Presented to the Decision Sciences and Innovation

Department University of De La Salle - Manila

First Term, A.Y. 2023-2024

In partial fulfillment of
the course requirement
in LBOMGTS (K88)

Shell Pilipinas Corporation

Submitted by:
Team Forecast
Fajardo, Russell Christopher U.
Gabriel, Lana G.
Gugol, Chelcy Mari L.
Pangilinan, Raphael Maria C.
Ricio, David Neil C.
Sarmiento, Bettina L.

Submitted to:
Mr. Moraga, Melvin Vitug
November 25, 2023
 ACKNOWLEDGEMENTS

First and foremost, the team would like to express gratitude to Shell PLC for granting the group
permission to use the name and details of the company for their final paper on the subject,
Prescriptive Analytics.

We would also like to thank our conscientious professor Sir Melvin Moraga for his patience in
teaching us and his expertise on the subject. His guidance during the whole research process has
helped the team a lot.

And lastly, to the group members of Team Forecast for exerting their best efforts in this final
paper despite their differences, and the deadlines they had for other subjects. They still made
time to dedicate their time to ensure this research paper’s success.

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 TABLE OF CONTENT

I. COMPANY PROFILE AND BACKGROUND.......................................................................5

A. History...................................................................................................................................5
B. Founder and Incorporators.................................................................................................... 6
C. Nature of Business................................................................................................................ 7
D. Organizational Structure....................................................................................................... 8
E. Vision and Mission Statement of Shell Philippines.............................................................. 9
F. Company Objectives.............................................................................................................. 9
G. Company Products................................................................................................................ 9
II. STATEMENT OF THE PROBLEM.....................................................................................10
A. Define the Problem............................................................................................................. 10
B. Acquire Input Data.............................................................................................................. 11
C. Content of Dataset...............................................................................................................12
III. ALTERNATIVE COURSES OF ACTION.........................................................................12
ACA 1: Product Mix and Inventory Management...................................................................12
A. Develop Mathematical Model.......................................................................................13
B. Analyze the Results.......................................................................................................15
C. Pros and Cons of Chosen ACA..................................................................................... 15
ACA 2: Diversification Strategy.............................................................................................16
A. Develop Mathematical Model.......................................................................................16
B. Analyze the Results.......................................................................................................17
C. Pros and Cons of Chosen ACA..................................................................................... 18
ACA 3: Supply Chain Optimization........................................................................................ 19
A. Develop Mathematical Model.......................................................................................19
B. Analyze the Results.......................................................................................................20
C. Pros and Cons of Chosen ACA..................................................................................... 21
IV. OPTIMAL SOLUTION........................................................................................................ 22
V. CONCLUSION AND RECOMMENDATION..................................................................... 22
VI. APPENDICES....................................................................................................................... 24
VII. REFERENCES.....................................................................................................................26

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 LIST OF FIGURES
Figure 1: Chairman of the board……………………………………………………………………………6
Figure 2: Executive Director ……………………………………………………………………………….6
Figure 3: Executive Director.......................................................................................................................... 6
Figure 4: Executive Director………………………………………………………………………………. 7
Figure 5: Non-Executive Director…………………………………………………………………………..7
Figure 6: Non-Executive Director..................................................................................................................7
Figure 7: Independent Director……………………………………………………………………………. 7
Figure 8: Independent Director……………………………………………………………………………. 7
Figure 9: Independent Director...................................................................................................................... 7
Figure 10: Independent Director……………………………………………………………………………7
Figure 11: Director......................................................................................................................................... 7
Figure 12: Organizational Chart of Shell Pilipinas Corporation....................................................................8
Figure 13: Shell Pilipinas Corp.’s Financial Reports (Balance Sheet) 3rd Quarter..................................... 24
Figure 14: Shell Pilipinas Corp.’s Financial Reports (Cash Flow) 3rd Quarter...........................................25
Figure 15: Shell Pilipinas Corp.’s Financial Reports (Note - Inventories) 3rd Quarter...............................25

