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TOSCO MARKETING COMPANY

Quality control comes in many forms. For some it is following a specific philosophy, such as those developed by Demming or Juran. For others it is achieving a specific degree of merit as that established by the Malcolm Baldridge Awards, or International Standard Organizations (ISO). However, the petroleum industry as a whole has compromised, shifted, and remained adaptable to an ever-changing world filled with government regulations and restrictions.


The negative environmental impact of the petroleum industry is either not understood, grossly downplayed, or it is blatantly ignored. Government agencies have amended and abolished amendments in many of their policies so quickly that establishing best practices is nearly impossible.


However, one thing in the petroleum industry remains the same. Safety is a key quality concept that must be adhered to. Tosco Corporation made a bad name for itself by ignoring certain safety issues. Quality control in the safety department was ineffective, and people died because of their neglect. Only recently have they outsourced the development of their safety program to Dupont.


Introduction to Government Standards
The Department of Energy (DOE) and the Environmental Protection Agency (EPA) require an insurmountable amount of data, reports, testing, and auditing to ensure the compliance of all U.S. Oil Companies around the world. The most recent concern regarding the petroleum industry is that of methyl tertiary butyl ether (MTBE’s) that are put in our fuel.


Early on it was believed that adding MTBE’s to fuel would result in cleaner burning gasoline. However, according to the “Ground Water Monitor” small amounts seeped into the ground water and caused an unacceptable amount of contamination.


The conception of MTBE’s was in 1967 with the passage of the Clean Air Act. This is the primary statute governing air quality in the United States. It assigns responsibilities to government and industry to reduce emissions from pollution sources such as automobiles, refineries, chemical plants, and power plants. However, it seems as though every solution to meet the stringent requirements poses another problem. The Clean Air Act has been amended several times, and most recently it is to be amended to ban MTBE’s by the year 2002.


Many of the large oil companies, including Tosco Corp., have already made plans to completely remove MTBE’s from their fuel production (MTBE’s have already been removed from Connecticut fuel production).


Currently the EPA requires operators of facilities handling a regulated substance that exceeded a threshold quantity to prepare a Risk Management Plan (RMP). However, According to Hydrocarbon Processing (Nov 1997), it is the EPA’s intention to implement a nationwide standard in accordance with policies specified by ISO 14001 (an International Organization Standard related to environmentally hazardous materials).


REFINERY OPERATIONS
Most people do not understand the complete process involved with fuel production. However, it is necessary to understand when the quality control of the product or the operation is being analyzed.


A Refinery is a factory that cost billions to build, millions to maintain, and they run around the clock 365 days per year. They create the basis for many of the products that we see and/or use daily. The following is a short list of some of those products:
? Ammonia
? Bubble Gum
? Crayons
? Denture Adhesive
? Eyeglass Frames
? Eyeglass frames
? Plastics
? Antiseptics
? Floor Polish
? Guitar Strings
? Heart Valves
? Paint
? Mascara
To put it simply, there are three basic steps that can be clearly identified in the production process. The first step is the separation of the petroleum. The next step is the conversion process so that definitive boundaries between the types of petroleum can be set. Last is the treatment of the finished product.


Separation is as simple as separating the heavy and the light petroleum. Inside the towers the liquids and vapors are separated into
fractions according to weight and boiling point. The lightest fractions are what we all know as “liquid petroleum gas” or LPG’s. Medium weight liquids are turned into diesel fuel and
kerosene. The tar like fraction, or “residuum” comes from the bottom of the barrel. Most of this is what is used to make plastics and other products.


The most complicated step in the refinement of petroleum occurs
in the “conversion” stage. The most widely used method of conversion is call “cracking” or “Hydrocracking.” Once again, this is using heat and pressure to crack heavy
hydrocarbon molecules into lighter ones. This process is what defines whether the LPG’s become gas, racing fuel, or jet fuel. The process occurs in the large bullet shape furnaces that you may have seen at refineries.


The final step in refinement is adding all of the treatments that are required by the many government bureaucracies that were previously mentioned. Among the many variables that determine the blend are octane levels, vapor pressure ratings, and even MTBE’s. This is the production step that differentiates products throughout the industry.


Housekeeping
The common denominator of processing hazardous materials brings industries, and even competitors together. According to Paul Thorvaldson (Operations Manager of the Tosco Santa Maria refinery), the “keep it clean and dry” policies now in effect throughout Tosco were adopted from the example set by Chevron. In 1997 it was discovered that all North Western refineries had been having problems with rust in their fuel. After researching the problem, analysts found that water was getting into the holding tanks and creating the rust.


