The IT Solution of Valero

Valero Energy Corporation is a Fortune 500 international manufacturer and marketer of transportation fuels and petrochemical products based in San Antonio, Texas, United States. The journalist from e-works interviewed Mr. Hal Zesch, the recently retired CIO of Valero, and he introduced the IT solution of Valero.

Valero Energy Corporation is a Fortune 500 international manufacturer and marketer of transportation fuels and petrochemical products based in San Antonio, Texas, United States. Valero is North America’s largest independent refiner and marketer. The company owns and operates 174 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of approximately 2.6 million barrels per day, 10 ethanol plants with a combined production capacity of 1.1 billion gallons per year, and a 50-megawatt wind farm. Valero is also one of the US's largest retail operators with approximately 5,800 retail and branded wholesale outlets in the United States, Canada and the Caribbean under the Valero, Diamond Shamrock, Shamrock, Ultramar and Beacon brands.
Valero grew rapidly from $ 2 billion (continuing) to $ 120 billion in a decade with the support of IT systems. In Mckinsey's global standard library for energy industry, Valero is the company which has the lowest IT costs proportionally, only accounting for 0.1% of its revenue, which is much lower than the industry standard proportion of 1%. So, how do IT systems operate in Valero? The journalist from e-works interviewed Mr. Hal Zesch, the recently retired CIO of Valero, and he introduced the IT solution of Valero.

Liu lina: What was the role of IT in the growth of Valero?
Hal Zesch: Valero grew very rapidly from $ 2 billion continuing operations revenues to $ 120 billion in 10 years. We used SAP to bring together our people and our processes in their systems in the best way to achieve the goal of the company that was to be a world-class energy company, a world-scale manufacturer with world-class performance. When we first began to plan our growth, we knew that we needed the infrastructure platform to support that growth. We did a lot of research and it showed that other companies that grew very quickly without having such a platform to integrate the company had real problems. So we chose SAP as that integration platform and to support the growth. We use most of the SAP modules, like ERP, BI/Analytics, human capital management, lifecycle performance and the manufacturing capability.

Liu: When did Valero start to deploy SAP?
Hal: In 1997. We basically did one acquisition at that time, but very quickly, so we completely integrated them, including all of their business systems, to transform to our shared platform.

Liu: For a large energy company, one of the big problems is that the price of crude oil is always changing, so how could you quickly respond to the price changes by using IT systems?
Hal: We use SAP technology as part of our price risk management. The priced positions and the physical positions are usually different. We price our position completely every day. We take in daily market clearing location prices and adjust them to a market price for every location and quality of product. We use that to revalue our total current market position every day. And each business unit when they do business with another business unit, they do it at that day’s market price. We revalue at least daily, but if the market moving very quickly during the day, we can actually revalue during the day. We also use SAP to do a projection of our inventory. We use the TSW module to do the projection of the inventory based on all purchases, sales, exchanges, and movements. Often the pricing is based on physical movement, so both are updated automatically. So, with TSW we can forecast the inventory, forecast the prices and then we apply them together.
On our manufacturing philosophies, we do something different from many people do.. Each day we measure what each plant consumes and we charge that consumption at that day’s market price, quality, and location. And we measure what they produce and they get credit for that day’s market price for their product. So, every day they have a gross margin based on that day’s market value of their production and consumption. So the plant is only responsible for the conversion and the costs to make the conversion. They don’t have to be responsible for the other things. And manufacturers really like that because they are only responsible for what they control.

Liu: I heard that there was a leak in one plant of Valero in March. How could IT systems help Valero to reduce the losses to a minimum?
Hal: We use SAP MII to collect information from all the units to get continuous reports. And the engineers decide what information they want to track. We are monitoring over a million data points. We collect the temperatures, the pressures, the flow rates, the recycle rates, etc. Then we compare? the actual conditions to both the production optimization management and the process safety management targets.
No system is absolutely perfect. But with SAP, the results are much better than they would otherwise be. So in this case all the other units kept running and the problem was fixed very quickly. We collect all applicable information in SAP MII. We work with engineers, and they provide the optimization standards, process safety standards and engineering standards, which are then dynamically calculated and applied. So we can track, identify and fix the problems in time.