LIST OF TABLES

Table 1: Average Selling Price of Fuels (As of 3rd Week of November 2023)........................................... 12
Table 2: Average Costing of Lubricants.......................................................................................................12
Table 3: Inventories, net (3rd quarter of 2023)............................................................................................ 13
Table 4: Pros and Cons of ACA 1................................................................................................................ 17
Table 5: Pros and Cons of ACA 2................................................................................................................ 20
Table 6: Pros and Cons of ACA 3................................................................................................................ 23

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I. COMPANY PROFILE AND BACKGROUND
A. History

Shell Corporation, an international energy company, is a major force in the

tertiary industry, specializing in the production, marketing, importation, and exploration
of petroleum products such as bitumen, fuel oil, jet fuel, gasoline, and diesel. Since its
founding in 1907, Shell has grown to become one of the greatest oil corporations in the
world due to the intense competition and substantial expansion in the oil and gas sector.

Born by the Samuel brothers’ interest in the oil-exporting business, they decided
to expand on their late father’s antique venture. Due to the competitor’s presence,
Standard Oil, the merging of The "Shell" Transport and Trading Company of the United
Kingdom and the Royal Dutch Petroleum Company of the Netherlands, took place. Shell,
formerly known as Royal Dutch Shell Plc.’s mission was to be at the top of the game, and
by 1920 Shell was the world's biggest oil producer.

The downstream oil refining and marketing company Shell Pilipinas Corporation
(SPC) is based in the Philippines. The company traces its roots back to Asiatic Petroleum
Company (Philippine Islands), Ltd., which started importing and dispensing motor
gasoline and kerosene in the Philippines in 1914. The Shell Refining Company
(Philippines), Inc. priorly known as SPC was incorporated in 1959. It changed its name
once again to Pilipinas Shell Petroleum Corporation in 1973. With a network of more
than 1,000 retail stations nationwide, Shell Corporation is one of the top participants in
the Philippines' fuel retail market.

Afterward, the business changed its name to Shell Pilipinas Corporation (SPC) in
2023 to reflect its involvement in the energy transformation and its dedication to
providing the nation with sustainable and greener energy options.

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 B. Founder and Incorporators

The founding of Pilipinas Shell Petroleum Corporation is the source of Shell's

involvement in the Philippines. Pilipinas Shell was established on October 19, 1914. The
Royal Dutch/Shell Group included the original members and investors of Pilipinas Shell.
It's crucial to remember, nevertheless, that the idea of a single founder might not apply to
the founding of a branch or subsidiary of a bigger company, such as Shell.

As for Pilipinas Shell, it was not started in the Philippines by a single person, but
rather resulted from the worldwide operations and growth of the Royal Dutch Shell
Group. The current CEO of Shell Philippines is Lorelie Q. Osial, who was appointed as
Chief Executive Officer and President of the company on the 1st of December last 2021.
The Chairman of the board is, Min Yih Tan who is singaporean. Lydia B. Echauz ,
Cesar A. Buenaventura (who was the former CEO of Shell Philippines), Fernando
Zobel de Ayala, and Amando M. Tetangco, Jr. are the directors who stand as the
Independent Directors. The Non-Executive Directors are Nina D. Aguas, and Luis C. la
Ó, and for the Executive Directors are Reynaldo P. Abilo, Randolph (Randy) T. Del
Valle. The one who stands as a director is Stuart Chaplin.

Figure 1: Chairman of the board Figure 2: Executive Director Figure 3: Executive Director

Min Yih Tan Reynaldo P. Abilo Lorelie Q. Osial,

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 Figure 4: Executive Director Figure 5: Non-Executive Director Figure 6: Non-Executive Director

Randolph (Randy) T. Del Valle Luis C. la Ó Nina D. Aguas

Figure 7: Independent Director Figure 8: Independent Director Figure 9: Independent Director

Fernando Zobel de Ayala Amando M. Tetangco, Jr. Lydia B. Echauz

Figure 10: Independent Director Figure 11: Director

Cesar A. Buenaventura Stuart Chaplin

C. Nature of Business

Shell Pilipinas Corporation is an energy company that markets petroleum

products, namely gasoline, diesel, fuel oil, aviation fuel, marine fuel, lubricants and
bitumen across the Philippines. The firm supplies wholesale commercial fuels as well to

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other sectors such as manufacturing, mining, marine, power, and transport. The company
seeks to fulfill the growing need for cleaner energy that is economically, environmentally,
and socially sustainable.