It happens that this was a shared problem with all refineries, and it was a quality issue that needed to be addressed. Chevron Corp. developed the “keep it clean and dry” policies, and dubbed them “housekeeping.”
Other examples of best practices policies will be further discussed in the Dupont portion of this paper.


History and Current Events
Tosco is based in Stamford, Connecticut. It is one of the largest independent oil refineries and marketers of petroleum products in the United States. Their current annualized revenues total more than twelve billion dollars, as stated in the 1998 annual report. Their refining system produces approximately 950,000 barrels per day of petroleum products. Tosco’s refining division converts crude oil and other feedstock’s into finished petroleum products. The most valuable products are clean fuels such as gasoline, diesel fuel, jet fuel, and heating oil.


Tosco’s mission is to maximize long-term investments value to their shareholder’s, while providing quality products and services to their customers at competitive prices. They are also committed to having a safe and challenging work environment for their employees, and have a meaningful contribution to their local communities.


The constant shifting supply and demand for raw materials and refined products have created volatile profit margins in the refinery industry. Due to these margins, Tosco constantly strives to increase output of clean fuels, while maintaining a strong commitment to employee safety and environmental protection.


Tosco is now the biggest independent refiner in the United States. Tosco has constantly been advancing. With only one refiner in 1993, it bought Bayway from Exxon, and two more refineries from British Petroleum (BP). “In March they became America’s biggest independent refinery through the acquisition of the west-coast downstream operations of Unocal, a LA based firm for nearly $2 billion.”(The Economist, May 1997). This resulted in the gain of three more refineries and over 1,000 petrol stations. Their retail division is one of the nation’s largest operators of company-controlled convenience stores. Annually, they sell four billion gallons of retail transportation in fuels, primarily the “76” brand, and over two billion in merchandise at their “Circle K” convenience stores.


According to the Economist Magazine dated May 1997, they believe that, “Tosco has been demonstrating across America what bigger companies in the oil industry thought impossible: that there is money to be made out of refining.” Bayway’s east coast refinery, built in 1908, looks like a sad relic of dying industry. Tosco has completely turned things around. What looked like a loss-making operation turned into a highly profitable one.


Tosco has a number of strategies to account for their success. They believe that minor improvements can have a big impact on profits. For example, Tosco buys crude oil a few cents cheaper than other companies, which keeps its inventories a little lower, and it’s manufacturing costs a fraction tighter. Another trick is to buy refineries at knock down prices. They bought Bayway at $175 million and BP’s two refineries together at $75 million. These prices are not much compared to the several billions needed to build a refinery. This reflects the bargaining skills of Tosco’s boss Thomas O’ Malley who believes, “Greed is good.” One of their biggest deals was in 1996, when Tosco acquired the Avon Refinery near Martinez, CA.


Tosco began growing rapidly. Quickly purchasing one refinery after another. Their hastiness resulted in deadly results. They had no guidelines to follow. Each refinery was operating under its own policies and procedures. During an interview conducted with John Van Sluyters, Chairman of the Product Quality Committee, he states that, ” Uniformity in standard operating procedures have not been established.”
The Avon explosion clearly demonstrates the problems they encountered without a uniform strategy. In 1997, there was a fire that broke lose at the Avon Refinery. Tosco still did not implement any changes in their operating procedures. San Francisco Examiners states, “Tosco Corporation’s Management was unwilling to shut down production to ensure the safety of workers.” It was not until the recent explosion on February 23, 1999, where they finally realized that change was inevitable. Four workers were killed and another critically injured when a fireball engulfed them while they attempted to repair a leak in a pipe. According to the CA Occupational Safety and Health Administration and contra Costa County, “Since 1983, seven workers have been killed in the 86- year old refinery.” It was imperative to implement a standard operating procedure immediately. These tragedies, finally made Tosco realize that they needed to adopt a universal standard operating procedure. They decided to implement the Dupont Standards.


Safety Standards and Quality Control by Dupont
Tosco models their safety standards and regulations after Dupont
Corporation. Dupont’s commitment to safety is the best in the oil industry; their goal is zero injuries, illnesses and incidents. Dupont states, We believe that all injuries and occupational illnesses, as well as safety and environmental incidents, are preventable, and our goal for all of them is zero. Dupont pledges to their safety standards and firmly believes that good safety practices are instrumental to productivity and quality.


