Liquigas Ltd’s Security of Supply Problem

 

Mei Bai, Cordelia Chen, Nicola Thompson

Supervisors: Dr. Don McNickle, Dr. Venkateswarlu Pulakanam

Department of Management

University of Canterbury

New Zealand

 

Abstract

As part of the Management Science – Operations Research Honours Programme 2006 at the University of Canterbury, each student is required to complete a year long project for a real client in the community.

Liquigas Ltd is a New Zealand distribution company of liquefied petroleum gas (LPG).  Mei Bai, Cordelia Chen and Nicola Thompson formed a team to analyze the supply situation of Liquigas Ltd and to develop solution methods that would help increase the security of supply, in the form of lowering the likelihood/severity and frequency of stock-outs (the inability to meet customer demand). Several forecasting methods were developed for supply and demand, with the purpose of providing information for planning purposes in order to avoid stock-outs. An evaluation of storage facilities was also undertaken, in order to advise on possible options to manage their inventory.

 

 

1.0 Background

 

2.0 Forecasting Supply

 

3.0 Forecasting Demand

4.0 Evaluating Storage Facilities

 

Conclusion

Overall, we have found that the security of supply is a complex issue. We looked at the supply side, the demand side and storage capacities of Liquigas Ltd, but found that our effects could only go so far, when there are so many factors that affect the problem situation that could not be predicted or estimated with the available resources.

One reason is that LPG is a by-product of natural gas production and there are many stakeholders in the natural gas market, including the New Zealand government and many large oil and gas companies. Their actions in the natural gas market, directly affects the LPG market through such projects as development of new gas fields. Since these actions cannot be predicted and their effects on the security of supply of LPG cannot be measured before these actions take place, it makes the future outlook of LPG very uncertain.

Short-term planning is still essential for achieving the best outcome for the situation at present. The models we have developed will be helpful for this.