Statoil Fuel & Retail automates planning and distribution operations in eight countries.
by David Baum, November 2013
Margins are slim in the ultracompetitive retail fuel business. Motorists will often drive out of their way to save a few pennies on the gallon, especially if they know they can get a favorite item at the in-station convenience store. That’s why Statoil Fuel & Retail (SFR) has embarked on an ambitious IT project called Connect to simplify, standardize, and harmonize its business operations using Oracle technology.
A powerhouse in the European energy industry, SFR has a broad retail network across Scandinavia and central and eastern Europe. Its major lines of business include retail fuel, which is sold primarily through 2,300 service stations, along with groceries at the adjacent convenience stores. SFR’s other products include stationary energy, marine fuel, aviation fuel, lubricants, and chemicals.
SFR has more than 18,000 employees spread among its headquarters near Oslo, Norway, its eight regional headquarters, its Statoil-branded franchise stations, and its fuel terminals and depots. To coordinate the activities of this broadly scattered workforce, management implemented Oracle’s JD Edwards EnterpriseOne enterprise resource planning (ERP) system in conjunction with Oracle Fusion Middleware technology.
Working with L&T Infotech, an Oracle partner based in Mumbai, India, SFR is in the final stages of this enterprisewide technology implementation. Installed on Oracle Exadata and Oracle Exalogic engineered systems, the new information systems utilize an integrated Oracle technology stack to handle bulk stock management, transportation management, advanced pricing, sales order management, and many other critical supply chain management functions. Currently being rolled out in northern Europe, the integrated ERP environment enables real-time planning based on stock availability and average sales at each service station.
“Creating simplified and standardized processes enables us to strengthen our internal best practices across countries,” says Magnus Tägtström, fuel value chain lead at SFR. “In addition, having a common source of master data will enable us to simplify a lot of administrative processes and business processes as we become a world-class, efficient fuel value chain.”
“We chose JD Edwards because we deemed it to be the best solution to automate procure-to-pay, sourcing, order-to-cash, and other essential facets of our operation,” adds Vegar Bøthun, CIO at SFR. “In addition, we have chosen Oracle WebCenter Portal as our portal solution, Oracle SOA Suite to create system interfaces, and Oracle Business Intelligence solutions for data warehouse reporting.”
Management at SFR has built the business around three separate but closely interconnected value chains: the fuel value chain, the convenience value chain, and the lubricants value chain. Much of the operation is focused on the Scandinavian region, from which the company draws more than 80 percent of its revenue. SFR owns and operates 12 terminals and 38 depots in 8 countries, and it operates approximately 400 tanker trucks. Its distribution network services all of the fuel service stations and also delivers aviation fuel to 85 airports in 10 countries, along with 750 different lubricant products.
Inventory holding costs are significant for a fuel company such as this, but thanks to its advanced Oracle-based information systems SFR now has accurate inventory figures available at the click of a button. As demonstrated at a pilot site in Sweden, where the new systems are in full production, demand for new fuel deliveries can be calculated automatically based on fuel levels in each tank at each service station, coupled with the average daily sales for each station. Based on these parameters, demand is created in the ERP system and the information is automatically routed to a third-party distribution planning system. Truck drivers consult onboard computers that tell them what products and quantities to load from the terminals, as well as how much fuel to deliver at each station.
According to Rakesh Pande, a program director at L&T Infotech who served as the implementation champion for the Connect project, fuel constitutes up to 70 percent of the business. So it was paramount that fuel flowed efficiently from the plants to the warehouses to the service stations. Now the entire process of fuel restocking, delivery, and confirmation is totally automatic.
We will soon have the same centralized processes across all our business units, which will reduce ongoing costs and improve operational efficiency.
“Fuel orders are based on precise information received from each station in the retail network,” says Pande, who is also overseeing the pilot rollout in Sweden. “Each driver can consult the onboard computer to confirm how much inventory to load, to verify shipments, to track deliveries, and to send updated information back to the ERP system. There is no manual intervention.”
To stay ahead of minute market fluctuations, the Connect team developed a proprietary algorithm that sets fuel prices in each market according to competing prices at other stations. Based on this real-time insight, SFR updates fuel prices in each micromarket several times each day. Marketing personnel also use this insight to determine where to focus their efforts.
“We have designed a more flexible finance structure that gives managers the insight to concentrate on the most-profitable markets,” Pande explains. “Managers have greater visibility into the profitability of each [retail station] so they can focus their attention on weak points in the distribution network—and make discrete adjustments via incentives or discounts.”
According to Tägtström, being able to predict demand in different stations, and shift supplies around to cover that demand, will increase the efficiency of distribution planning and provide greater insight into how capital is employed.
“Having standardized IT solutions will improve benchmarking between countries and terminals,” he adds, commenting on the impending rollout of the new systems throughout the European region. “This new solution will also increase transparency into the B2B pricing portfolio, enabling managers to quickly assess the impact of different pricing concepts and helping sales reps better understand the effects of the terms they offer to customers.”
