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How oil companies use BI to maximize profits

Kim S. Nash | June 8, 2008
No one argues that oil isn't one heck of a lucrative industry. And all those profits don't come from good business intelligence practices alone. But it's a powerful notion to run a company with the mind-set that virtually every employee is a data analyst.

Telematics refers to systems used for transmitting data to and from vehicles. UPS's system uses off-the-shelf telematics software to help gather and compile the data from the trucks. Then, proprietary applications using in-house-developed algorithms allow UPS automotive and operations personnel to query and analyze the information.

In 2007, UPS piloted its telematics program on 334 delivery trucks in Georgia. Analysis of the data generated helped to cut the amount of time delivery trucks idled by 24 minutes per driver per day-for an estimated fuel savings of $188 per driver, per year. "That adds up to a lot of wasted fuel," says Jack Levis, a manager in UPS's industrial engineering group, "and a lot of carbons being emitted into air that don't need to be." UPS has more than 90,000 U.S. package drivers, so the potential savings could amount to millions.

In addition, many of the insights gained from the telematics system have been eye-opening and somewhat counterintuitive for the engineers in the automotive group. For example, UPS has typically scheduled fleet maintenance according to time-dependent factors. But engineers and other "data miners," as Levis calls them, discovered that UPS was replacing large components and parts on its delivery trucks when telematics showed that what actually needed to be replaced was just, say, an O-ring. "So rather than a thousand-dollar job, it was a $20 or $30 job," Levis says.

There's more to learn as operations analysts comb through the data looking for other efficiency patterns and safety trends. For instance, UPS delivery personnel may be driving unnecessary miles on their routes. "We've just scratched the surface on finding things," says Levis. - Thomas Wailgum

Managing X-Factors

Financial markets often move on fear and uncertainty. The problem is, no one can predict which direction commodity prices will go in or how much they will gain or lose.

On April 21, news spread that unidentified attackers had punctured a Japanese oil tanker with rockets while the ship was sailing to Saudi Arabia. That same day, Royal Dutch Shell announced that African militia fighters, protesting corporate oil activity on the Niger Delta, had damaged a pipeline in Nigeria. Worried about oil supplies, traders pushed oil to $117 per barrel, setting a new record.

Then there are less-violent but no less-volatile events. Hurricanes such as Rita and Katrina in 2005, say, or refinery explosions. Downtime at even one major refinery from a fire or explosion can drag down earnings at that company and affect the rest of the industry for years. Literally.

BP, the $21 billion British oil company, has paid in financial terms and human lives. In 2005, explosions and fire at BP's refinery in Texas City, Texas, killed 15 people and hurt 170 others. The refinery, which by itself makes about 2.5 percent of all the gasoline sold in the United States, had to be partially closed. Then it suffered damage from Rita and Katrina later that year and didn't reopen completely until this past February. BP's profits in the U.S. have dropped, in part because of the Texas City disaster, from $12.6 billion the year the refinery blew up to $7.4 billion last year, according to BP's latest annual report.


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