While the standard peer groups included in your study results provide valuable insight into relative performance differences on a consistent study-wide basis, there are times when more narrowly defined peer groups—what you constitute as competition for each of your refineries—can help you better meet your benchmarking needs. Whether your need if for one or multiple peer groups, with this service, the selection criteria for these peer groups will reflect your tactical and strategic plans to improve refinery competitive performance.
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Solomon’s refinery studies provide standardized peer groupings for performance comparisons within major geographic areas, operating regions, size/complexity groups, and those of similar configuration within the operating region. Customized Peer Group Selection lets you request more narrowly defined peer groups for each of their refineries.
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Both studies offer the option of creating a customized peer group to meet your benchmarking needs. Participants define these unique peer groups using their own assessment of what groups of refineries constitutes their competition. Each customized peer group meets individual company and refinery specifications. The selection criteria reflect the company’s tactical and strategic plans to improve refinery competitive performance, consistent with their internal vision. These customized peer groups vary significantly from company to company and refinery to refinery, and thus cannot be effectively standardized for the Fuels Studies. For example, while some companies focus on cash operating cost, others focus on gross margin or net cash margin. Some request only one peer group, while others choose multiple peer groups to support their benchmarking and planning efforts.
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In addition to providing standard results for custom peer groups, we also offer a more in-depth analysis of the refinery performance relative to better performers on both the refinery level and at the unit level for some process categories. The in-depth analysis is centered on maintenance, energy, and some of the non-energy costs such as catalysts. Please refer to Appendix D for more information.
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The remainder of this section presents issues to be considered when determining which peer groups may be appropriate for your company and individual refineries.
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Planning Timeframe
Differences in short- and long-term plans often necessitate multiple peer groups. For example, the plan for the refinery for the next 1–2 years (tactical plan) possibly is different than the plan for more than 3 years in the future (strategic plan). The tactical plan typically focuses on opportunities to increase margin and efficiency of existing facilities with only modest levels of investment for debottlenecking projects. The strategic plan likely would focus on significant configuration changes or new business ventures, both typically requiring major capital investments. The planning timeframe can also suggest short-term goals that are reasonable to attain, whereas, long-term goals can be viewed as “stretch” goals. Hence, unique peer groups may be required to meet the benchmarking needs of each of these plans.
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Vision
Depending on the particular planning timeframe (tactical or strategic), the refinery’s “vision” will typically dictate a particular peer group. Is the vision to increase raw material flexibility, upgrade product mix, or increase the current configuration’s efficiency while continuing to process similar raw material and produce similar products? Each vision dictates a different peer group to best match the refinery’s goals. For example, in the case of raw materials flexibility, the desired peer group may be one that currently processes the type of raw materials planned for the refinery in the future. Similarly, a refinery planning to produce asphalt may want to establish a peer group composed of current asphalt producers.
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Areas of Focus
Another key factor is to determine the focus areas for a particular refinery. Is the focus on bottom-line profitability, gross margin, operating expense, reliability, maintenance cost, or a combination of these areas? If the focus is on profitability, then the peer group typically is selected based on net cash margin or return on investment, with operating cost efficiency being of lesser concern, since it is recognized that there are sometimes economic trade-offs between gross margin and operating expense to achieve maximum profitability. However, if the focus is on operating expense reduction, the peer group will more than likely include refineries with the lowest cash operating cost, with cash profitability being of lesser concern. In addition to overall cash operating cost, some companies also select separate peer groups for each sub-category of expense such as maintenance, personnel, and energy, depending on the particular focus areas.
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Market
In determining peer groups, it is often important to set appropriate boundaries on the marketplace for key refining products. Does the refinery compete predominantly in an isolated area (a niche market) with few competitors? Does the presence of pipelines, waterways, and major ports extend the boundaries of the market to a much larger area that is typically more competitive? A number of companies limit their peer groups to similar marketing areas, while others look beyond their local markets and set more aggressive performance targets.
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Size, Complexity, Configuration, and Technology
Peer groups selected by companies frequently reflect the desire to compare performance with those of similar size, complexity, configuration and/or technology. This request is especially common for refineries positioned at either end of the scale, such as small/large refineries or low-/high-complexity refineries. There are economies of scale in the competitive indicators that explain some of the performance differences. A number of companies prefer to compare performance with refineries that are similar to their own in size, complexity, and/or configuration.
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Summary
Solomon believes that selecting appropriate peer groups is critical in establishing performance targets that are consistent and supportive of tactical and strategic performance improvement plans. Such peer groups permit comparisons against real, credible competitors that have achieved the performance levels targeted by the refinery. While we have outlined some of the major criteria that should be considered in selecting peer groups, other criteria may be important from your company’s perspective. The Fuels Study and Lube Study offer a wealth of peer refineries from which you may choose to meet your benchmarking needs. Solomon consultants have assisted many companies in selecting appropriate peer groups in past studies. If we can assist your company in selecting peer groups, please contact Don Miller by phone at 1-972-739-1728 or send an e-mail to Don.Miller@SolomonOnline.com or Fuels@SolomonOnline.com.
