envisages not just a change in the Organization Structure, but it also entails a
rigorous approach of work methodology thru well defined processes, governance
thru suitable decision support systems and iterative fine tuning of operations
leveraging optimization and analytical tools available across the value chain and
continually enhancing their effectiveness towards improving the NCR.

The IMM operating model will allow our organization to take an integrated view of
the downstream value chain and understand clearly the drivers of margin at each
level including sourcing, refining, supplies, operations, distribution and inventory
management. This understanding will help in undertaking actions to address the
imbalances and maximize margins between procured crude price and realized
product price.

"For internal circulation only"

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 The IMM Group is responsible for
9 Key cross-functional processes

Annual
crude
Idea generation, planning
Annual
implementation distribution
and tracking planning

War room Monthly

process production
planning
IMM

Back-casting Spot crude

process selection

Monthly
Evacuation distribution
planning planning

Turnaround Planning
Annual demand
Annual Planning forecasting
Process Crude terming
OMC Planning
Vessel Chartering
Retro Analysis Analyze Demand Vs Supply
Process Back-Casting

Crude Inventory
Management
Refinery Scheduling Idea Generation
Monthly Product Ideation Implementation
Monthly Sourcing Tracking
Planning Product Inventory
Process Management
Monthly demand
forecasting
Monthly product
distribution

"For Internal Circulation Only"

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 IMM Organization Structure

Head - Economic Planning & Optimization

Refinery Production Distribution Economic Initiative Management

Planning Planning Analysis Office

Finalizes optimum Optimizes product Ensures accuracy of Monitors and tracks

annual crude oil sourcing, and refi- financial inputs for all identified margin
grades and quantities nery evacuation to processes carried out improvement initia-
for purchase via term meet demand across by IMM, analyzes tives across the value
contracts and in the all locations and en- forward markets and chain, assist the idea
spot market, maxi- sures timely avai- pricing trends for owners within the
mizes NCR by crea- lability of product at feed back into the BUs to create busi-
ting optimized Pro- least possible cost at decisionmaking ness cases and ana-
duction plans fact- demand centers process and bench- lyze respective ideas.
oring in demand, and through the use of marks refinery mar- They conduct peri-
refinery constraints, optimization tools. gins with local and odic idea generation
conducts an event global players to workshops across the
based retro-analysis identify oppor- organization.
of the plan versus tunities for impro-
actual performance vement
every month to
identify opportu-
nities to increase
margins in the future.

"For internal circulation only"

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 How does IMM work at HPCL?

Activities undertaken by the IMM group has been classified into two broad categories:

1. Planning processes: This includes the entire spectrum of cross-functional processes

including annual crude term planning, 3-month rolling planning, spot crude planning,
and primary distribution planning and end-to-end back casting.

2. Opportunity identification process: This includes generation, syndication, tracking

and monitoring of margin-improvement ideas as detailed below:

a. Idea generation: The Initiative Management Office (IMO) of the IMM group
will be responsible for generation of margin improvement ideas. The idea
generation process will begin with idea generation workshops involving cross-
functional members of the IMM group as well as other departments. The IMO
will also be responsible for capturing and pursuing all ideas generated during
other cross-functional processes

b. Business case syndication for each idea: Each idea will need to be evaluated
with a full business case to ensure that all the stakeholders have signed off on
the idea potential and implementation plan. The IMO will ensure that the
constraints and assumptions used are robust and consistent across the
business

c. Tracking of ideas: After the syndication of implementation plans for each

idea, idea concept notes will need to be signed off. Ideas are systematically
taken through the idea funnel (IL1 to IL5) process for implementation.

"For Internal Circulation Only"

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 Progress of Ideas Under Implementation

*As of March 2015. DS Pipeline LPG IT&S O&D VR MR

400 398
50
100

270
55
183
67
70
Value of
ideas
Rs cr 153 114
84 15 6
10 175 165
10 6 8 93
50 50

Ideas under Ideas Concept note Under Implemented

evaluation evaluated signed off Implementation (IL5)
(IL1) (IL2) (IL3) (IL4)

Number 21 13 11 12 8
of ideas

Journey of IMM so far ...

March'15
Almost all
October'14 processes
First 3 IMO ideas in place
August'14 executed; saving
IMM accruals
July'14 Organization ' commence
MM Organization Kick Off' with
March'14 structure staffing for key
Pilots concluded approved by CFD positions
October'13 successfully with
Pilot teams set demonstration of
July '13 up to implement the "proof of
IMM concept key IMM concept"
presented to the Processes
CFD

"For internal circulation only"

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RS. 1300+ CRORE IDEAS IDENTIFIED
ACROSS REFINERIES, O&D, IT&S,
RETAIL SALES, DIRECT SALES & LPG
RS. 800+ CRORE IDEAS ALREADY EVALUATED
RS. 380+ CRORE WORTH OF IDEAS PUT INTO
IMPLEMENTATION

My Role !!
As we stand on the horizon of change,
gearing up to put our best foot forward and
preparing to convert our aspirations into
reality, our collective will and efforts assume
great importance. While setting the
futuristic direction for the Corporation
through the formulation of our aspirational
strategies - Target Shikhar and Udaan 2030, our Corporation is set for a progressive
and innovatory shift in its approach.

To succeed in this endeavor, a paradigm shift in the very way we think, strategize,
prioritize, and operationalize is of utmost importance. In line with the spirit of 'HP
FIRST', the need of the hour is to shift our focus from self onto the collective
aspirations and future of the Corporation.

It is the opportune time to break the mould and collectively achieve the common
objectives that we aspire for. We can, and must work together to achieve the
collective organizational outcomes. Our collaborative will and the determination to
build a strong and sustainable HPCL, paved the way for a corporate wide initiative -
IMM (Integrated Margin Management) which looks at the entire value chain of the
Corporation and orchestrates the best decisions towards improving the bottom line.

Each one of you can add value to our Corporation, simply by giving your ideas or
suggestions for implementing new ways of doing work or eliminating / revising
some ineffective existing work practices that will further strengthen our Value
Chain. You can submit your ideas

- At the next IDEA GENERATION WORKSHOP at your location or

- On the IMM Web Portal- http://imm.hpcl.co.in/imm/imo_about

"For Internal Circulation Only"

10
 Way Forward

While continuing to track the ideas that are already in the bag for evaluation and
implementation through the various stages, it is also important to scout for new
ideas. This Corporation has a vibrant workforce with a huge potential which has
had years of exposure to the industry. Hence, they would be in the best position to
suggest ideas to improve the bottom line of the Corporation. We need to harness
the ideas from this massive think tank. This shall be done through idea workshops
that shall be organized in due course at various locations in the Corporation. All
employees need to adopt the HP First attitude and come forward and share their
ideas and submit the same through the IMM portal on the HPCL portal.

Compiled by : Edited by:

Ms. Ankita Pal Mr. Lakshman Venugopal
Officer HR(M) General Manager IMO, IMM.
Email : ankitapal@hpcl.in Email : lakshmanv@hpcl.in

"For Internal Circulation Only"

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