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CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

The institute of Supply Management (2009) defines supply chain management as the

identification, acquisition, access, positioning and management of resources and related

capabilities an organization needs or potentially needs in the attainment of its strategic

objectives.The concept of Supply Chain Management is based on two core ideas. The first is that

practically every product that reaches an end user represents the cumulative effort of multiple

organizations. These organizations are referred to collectively as the supply chain. The second

idea is that while supply chains have existed for a long time, most organizations have only paid

attention to what was happening within their four walls. Few businesses understood, much less

managed, the entire chain of activities that ultimately delivered products to the final customer.

The result was disjointed and often ineffective supply chains. Supply chain management, then, is

the active management of supply chain activities to maximize customer value and achieve a

sustainable competitive advantage. It represents a conscious effort by the supply chain firms to

develop and run supply chains in the most effective & efficient ways possible.

Supply chain activities cover everything from product development, sourcing, production, and

logistics, as well as the information systems needed to coordinate these activities. The

organizations that make up the supply chain are linked together through physical flows and

information flows. Physical flows involve the transformation, movement, and storage of goods

and materials. They are the most visible piece of the supply chain. But just as important are

information flows. Information flows allow the various supply chain partners to coordinate their

long-term plans, and to control the day-to-day flow of goods and material up and down the

supply chain. (Mentzer 2001)

East and Central African countries are net importers of Petroleum Products i.e. refined petroleum

products. Kenya also imports crude oil which is processed at the Kenya Petroleum Refinery.

These products are then distributed by the oil distributors. The regions petroleum products inlets

are: The port of Mombasa, through Shimanzi oil terminal (SOT) and Kipevu oil terminal (KOT).

Through SOT the products are received into private depots in Mombasa which are owned by oil

companies and the product used for local consumption or for export; though transportation of

export petroleum products from Mombasa has been suspended by KRA citing high costs in terms

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of tracking and increased cases of dumping leading to loss of revenue. While through KOT the

products are received into Kenya Pipeline tanks (known as KOSF), which are then transported to

Nairobi and Western Kenya (Eldoret, Nakuru and Kisumu) through the pipeline for either local

use or export into neighboring countries such as: Rwanda, Congo DRC, Uganda etc. The refinery

is also used by oil companies for short term storage of their products as they await distribution

either to SOT or to KPC, though this is not their core business, their core business is to refine

crude oil for oil companies; for a long time they have been operating under toll mode however

recently they have switched to merchant mode where they sell the refined products to the oil

companies rather than refine crude products to them. (Petroleum insight magazine)

Competition today is no longer between firms; it is between the supply chains of those firms.

The companies that configure the best supply chains will be the market winners and gain

competitive advantage (Collin, 2004). Implementing effective supply chain management (SCM)

is not an easy task, it requires coordination between departments within an organization as well

as between partners within the supply chain. Changes in the external environment like changes in

prices and regulations lead to organizations have to adopt more flexible supply chain practices.

Investment on employees training and development is also fundamental factor to be considered

for effective SCM. Therefore a company can gain competitive advantage by being able to adapt

to changes in its environment, therefore strategic supply chain management is used by oil

companies to respond to the changes and gain competitive advantage in the industry in which

they operate.

Many factors are driving an emphasis on supply chain management. The cost and availability of

information resources between entities in the supply chain allow easy linkages that eliminate

time delays in the network; the level of competition in the market and increased government

regulations requires organization to be fast, agile and flexible; customer expectations and

requirements are becoming much more demanding; the ability of an organizations supply chain

to react rapidly to major disruptions in both supply and downstream product or services will

lessen the impact on lost sales. As demands increase, organization and their suppliers must be

responsive or face the prospect of losing market share (Chopra and Meindl, 2004).

The Kenyan government is heavily involved in trying to regulate the oil industry as this is seen

as a critical sector in the countrys growth and development. The government uses various means

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to try and control the industry, through various laws, policies and other government institutions

and bodies. The institutional structure of petroleum industry comprises the Ministry of Energy,

the Energy Regulatory Commission (ERC), Kenya Pipeline Company (KPC), Kenya Petroleum

Refineries Limited (KPRL) and Multinational Independent Oil Marketing Companies that

include a State Oil Company, the National Oil Corporation of Kenya (NOCK). The Ministry of

Energy provides the policy leadership, while ERC provides regulatory stewardship of the sub-

sector. The KPC is a state corporation fully owned by government under the MOE. Its overall

objective is to provide the economy with the most efficient, reliable, safe and least cost means of

transporting petroleum products from Mombasa to the hinterland. Specifically, it runs a 450kms

14 inch pipeline from Mombasa to Nairobi and manages open access Kipevu Oil Storages

Facilities and other common storage depots in the inland. KPRL is a limited company that runs a

single skimming refinery in Mombasa. Approximately 85.3 per cent of market share control is by

major oil companies, that is Shell, Total, Kenol Kobil and oil libya. The major oil companies are

vertically integrated with a stake of 51,4 per cent of the 1,153 retail outlets, the remaining are

controlled by new entrants and independent owners.

