ABSTRACT
In this study, we examined the Distribution Activities and Customer Patronage of Petroleum Products in Oando Plc and Forte Oil Plc in Abia State, Nigeria. The major objective of the study was to carry out an analysis of the distribution activities among these two firms in the downstream sector of Nigerian Economy. The distribution activities studied were transportation, storage and physical distribution. The sample size of the study was 420 which was determined by simple random sampling. Determination of the sample size for this study was done in two (2) parts. The first part was the known population of the staff, while second part is the unknown population which was for customers and was calculated with Tremund and William’s model. Primary data was used for the study, which was measured on a 5-point Likert form. Data analysis was carried out using simple regression model. From the results, it was reviewed that the demographic profile recorded from the employees, 66.7% of the employees were male; 34.4% of the respondents were above 46 years of age. Majority of the respondents 40.6% had acquired ND/NCE certificate; 46.9% and 43.7% of the sampled employees were managerial staff and pump attendance respectively. 46.9% of the respondents have been working in downstream petroleum sector within 5 – 8years. The study also revealed that 65.6% of the staff strongly agreed that, road transportation affects product availability of petroleum products; 56.3% strongly agreed that, the movement of petroleum products from the depot to the filling station enhances customer patronage. 68.8% of the staff strongly agreed that, timely arrival of petroleum products affects sales turnover of petroleum products; 62.6% of the employees strongly agreed that, the storage facility serviceability affect customer patronage. From the result, we conclude that, the importance of physical distribution is also based on its relevance to customer satisfaction. By storing goods in convenient locations for shipment to wholesalers and retailers, and by creating fast reliable means of moving the goods, customer can be assured of availability and accessibility of the products. The study recommended that when carrying out feasibility and viability appraisal, attention must be given to the issue of accessibility and road network. Road network analysis must be given due consideration as part of appraisal report when forming valuation opinion and accessibility assessed quantitatively rather than relying on intuition. Also the downstream sector needs to expand their storage facilities in order to facilitate customer demand as at when due. More so, customer service provision unit should be made available in every station, in order to address complaints from customers promptly in order to attract customer patronage.
Key words: Physical distribution, storage, transportation, customer patronage.
TABLE OF CONTENTS
Cover page
Title page i
Declaration ii
Certification iii
Dedication iv
Acknowledgement v
Table of contents vi
List of Tables ix
List of Figures x
Abstract xi
CHAPTER 1: INTRODUCTION
1.1 Background of the Study 1
1.2 Statement of the Problem 3
1.3 Objectives of the Study 4
1.4 Research Questions 4
1.5 Research Hypotheses 5
1.6 Significance of the Study 5
1.7 Scope of the Study 6
1.8 Operational Definition of Terms 6
1.9 Brief History of Oando and forte oil plc 7
1.10 Limitation of the Study 9
CHAPTER 2: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 10
2.1.1 Choosing a Distribution Channel 11
2.1.2 Distribution Channel Members and Levels 12
2.1.3 Distribution Channel Behaviour and Organization 13
2.1.4 Distribution of Products, Services and Channel flow 15
2.1.5 Deciding Channel Intermediaries, Objectives and Responsibilities 18
2.1.6 Using Multichannel Distribution Systems 19
2.1.7 Identifying Intermediary Alternatives 19
2.1.8 Analyzing Consumer needs for Customer Patronage 20
2.1.9 Distribution Performance and Supply Chain Management 21
2.1.10 Transportation 21
2.1.11 Storage 22
2.1.12 Order Processing 23
