Sales, tranches, markets and supplies

Manufacturing plants sell different grades of material. Grades define the property limits that a product must meet in order to be saleable. For each of these grades there is a selling price, and there may be some associated demand constraints, such as a minimum or maximum production amount.

A plant may also have special sales requirements due to contractual or logistical reasons. These may require selling the same material to different people at different prices. For example, a plant may have a long term contract with a particular supplier to supply a product at a certain price, or it may have a legal requirement from the local government to ensure that a certain geographical area receives a certain amount of that product. These types of pricing scenario are managed using tranches and markets.

There may also be general constraints on the amount of material that may be supplied to plants. In single-plant models these are defined in the Supply table of the supply chain model. Alongside these in multi-plant models there may be global limits on the supply of material.

Single-plant models

Sales

A plant produces material for sale. Normally this material is sold on the open market; that is, for each plant there is an implied global market which the plant can sell into.

For example, Lake Charles could produce regular gasoline. When unallocated this material is sold into the open market.

Tranches

Plants may often produce material which they sell to a particular customer with a particular price, different than the global open price. For example, a plant may have a contract with a supermarket to supply fuel. The demand is satisfied by taking a slice of the overall production of this product from the plant's total production. The demand itself may have its own set of pricing and constraint values determined by the contract with that customer; to represent this, the particular demand is configured as a tranche.

For example, Lake Charles has a contract with Buy n Large supermarkets to produce at least 20 kbbl/d of regular gasoline. The current sale price of this material to Buy n Large is less than the open market value, so the minimum amount of material is allocated to this tranche and the remainder to the higher valued open market.

Markets

Apart from the global open market which is implied for all plants, a particular plant may also sell into a particular market. A market is very similar to a tranche, that is, a slice of production that must be sold with its own constraints and pricing. The market may represent a different set of pricing due to local market forces, or a different set of transport costs due to logistics.

For example, Lake Charles could supply the New Albion market with regular gasoline with a minimum demand of 15 kbbl/d. Due to transport costs, the profit from this sale is reduced relative to the open market; therefore the minimum amount is allocated to this market.

Multi-plant models

Sales

When plants in a multi-plant model both produce the same grade of product and this grade is unallocated, then the material is sold into the open market in a global pool. The contribution of each plant to this global pool can be controlled using demand constraints for each plant, or calculations for relative contributions.

For example, both Lake Charles and Assab produce premium gasoline, and this material is not allocated to a tranche or market in either model. Therefore they both sell the material into the free global open market.

Tranches

A plant within a multi-plant model may continue to serve its own demand tranches. In this situation the tranche demand is met by the plant, and unallocated material from the plant is then available to be sold to the global market. As other plants in the multi-plant model cannot access this local tranche, they sell directly into the global market (unless they have their own tranches).

Markets

Within a multi-plant model, a single-plant can continue to serve a single market (along with its general open market demand).

For example, Lake Charles and Assab both produce regular gasoline. Lake Charles however must also serve the New Albion market. The demand from the New Albion market is met by production only at Lake Charles (as only this plant can serve this market), and the remaining Lake Charles production can be sold in the free open market, along with the material from Assab which is also unallocated.

Within a multi-plant model, where both plants serve the same market, then either plant can satisfy all or part of the market demand (whilst ensuring any constraints or calculations constraining supply from a particular plant are obeyed).

For example, Lake Charles and Assab both manufacture Jet A1. Lake Charles has a contract with Chennault Airpark to supply fuel, and both plants must also satisfy a demand for the material in the New Albion market. Of the production at Lake Charles some is allocated to the Chennault Airpark tranche, and some to the New Albion market; therefore any remaining can be sold on the open global market. At Assab part of production is available to New Albion, and the remaining is then sold into the same global pool as the unallocated material from Lake Charles.

Where only one plant produces a material demanded by the market, then this plant is solely responsible for meeting this requirement (as it would be in a single plant model).

For example, Lake Charles and Assab are both part of a multi-plant model, but only Lake Charles produces LPG for sale. There is global demand for this material, and therefore Lake Charles must produce the necessary product by itself.

When to use tranches and markets

Tranches and markets are very similar and can often be used interchangeably, especially in single-plant models.

• Markets are only really necessary in multi-plant models where two plants are both required to serve a particular region which has its own demand constraints.

• Tranches are best used to represent contractual requirements for sale to particular customers.

Tranches and markets can only be used where the same grade of material is being sold to two different customers. If the material is at all different, these are two different grades and must be configured as separate sales.

For example, Lake Charles and Assab both produce Jet A1 which they can both sell into the New Albion market. As this is an identical product from both plants, the sale can be configured using markets.

However, Lake Charles and Assab both produce ULSD. Assab, along with having access to a global market, must also produce ULSD for sale in the Luggnagg market. Due to the climate in Luggnagg it is necessary to produce ULSD with a lower cloud point. As such, the ULSD for sale in Luggnagg has a different set of product specifications to the general ULSD grade and is therefore a different grade. Assab then has two different productions of ULSD with different requirements: one for the general global market, and another with a lower cloud point solely for Luggnagg. This means that it is likely that the two different ULSD products from Assab will have different blend recipes.

Supplies

All supplies come from a single global pool of available material. By default this is unconstrained, and so each plant may take material from this pool. Within a single-plant case the global supply pool is the same as the supply pool to the single plant. Within a multi-plant model each plant draws from the same global pool. If there are particular constraints on purchase at a single plant, these are obeyed as long as they do not contradict the general global constraints.

For example, both Lake Charles and Assab can process Agbami. There is a single global pool of this crude, and so both plants draw from this pool.

When the global supply pool is constrained, the constraint applies to the multi-plant configuration as a whole. Any constraints on single plants will be obeyed (where possible) along with the general constraint on the overall pool.

For example, when the global pool of Agbami is constrained, the amount directed to Assab is reduced, while still obeying the general minimum for this plant.