Cost Optimization and Risk Management Program for the Fuel Supply Network in an Oil & Gas Swamp Operation

: Marine activity is a critical part of an oil & gas company that operates in the swamp area. The company utilizes rigs, barges, and boats to achieve maximum production. Fuel supply for marine fleets is highly essential to ensure smooth operation. Since fuel cost becomes one of the biggest components of operating expenses (OPEX), the stakeholders highly encourage cost optimization programs to ensure business profitability. However, any optimization program shall have a robust risk management program to avoid disturbance in the operation and potential financial losses. The research aims to select the best fuel supply network in the swamp operation area of an oil & gas company using four criteria (operational expenses, service reliability, value creation, and health safety & environment) based on the literature review and subject matter experts’ analysis. The study will analyze several alternatives using the Analytical Hierarchy Process (AHP) as a decision-making tool and Failure Mode Effect Analysis (FMEA) as the risk management method. The result shows that the hybrid network has the highest rating in AHP with a 33.7% rating and the lowest total risk priority number with 212 points.


LITERATURE REVIEW
The research employs Analytic Hierarchy Process (AHP) as the decision-making tool that depends on expert judgment to determine priority scales.These scales evaluate the relative value for each alternative and criterion.The comparisons are made using a scale that indicates how much more valuable one factor is than another in terms of a particular attribute.AHP will be commonly used in developing countries' decision-making processes (Vaidya, O.S. et al. 2006).AHP also measures inconsistency in the judgments.The result shall show the priority of the alternative and value regarding the fundamental objective.AHP is done through the following steps: Step 1. Build a hierarchy.
Step 2. Establish the problem criteria and identify the alternatives.
Step 3. Designate the pairwise comparison matrix based on the relative importance as per Table 1.Step 4. Compute the calculation and evaluate the inconsistency.Inconsistencies during pairwise comparison are calculated by determining the consistency index (CI) and consistency ratio (CR) using the formula below.
Where λmax is the maximum eigenvalue and n is the matrix dimensions.Random Index (RI) is the consistency index of a randomly generated pairwise comparison matrix with a dependent value based on the matrix size, as shown in Table 2.Then, pairwise comparison is considered acceptable if the CR ≤ 0.1.
Step 5. Results will show the alternatives' priority as the best solution according to the research objectives.The risk management program will be determined to ensure minimal impact on the operation while optimizing the total expenses.Failure mode and effects analysis (FMEA) will be used to map supply chain risk management associated with alternatives for fuel provision methods in swamp operations.FMEA is a broadly employed reliability management methodology that is extensively used across multiple industries to check and verify the safety and dependability of a particular system (Lie et al., 2013).FMEA was developed by the United States Defense Department in 1949 and became an integral part of Appolo reliability system enhancement in 1960 (Bowles et al., 1995).FMEA has been widely adopted in the maritime industry in compliance with international marine regulations (Pillay et al., 2001).
The FMEA method utilizes the risk priority number (RPN) system by calculating three factors: failure probability (P), severity (S), and detection probability (D).The mathematical equation will be RPN = P x S x D. Detail probability breakdowns are shown in

RESEARCH DESIGN
In order to answer the research objectives, several actions will be taken to complete the research.
1. Business Issue Exploration The research will discuss the cost optimization strategy in marine operations in swamp area.The researcher needs to look up the detailed cost breakdown in marine expenses.This part shall involve subject matter expert (SME) within the company organization and historical data from past performance.

Problem Identification
In this step, the researcher shall find the underlying problem and brainstorm the possible alternatives.Apart from the company's expertise, the researcher may liaise with external parties to observe and identify the potential root causes and issues.

Stakeholder Mapping
Stakeholder mapping will be done to identify all parties involved and related to the research agenda.Their roles in the research will defined by the power interest matrix to determine their involvement throughout the study until the implementation plan.

Literature Study and Data Collection
In order to enrich and strengthen further analysis and research objectives parts, a literature review from a previous study is conducted by examining related journals, books, and other materials.Then, data collection is done to help find the best solution.

Criteria Development
Criteria and sub-criteria shall be determined according to the literature review and discussion with SMEs as part of the decisionmaking and risk-management process.6. Generate Alternatives This step will generate contract strategy and business process alternatives by considering previous analyses and interviews with subject matter experts.

Multi-Criteria Decision Making
The decision-making process using the Analytical Hierarchy Process (AHP) will involve subject matter experts and consider decision hierarchy and criteria.8. Failure Mode Effect Analysis (FMEA) Risk management using the FMEA method will be carried out to check the associated risk.Evaluation is done by examining probability events, severity ratings, and detection.The FMEA report will be generated to assist in the implementation of the solution.9. Best Alternatives and Implementation Plan Based on AHP, the decision-making process shall choose the best alternatives from A detailed timeline will be set to ensure the implementation is in place accordingly.The schedule shall consider lag time for the approval process from related stakeholders and the best strategy to ensure smooth implementation.
The detailed framework and step-by-step on how the research is carried out is shown in Figure 1.

