and reduce safety stock.
Over this period of 2013-2014 Shell made good progress on inventory, but faced unprecedented
supply price volatility. When the price of oil dropped from $120 per barrel in 2012 to the staggering
$29 per barrel in 2015, everyone in the oil and gas industry felt the impact. It intensified the
company’s fo cus on performance: business benefits, cost platforms, value delivery, and balancing
upstream spending, such as digging wells and searching for oil reserves, with money-making
downstream activities. In the new business environment, the nine-digit numbers of financial
improvements in 2011-2015 from implementing IBV were now not sufficient. The first project was well
done, but not enough.
The single instance of ERP within the vertically integrated Shell supply chain exacerbated the
bullwhip effect causing Shell to suffer from shifts in oil prices to a greater degree than their
competitors as shown in Figure 17.
Figure 17. Orbit Chart of Shell versus Industry Averages of the Oil & Gas Sector of the Period of 2010-2016 for
Inventory Turns and Operating Margin
Planting the Seeds for Change Reducing inventory to the lower levels within lubricants drove a subsequent increase in risk.
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