In 1981, the National Oil Corporation of Kenya Limited (NOCK) was established by the

government and incorporated under the Companies Act (Cap 486). The company's main

objective then was to coordinate oil exploration (upstream) activities. In 1988 the company was

mandated on behalf of the government to supply 30% of the country's crude oil requirements that

would in turn be sold to oil marketing companies for refining and onward sale to consumers. The

Petroleum Act (Cap 116) for a long time was used to guide operations in the sector. In addition

to this legislation there was the Petroleum Exploration and Production Act that was enacted in

1984. It gave NOCK the mandate to oversee oil exploration activities in the country. In 1994,

there was further implementation of policies to liberalize most of prices and sectors in the

country such as removal of exchange rate controls; interest rates decontrol and price decontrol

that included petroleum products among other goods in the consumer basket. It was during this

period that the oil industry was deregulated and NOCK lost its mandate to supply the 30% of the

countrys crude oil requirement. The company therefore had to formulate new survival strategies

that saw its entry into downstream operations. (Energy Act No. 12, December 2006)

Oil is critical to western type civilization. The United States of America (USA), the icon of this

civilization uses up 24% of the worlds oil per day. Oil is critical for the global economy.

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Similarly oil is the fulcrum of Kenyas economy. Even though Kenya uses only 0.8%of the

worlds oil per day, yet this small proportion drives investments, influences consumption and

sets the pace for economic growth. Transport, power generation, manufacturing and agricultural

sectors are dependant on the supply and affordability of petroleum products. Currently about

22% of Kenyas primary energy is drawn from oil. (Simiyu 2009)

For this reason, it can be that competitiveness of the Kenyan economy is directly linked to

competitiveness of the oil industry. As Kenya embarks on the vision 2030, any action that

improves its competitiveness will accelerate the realization of this vision. (Vision 2030)

1.2 Problem Statement

The major concern for the region and especially the land-locked countries has been security of

supply of petroleum products, fuel prices and capacity of product transportation/distribution

infrastructure. In this case oil companies have all of the problems in the supply chain of

petroleum products. The fierce competition in global markets, increasingly shorter product life

cycles, and increasingly higher customer expectations with respect to product capability and

reliability, delivery lead times, flexibility, and quality service have all led firms to focus on

supply chain management. SCM has become a potentially valuable way of securing competitive

advantage, since competition is no longer between organizations but among supply chains

(Malhotra and El Sawy, 2004).

Government regulations measurers had various implications on the oil industry. Firstly the

introduction of upfront tax led to major companies to exit the market with the argument that this

affected their cash flow forcing some to take up bank loans in order to pay for the tax. Though

this improved the Kenya Revenue Authority the efficiency to collect the tax it did hurt the

economy through lost jobs.

Secondly the formation of a government owned company has never saved the situation as the

company joined the rest in their mode of operations and with the aggressive acquisition of some

oil outlets we may end up with the same monopoly that was being avoided. Thirdly the batching

and tender system has opened up the old business malpractice of hoarding where a seller does

not release the stock to the market but waits until the demand upshots the supply causing the

prices to sky rocket and hence making super profit.

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Further, the reintroduction of price control in 2010 has also greatly affected the supply chain

performance in terms of inventory holding costs, since oil marketers hold their stocks in

anticipation of changes of prices.

Oil companies are of great importance affecting every other sector whether indirectly or directly

since everyone uses fuel as a source of energy. Our modern world needs energy and crude oil,

which is solemnly supplied by the oil companies.

In 2011 Wabwoba did a study on the impact of oil price regulation on the financial performance

of NOCK, in 2000 Joel did a study on the challenges facing oil marketers in Kenya, while in

2007 Mukiri did a research on supply chain management practises by manufacturing firms in

Kenya.

From the above, a knowledge gap can be noted that not much or no study has been undertaken

on the supply chain of oil marketing companies in Kenya thus the need to fill this gap has led to

this study.

1.3 Objectives of the Study

The general objective of the study is to investigate the challenges faced by oil marketing firms in

practicing effective Supply Chain Management

The specific objectives are as follows:

i. To assess effect of constrained infrastructure on oil companies effectiveness in supply

chain management.

ii. To determine the effect of price control on the effective supply chain management by oil

marketing companies.

iii. To determine the effect of open tender system on the effective supply chain management

by oil marketing companies.

iv. To determine the effect of advance payment of taxes on the effective supply chain

management by oil marketing companies.

