SUPPLY CHAIN RISK MANAGEMENT: A CASE STUDY OF GHANA OIL COMPANY LIMITED CHAPTER 1: INTRODUCTION Background In 1990, the

junior staff of the Tema Oil Refinery (T.O.R) Ltd. then known as the Ghanaian Italian Petroleum (GHAIP) Company Limited, embarked on an industrial action which temporarily disrupted the distribution of petroleum products by road tankers to the oil marketing companies (OMCs). It took a team of soldiers from the Field Engineer Regiment to fill the gap created by the striking workers, by taking over the operations at the petroleum distribution point at GHAIP which was the main casualty of the strike action. This timely intervention which averted a nationwide fuel shortage was made possible through the foresight of the government and the leadership of the Ghana National Petroleum Corporation and the Energy Commission then led by Mr Kwasi Abeasi. They had anticipated the possibility of such a strike action and as part of a risk management strategy to prevent disruptions in the petroleum supply chain, took contingency measures by giving the necessary training to a standby team of military personnel from the Field Engineer Regiment for such an eventuality. Risk is said to create both challenges and opportunities for any organisation and how the organization in question deals with risk will determine the impact on its financial situation. Where the organization

possesses an effective, flexible and strong risk management team they can exploit risk in order to provide competitive advantage to the organisation. An inflexible, ineffective risk management team on the other hand, can worsen the plight of the organization leading to its complete collapse. The socio-economic development of Ghana is highly dependent on the availability of petroleum products on the Ghanaian market. This availability is made possible by a number of oil marketing companies (OMCs) whose operations are dependent on highly integrated supply chain flows. The Ghana Oil Company (GOIL) is one of the major OMCs with the widest network in the country. Due to the importance of petroleum products in the country, any disruptions in the supply chain flows could have major negative impact not only for any of the OMCs, such as GOIL, as a corporate entity, but also for its supply chain and the Ghanaian economy and society as a whole. Disruptions in the petroleum supply chain can emanate from different sources and often without warning. Thus, within the context of a competitive environment, it is incumbent on any OMC to be able to tap into the possibilities to handle disruptions of different kinds which are now known to be greater today than before. On the other hand, the ability to take advantage of those possibilities depends on knowledge of the risks and how to handle them.

Problem Statement When dealing with supply chain issues, greater attention may have to be devoted to the risk aspects as the biggest risks to the company are not necessarily within the company itself but rather in its dependence on the supply chain, according to experts. They posit that in todays increasingly complex environment, risk-adjusted supply chain management can translate into improved financial performance and competitive advantage. For an OMC such as GOIL, one of the critical risk areas is that along its supply chain network. With its large retail network and geographic spread, GOIL is said to be placed first among the OMCs in terms of the distribution of petroleum products. However, recent deregulation of the oil marketing industry with its attendant introduction of many other players into the market is expected to stimulate competition and vibrancy among the OMCs. This could place competitive pressures on margins and customers and adversely affect GOILs financial performance. It is therefore inevitable for the company to face this competition and maintain customer loyalty. Most importantly, in order for GOIL to gain competitive advantage and industry growth, it has to among other measures, be able to adopt strategies to optimize its financial performance. One important area that the strategy should address is how risks identified along its supply chain can be effectively managed. Most importantly, an effective approach to supply chain risk

management in the petroleum sector will be expected to address such questions as:

What is the risk to GOILs brand if an incident occurs at any of its suppliers or retailers? What is the risk of not being able to fulfill unexpected increases in consumer demand for products? What is the risk of receiving adulterated products from suppliers and selling same to unsuspecting customers? What measures are there to improve supply following a disruption in the supply chain? Are there any measures to restrain demand and what will be the associated risks?

Aims and Objectives The aim of this study is to examine the risk management practices of GOIL in the petroleum supply chain with the view to making some recommendations. The study has two objectives. The first is to identify the risks associated with the supply chain of the oil marketing companies in Ghana and the nature of structures and measures to handle the associated risks. The second is to provide a basis for further research into the management of disruption risks in the petroleum supply chain in Ghana.

Methodology The study is based on the understanding gained through literature review and research work. The objectives are fulfilled with the help of a search in literature within the areas of risk, risk management, supply chain management, and supply chain risks. The results from the literature review are then complemented with empirical material involving field work in gathering data, visiting GOIL website and interviewing management of GOIL. The existing knowledge within each area is then summed up and analysed. Finally, conclusions are drawn and some recommendations made. Justification for Study Although petroleum is said to contribute only 7% to the countrys total energy needs, it contributes substantially to the countrys economic development. The recent power crisis in the country due mainly to the low water level of the Volta River, the second in a decade, was an indication that the country will in the future have to rely more on thermal power plants fuelled by fossil fuels. The crisis, coupled with recent hikes in fuel prices on the international market, was a reminder that we now live in an era in which technology and globalization, coupled with increasing risk and uncertainty, complicate energy demand and supply within and between nations. Thus the successful management of supply chain risks in the petroleum sector, which

contributes significantly to the countrys energy needs and pricing, become increasingly pressing topics with relevance not only for economic prosperity but also national security. The justification for this study therefore lies in its strong practical implications. Scope of the Study The study will focus on the risks associated with the supply chain of GOIL from inbound logistics through internal logistics to outbound logistics till the final consumer, the motorist. Although GOIL handles different related products in the petroleum industry, this study will focus solely on those products dispensed at the pump namely diesel, petrol and kerosene. Limitations/Constraints The most significant limitation of this study is its narrow focus on only one oil marketing company. This has precluded the generalization of findings that could have been derived from other case studies and the likely benefits from different in supply the chain same risk local management industry. perspectives and strategies

Organisation of the Study The study will be organised into four chapters. Chapter one is the introduction and will comprise the background, problem statement, aims and objectives. The literature review presented in Chapter 2 will

highlight existing work by researchers related to the area of study. An analysis of the supply chain of GOIL to identify the nature and types of risks as well as measures put in place by management to manage both risks and opportunities in the chain then follows in Chapter 3. The analysis will be done within the context and framework of risk management models identified in the literature review in other to identify strengths and weaknesses in the strategies employed by GOIL in dealing with the opportunities and risks. Chapter 4 will give a summary of the main discussions in the study while Chapter 5 will draw on the important issues in the conclusion in order to make recommendations for gaining competitive advantage and growth in the industry.

Work Plan The study is set for completion within a timeframe of 16 weeks starting from beginning of March for completion by end of June as follows: Library and Internet Research Drafting of Chapter 1, Introduction Drafting of Chapter 2, Literature Review Field Research at GOIL Draft script for Chapter 3, SCRM at GOIL Week 1-3 Week 4 Week 5-6 Week 7-8 Week 9-10

Draft Scripts for Chapter 4, Conclusion Draft Scripts for Chapter 5, Recommendation Completed script submitted for correction Complete corrected script for submission Contingency

Week 11 Week 12 Week 13-14 Week 15 1 Week