A big part of the Connect project, as its name would indicate, entailed creating a new middleware layer to simplify communication among systems and regions. Developers had to contend with dozens of interfaces throughout the supply chain, representing many different data formats. To simplify this infrastructure, L&T Infotech developed a web services interface within JD Edwards EnterpriseOne to transpose data into a master format. All systems that interface with JD Edwards EnterpriseOne now share a consistent source of data, which is reflected not only in the discrete transactions exchanged throughout the supply chain but also in the profitability reports generated by Oracle Business Intelligence Suite.
This middleware layer has been especially important for enforcing a consistent pricing structure at the fuel stations, as well as for managing a complex set of excise requirements. Having standardized interfaces puts the company in a better position to allocate fuel inventory because it can process transactions in the ERP system on a near-real-time basis.
This consistent middleware infrastructure extends throughout SFR’s IT enterprise. As part of the Connect project, developers reduced 551 point-to-point connections to 160 standard interfaces. L&T Infotech worked closely with SFR to create interfaces for everything from credit management to chemical compliance. A service-oriented architecture (SOA) connects these internal systems while also simplifying interactions with banks, invoice systems, and many other third-party systems and partners.
SFR’s SOA interfaces now connect multiple legacy systems to the JD Edwards EnterpriseOne environment, permitting users to interact with the system via a variety of portals on desktop computers, mobile phones, and onboard terminals in the delivery trucks. SFR uses Oracle Fusion Middleware to manage and monitor these interfaces. “The Oracle middleware environment will definitely simplify the operation, leading to better visibility and better quality in our integrations,” says Bøthun. “Having standard interfaces will reduce costs and increase efficiency whenever we combine information from different systems. Hopefully we can reuse some of those interfaces and build upon them for new types of functionality so the IT group can accelerate time to market for new products and services.”
In a related effort, Pande and his team leveraged the new ERP system to automate the flow of goods in the grocery value chain. Each service station offers a range of groceries at the convenience store, from warm foods and cold drinks to a variety of packaged products. As with the retail fuel line of business, the Connect team developed standard business processes to handle procurement, order entry, and shipment confirmation within a grocery value chain that links JD Edwards EnterpriseOne with myriad third-party systems.
Having a common source of master data will enable us to simplify a lot of administrative processes and business processes as we become a world-class, efficient fuel value chain.
L&T Infotech went on to develop a series of web portals to simplify access to these sales, distribution, and planning systems, including an e-commerce portal that streamlines B2B orders from the service stations to the warehouse depots. The partner replaced old Lotus Notes interfaces with a new set of web-based interfaces created with Oracle WebCenter Portal. All service stations now have one common interface to the company’s point-of-sale system, compared to multiple interfaces with the old ERP system. SFR hopes to substantially increase e-business revenue during the first year from the new e-commerce portal.
L&T Infotech recommended a combination of onsite and offshore development resources to reduce the cost of developing and deploying all of the Connect systems. The development team included about 400 people, 240 from L&T Infotech and 160 from SFR, in what Pande claims to be the largest JD Edwards EnterpriseOne implementation on record. Development began in September 2011. As of this writing, SFR’s major markets in Denmark and Norway are set to go live in early October 2013, with other European regions following close behind.
Bøthun performed 10-year and 15-year total cost of ownership (TCO) calculations to justify this massive investment in technology and human resources, which totals several hundred million US dollars. “Oracle offered the most cost-efficient platform, and we have limited customization as much as possible in order to end up with a standard solution that is easy to maintain,” he notes. “As anybody who has been in IT for a while knows, initial implementation costs are only a small part of TCO. We believe our ongoing maintenance costs will be significantly less going forward, thanks to the standards we have enforced during development.”
Previously SFR relied on an SAP R/3 ERP system. Each country and market had disparate processes, especially in Scandinavia, which meant that Bøthun’s IT team had to manage more than 5,000 custom software objects. “We had several thousand customizations in our previous ERP system, and with JD Edwards [EnterpriseOne] we’ve managed to keep that down to a few hundred customizations,” Bøthun continues. “We have simplified our information systems significantly, yet they are tailor-made for our retail business. We will soon have the same centralized processes across all our business units, which will reduce ongoing costs and improve operational efficiency.”
All of SFR’s Oracle-based information systems run on Oracle Exadata and Oracle Exalogic machines, bringing new economies of scale to the data center. Bøthun expects to see a dramatic performance improvement with these engineered systems, especially as SFR virtualizes the infrastructure and adopts a private cloud architecture. “We will compete more effectively because our costs are lower, we have standard operations, we can enforce best practices throughout the entire network of retailers, and we have information systems that are easy to maintain going forward,” he says.
David Baum is a freelance writer who specializes in the intersection of science, technology, and culture.