1.4 Research Questions

The study will attempt to answer the following questions:

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i. To what extent does constrained infrastructure influence the effective supply chain

management by OMCs in Kenya?

ii. To what extent does price control affect the effective management of supply chain by

OMCs companies in Kenya?

iii. To what extent does the open tender system affect the ability of OMCs to effectively

manage their supply chains in Kenya?

iv. To what extent does payment of taxes affect the ability of OMCs to effectively manage

their supply chains in Kenya.

1.5 Significance of the Study

Findings of this research will be of useful reference to other researchers or for further research in

the same field. This study will also increase the existing body of knowledge on supply chain

management particularly in the oil industry where little or no research has been done. In addition

this paper will be of importance to managers when they will be formulating their supply chain

management policies. And also to the government this study will enable them understand the

effect of their controls in the supply chain of oil companies thus formulate policies which are not

negative.

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CHAPTER TWO: LITERATURE REVIEW

2.0 Introduction

In this chapter, literature which is related to and consistent with the objectives of the study is

comprehensively surveyed and reviewed. Important theoretical and practical problems are

brought out relevant literature on the aspects pertaining management of supply chain in the

petroleum sector is discussed.

2.1 Concept of Supply Chain Management

Mentzer et al (2001) defines supply chain management as the systematic, strategic, coordination

of the traditional business function within a particular company and across business within the

supply chain for purposes of individual company and the supply chain as a whole. Scott and

Westbrook(1991) and New and Payne (1995) defined SCM as a chain linking every element of

the manufacturing and supply process from raw materials through to end user, encompassing

several organizations boundaries and treating every organization within the value chain as a

unified virtual business entity.

Supply chains encompass the companies and the business activities needed to design, make,

deliver, and use a product or service. Businesses depend on their supply chains to provide them

with what they need to survive and thrive. Every business fits into one or more supply chains and

has a role to play in each of them. The pace of change and the uncertainty about how markets

will evolve has made it increasingly important for companies to be aware of the supply chains

they participate in and to understand the roles that they play. Those companies that learn how to

build and participate in strong supply chains will have a substantial competitive advantage in

their markets.

Ideally, the all encompassing philosophy of SCM embraces each of these functions to produce an

overall supply chain strategy that ultimately enhances firm performance (Wisner and Tan 2000).

In actuality, the literature is still very fragmented and although several studies purport to discuss

supply chain issues, most of the existing research only examines one link of the chain, or most

importantly only focuses on one ingredient in the supply chain performance mix. Six major

movements can be observed in the evolution of supply chain management studies. Creation,

Integration, Globalization, Specialization Phases One and Two, and SCM

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2.2 Theoretical Framework

A well implemented supply chain strategy results in value creation for any organization. There

has been an increasing emphasis on SCM as a vehicle through which firms can achieve

competitive advantage in markets (Collin, 2003). A supply chain can be defined as a network of

supplier, manufacturing, assembly, distribution and logistics facilities that perform the functions

of procurement of materials, transformation of these materials into intermediate and finished

products, and the distribution of these products to customers.

Metzer et al. (2001, p.4) define supply chain as a set of three or more entities (organizations or

individuals) directly involved in the upstream and downstream flows of products, services,

finances, and information from a source to a customer. They further identify three types of

supply chain based on the degree of complexity: a direct supply chain; extended supply chain

and ultimate supply chain. Direct supply chain consists of a focal firm, its suppliers and

customers. The extended supply chain involves suppliers suppliers and customers customers.

The ultimate supply chain includes all the organizations that are involved in all flows of

products, services, finance and information from the ultimate suppliers to the ultimate customers.

Lalonde and Ginter, 2004 defines supply-chain management as the delivery of enhanced

customer and economic value through synchronized management of the flow of physical goods

and associated information from sourcing to consumption, though, achieving the real potential of

supply-chain management requires integration not only of these entities within the organisation,

but also of the external partners. The latter include the suppliers, distributors, carriers, customers,

and even the ultimate consumers. The goal of the extended enterprise is to do a better job of

serving the ultimate consumer, superior service leads to increased market share. Increased share,

in turn, brings with it competitive advantages such as lower warehousing and transportation

costs, reduced inventory levels, less waste, and lower transaction costs. The customer is the key

to both quantifying and communicating the supply chain's value.

Council of supply chain management professionals (2006) defined supply chain management as

the planning and management of all activities involved in sourcing and procurement, conversion,

and all logistics management activities. It also includes coordination and collaboration with

channel partners, which can be suppliers, intermediaries, third party service providers, and

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customers. In essence, supply chain management integrates supply and demand management

within and across companies.

The above definitions emphasize the following characteristics of supply chain: Supply chains are

networks. The network concept implies some co-ordination of processes and relationships;

Supply chain consists of processes which can be defined as specific ordering of work activities

across time and space with a beginning and an end, and clearly identified inputs and outputs;

Supply chains have linkages which facilitate the coordination of processes and relationships;

Supply chain linkages are upstream and downstream. Upstream refers to the relationship

between an enterprise and its suppliers and suppliers supplier. Downstream refers to the

relationship between an enterprise and its clients and clients client.