RESULT AND DISCUSSION
The business solution shall be carried out based on the results of the Analytic Hierarchy Process (AHP) and Failure Mode Effect Analysis (FMEA) based on interviews and discussions with subject matter experts (SME).As part of the risk management and decision-making process, criteria are developed to help the evaluation system.Table 6 shows the criteria and sub-criteria that are used in the study.After conducting a literature review and interviews with subject matter experts (SME), some new alternatives can be implemented to optimize fuel provision in swamp operation.Four alternatives were used in the decision-making process, as follows: 1. Direct Shipment with Milk Runs (existing method) In this particular network, the supplier will deliver the required fuel at the delivery point based on a purchase order from the company.After delivery from the fuel supplier, the company may redistribute it again to their other units.The company will pay a lump sum fee as transportation costs are calculated based on the amount of fuel delivered (Rp/Liter).The contractual agreement obliges the fuel supplier to provide a minimum of three self-propelled oil barges (SPOB) to accommodate the company's operational requirements.This method enhances consumer satisfaction by ensuring timely deliveries, securing fast response time, and maintaining fuel quality while at the same time minimizing the company's liabilities.The fuel supply network is shown in Figure 2.

Hybrid Network (Distribution Center & Direct Shipment)
As shown in Figure 4, the hybrid network will combine the utilization of a distribution center and a direct shipment approach.The fuel supplier shall provide an oil barge in the company's vicinity as a distribution hub.The company's fleets will be dispatched to the barge and conduct refueling activities.The fuel supplier must maintain an agreed amount of fuel at the barge as a minimum stock level to ensure the fleets will obtain sufficient reserve.In addition, the fuel supplier has to arrange self-propeller barges (SPOB) operation to supply diesel fuel directly to the end customers.By replacing one or two SPOBs with an oil barge (OB), the company shall benefit from responsiveness to respond to fluctuating demand levels while securing the fuel stock at the strategically positioned inventory.Since the operating expense of an oil barge is generally lower than a self-propelled oil barge, the company may renegotiate the transportation cost to the fuel supplier.

4.
Vendor Managed Inventory (VMI) By implementing the VMI method, the fleet owner is responsible for providing their fuel, as depicted in Figure 5.The owners shall manage the whole supply chain of the fuel from supply, inventory, and consumption of their units.The company shall streamline operations by minimizing the fuel procurement process.On the other hand, fleet owners shall liaise with reliable fuel suppliers to ensure adequate supply and avoid disruption in charterer operations.Based on the results of the pairwise comparisons of criteria, subcriteria, and alternatives, the decision matrix is calculated by calculating the summary of each subcriteria weight ratio with each alternative.The supply network decision hierarchy's consistency ratio (CR) is at 4.3%.The consolidated matrix concludes that: 1. Hybrid network is the most preferred alternative, with a score of 33.7%.2. Direct shipment becomes the second preference, with a 27.8% rating.
3. Distribution center is the third priority alternative, with a 26.9% rating.4. Vendor-managed inventory is the least preferred alternative, with an 11.7% score.
FMEA is a method for evaluating potential problems within systems or the products they generate.This systematic approach involves assigning weights to establish rankings based on the Risk Priority Number (RPN), calculated by multiplying severity, occurrence, and detection weight values.These weight values are assigned based on the consequences of errors, the probability of their occurrence, and the measures in place for detection.In Table 11, the probability of occurrence is analyzed based on the root cause of each scenario.
The ratings are given based on the SMEs' evaluation of each alternative.Severity ratings are provided for each scenario and shown in Table 12.The table represents the magnitude of both tangible and non-tangible impacts on the organization in case of failure.Then, the detection rating is analyzed for each framework as depicted in Table 13.Risk priority number (RPN) is calculated for each scenario by multiplying the probability rating (P), severity rating (S), and detection rating (D).RPN represents the risk of each failure mode in the fuel supply network.The alternative with the lowest RPN score is considered the least risky alternative and preferred by the experts.Table 14 shows the risk priority number evaluation for all criteria, sub criteria, and alternatives.
Figure 1.Research Design

Table 6 . Description of Criteria and Sub-Criteria Criteria Sub Criteria References
ISSN:

Table 14 . Risk Priority Number Analysis
Hybrid network is the least risky alternative, with an RPN score of 212. 2. Direct shipment becomes the second preference, with an RPN score of 262. 3. Distribution center is the third alternative preference, with an RPN score of 342. 4. Vendor-managed inventory is the highest-risk option, with an RPN score of 1,293.CONCLUSIONBased on the result of AHP to set up the best alternative solution, the hybrid network has the highest rating, with 33.7%.In the FMEA study, the hybrid network has the lowest RPN among other alternatives, with a 212 score.Therefore, the hybrid network is selected as the best solution for the fuel supply network in swamp operation area.Regarding the FMEA evaluation result, the failure probability, severity rating, and detection probability are analyzed for each criterion and sub-criterion.The research selects the top three issues that need to be highlighted based on the highest RPN score.