D. Organizational Structure

Figure 12: Organizational Chart of Shell Pilipinas Corporation

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 E. Vision and Mission Statement of Shell Philippines

Vision:
To achieve superior investment status by optimizing cash generation and
upholding competitive returns through a robust financial structure. As a dependable
partner in nation-building, we address sustainable energy needs while delivering energy
with a commitment to shared value with society.

Mission:
Promoting progress in line with the Filipino people by offering more and more
environmentally friendly energy options.

F. Company Objectives

Since initiating its operations in the Philippines in 1914, Shell Philippines has
devoted itself to catering to the Filipino community by offering premium gas, lubricants,
oil change services, and food and beverages for travelers, a dedication that endures to this
day. The objectives of the company are as follows:

● “To thrive in the energy transition by responding to society's desire for cleaner,
more convenient, and competitive energy.”

● “To sustain a strong societal license to operate and contribute to society through a
shared value approach to its activities.”

G. Company Products

Shell Philippines offers a wide variety of fuels suited for different needs. The
Shell V-Power fuel line, which is ideal for long drives and optimal performance, consists
of Shell V-Power Racing, Shell V-Power Gasoline, and Shell V-Power Diesel. Another
fuel option is Shell’s FuelSave line, which is designed for efficiency in fuel, performance,
and price. It includes FuelSave Diesel, intended to enhance fuel economy through
improved ignition and combustion. Last, is Shell’s FuelSave Gasoline, which reduces
energy loss in customers’ car engines and improves overall engine efficiency.

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 Shell Philippines provides not only fuel but also various lubricants including Shell
Helix for car engines and motors, Shell Advance for motorcycles, and Shell Rimula for
trucks and heavy-duty engines.

II. STATEMENT OF THE PROBLEM

A. Define the Problem

Shell Pilipinas Corp. faced a significant financial challenge in the first quarter of
2023, reporting a net loss of P300 million. This is a substantial contrast to the P3.5 billion
net income in the same period of the previous year. The primary reason for this loss was
an inventory holding loss of P1.1 billion, directly linked to the decline in global oil
prices. This situation highlights the company's vulnerability to fluctuations in the
international oil market, emphasizing the need for diversification and effective risk
management in Shell Pilipinas' operational strategy.

As part of the "Problem Mix Analysis," it is crucial for the company to evaluate
how to mitigate these financial vulnerabilities and formulate strategies to navigate the
persistent challenge of oil price volatility. While Shell Pilipinas has shown resilience in
its core earnings, driven by strong marketing efforts and a healthy product mix,
addressing the issue of net losses from inventory holding losses remains a critical aspect
of its operations. It is essential to conduct a deeper analysis to uncover the root causes
and establish measures to prevent or manage such losses in the future, safeguarding the
company's sustained success.

This analysis emphasizes the significance of understanding the company's

financial challenges comprehensively and the urgency of implementing effective risk
mitigation strategies in the dynamic energy market landscape. Shell Pilipinas Corp.'s
ability to adapt to these challenges will be pivotal for its enduring growth and financial
well-being.

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 Shell allocates its financial resources amongst exploration and production,
distribution, refining, and renewable energy projects. The company's investment mix
might include, among other things, setting aside money for projects related to renewable
energy, refining process optimization, network expansion, and oil and gas exploration and
drilling. Shell makes investment decisions that are in line with its long-term business
plan, adjust to market conditions, and strike a balance between risk and return.