Supply chain management is the coordination of production, inventory, location, and

transportation among the participants in a supply chain to achieve the best mix of responsiveness

and efficiency for the market being served. my own words. There is a difference between the

concept of supply chain management and the traditional concept of logistics. Logistics typically

refers to activities that occur within the boundaries of a single organization and supply chains

refer to networks of companies that work together and coordinate their actions to deliver a

product to market. Also traditional logistics focuses its attention on activities such as

procurement, distribution, maintenance, and inventory management. Supply chain management

acknowledges all of traditional logistics and also includes activities such as marketing, new

product development, finance, and customer service. In the wider view of supply chain thinking,

these additional activities are now seen as part of the work needed to fulfill customer requests.

Supply chain management views the supply chain and the organizations in it as a single entity. It

brings a systems approach to understanding and managing the different activities needed to

coordinate the flow of products and services to best serve the ultimate customer. This systems

approach provides the framework in which to best respond to business requirements that

otherwise would seem to be in conflict with each other.

Taken individually, different supply chain requirements often have conflicting needs. For

instance, the requirement of maintaining high levels of customer service calls for maintaining

high levels of inventory, but then the requirement to operate efficiently calls for reducing

inventory levels. It is only when these requirements are seen together as parts of a larger picture

that ways can be found to effectively balance their different demands.

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Effective supply chain management requires simultaneous improvements in both customer

service levels and the internal operating efficiencies of the companies in the supply chain.

Customer service at its most basic level means consistently high order fill rates, high on-time

delivery rates, and a very low rate of products returned by customers for whatever reason.

Internal efficiency for organizations in a supply chain means that these organizations get an

attractive rate of return on their investments in inventory and other assets and those they find

ways to lower their operating and sales expenses. There is a basic pattern to the practice of

supply chain management.

In Kenya, petroleum accounts for 22% of the total primary energy supply, 67% of which is

consumed in the transport sector while the rest is consumed mainly in industrial processing and

power generation (Aligula, 2006 ).

2.3 Constrained Infrastructure

The government also controls the distribution of petroleum products in Kenya through KPC

which is 100% state owned and the only way to transport products safely and faster to Nairobi

and western Kenya thus KPC enjoys a monopoly in the receipt, storage and transportation of the

petroleum products. This is a big challenge for oil companies in distributing their products as the

monopoly by KPC has led to inefficiencies in operations leading to delays in both distributing

the products and receiving It in the first place due to the inefficiencies, this has led to ships

staying in the port longer as KPC can not receive the products due to clogging of the pipeline

(lack of space usually known as lack of ullage in the industry) this in turn leads to increased

costs in terms of demurrages which affects the whole economy as these costs are transferred to

the consumers leading to an increase in the cost of living as all sectors are affected. (Petroleum

Insight Magazine, 2007).

Also the ban by KRA for transiting products from Mombasa has greatly affected OMCs

capability to strategically distribute their transit products to other countries as they have been

forced to use KPC whose capacity is constrained and are inefficient altogether. This has limited

OMCs ability to meet its set targets and its customer needs and requirements. Even though the

Ugandan authorities have tried to push for transiting of products by trucks from Mombasa to

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meet their fuel requirements, KRA have refused to give authority citing dumping and high

tracking costs as their main reasons. (Petroleum Insight Magazine, 2010).

Findings in energy supply trends show that petroleum products are transported from the refinery

or Kipevu oil facility via pipeline, railway tankers or road tankers. The pipeline was considered

the safest and fastest means of getting the products from Mombasa to the interland but does not

get the product to its retail outlet. This is done through road tankers which collect fuel from such

depots to petrol stations. Road tankers are convenient and faster for short distances and are the

only means in areas not served by the pipeline. Stocks kept by oil dealers were in most cases be

determined by the financial size of the firm and its storage capacity. Small enterprises would not

(even if they are willing) have the financial ability to buy and keep large stocks for the same

reasons advanced above. However, as a matter of principle, all dealers indicated they would like

to have stocks to last them more than thirty days.

2.4 Price Controls

In 2006 the government enacted the energy act no. 12 which created the energy regulatory

commission (ERC) with a mandate to regulate the petroleum industry and renewable energy

sector. The function of ERC include: regulating the sale of petroleum products (through price

controls, which are set and given on 15th

of every month), import and export of the petroleum

products. With ERC setting the maximum price that a company may sell its products, this poses

a significant challenge to the OMC as sometimes the products they have cost significantly higher

than the set price making them reluctant to sell their products, also as it approaches 15th

of every

month and the OMCs expect an increase in the prices they hoard their products so that they can

take advantage of the increase in prices. Both these scenarios lead to a shortage in fuel in the

market adversely affecting the economy and the OMCs strategic distribution policies.

