Application of Linear Programming in the Oil Industry

In 1956, a survey was conducted to determine how progressively oil companies were applying linear programming in the manufacturing, distribution, and drilling. The paper looks into the pros and cons of using linear programming in the whole process of oil exploration. The following advantages and disadvantages emerged.

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Simulation has many advantages. First, it allows a company to study the whole organization as a model before installing the model to its operations. The first step is significant as it brings out the bottlenecks that the company should deal with in the future. Additionally, it allows the company to adjust to the needs of the organization and the system to achieve certain goals.

Depending on how well it is used, how well it is designed, and the level of preparation before the full installation, a company is in a position to adjust positively to any changes that may occur in the future affecting the system. This includes the need for more resources, changes in market demand, the creation of new workstations, and changes in personnel duties. This includes the need for more resources, changes in market demand, the creation of new workstations, and changes in personnel duties.

The system is quite costly to roll out. The oil company used quite a huge sum of money to set up its system. Although it effectively, connects major manufacturing functions in an organization, care must be taken in training. This is because many employees may find it tiring to adjust to the needs of the system and hence affect its functions. Additionally, enough expertise must be sought to put the relevant data captured in the system to good use. This is because it is inappropriate to have all that information without aiding in managerial decisions (Gray & Larson 2008).

In a production process whose steps are predefined, the application of simulation is quite possible. For example, the case study presents a company that produces prefabricated concrete parts for houses. Certain steps are performed in a certain duration using predetermined times.

Machines are programmed to know cycle times and locations of a part during production. Hence, it forms a continuous process. This is after a careful analysis of the previous production using a simulation model. The model can tell how many products are likely to be produced with defects and can be tweaked to ensure that these defects are reduced to the minimum and detected before the product reaches the customer. The company uses an online simulation, which records sales data and uses this data to reflect what to produce. The oil exploration case used simulation to surpass some of the hurdles.

Creating such a system requires quite a lot of time. Previous operations should be captured and appropriate software created to reflect this information. For example, the case has a company that was in the business of painting cars. More than 100 colors were in use and certain procedures in the painting process resulted in delays, long transitional times, and idle time. This contributed to a challenge in trying to come up with an appropriate model. Hence, some business functions may be difficult to put into a simulation model. Linear and multilinear regressions are critical tools of analysis.

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As noted above, not all processes can be put into a model. Some are a bit complex and hard to simulate. The use of the ISSOP optimization tool helps in these situations. It has an inbuilt tool that caters to many aspects of production such as production planning, throughput times, idle times, and capacity. However, a slight tweak in the system may cause considerable danger to the production process and steps must be taken to ensure that there are corrective measures in place. Additionally, simulation software requires a human interface. Although some are quite automated, some defects can affect a huge rollout in production leading to catastrophic consequences.

The case study was a critical look at the optimization and simulation tools in place in major organizations and SMEs. The case presents several small businesses that are using these tools in production planning and scheduling. It also highlights the challenges, advantages, and appropriate software for different organizations with specific needs.

It also looks at the suitability of these models for the future and critically analyses the level of applicability: is it a support system or the main system? The case also looks into the issue where some problems cannot be captured in a system and their effect on the overall need to meet certain objectives. For example, personnel morale is an independent variable whose effect may not be captured in the system. Offline and online simulation and their respective advantages are also discussed in detail (Mapes & Szwejczewski 2000).

A probability distribution lists all possible values for a random variable alongside their probabilities. If a random variable can take on specific predetermined values, then the probability distribution is discrete. Otherwise, the probability distribution is continuous. For example, the probability of getting ahead or a tail when one flips a coin can be either one or zero. This means that it is impossible to get values with decimals in Discrete Probability Distributions. For instance, it is impossible to get 2.7 heads when one a coin. On the other hand, it is possible to get values with decimals in continuous distributions.

A clearly and carefully constructed probability distribution is useful in determining many variables that may be of interest to a forecaster. For example, a car dealer may be interested in finding the probable number of cars that may visit the dealership on particular days of the week.

This may be important for appropriate staffing, getting additional parking, and savings costs. Hence, the dealership looks at the historical number of cars that visit the workshop for a month and the subsequent probabilities that the cycle will repeat itself. Discrete probability is also used in football matches where every decision that involves either of the two teams is decided using a flip of a coin. Additionally, discrete probability plays a major role in a game of cards. This is a perfect example of a discrete probability distribution where the variables are fixed. The following is an example of a probability distribution.