Tosco has developed a strategy for safety. Most of which are contained in their Hazardous Material Management Plans (HMMP’s) and the Risk Management Plans (RMP’s). Both of which are mandatory by government agencies and indicate certain guidelines for the containment of hazardous materials. The first stage in the development of their strategy is to assess every safety code and violation possible. For instance, if an employee of the plant notices water on the floor in the restroom facilities. This is an unsafe condition, which could cause someone to slip and fall. Once the problem is identified a plan is designed to ensure that nobody is hurt. In the case of the restrooms, signs can be posted that say, caution wet floor, or the facility can be closed until the floor is dried. Although this is a simplified case, it is nevertheless one common in many industries.


Action plans are more than security against mishaps. The action plan calls for employee participation. Through training and education, Tosco is trying to instill safety sensitivity in its employees. Each individual should feels as though they have another person’s life in their hands.


It is vital that safety action plans are thorough. In an emergency situation, one may forget how to react. Tosco employees practice safety procedures through repetition of training sessions or signs.


The assessment stage includes incident investigation. If a worker is injured or a regulation has been violated, proper procedures must be taken. Tosco learned this valuable lesson at the expense of employee’s lives. In February of 1999 Tosco ignored warning signs that there was a serious problem with the Avon refinery near Martinez, California. As a result, a deadly fireball killed four plant workers and severely burned a fifth of the company (San Francisco Chronicle). Tosco lost more than their creditability, reputation, and profits; they lost the lives of four of their employees.


In addition to the government standards, Tosco has incorporated their own regulations that mimic Dupont’s. Employees are forced comply with these regulations. Compliance issues help motivate employees for perfect safety records. Tosco has an annual training and testing of physical skills, thinking skills, and behavior. Failure to be in compliance results in administrative action, probation and/or disciplinary action.


Dupont has identified alternative ways to comply with safety, such as positive recognition and rewards. They offer financial gains and company perks. Employees have been essentials to Dupont’s national recognition for safety and Dupont has returned the favor. Recognition and rewards is the best way to motivate workers for safety. It gives the employee something that is tangible for his/her efforts. Plus, it gives personal satisfaction that the employee is doing good for themselves and the company.


Dupont maintains their safety record lead among competitors because their process is under constant scrutiny. Assessments and action plans are reviewed, sometimes on a daily basis. In dangerous occupations, many companies have safety departments that perform these specific duties. Dupont has a safety element of it human resource department. Eventually, Tosco will have a safety department. This will relieve some of the responsibility from management, who can then focus on productivity.


Dupont takes extra steps towards safety stability by adding outside consultants to their process. Consultants offer continuous support and advice from an unbiased view. They bring fresh and innovative ideas to the company. Consultants and/or management can perform safety audits, which eliminate unsafe conditions and at-risk behavior. Audits consist of randomly walking into a work environment where goggles must be worn and watching for violators. Complicated audits can include reviewing incident reports and interviewing employees. Performing audits give companies a proactive approach towards safety because the government can come in at any time to investigate oil refinery facilities. Violations of government regulations can lead to fines or temporary closure of the plant.


Tosco’s approach to safety is not uncommon. In the service industry companies such as Dupont and Chevron share strategies to regulate safety. Most companies have found that sharing safety information is in the their best interest both financially and ethically. If Tosco had watched its plant in 1999, those four men would be alive today. And the industry would have been spared of public embarrassment.


Dupont’s safety practices model consists of assessment, safety action plans, continual training, independent consultants, audits and incident investigation. But, the underlying reason of Dupont’s success stems from the employee commitment to the goals and objectives of the program. Tosco is going to have to develop employee trust before safety standards are taken seriously.


Dupont’s safety motto is: you will achieve the level of Safety excellence that you demonstrate you want to achieve.” Needless to say, if Tosco has the desire to be a safety guru, they will achieve that goal.


Bibliography
Bibliography
? The Energy Information Administration, April 17, 2000
? San Francisco Examiner, September 16, 1999 Jane Kay (Examiner Environmental Writer)
? CNN Interactive, January 27, 1997 Web poted at 8:15 a.m. EST
? Bay Area Air Quality Management Dist. (Compliance and Enforcement Division) Incident Reports for Plant #13 and #16.

? U.S. Department of Energy (Annual Refinery Report), Plant #13
? Interview with John Van Sluyters, (Chairman of the Product Quality Division, Tosco) April 17, 2000 by David M. Polanco
? Interview with Paul Thorvaldson, (Dupont) April 19, 2000 by David M. Polanco
? Interview with Joe Stratton, (Operations, Santa Maria Refinery) April 22, 2000 by David M. Polanco
? Ground Water Monitor, July 1999, v15 i17, “California Standard MTBE too low”
? United Press International, December 7, 1999, p1008340u4909, “Tosco to end MTBE use in Calif. Gas.”
? Tosco Corp., February 15, 1999, Hazardous Material Management Plan, 256231 Sight copy