The pump prices of petroleum fuels reflect the heavy taxation that the products undergo. This

heavy taxation is due to the fact that petroleum products contribute substantial amounts of the

governments revenue in Kenya. As a result, the overriding concern for the government in

levying taxation on petroleum products has been targeted at maximizing revenue collection. The

government has consistently derived more than 10% of its revenue from the taxation of

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petroleum products as "In any given fuel price, 35 per cent is the fuel taxation which comprises

of the tax levy and the direct tax by the Government.

Besides the reliance on the taxation of petroleum products to raise revenue, the government has

as well carried over the policy of subsidization of some products by others into the era of

liberalization. Among the major petroleum products available in the Kenyan market, illuminating

kerosene and diesel attract the least taxation while petrol fuels suffer much higher rates of

taxation. The rationale behind this policy is that majority of the households with low incomes

rely on kerosene for lighting and other basic use such as for food preparation. One group of

consumers subsidies another by paying higher taxes.

While the liberalization was expected to translate into lower prices through competition, this has

not been productive and part of the reason is due to the high tax levied on petroleum products by

the government. For instance, the pump price of Super petrol comprises up to 49% tax all

constituted from the Petroleum Development Levy, the Road Maintenance Levy and others. As a

policy measure, government preoccupation with revenue generation is not progressive because

the tax must pass on to the consumer resulting to inflation. Government reliance on petroleum

products for tax revenues must be reduced substantially through the realization that the present

levels of tax do hinder consumption.

2.5 Open Tender System

The importation of both crude and refined products is coordinated by the Ministry of Energy

through an Open Tender System (OTS). Prior to the OTS, the Ministry of Energy (MOE)

allocates the base load based on the historical market share of licensed importers. The OTS

winner allocates refined product based on calculated cargo participation. The cargo participation

allocation is calculated by the KPRL in two months advance, taking into consideration the

existing stock of the licensed importers. Data indicates that importation of crude is dominated by

major oil companies.

As a result of the OTS all private imports of petroleum products have been banned by the

ministry of energy (MOE). Since the product is allocated to oil companies based on their market

share in the industry, this is a punitive policy as it aims to ensure that the market will remain

dominated by a few multinational companies.

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2.6 Taxes

A legal notice that was published in 2011 indicated that excise duty on oil products is due and

payable at the time of importation or time of release by customs from Kenya Petroleum

Refineries Limited (KPRL). Upfront Tax payment which was introduced by the government as a

regulation measure have had their effect on margins, and thus increasing Financing cost. The

move requires marketers to pay 50 per cent of taxes upfront due on oil products, within four days

at the point of entry either at KPRL or Kenya Pipeline Company depot in Mombasa. A bank

guarantee has to be executed to cover the remaining balance of taxes with 25 per cent due

payable on the 15th day and the remainder on the 30th day (PIEA, 2010). In a global financial

environment where credit is hard to come by, oil companies will find it challenging to borrow for

payment of advance tax (Foster and Briceo-Garmendia, 2010).

In addition to this KRA require upfront payment of taxes for product to be discharged into

private depots, for product discharged into KPC KOSF the OMCs cannot have access to their

products until they pay duties. And for transit products, KRA require that OMCs secure bank

bonds to cover the products which are meant for further export, the bonds are restored once proof

of export is provided. To meet these requirements OMCs are forced to take up loans to finance

their operations leaving very little or no finance for developing and implementing strategies for

distribution of their products which limits their distribution efforts to what and how KRA want

the distribution to be done.

The debate in Kenya today with regard to fuel taxation has mainly focused on the arguments that

the current taxes such as the fuel levy and excise duty are too high. This has been intensified by

the oil price volatility which led to high prices of gasoline of up to Kshs. 110 or US$ 1.37 in

November 2008 following high prices of crude petroleum in the international market which

increased to US$147 per barrel. Motorists generally argue that the tax burden is too high even

though the situation has been made worse by the directive to collect it upfront on petroleum

products.

2.7 Conceptual Framework

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Figure 2.1 Conceptual framework.

Independent Variables Dependent Variable

Source: Researcher 2013

2.5 Previous studies on SCM in Kenya

Wabwoba (2011) did a research on the impact of oil price regulation on the financial

performance of NOCK. It was observed that when the international crude oil prices were rising,

oil marketing companies quickly passed on these increased costs to consumers but took long to

pass on cost reduction benefits to consumers when international oil prices were on a downward

spiral. Hence the government through its agency the ERC came up with a way of regulating the

fuel prices by setting the maximum prices which the oil marketers are to charge. The ERC in

addition developed a concept paper enumerating the petroleum supply chain logistics and their

cost implications on downstream retail prices (ERC 2011).

