Evaluating the efficiency of different distribution hub setups for Nynas using simulation

Abstract: Nynas Petroleum is one of the world´s largest producers of naphthenic specialty oils. They have refineries in several parts of the world and their largest production facility is situated in Nynäshamn, Sweden. They also have oil depots in all continents and their largest depot is located in Antwerp, Belgium. In the beginning of 2007 Nynas introduced a new type of transformer oils, called Nova grades, to the market. Nova grades consisted of oils produced both in Nynäshamn and at other refineries around the world. This forced Nynas, who had previously blended these oils in Nynäshamn, to blend the nova grades at the central hub in Antwerp. This change complicated the handling of the depot in Antwerp as some of these oils needs to be oxidation tested, a process that can take up to 23 days. They realized that they did not have control of their hub in Antwerp and how much tank volumes that were needed to fulfill their customers´ service expectations. This thesis maps the factors that are crucial for the hub in Antwerp and from this knowledge a simulation model was built using the simulation software Extend. The model was built up around a number of logical blocks, which makes decisions depending on different criteria. The model was then used to simulate a number of different scenarios. A total of 15 different scenarios were simulated where the tank setup, the demanded volumes, the quarantine times and the number of boats transporting oil to Antwerp were altered. Each run generated a report consisting of average inventory levels, service levels, average service level, filling station utilization, and more. With help from the reports we were able to examine the performance of the Antwerp hub and how the different parameters impacted on the overall efficiency. After running the simulations we can establish that the tank setup as it was in 2007 cannot cope with the alteration in product slate, with the introduction of the Nova grades and especially not with the anticipated growth in sales volume. In the first phase investments in tank capacity is needed and if the anticipated sales growth becomes reality investments in boat capacity will also be necessary as the vessels is the next bottleneck. Another option, which would lessen the need for investments in tank capacity would be to drastically cut the oxidation test time. This would make the system easier to overview and handle. By investing in the hub in Antwerp the service level can be kept at a high level, leading to higher customer satisfaction and increased likelihood for returning customers. It is always hard to put a certain value on this type of investments but our beliefs are that investments to keep service level reasonably high are needed in a market where competition is fierce.