B. Acquire Input Data

Fuels

Shell Fuel Save

Shell Fuel Save Gasoline Php 61.86

Shell Fuel Save Diesel Php 59.35

Shell V-Power

Shell V-Power Diesel Php 66.42

Shell V-Power Gasoline Php 71.02

Shell V-Power Racing Php 72.49

Table 1: Average Selling Price of Fuels (As of 3rd Week of November 2023)

Lubricants

Shell Helix Oil Change + PhP 4,500.00

Shell Helix Php 2,413.00

Shell Rimula Php 1,8500.00

Shell Advance Php 391.00

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 Table 2: Average Costing of Lubricants

Inventories, net (3rd Quarter of 2023)

Inventory 21,087,017

Petroleum Products 20,906,783

Materials and Supplies 180,234

Write-down of Inventory 23,951

Petroleum Products 20.951

Materials and Supplies 3,000

Table 3: Inventories, net (3rd quarter of 2023)

C. Content of Dataset

Table 1 indicates the current average fuel prices in the Philippines. As shown in
the table, there are two kinds of fuels being served: Fuel Save and V-Power. Shell Fuel
Save is the regular-priced fuel designed to last longer as opposed to standard fuels.
Meanwhile, Shell V-Power provides the best performance and efficiency as it contains
DYNAFLEX technology that helps protect the engine. Due to economic circumstances,
the prices for fuel continue to fluctuate; for this week of the month, prices range from an
estimate of Php 56- Php 75.

As per the second table, it exhibits the average selling price for lubricants or oil
change for vehicle engines such as cars, motorcycles, and scooters. These are mainly
marketed through Shell Retail stations and e-commerce. Seeing as there are a variety of
options, the prices vary per lubricant, as well as its size and liters.

The third table above presents the inventory for the third quarter of 2023.
According to the financial reports of Shell Pilipinas Corp., the allowance for inventory
following from the write-down of petroleum products to net realizable value (NRV)
equated to Php 15.8 million as at September 30, 2023, while the obsoletion of finished
products totaled Php 5.2 million as at September 30, 2023.

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III. ALTERNATIVE COURSES OF ACTION

ACA 1: Product Mix and Inventory Management

Based on the current market demand and anticipated future oil prices, Shell
Pilipinas Corp. can utilize linear programming to calculate the ideal inventory levels of
its oil products in this situation. By doing this, the business may steer clear of
accumulating surplus inventory, which could lead to inventory holding losses while oil
prices are dropping.

Through linear programming, Shell Pilipinas Corp. can determine the optimal
inventory levels of its oil products that minimize inventory holding costs while meeting
market demand and storage capacity constraints. This can help the company avoid
inventory holding losses during periods of declining oil prices and improve its financial
performance.

A. Develop Mathematical Model

To reduce the impact of volatility in oil prices, Shell PLC can identify the ideal
product mix and inventory levels using linear programming. Shell Pilipinas Corp. can
minimize the risk of inventory holding losses while retaining a competitive position in
the market by optimizing its product mix and inventory levels through the creation of a
linear programming model that takes demand estimates, production costs, and market
pricing into account. This strategy is in line with the business's objective of efficient risk
management and may lessen the financial risks brought on by changes in the global oil
market, linear programming is a mathematical modeling technique that can assist Shell
PLC in making the best decisions possible.

The linear programming model can be formulated as follows:

Objective function: Minimize inventory holding costs

Constraints:

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 ● Demand constraint: The total amount of oil products sold in a quarter should not
exceed the total amount of oil products produced and imported in that quarter.
● Storage capacity constraint: The total amount of oil products stored in a quarter
should not exceed the total storage capacity of the company.
● Price constraint: The total value of oil products sold in a quarter should be
greater than or equal to the total cost of producing and importing those products.