Joel (2000) did a survey research to establish the challenges facing the oil marketing companies

in Kenya and also to determine the extent to which the oil marketing companies in Kenya are

adopting best practices to manage challenges in the SCM. His findings showed myriad

challenges facing the SCM including high transportation costs, poor road network, challenges in

the pipeline transporting network, and capacity constraints of KPC among others.

Constrained

Infrastructure

Price Control Effective

Supply Chain

Management

Open Tender Systems

Taxes

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Mukiri (2007) carried out a survey of green supply chain management practices by

manufacturing firms in Kenya. He argues that in order for economies to embrace new

environment responsible values, believes and behaviours, there is strong need to green the entire

supply chain. She concludes that most manufacturing firms are supportive of green change

because of the benefits accrued.

CHAPTER THREE: RESEARCH METHODOLOGY

3.0 Introduction

This chapter involves analysis of the methods that shall be used to collect the data for the study.

These included research design, target population, sampling design, data collection instruments,

data collection procedure and data analysis procedure.

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3.1 Research Design

According to John W. Creswell (2010) research design is the plan and structure of investigation

conceived so as to obtain answers to research questions. The plan is the overall program of the

research and includes an outline of what the investigator will do from writing of the hypothesis

and their operational implications for the final analysis of data. A descriptive survey will be used

because it provides an accurate portrayal or account of the characteristics, for example behavior,

opinions, abilities, beliefs, and knowledge of a particular individual, situation or group.

3.2 Target Population

The target population is from petroleum companies In Kenya. The total population is fifty (50)

OMCs which have been registered by KRA.

3.3 Sample Size and Sampling Techniques

Sample size determination is the act of choosing the number of observations to include in

a statistical sample. The sample size is an important feature of any empirical study in which the

goal is to make inferences about a population from a sample. In practice, the sample size used in

a study is determined based on the expense of data collection, and the need to have sufficient

statistical power.

Since the number is small, a census of all the oil marketing companies will be undertaken and

will target the Supply And Operations managed.

3.4 Data Collection Method

The main research instrument that will be used in the study is self administered questionnaires

with both closed and open ends.

The questionnaires will be sent through email and the researcher will follow up to ensure

response.

3.5 Validity and Reliability of data collection Instruments

Measurement is the assigning of numbers to observations in order to quantify a phenomenon.

Measurement involves the operationalization of these constructs in defined variables and the

development and application of instruments or tests to quantify these variables.

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Key indicators of the quality of a measuring instrument are the reliability and validity of the

measures.

3.6 Data Analysis and Presentation

The purpose of this section will be to analyze the data based on the research objectives and

questionnaire items pertaining to the effect of constrained infrastructure, price control, open

tender system and taxes on effetive SCM by oil marketing companies. The data collected will be

first thoroughly edited and checked for completeness and comprehensibility. Descriptive

statistics will be used to analyze the data by way of percentages, proportions, and frequency

distributions. Descriptive data will provide a general picture on how SCM practices are carried

out and help to identify the specific practices, the extent of the value obtained and the barriers to

effective SCM practices in the oil marketing companies.

3.7 Ethical Considerations

The primary concern should be the privacy of the research participant, the details of ones

response should not be disclosed to another person.

Thus the researcher must enumerate how privacy and confidentiality concerns will be

approached. The research must be sensitive to not only how information is protected from

unauthorized observation, but also if and how participants are to be notified of any unforeseen

findings from the research that they may or may not want to know.

The research must consider how adverse events will be handled; who will provide care for a

participant injured in a study and who will pay for that care are important considerations.

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Drucker P.F (1999) Management challenges of the 21st century. New York: Harper Business,

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Foster, V. and Briceo-Garmendia, C. (eds) (2010) Africas infrastructure: A time for

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Ganeshan, Ram and Terry P. Harrison (1996), " An Introduction to Supply Chain Management",

Joel (2000) did a survey research to establish the challenges facing the oil marketing companies

in Kenya. Unpublished MBA project.

John W. Creswell (2010) Foundations of behavioral research. Holt, Rinehart and Winston (New

York).

John T. Mentzer. Bauknight, Dow N. (2001). The supply chain's future in the e-

economy

LaLonde, B. and Ginter, J. (2004) The Ohio State University 2002 Survey of Career Patterns

in Logistics

Lambert Douglas and Lisa M. Ellram,( 1998.) Supply Chain Management: Processes,

partnerships, Performance.

19

Malhotra, And Omar A. El Sawy 2004. Sanjay ...Journal of Managcmeni Information Sy.srem.t

/Whner 2004^5. Vol. 21. No. 3. pp.

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(2001), Defining Supply Chain Management, Journal of Business Logistics, Vol.

22 No. 2, pp.1-25.

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manufacturing firms in Kenya. Unpublished MBA project, university of Nairobi.