Liu: Please introduce the strategy of Valero on manufacturing and marketing.
Hal: We really drive the whole company on some fundamental slogans: do work once, do it right at the first time, and then share the results wherever they are needed. The only way to do work once is for everyone to know how their job fits with the total strategy of the company. They have to understand how they individually affect the process and the strategy of the company.
To do work only once means there can be no redundancy of work. As part of this, there also needs to be no redundancy of information. Information has to exist at one place and be shared everywhere from that one place. An example of that is, for the customer record, it should only exist in one place for the whole company and everywhere needed it should go from that one place, because that way is the way to keep it current, complete, and accurate.

Liu: Do you have any security to make different people access different data?
Hal: Yes, we have. It is business managed and is based on a SAP security system. We use GRC (governance risk and control) and Access Enforcer. When someone joins the company, they are assigned a role. That role determines what all information they need. Every role has a role owner. When an employee first joins the company, they are assigned a provisional role. That assignment message automatically goes to that role owner. They have to say yes online whether that person can be added to that role. If they say yes, that person will have permission for everything in that role.

Liu: How do you select the most useful information from plenty of production data and sales information to the production and sales people?
Hal: We work closely with each operations area to be sure they are provided all of the information they need for decision making, which includes the content, timing, and presentation. All of the different perspectives are brought together automatically, from planning to operations to maintenance to EH&S to financial. This combination of perspectives brings insights that otherwise don’t happen. We use friendly, role-based interfaces. We use Business Objects and all other parts of the business analytics and intelligence solutions of SAP.

Liu: How many people in IT department in Valero?
Hal: 350 out of 22,000 employees, including all of the information functions like the paper scanners, telephone operators, etc.
We worked with Mckinsey on the IT structure. It works very well and efficiently. For the total IT expenditure, different companies have different levels. A logistics company has roughly3% of revenue. And a better energy company has roughly1% of revenue. But we do much better with 0.1%. Some people say SAP is expensive on IT operation, but we have shown that is not the case at all if you implement and operate appropriately.

Liu: As you have 37 years of experience in energy industry, what do you think of the IT application trend in oil and gas industry?
Hal: The biggest changes that I have seen in IT are big improvements in the relevance and the usability. I believe the best technology becomes invisible. The complexity and barriers disappear and people don’t have to think about the system interaction. The process and information are inseparable parts of the people’s natural ways of thinking, communicating, and working. The systems automatically deliver to the people all the information and perspectives that they need for optimization. The systems continually monitor the environment, so that the people know both what is happening right now and what should be happening right now to achieve our shared goals.
When we set up a system, we set it up to be very flexible. We set up all of the functions and information that people need as services, as part of an enterprise services oriented architecture. Everything is logically and clearly organized with names they naturally use and immediate access with search ability. So people can go to just one place and then mix and match the services as they need them. And the IT people are able to build a new system by just putting services together. Now the business users can easily access all the information they need and change it as the conditions change. That allows great flexibility when the business environment changes.
Enterprise SOA means the same service only exists once in one place, without the confusion and unnecessary work and cost of data redundancy. And every service matches well with a part of the business process.
If someone says SAP is not flexible, probably they are actually saying we didn’t set it up right. I think SAP has the best range, breadth and depth of business capability for companies to use to grow and optimize their business. The reason I worked with SAP software is because I think it offers the most to companies and customers.

Hal Zesch
The recently retired SVP and CIO of Valero, industry veteran with 37 years experience. Coordinated the transformation and integration of Valero’s acquisitions during the rapid growth from a $5 billion company to a $120 billion multi-national company. This work included due diligence, strategy alignment, organizational design, change management, synergy achievement, and operations optimization.

Recorder&Editor: Sophie Shi sophie244@msn.com

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