Let:
X1 = amount of oil product 1 produced in a quarter
X2 = amount of oil product 2 produced in a quarter
X3 = amount of oil product 3 produced in a quarter

Y1 = amount of oil product 1 imported in a quarter

Y2= amount of oil product 2 imported in a quarter
Y3 = amount of oil product 3 imported in a quarter

Z1 = amount of oil product 1 sold in a quarter

Z2 = amount of oil product 2 sold in a quarter
Z3 = amount of oil product 3 sold in a quarter

C1 = cost of producing oil product 1 per unit

C2 = cost of producing oil product 2 per unit
C3 = cost of producing oil product 3 per unit

P1 = market price of oil product 1 per unit

P2 = market price of oil product 2 per unit
P3 = market price of oil product 3 per unit

S1 = storage capacity of oil product 1

S2 = storage capacity of oil product 2

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 S3 = storage capacity of oil product 3

The objective function to minimize inventory holding costs can be formulated as:
Minimize: (C1 * X1) + (C2 * X2) + (C3 * X3) + (C1 * Y1) + (C2 * Y2) + (C3 * Y3)

Subject to the following constraints:

Demand constraint: Z1 + Z2 + Z3 ≤ X1 + X2 + X3 + Y1 + Y2 + Y3
Storage capacity constraint: X1 + Y1 ≤ S1 * 2 + Y2 ≤ S2 x 3 + Y3 ≤ S3
Price constraint: (P1 * Z1) + (P2 * Z2) + (P3 * Z3) ≥ (C1 * X1) + (C2 * X2) + (C3 *
X3) + (C1 * Y1) + (C2 * Y2) + (C3 * Y3)
Non-negativity constraint: X1, X2, X3, Y1, Y2, Y3, Z1, Z2, Z3 ≥ 0

B. Analyze the Results

The optimization problem involves the strategic management of the production,

production, import, and of the three distinct oil products, each characterized by the
amount of oil, costs, prices, and storage capacities. The aim is to minimize inventory
holding costs, by optimizing the production and import quantities for each oil product.
The objective function, structured to minimize total costs, accounts for both production
and import costs associated with each product. Various constraints guide this optimization
process. The demand constraint ensures that the total amount of oil products sold aligns
with the combined amounts produced and imported. Storage capacity constraints dictate
that production and import quantities for each oil product must not surpass the company's
storage capacities. The price constraint safeguards against financial losses, requiring that
the revenue from selling oil products exceeds or equals the total production and import
costs. Non-negativity constraints enforce the practicality by specifying that quantities of
produced, imported, and sold oil products must be non-negative.

C. Pros and Cons of Chosen ACA

Pros Cons

Minimizes cost, and improves operational Implementation may be difficult due to the

15
efficiency and profitability by avoiding complexity of the Mathematical model.
unnecessary expenses

Resource Allocation optimizes the usage The model relies on real-world data and
of resources (e.g., production capacity, assumptions. Which may lead to errors if
storage space). Allowing for maximum they are not accurate.
output.

Improves production and import quantities Unable to predict sudden changes in the
and aligns the company with market needs, market.
boosting customer satisfaction and market
competitiveness.

The model reduces production and The model may pose implementation
distribution risks, helping the company challenges.
avoid overproduction and unnecessary
inventory costs.

Table 4: Pros and Cons of ACA 1

ACA 2: Diversification Strategy

To employ linear programming to evaluate and optimize investment decisions

across exploration and production, refining, distribution, and renewable energy
initiatives. By formulating a linear programming model that incorporates risk-return
trade-offs, market conditions, and long-term business strategy Shell Pilipinas Corp. can
identify the most effective allocation of financial resources to mitigate the impact of oil
price volatility. This approach aligns with the company’s need for diversification and
could contribute to its financial resilience in the dynamic energy market landscape.

A. Develop Mathematical Model

To optimize investment decisions across exploration and production, refining,

distribution, and renewable energy initiatives, we can formulate a linear programming

16
model that incorporates risk-return trade-offs, market conditions, and long-term business
strategy. The objective function is to identify the most effective allocation of financial
resources to mitigate the impact of oil price volatility and contribute to the company's
financial resilience in the dynamic energy market landscape.

This linear programming model can be formulated as follows:

Objective Function: Maximize the expected return on investment while minimizing the
risk of investment.
Constraints:
● Budget Constraint: The total amount of financial resources allocated to all
initiatives should not exceed the total budget of the company.
● Market Condition Constraint: The total amount of oil products produced and
imported should be in line with the market demand.
● Long-term Business Strategy Constraint: The allocation of financial resources
should align with the long-term business strategy of the company.