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Oakland Media service, Nairobi Kenya. (1st Quarter, 2007)

PIEA, (2010), Iinsight magazine quarterly published bulletin of the institute of Economic affairs

( 1st and 3

rd quarter 2010)

Sessional Paper No. 10 of 1965 dwelt on the Electric Power Act (CAP 314).

Simiyu Brian, (2009) National Competitiveness of Kenya And its Oil clusters, Unpublished

MBA project, Strathmore University.

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Unpublished MBA project.

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APPENDICES

APPENDIX 1: INTRODUCTION LETTER TO THE RESPONDENTS

The Human Resource Manager,

Xxxxxx 2013.

20

Dear Sir/Madam,

RE: PERMISSION TO COLLECT DATA FOR MY MBA PROJECT

I am a student Kenyatta University Mombasa Campus, pursuing an MBA course in Strategic

Management. Pursuant to the pre- request course work, I am carrying out a research on strategic

supply chain management practices by oil companies In Kenya. The study will involve use of

questionnaires administered to the members of management and other staff.

The information gathered will be used exclusively for the purpose of this study and shall be kept

confidential and used only for academic purpose. A copy of the findings will be made available

to you on request.

Thank you in advance for your kind assistance.

Yours Sincerely,

Fahad Bahaidar 0721 522 571

APPENDIX 2: QUESTIONNAIRE

Kindly fill in the questionnaire:

Section A: Background Information

1. Name of the organization (optional)

2. Gender Male Female

21

3. Highest level of education

Secondary [ ] College [ ] University [ ]

Others [ ] specify

4. Indicate nature of the organization. Please tick as appropriate.

Multinational Local company

5. Indicate below how many years you served at your company.

Less than 1yr 1-5 6-10 Greater than 10 yrs

6. How many branches do you have?

0 5

6 10

> 10

7. Respondent category

Management other staff

Section B: Supply chain management practices.

8. Kindly indicate to what extent the following supply chain performance metrics are

affected by price control.

Great extent A moderate To no extent

a) Customer satisfaction

22

b) Delivery performance

c) Supply chain response time

d) Order to deliver lead time

e) Transportation cost

f) Flexibility

Others (Please specify )

9. Kindly indicate to what extent the following supply chain performance metrics are

affected by the open tender system.

Great extent A moderate To no extent

a) Customer satisfaction

b) Delivery performance

c) Supply chain response time

d) Order to deliver lead time

e) Transportation cost

f) Flexibility

Others (Please specify)

10. Kindly indicate to what extent the following supply chain performance metrics are

affected by bond guarantee for transit goods and advance payment of taxes for local

products.

Great extent A moderate To no extent

a) Customer satisfaction

b) Delivery performance

c) Supply chain response time

23

d) Order to deliver lead time

e) Transportation costs

f) Flexibility

Others (Please specify)

11. How do you manage your supply chain? Tick all that apply.

a) Close partnership with suppliers

b) Close partnership with customers

c) JIT supply

d) E Procurement

e) Supply chain bench marking

f) Use of external consultants

Others, please specify .

12. State the importance of the following factors in deciding the need to change the supply

chain management strategies in your organization. Where 5 very important, 4

important, 3 least important, 2 not important.

a) Price control by Energy Regulatory Commission

b) Advance payment of taxes

c) Insufficient storage facilities with Kenya Pipeline

d) Compulsory requirement to import crude

24

13. Kindly tick appropriately to indicate the level to which you agree or disagree with the following measures in supporting supply chain management in the oil industry.

(Where 1= strongly disagree, 2= Disagree, 3=Neutral, 4= Agree, 5= strongly agree)

Strongly

disagree Disagree Neutral Agree Strongly

Agree

Improved of KRA simba system

More inter-country regional agreements

Better infrastructure e.g., road, storage

facilities etc

Improved government policies

Closer cooperation between SC partners

14. Kindly tick appropriately to indicate the level to which you agree or disagree with the following statements as regards to the challenges in the effective management of supply

chains in your firm

(Where 1= strongly disagree, 2= Disagree, 3=Neutral, 4= Agree, 5= Strongly agree)

Challenges

Str

ongly

agre

e

Agre

e

Neu

tral

Dis

agre

e

Str

ongly

dis

agre

e

1 Price control by government agent (ERC)

2 Complex clearing procedures

3 Bank guarantee of transit goods

4 Mandatory to discharge fuel at KPC

terminals

5 Compliance to GSCM

25

6 Deadlines to clear goods

Thank You, for your participation.

APPENDIX 3 - BUDGET

Budget for the proposal

NO ITEM COST (Kshs)

1. Communication 1,500

2. Printing 2,500

3. Flash disk 2,000

4. Stationery 1,000

26

5. Photocopy 2,000

6. Binding 1,000

TOTAL 10,000

APPENDIX 4 WORK PLAN

ACTIVITY NUMBERS OF DAYS TAKEN

Choosing of a supervisor for the Research

Project.