2.1.13 Inventory Control 23
2.1.14 Material Handling 24
2.1.15 Customer Service Quality, Patronage and Satisfaction 24
2.1.16 Customer Satisfaction 25
2.1.17 Overview of Petroleum Exploration and Marketing in Nigeria 25
2.2 Theoretical Background 27
2.2.1 Structure-Conduct-Performance Framework (Bain in 1968) 27
2.2.2 Porters Five Forces Model (Porter, 1980) 28
2.2.3 The Resource Based Theory (RBT) 28
2.3 Review of the Empirical Study 29
2.4 Summary and Gap in the Literature 32
CHAPTER 3: RESEARCH METHODOLGY
3.1 Research Design 33
3.2 Population of the Study 33
3.3 Sample Size Determination 33
3.3.1 Sample Size for Staff Population 34
3.3.2 Sample Size for Customers 34
3.4 Sampling Technique 35
3.5 Method of Date Collection 35
3.5.1 Source of Data and Characteristics of Respondents 35
3.5.2 Validity of Instrument 35
3.6 Reliability of the Instrument 36
3.7 Method of Data Analysis 36
3.8 Model Specification 36
CHAPTER 4: RESULTS AND DISCUSSION
4.1 Questionnaire Administration 38
4.2 Data Presentation 39
4.3 Response to the Questionnaire Items 43
4.3.1 Effect of distribution route on product availability 43
4.3.2 Effect of Transportation on customer Patronage of petroleum products 44
4.3.3 Effect of arrival Time on sales turnover of the companies 45
4.3.4 Effect Storage facility on customer patronage 46
4.3.5 Effect of distribution route on product availability 47
4.3.6 Effect of Transportation on customers patronage 48
4.3.7 Effect of Arrival Time on sales Turnover of the Companies 49
4.3.8 Effect of Storage Facility on Customer Patronage 50
4.4 Test of Hypotheses 51
4.4.1 Test of Hypothesis 1 51
4.4.2 Test of Hypothesis 2 52
4.4.3 Test of Hypothesis 3 54
4.4.4 Test of Hypothesis 4 56
4.5 Discussion of Findings 58
CHAPTER 5: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings 60
5.2 Conclusion 61
5.3 Recommendations 62
5.4 Suggestions for Further Research 63
5.5 Contributions to Knowledge 63
REFERENCES 64
APPENDICES 68
List of Tables
Table 4.1 Questionnaire Administration 38
Table 4.2 Demographic Data of the Staff of the studied 39
downstream firms
Table 4.3 Demographic Data of the Customers 41
Table 4.4 Effect of distribution route on product availability 43
Table 4.5 Effect of Transportation on customer patronage of 44
petroleum products
Table 4.6 Effect of Arrival Time on Sales Turnover of 45
the Companies
Table 4.7 Storage facility and customer patronage 46
Table 4.8 Effect of distribution route on product availability 47
Table 4.9 Effect of transportation on customer patronage 48
Table 4.10 Effect of arrival time on sales turnover of 49
the companies
Table 4.11 Effect of storage facility on customer patronage 50
Table 4.12 Result of simple regression for effect of distribution 51
route on petroleum products availability
Table 4.13 Results of simple regression for effect of transportation on customer patronage of petroleum products 52
Table 4.14 Decision rule for hypothesis 2 51
Table 4.15 Result of simple regression for effect of arrival 54
time on sales turnover
Table 4.16 Result of simple regression for effect of storage facilities 56
on customer patronage of petroleum products
Table 4.17 Decision rule for hypothesis 4 57
List of Figures
Figure 2.1 Conceptual Framework 11
Figure 2.2 Adding a distributor reduces channel transactions 12
Figure 2.3 Horizontal Conflict 14
Figure 2.4 Vertical Conflict 14
Figure 2.5 Distribution flow chart 17
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Physical distribution is concerned with the efficient movement of raw materials and finished goods from point of production to customers or users. Kotler & Armstrong (2004) were of the opinion that physical distribution involves planning, implementing and controlling of the physical flow of materials and final goods from the point of production to the point of usage to meet consumer needs at a profit. Therefore, it embraces all activities which have to do with the planning and execution of the physical flow of material inputs and finished goods from the original owner to the user or ultimate consumer.