Let:
X1 = amount of financial resources allocated to all initiatives
X2 = amount of oil products produced and imported
X3 = allocation of financial resources

The objective function can be formulated as:

Maximize: X1 - X3

Subject to the following constraints:

Demand Constraint: X1 ≤ total budget of the company Import
Logistics Constraint: X2 ≤ market demand Refinery
Closure Constraint: X3 ≤ long-term business strategy of the company

All decision variables should be non-negative.

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 B. Analyze the Results

The optimization problem involves the order to maximize investment choices in

exploration and production, refining, distribution, and renewable energy projects. We can
develop a linear programming model that takes long-term business strategy, market
conditions, and risk-return trade-offs into account. The aim is to reduce investment risk
and increase the projected return on investment. The objective function is to determine
the best way to allocate financial resources in order to lessen the effects of fluctuations in
oil prices and strengthen the company's financial stability in the ever-changing energy
market environment. This optimization method is guided by a few important constraints.
The budget constraint ensures the total amount of financial resources allocated to all
initiatives should not exceed the total budget of the company. Market condition
constraint, is the total amount of oil products produced and imported should be in line
with the market demand. The long-term business strategy constraint is the allocation of
financial resources should align with the long-term business strategy of the company.

C. Pros and Cons of Chosen ACA

Pros Cons

The linear programming model aligns with Implementing a diversification strategy

Shell Pilipinas Corp.'s need for through a linear programming model might
diversification by optimizing investments introduce complexity in terms of data
across various initiatives, including requirements, ongoing model maintenance,
exploration and production, refining, and potential challenges in accurately
distribution, and renewable energy. This capturing the dynamic nature of the energy
diversification strategy could enhance the market.
company's resilience in the dynamic
energy market.

The incorporation of risk-return trade-offs The effectiveness of the risk-return

in the linear programming model trade-off and market-driven allocation
demonstrates a sophisticated approach to heavily relies on the accuracy of input data.

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 investment decision-making. This allows Inaccurate data could lead to suboptimal
the company to balance the pursuit of decisions and compromise the intended
higher returns with an awareness of benefits of the model.
associated risks, contributing to a more
informed and strategic investment strategy.

The model considers market conditions by The specific formulation of the linear
ensuring that the total amount of oil programming model with fixed decision
products produced and imported aligns variables and constraints might limit the
with market demand. This market-driven company's flexibility in adapting to rapidly
allocation enhances operational efficiency changing market conditions or unexpected
and responsiveness to market needs, disruptions.
potentially improving competitiveness.

Table 5: Pros and Cons of ACA 2

ACA 3: Supply Chain Optimization

The team opted to implement linear programming to optimize the supply chain
strategy, particularly in the context of the closure of the Tabangao refinery and the shift to
import-based operations. By developing a linear programming model that considers
supply chain costs, demand patterns, and import logistics, Shell Pilipinas Corp. can
enhance its supply chain efficiency and minimize the impact of the refinery closure on its
financial performance. This approach aligns with the company's focus on financial
resilience and could help mitigate the challenges brought about by changes in the global
refining industry and the shift to a new normal.

A. Develop Mathematical Model

To optimize the supply chain strategy of Shell Pilipinas Corp. in the context of the
closure of the Tabangao refinery and the shift to import-based operations, we can develop
a linear programming model that considers supply chain costs, demand patterns, and

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import logistics. The objective function is to enhance the supply chain efficiency and
minimize the impact of the refinery closure on the company's financial performance.

This linear programming model can be formulated as follows:

Objective Function: Maximize the expected return on investment while minimizing the
risk of investment.
Constraints:
● Demand Constraint: The total amount of financial resources allocated to all
initiatives should not exceed the total budget of the company.
● Import Logistics Constraint: The total amount of oil products produced and
imported should be in line with the market demand.
● Refinery Closure Constraint: The allocation of financial resources should align
with the long-term business strategy of the company.