Coming up with different Research topic to

discuss with the supervisor.

Working on the chapter one of the Project.

27

Working on the chapter two.

Working on the chapter three.

Compiling Proposal for the supervisor review.

Defending the project

Proceeding to field and gathering information.

Analysis of the findings.

Submission of the Final Project.

APPENDIX 4 LIST OF OIL COMPANIES

1 LIBYA OIL (K) LTD P.O BOX 64900 00620 NAIROBI

2 KOBIL PETROLEUM (K) LTD P.O BOX 30061 NAIROBI

3 SHELL

4 TOTAL KENYA LIMITED P.O BOX 30322 00100 NAIROBI

5 KENYA OIL LIMITED P.O BOX 44202 NAIROBI

6

NATIONAL OIL KENYA

LIMITED P.O BOX 58567 NAIROBI

7 ENGEN KENYA LIMITED P.O BOX 10797 NAIROBI

8 GAPCO (K) LIMITED P.O BOX 40908 NAIROBI

9 MAFUTA LIMITED

10 PETRO OIL (K) LTD P.O BOX 90462-80100 MOMBASA

11 KAMKIS TRADING LTD P.O. Box 9545 - 00300 NAIROBI

12

DALBIT PETROLEUM (K)

LTD P.O BOX 1931 -00200 NAIROBI

28

13 MOIL P.O Box 3508 KISUMU

14 METRO P.O Box 35198-00200 NAIROBI

15 HASHI ENERGY (K) LTD P.O BOX 10795 NAIROBI

16 HASS PETROLEUM P.O BOX 76337-00508 NAIROBI

17 GALANA OIL (K) LTD P.O BOX 11672-00100 NAIROBI

18 ADDAX P.O Box 12403-00100 NAIROBI

19 FOSSIL FUELS LTD P.O BOX 41961-00100 NAIROBI

20 OILCOM (K) LIMITED P.O BOX 10370 NAIROBI

21 GLOBAL PETROLEUM P.O BOX 30621-00100 NAIROBI

22 Mogas Kenya Limited P.O Box 27696-00506 NAIROBI

23 BAKRI P.O Box 19095-00501 NAIROBI

24 GULF ENERGY P.O Box 61872-00200 NAIROBI

25 OILCITY P.O Box 9222-00100 NAIROBI

26 ROYAL ENERGY (K) LTD P.O Box 90148-80100 MOMBASA

27 RIVA P.O BOX 16299-20100 NAIROBI

28 Jade Petroleum Limited P.O. Box 34725, 00100 NAIROBI

29 MULOIL (K) LTD P.O BOX 41391-00100 NAIROBI

30 Riva Petroleum Dealers limited P.O. BOX 16299-20100 NAIROBI

31 HARED

32 Trojan International LTD P.O. BOX 100339-00100 NAIROBI

33 PREMIUM P.O Box 56672-00100 NAIROBI

34

AL-LEYL PETROLEUM

LIMITED P.O.BOX 1173-80100 MOMBASA

35 Banoda Oil LTD P.O Box 101537-00101 NAIROBI

36 RANWAY TRADERS LTD P.O Box 56022- 00200 NAIROBI

37 Tosha Petroleum LTD P.O Box 28433- 00100 NAIROBI

38

NAFTON PETROLEUM

LIMITED P.O. BOX 101664 00101 NAIROBI

39

KEROKA PETROLEUM

LIMITED P. O. BOX 8034 00300 NAIROBI

40

PJ PETROLEUM EQUIPMENT

LIMITED P.O. BOX 74502 00200 NAIROBI

41

OLYMPIC PETROLEUM

LIMITED P.O BOX 24457-00100 NAIROBI

42

SAMHAR PETROLEUM

PRODUCTS CO. LTD P.O BOX 10046-00101 NAIROBI

43

AINUSHAMSI ENERGY

LIMITED P.O BOX 5134 - 00506 NAIROBI

44 FAST ENERGY LIMITED P. O. BOX 22712 00400 NAIROBI

45

TOPAZ PETROLEUM

LIMITED P. O. BOX 16236 00100 NAIROBI

46

ESSAR PETROLEUM (East

Africa) Ltd PO Box 45742-00100 NAIROBI

47 REGNOL OIL KENYA LTD

P.O. BOX 77883 00622 JUJA RD NAIROBI

48 EAST AFRICA GASOIL LTD P.O BOX 3378-80100 MOMBASA

49 ONE PETROLEUM LIMITED P. O. BOX 90147 MOMBASA

29

80100,

50 Millenium Dealers Limited P.O. Box 27549-00506 Nairobi

Source: KRA list of Oil Companies 2012.