The fundamental essence of marketing is consumer satisfaction at a profit to the enterprise. To satisfy customer needs and wants, the product must be moved in good condition with reference to quality and quantity at the right time to the right place (Dempster, Pedrón, Medova, Scott & Sembs, 2000). Marketing satisfies customers’ needs by making the product available at affordable prices, quantities, units, and marketable condition (Cooper, Douglas & Janus, 1997). The economic success of marketing activities is greatly enhanced by physically distributing the products safely to their destinations.
Distribution management can generally be described as upstream, downstream and internal organizational activities. Upstream activities shows, flows and relationships including purchasing and procurement functions. Internal organizational distribution management activities are related to traditional production. Downstream activities and flows may include outbound logistics, transportation, marketing, distribution, packaging and warehousing. Another dimension of distribution management is that it involves the "design, planning, execution, control, and monitoring of distribution management activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally (Cox, 1999). This usually goes with a good supply chain management to determine distribution performance. A supply chain is also broadly defined as all of the linked individual organizations that by direct or indirect means, lead to delivery of a service or of a good to a customer (Chopra & Meindl, 2004).
Modern competition is a major upheaval affecting every aspect of how enterprises supply chain networks are organized and operated so as to facilitate the effectiveness and efficiency of customer patronage, customer demand, sales turnover, product availability and customer repeat purchase with the help of adequate transportation, proper arrival time, good storage facilities and location. Gwako (2008) noted that if an individual enterprise wants to thrive, it has to understand how supply chain networks work and how these supply chain networks can make be made to work better. A key feature of present day business is the idea that it is the supply chains that compete and not companies (Christopher & Towill, 2001), and the failure of supply chains is ultimately determined in the marketplace by the end customer or user.
In developing a supply chain strategy, the organizational structure of distribution channels can be viewed as a network of flows embracing the movement of products, services and information (Christopher & Towill, 2001). This channel integration process offers potential for improving the performance of all organizations activities along the supply chain and enables the enterprises to compete effectively in the market place. Supply chain therefore provides a unique opportunity for organizations to utilize assets more effectively.
The elementary aspect of economics states that for production to be complete, the goods and services produced must get to the final consumers/users, whether individuals or firms (Stonnier & Haque, 2000). Similarly, the most important objective of any good marketer/producers is to satisfy the needs and wants of the target market.
1.2 STATEMENT OF THE PROBLEM
The physical distribution of petroleum products by the companies is a complex task and therefore has a lot of problems associated with it. The basic problems include delay in the arrival time of petroleum products thereby affecting the sales turnover of the oil marketers. There is also issue of poor availability of vendors, thereby affecting the rate of petroleum products distribution. In addition, there is an offshoot of poor management of the companies’ physical distribution strategies. The same applies to the high cost of transportation which equally affects the prices of the petroleum products to the detriment of the customers, who may reduce the quantity required or completely stop purchase of petroleum products.
However, the challenges of inventory management, transportation, facilities management, pricing and information availability are some of the factors that lead organization to embrace distribution management. All inventories within a distribution system can dramatically alter a supply chain’s efficiency and responsiveness. Unexpected changes in customer demands or uncertain supply can greatly affect a distribution chain. Routes for moving the inventory faster generally also affect the supply chain’s efficiency and responsiveness. Decisions on location and flexibility of facilities have a significant effect on distribution activities. Decisions on sourcing, whether in procurement, in-house sourcing or outsourcing also affects a distribution chain. Pricing for economies of scale, as fixed price or menu pricing are also other decision drivers for supply chains.
These problem identified above go a long way in hindering the wide delivery and circulation of petroleum products to the customers/users at the right time and the right place. This is because, Anumni (2017) observed that the impact of erratic inadequate and unsteady supply of petroleum products has brought about the continual increase in price of petroleum products, which has resulted in untold hardship on the citizenry and prevention of economic (as some firms have been forced to shut down due to the non-availability of the products), as was the case in December, 2017.
