Calculating Total Landed Costs Using Supply Chain Guru
One of the world’s largest oil-field service providers is a key provider of industrial sand necessary in hydraulic fracture drilling for oil and natural gas. Dynamic volatility in the oil and natural gas markets and a shifting regulatory environment make it advantageous for the company to have a fully nuanced model of its frac-sand supply chain available so they can quickly adjust strategy for market and demand shifts. Optimizing total landed cost is especially important in an industry with complex penalty structures that can heavily impact the cost of sand from suppliers. The company has used a home-grown, spreadsheet-based model model of the frac-sands supply chain, but it is cumbersome to update and difficult to use.
The company used LLamasoft® Supply Chain Guru® to build a model fully detailing the complex relationships and cost structures associated with moving sand between supplier plants and terminals, company owned and leased terminals and the end-users in the field. Using both weekly and 12-month demand forecasts, the team was able to develop scenarios to minimize the landed cost of all sand products from 16 potential suppliers through a network of 32 terminals serving 27 districts, far more quickly and accurately than using the existing modeling tools.
Having built the complete frac-sands model, the company supply chain team can now use it to design its network to deliver sand to its customers at the lowest landed cost while maintaining appropriate service levels. Because the model is fully functional, changes and alternate scenarios can be run by the team with little or no help from LLamasoft. With the model in place the company can react to market fluctuations, changing supplier incentives, and variable transportation costs quickly and with precision. And if they do run into questions about the model or the program, LLamasoft experts are on call for assistance; LLamasoft’s record for continued support was a leading reason their solution was chosen to replace the obsolete existing system.