Let:
X1 be the amount of financial resources allocated to initiative 1
X2 be the amount of financial resources allocated to initiative 2
X3 be the amount of financial resources allocated to initiative 3

where:
E1, E2, E3 are the expected returns on investment for initiatives 1, 2, and 3
respectively
R1, R2, R3 are the risks associated with initiatives 1, 2, and 3 respectively
P1, P2, P3 are the amounts of oil products produced and imported for initiatives 1,
2, and 3 respectively

The objective function to maximize the expected return on investment while minimizing
the risk of investment:
Maximize Z = (E1 * X1) + (E2 * X2) + (E3 * X3) - (R1 * X1) - (R2 * X2) - (R3 * X3)

Subject to following constraints:

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 Demand Constraint: X1 + X2 + X3 ≤ Total Budget
Import Logistics Constraint: P1 * X1 + P2 * X2 + P3 * X3 ≤ Market Demand
Refinery Closure Constraint: X1 + X2 + X3 = Total Financial Resources Available
for Investment

B. Analyze the Results

Shell aims to optimize its supply chain strategy following the closure of the
Tabangao refinery, transitioning towards import-based operations. To achieve this, a
linear programming model is formulated, focusing on supply chain costs, demand
patterns, and import logistics. The primary objective is to enhance supply chain
efficiency while minimizing the financial impact of the refinery closure. The model
introduces decision variables X1, X2, X3 representing financial allocations to three
initiatives, with an objective function maximizing the expected return on investment
while minimizing associated risks. Constraints, including a total budget limit, alignment
with market demand for oil products, and adherence to the company's long-term business
strategy, guide the decision-making process. The demand constraint ensures financial
allocations stay within budgetary limits, the import logistics constraint aligns production
and imports with market demand, and the refinery closure constraint emphasizes strategic
alignment.

C. Pros and Cons of Chosen ACA

Pros Cons

The model is specifically tailored to While the model addresses specific

address challenges arising from the closure challenges arising from refinery closure and
of the Tabangao refinery and the transition import-based operations, there is a risk of
to import-based operations. It enhances the the model becoming rigid and less
company's strategic adaptation to adaptable to unforeseen changes or market
significant changes in its operational dynamics not initially considered.
landscape.

The objective function reflects Shell Balancing returns and risks may introduce

21
 Pilipinas Corp.'s commitment to balancing complexity in the model's implementation,
the dual priorities of maximizing returns potentially requiring sophisticated analyses
and minimizing risks in its supply chain and ongoing adjustments, which could be
strategy. This contributes to a more resource-intensive.
resilient and sustainable business model.

The demand constraint ensures that The demand constraint relies on accurate
financial allocations to initiatives are budget data, and any discrepancies could
within budgetary limits, preventing lead to suboptimal budgetary allocations,
overallocation and promoting fiscal potentially impacting overall financial
responsibility. This contributes to effective control.
budget management and financial control.

The import logistics constraint emphasizes The emphasis on aligning oil production
aligning oil production and imports with and imports with market demand may
market demand. This focus on operational introduce logistical complexities, especially
efficiency ensures that the company meets if market demands fluctuate rapidly or are
market needs effectively, enhancing challenging to predict accurately.
customer satisfaction and competitiveness.

Table 6: Pros and Cons of ACA 3

IV. OPTIMAL SOLUTION

In choosing the best alternative course of action, we have to look at one simple
attribute; whether it effectively and efficiently solves the problem faced by Shell Pilipinas
Corporation, which is an inventory holding loss. Given the information the group has, it
is believed that the approach with the most optimal and efficient solution is alternative
course of action 1 (ACA 1), a strategy of product mix and inventory management. This
method will help calculate the ideal inventory levels of the company’s oil situation which
in return will assist in the reduction of surplus inventory and ultimately help maximize
revenue. As well as proficiently manage the business’ products and prevent financial
risks.

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 Moreover, by linear programming the team was able to employ three constraint
optimization guides to ensure efficiency in strategy. With this, it is established that
alternative course of action 1 will be able to resolve the net loss faced from Shell
Pilipinas Corporation’s inventory holding losses.

