A new way of buying base oil

BP’s base oil procurement team is the world’s largest buyer of base oils. It buys more than two million tonnes of base oil every year for all parts of the business at a cost of $2bn – roughly a third of the group’s total procurement spend. The team, led by Chris Boydell, is made up of five highly-experienced procurement managers, three who are regionally based, and two supporting market specialists.

In 2012 a base oil strategy refresh was approved as part of the ‘Buy Best’ goals of our Winning in Lubricants Globally (WILG) strategy. It aims to deliver between $25m and $40m of savings between 2013 and 2015 by changing the way we develop and buy our products.

Put simply, by increasing the flexibility and fungibility (ability to mix different base oils in one tank) of our formulations, we can increase our options when it comes to buying base oil – ultimately allowing us to take advantage of supply competition using our e-optimisation tool. It’s an approach that’s already been used with huge success for the procurement of our packaging and additives. Take a look at the diagram below which explains the key concepts in detail.

The key concepts explained

Putting it to the test

The base oil procurement team will be putting this theory into practice over the next couple of months at two key pilot events: 1 – Global Marine event ($6-$12M 2013 (run rate))This event looks at Group I and Group II base oil for our Marine industry, which lends itself well to the pilot thanks to its global scale and in-built flexibility. Fungibility is immediately available where the grades are same, but a small level of investment in mixers is required to allow different heavy grades to be mixed, which would allow spot purchasing.

2 – China eventThis Group II event focuses on the flexible Auto products at our Shenzhen plant, and once proven the scope would be expanded further across Asia & Pacific. Group II base oil specifications are tightly defined and therefore similar, which will enable a fungible Group II slate and provide the flexibility to buy the cheapest Group II available.

This new approach will mean a change for both our current and potential new suppliers – and once proven, could well become that norm to drive competitive prices and manage risk.

For more information about the base oil strategy and the optimisation pilots, speak to Dave Jilbert.