1.3 OBJECTIVES OF THE STUDY
The main objective of this study was to carry out an analysis of distribution activities and customer patronage of Oando plc and Forte oil plc in the downstream petroleum sector of Nigeria particularly in Abia State. However, the specific objectives were to:
i. determine the effect of distribution route on petroleum products availability;
ii. determine the effect of transportation on customer patronage of Oando plc and Forte Oil plc;
iii. ascertain the effect of arrival time of petroleum products on sales turnover of Oando plc and Forte Oil plc; and
iv. examine the effect of storage facilities of Oando plc and Forte Oil plc on customer patronage of the companies.
1.4 RESEARCH QUESTIONS
The research questions for the study were:
i. to what extent does distribution route affect product availability?
ii. what is the effect of transportation on customer patronage of Oando plc and Forte Oil plc?
iii. to what extent does arrival time of petroleum products affect sales turnover of Oando plc and Forte Oil plc?
iv. to what extent does storage facilities of Oando plc and Forte Oil plc affect customer patronage of the companies;
1.5 RESEARCH HYPOTHESES
The following null hypotheses were stated to guide the study:
H01: distribution route has no significant effect on petroleum product availability;
H02: transportation has no significant effect on customer patronage of petroleum products;
H03: arrival time of petroleum products has no significant effect on sales turnover;
H04: storage facilities of Oando Plc and Forte Oil Plc have no significant effect on customer patronage of the companies.
1.6 SIGNIFICANCE OF THE STUDY
The significance of this study can be viewed from those it will benefit and how it will benefit them. The study in this regard will benefit:
· Management of Oando Plc and Forte Oil Plc;
· Distributors of petroleum products from Oando Plc and Forte Oil Plc;
· Customers of Oando Plc and Forte Oil Plc products;
· Students and researchers; and
· The general public
How it will benefit them:
· It will help management of Oando Plc and Forte Oil Plc to understand the essence of effective distribution for their products thereby influencing their policies with respect to distribution
· It will help distributors of petroleum products to understand the importance of good distribution system
· It will help customers to understand what makes distribution system effective
· It will help students and researchers by way of providing materials for their research
· It will also benefit the general public by educating them on issues covering petroleum products distribution.
1.7 SCOPE OF THE STUDY
The study focused on distribution activities and customer patronage of Oando Plc and Forte Oil Plc in the downstream petroleum sector in Aba and Umuahia, Abia State.
Data for the study were generated from the staff and customers of the companies in Aba and Umuahia.
1.8 OPERATIONAL DEFINITION OF TERMS
a) Consumer’s preference: This is the consumer’s choice of one product brand over another to maximize utility.
b) Customer Loyalty: Customer loyalty is the extent to which a customer is attached a particular product over others. It is both an attitudinal and behavioural tendency to favour one particular product over others
c) Customer Retention: Customer retention refers to the ability of a firm to retain its customers over some specified period. It is a key driver of growth and long-term profits for any business.
d) Distribution Chain Management: Distribution Chain Management represents a state of-the-art management tool used to enhance overall customer satisfaction that is intended to improve competitiveness and profitability.
e) Distribution Chain Performance: Distribution Chain Performance refers to the extended distribution chain’s activities in meeting end-customer requirements, including product availability, on-time delivery, and all the necessary inventory and capacity in the supply chain to deliver that performance in a responsive manner.