V. CONCLUSION AND RECOMMENDATION

In conclusion, three different options have been provided by the researchers each
with certain objectives and constraints. Team Forecast has decided that the first
alternative course of action (ACA 1) would be the best course of action. Shell Pilipinas
Corp. can minimize inventory holding losses and maintain a competitive market position
by optimizing its product mix and inventory levels using linear programming. This
strategy aligns with efficient risk management and may reduce financial risks arising
from global oil market changes. Shell Pilipinas Corp. utilizes linear programming to
optimize oil product inventory levels, minimizing costs, meeting market demand, and
reducing inventory holding losses, thereby enhancing financial performance.

The construction of a thorough linear programming model can be an efficient

means of achieving the strategic optimization of Shell Pilipinas Corp.'s supply chain.
Based on client demand, the company must manage its inventory in order to run its
everyday operations. Inventory management is a technique that helps reduce waste and
increase stock levels by keeping track of work-in-progress, finished goods, and support
operations.

Constraints include demand, storage capacity, price, and non-negativity

constraints and the goal is to align the total amount sold with the combined amounts,
prevent financial losses, and ensure non-negative quantities. Inventory management and
control are crucial for business operations, as inventory significantly impacts cash flow,
including procurement and sale of stock. By pursuing this optimization strategy, Shell
demonstrates its dedication to flexibility and resilience in the face of major operational

23
 changes, guaranteeing a reliable and affordable supply chain in the ever-changing
business environment.

Shell Pilipinas Corp. can utilize linear programming to calculate the perfect stock
levels of its oil items in this circumstance. Overall, implementing the optimal solution
may aid the commerce in controlling and clearing the amassing overflow stock, which
could lead to stock holding misfortunes that root the cause of oil costs dropping. As the
group currently lacks the numerical values needed for the mathematical model, it is
recommended that Shell PLC analyze thoroughly the given courses of action to fully
attain their most optimal solution. Byee

VI. APPENDICES

Figure 13: Shell Pilipinas Corp.’s Financial Reports (Balance Sheet) 3rd Quarter

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Figure 14: Shell Pilipinas Corp.’s Financial Reports (Cash Flow) 3rd Quarter

Figure 15: Shell Pilipinas Corp.’s Financial Reports (Note - Inventories) 3rd Quarter

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VII. REFERENCES

(n.d.). Shell Car Lubricants Price List November 2023 - Shell Philippines. Iprice.
https://iprice.ph/shell/car-accessories/lubricants/

(n.d.). Shell Rimula R4 15W-40 6L. Lazada.

https://www.lazada.com.ph/products/shell-rimula-r4-15w-40-6l-i2155099767.html#:~:tex
t=Up%20to%203%20months%2C%20as%20low%20as%20%E2%82%B1635.18%20per
%20month.

Board of directors. Pilipinas Shell Petroleum Corporation. (n.d.).

https://pilipinas.shell.com.ph/about-us/leadership/board-of-directors.html

Shell Pilipinas Corporation (n.d.). Quarterly Financial Statements - Q3 - 2023. Shell

Pilipinas.
https://pilipinas.shell.com.ph/investors/financial-reports/_jcr_content/par/textimage.strea
m/1700044081493/8b3e3b7d7aa76697180fd9b3623c6eea1e51d875/quarterly-financial-st
atements-q3-2023.pdf

Shell Pilipinas Corporation (n.d.). Car Engine Oils & Motor Oils - Shell Helix. Shell
Philippines.
https://www.shell.com.ph/motorists/oils-lubricants/helix-for-cars.html

Shell Pilipinas Corporation (n.d.). Find the right fuel for you. Shell Philippines.
https://www.shell.com.ph/motorists/campaigns-and-promotions/find-the-right-fue
l-for-you.html

Shell Pilipinas Corporation (n.d.). Retail Products. Shell Philippines.

https://pilipinas.shell.com.ph/about-us/retail-products.html

Shell Pilipinas Corporation (n.d.). What We DO. Shell Philippines.

https://www.shell.com.ph/about-us/what-we-do.html

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The Wall Street Journal (n.d.). Shell Pilipinas Corp. WSJ Markets.
https://www.shell.com.ph/about-us/what-we-do.html

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