Simulation is a manufacturing technique that aptly represents the reality of operations and processes in a model. The model is a reflection of what happens in reality and takes into account the parameters and conditions on the ground. It is quite a useful tool in product planning and scheduling. Scheduling is the act performed by managers where they allocate resources, identify procedures, and estimate different parameters that entail the procedures, such as costs.

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This is quite imperative in project management as it informs the project manager about the imminent project and acts as a tool for prediction. Product planning, on the other hand, refers to the process of allocation of meager resources to production activities to ensure that company objectives are met. This includes customer satisfaction and meeting demand. Generally, this represents an optimization problem for a company as it refers to a process where a manager has to decide to minimize costs and maximize profits simultaneously. The paper looked into the possibility of applying simulation to solving production planning and scheduling problems in different organizations.

The researcher employs the use of case studies and previous applications of these tools to reflect the advantages, disadvantages, problems, and possible solutions inherent to the usage of simulation in these functions. Through the evaluation of this case study, the researcher points out recommendations of the issues that manufacturers encounter in using this powerful function.

Example

Transamerica Oil Corporation in the Kansas Uniform Commercial Code succeeded in attaining damages against Baker International Corporation. The defendants appealed against the decision of the jury. Transamerica Oil Corporation was to receive compensation for damages. At the time of business, the company needed packers. These are devices fitted in an oil or gas well to separate one layer from the other. This prevents water entry to ensure that production is efficient. The company’s President Harold Brown saw an advertisement in a trade journal by Baker International. It was on “Production Injection Packers”. He was interested in cutting down costs in cementing and casing and he thus phoned Lynes Company and spoke with the salesperson.

Lynes representative directed Harold to Baker’s District Manager. He then telephoned and informed them of his interest in acquiring Production Injection Packer. This was instead of the cementing and covering process. The challenge is the essence of the conversation the two had. Spencer also acknowledged that the candidate would be perfect for the job. Meanwhile, Transamerica Oil Corporation bought ten Production Injection Packers from the defendant’s company. This was done in ten installments. Baker International Company sent invoices for the consignments. However, they contained a disclaimer note on their back. It stated that the materials were free of any defects. Each of the invoices also purposed to refuse any remedy or credit to substitutes or defective units.

Later, because of the failure of the Packers to perform, the plaintiff filed a suit against Baker International Company. The plaintiff’s case was based on the breach of the direct warranty by the defendant. She also opposed the claim on the implied warranty. The jury awarded the plaintiff close to Two Hundred Thousand Dollars. This amount was more than the cost of the Packers. Hence, the jury’s decision was not just and fair. They thus filed an appeal with the High Court.

However, for actions under the Kansas Uniform Commercial Code, the Statute of Limitations is four years. Incase sec. 60-512 applies in the case at hand; assertions of the plaintiff are restricted. However, if sec. 84-2-725 takes effect the plaintiffs claim is judicious. Invalidating the Jury’s decision, the application of appropriate Statute of Limitations of remedies to warranties and implied terms in invoices associated with shipped merchandise is required.

According to the Kansas Laws, the creation of an express warranty takes place in the following situation:

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  1. When a seller makes a promise to a buyer and the promise becomes the basis of the purchase bargain. It is an express warranty that the goods must conform to the promise made. Otherwise, the seller will be in breach of the sales contract.
  2. When the description of the goods becomes the point of the bargain of an agreement, then “it is of express warranty that the goods will fit the description”.

According to the defendants, the combination of Spencer’s statements and the description of the Production Packers in the adverts constituted an expression of an opinion. Thus, they denied the accusation that it was an expression of warranty. It would be inappropriate for the plaintiff to rely on the advert as an express warranty. However, if the jury was convinced by Harold’s testimony, the evidence of Spencer’s assurance was enough to conclude that it was an express warranty.

Reference List

Chase, B & Aquilano, N 2006, Operations Management for Competitive Advantage, McGraw Irwin, New York.

Gray, C & Larson, E 2008, Project management: The managerial process, McGraw–Hill Education, Singapore.

Mapes, J & Szwejczewski, M 2000, “Process Variability and Its Effect on Plant Performance”, International Journal of Operations and Production Management, vol. 20 no. 7, pp 792-808.

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