1.9 BRIEF HISTORY OF OANDO PLC AND FORTE OIL PLC
Oando Plc earliest roots can be traced to the formation of Esso Africa in 1956. Esso Africa was a petroleum marketing company, a subsidiary of the Exxon Corporation of USA. To increase availability of petroleum products in the hinterland, in 1976 the Nigerian government purchased a controlling stake in the company and rebranded the company as Unipetrol Nigeria. On 1st March 1991, Unipetrol became a Public Limited company. Later on in the same year, the Nigerian government sold 60% equity to the Nigerian public in an Initial Public Offering. By February 1992, Unipetrol was listed on the Nigerian Stock Exchange. In 1999, Unipetrol acquired a 40% stake in Gaslink Nigeria Limited, a gas utility company. The acquisition was motivated by a desire to utilize its exclusive gas sale and purchase agreement with the Nigerian gas company. In 2001, the company increased its stake to 51 per cent. So far, Gaslink has developed 250 km of gas pipeline infrastructure.
In 2000, Ocean and Oil, a private investment company led by Nigerian entrepreneurs Adewale Tinubu and Omamofe Boyo acquired a 30% controlling interest in Unipetrol plc. In 2001, Ocean and Oil increased its stake in Unipetrol to 42% via an irredeemable convertible loan stock issue.
Oando plc is an African indigenous energy company operating in the upstream, midstream and downstream.
With a primary listing on the Nigerian Stock Exchange, Oando is the first African company to have a cross-border inward listing on the Johannesburg Stock Exchange.
In 2014, it concluded the acquisition of ConocoPhillips' Nigerian business through its upstream subsidiary, Oando Energy Resources, making it the country's largest indigenous oil and gas producer at the time (http://en.wikipedia.org/wiki/Oando).
Forte oil plc, (formerly African Petroleum plc) was incorporated on December 11, 1964. After 14 years in operation, the company changed its status from a private limited liability company to a public liability company. In compliance with the provisions of the Nigerian Enterprises Promotion Decree of 1977, 40% of the company’s shares were sold to Nigerians and a year later, 60% was acquired by the Federal Government of Nigeria in favour of the Nigerian National Petroleum Corporation (NNPC) from British Petroleum. In November 1979 its name was changed to African Petroleum PLC. NNPC’s stake in AP was reduced by 20% in March 1989 after the Federal Government sold the above percentage to Nigerian Citizens, increasing their stake from 40% to 60%. In the year 2000, the Federal Government under its privatization programme divested its remaining 40% to core investors and interested Nigerians.
In May 2007, the shareholding structure took another dimension as Incorporated Trustees of NNPC’s Pension Fund divested its stake to Zenon Petroleum & Gas Limited, owned by Femi Otedola, making it the majority shareholder in the company. As a result, Mr. Otedola and his affiliated entities became the core investor in the company. Under the new management, African Petroleum embarked on a rebranding and restructuring programme which led to a name change to Forte Oil PLC in December, 2010, and a rebranding of the retail outlets spread across the across the country.
In 2013 the company purchased a controlling stake in the 414 MW Geregu Power plant under a government-led privatisation programme in the power industry under the leadership of Goodluck Jonathan. Geregu Power Plant was commissioned in 2007 with three Siemens V94.2 open cycle gas turbine power generation units, namely GT11, GT12, and GT13, with an initial combined installed capacity of 414MW. A major overhaul of the plant commenced in 2015 and was completed in 2016, increasing the combined capacity to 435MW. Forte oil plc is an indigenous energy group, headquartered in Lagos, Nigeria, with extended operations in Ghana. It operates majorly in the downstream sector of the Nigeria’s Oil and Gas industry, but has diversified its businesses into other sectors of the energy value chain (http://en.wikipedia.org/wiki/Forte_Oil_plc).
1.10 LIMITATIONS OF THE STUDY
In the course of carrying out this study, the researcher encountered the following challenges:
(i) Small sample size: The population of the staff of the companies in each station were quite small. Based on this, the researcher was able to adjust the situation by using the entire population for the study.
(ii) Respondents’ attitude: Some of the respondents exhibited lukewarm attitude towards the collection and completion of the questionnaire. The researcher was able to address the problem by following them with patience and painstakingly explaining the essence of the questionnaire to them and they eventually complied, completed and returned the copies of the questionnaire given to them.
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