MANAGEMENT SCIENCE
Chapter 4 Assignment
Name:
A Marketing Planning Model at Marathon Oil Company
Marathon Oil Company has four refineries within the United States, operates 50 light
products terminals, and has product demand at more than 95 locations. The Supply and
Transportation Division faces the problem of determining which refinery should supply which
terminal and, at the same time, determining which products should be transported via pipeline,
barge, or tanker to minimize cost. Product demand must be satisfied, and the supply capability
of each refinery must not be exceeded. To help solve this difficult problem, Marathon Oil
developed a marketing planning model.
The marketing planning model is a large-scale linear programming model that takes into
account sales not only at Marathon product terminals but also at all exchange locations. An
exchange contract is an agreement with other oil product marketers that involves exchanging or
trading Marathon’s products for theirs at different locations. All pipelines, barges, and tankers
within Marathon’s marketing area are also represented in the linear programming model. The
objective of the model is to minimize the cost of meeting a given demand structure, taking into
account sales price, pipeline tariffs, exchange contract costs, product, demand, terminal
operating costs, refining costs, and product purchases.
The marketing planning model is used to solve a wide variety of planning problems that
vary from evaluating gasoline blending economics to analyzing the economics of a new terminal
or pipeline. With daily sales of about 10 million gallons of refined light product, a savings of
even one-thousandth of a cent per gallon can result in significant long-term savings. At the
same time, what may appear to be a savings in one area, such as refining or transportation,
may actually add to overall costs when the effects are fully realized throughout the system. The
marketing planning model allows a simultaneous examination of this total effect. (Based on
information provided by Robert W. Wernert at Marathon Oil Company, Findlay, Ohio.)
Answer the following statement:
1. Identify the problems faced by Marathon Oil Company.
2. Why did the marketing planning model also take into account the sales at all exchange
locations?
3. What is the primary aim of the model?