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Full Project – THE EVALUATION OF DISTRIBUTION CHANNEL OF PETROLEUM PRODUCTS

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CHAPTER ONE
INTRODUCTION

1.1Background of the Study

Nigeria as a sovereign statehas remained a point of reference in Africa and onthe global stage. This is stem from the fact thatit is one of the largest exporters of crude oil to developed and developing nations of the world. For more than three decades therefore, crude oil has been the major hubof the energy, revenue and foreign exchange earnings for the Nigerian economy (Abubakar,2015).According to Eke and Enibe (2007), the production and distribution of petroleum products in Nigeria is an important factor in her domestic economy.

Petroleum products distribution is therefore concerned with the movement of refined petroleum from the refinery to the final consumers across various locations of delivery in the country (Adeleke, 2002). Until recently, the petroleum products available for distribution were through an elaborate network of nearly4,000 kilometers of pipelines inter connected to 21 widely dispersed depots across the country. Thus, petroleum products may be obtained from the three local refineries or in the event of a supply short-fall from off-shore refineries by way of imports.

Transport system permits goods such as petroleum products to be sold to consumers in places far distant from the region where they are produced. Economists assert that goods have not been produced until they have actually been transported to the final consumers who will satisfy their want (utility) by the consumption of the goods. It therefore means that transportation by moving goods from point of production to the point of consumption is fulfilling productive services (Akintayo, 2010). In Nigeria, refined petroleum products are transported from the refineries through a network of pipelines, coastal (marine) vessels, road trucks and rail wagons to the 21 regional storage/distribution depots, spread across the country (Obasanjo and Nwankwo,2014). It is from these depots that the marketing companies used to obtain their supplies. Nigeria National Petroleum Corporation (NNPC)is supplied through imports and locally refined products by both the major and the independent marketers. From 1970 to date, the nation has investedsubstantially in refineries, storage depots, pipelines etc. According to Ehinomen and Adeleke (2012), the total pipeline network in Nigeria is about 4500Km. Withinthe past few years, the supply of thesepetroleum product blends to storage depots and then to consumers, but have not beenenough to meet the increasing demand. There as of demand include: Domestic sector, Industrial sector, Transport sector, and Agricultural sectors.

Distribution channel, as defined by Ilodigwe (2011) is the process of planning, implementing and controlling the physical flow of materials, final goods and related information from point of origin to point of consumption to meet customer requirements at a profit. Proper schedule of the distribution through pipeline networks can facilitate the economical integration of refinery locations and storage depots for easy shipment of the products from refineries to depot locations and then to consumers at minimum delivery cost. Distribution channel, also referred to as channel of distribution is the path through which goods and servicestravel from the vendor to the consumer or payments for those products travel from the consumer to the vendor. Kotler and Armstrong(2001) defined distribution channel as the marketing function responsible for movement of products to the final users. As suggested Armstrong (1975), distribution decisions should be guided by three overall criteria including Market coverage, that is, the size of the potential market that needs to be served; Control, that is, control over the product and; Costs, that is, fixed and variable.

The importance of distribution cannot be over-emphasized no matter how the economic position of the country looks like. Ehinomen and Adeleke (2012) pointed out that effectiveness in distribution is essential in bringing down cost of operations with the consequence reduction of price of products for the benefit of all the stakeholders in the industry. No wonder, Egede and Ngwoke (2013) lamented that one of the major problem affecting the price of the essential products (PMS, AGO and DPK) is the cost associated with outrageous cost of distribution of these essential products which also affect the official pump price.

1.2 Statement of the Problem

Distribution channels perform a number of functions that make possible the flow of goods from the producer to the customer. For one thing, channels provide time, place, and ownership utility. They make products available when, where, and in the sizes and quantities that customers want. Distribution channels provide a number of logistics or physical distribution functions that increase the efficiency of the flow of goods from producer to customer. Besides, distribution channels create efficiency by reducing the number of transactions necessary for goods to flow from many different manufacturers to large numbers of customers.

The importance of distribution channel cannot be over-emphasized no matter how the economic position of the country looks like. According to Ehinomen and Adeleke (2012) effectiveness in distribution is essential in bringing down cost of operations with the consequence reduction of price of products for the benefit of all the stakeholders in the industry.Egede and Ngwoke (2013) lamented that one of the major problem affecting the price of the essential products (PMS, AGO and DPK) is the cost associated with outrageous cost of distribution of these essential products which also affect the official pump price. Uneven distribution channel is one of the major reasons for the persistent scarcity and inequitable distribution of petroleum products in Nigeria even with the establishment of three refineries, many storage depots and pipelines interconnecting them. Against this backdrop, the problem of the present study is to evaluate the distribution channel in Nigeria Petroleum industry with particular interest to Mobil Oil Nigeria Plc.

1.3 Objectives of the Study

This study seeks evaluate the distribution channel in Nigeria Petroleum Industry with particular interest in Mobil Oil Nigeria Plc. Specifically, the present study seeks:

1. To examine the effect of distribution channels of petroleum on the availability of the product in market.

2. Assess the effect of cost of transportation on the company’s profitability.

3. To determine the effect of distribution channel on customer satisfaction.

4. To assess the effect of government policy on the distribution of petroleum product.

1.4 Research Questions

The following research questions are formulated to guide the study

1. What is the effect of distribution channels on availability of petroleum products in the market?

2. What is the effect of cost of transportation on the company’s profitability?

3. What is the effect of distribution channel on customer satisfaction?

4. How does government policy affect the distribution of petroleum product?

1.5 Research Hypotheses

H01: Distribution channels do not affect availability of Petroleum Products in the market.

H02: Cost of transportation has no effect on the companies profitability.

H03: Distribution Channels do not affect customer satisfaction.

H04: Government policy does not affect distribution of Petroleum Products in the market.

1.6 Significance of the Study

Managers and administrators of manufacturing industries will benefit from this study as it will guide them in decision making. This is because the importance of evaluation of the effectiveness of channels of distribution is to help firms and organizations plan for better utilization of them. One of such decision is the marketing channel decision.

Researchers and academicians will specifically benefit from this study as it is hoped to form a foundation from which further study could be carried out aimed at improving knowledge. It is also relevant in the review of literatures for related study.

Another contribution of this study lies on the fact that findings from this study which attempt an explanations on the effectiveness of channels of distribution on sales volumes. This knowledge will serve as a reference point to other industries that may be in need of such knowledge to take decision that will move their organization to a new level of success.

1.7 Scope of the Study

The study is an evaluation of the distribution channel in Nigeria Petroleum Industry: a study of Mobil Oil Nigeria Plc. The study focuses on examining the effect of distribution channels on the availability of the product in market; on cost of transportation; on customer satisfaction; and the effect of government policy on the distribution of petroleum product. The period of study covers five years between 2010 and 2015.

1.8 Operational Definition of Terms

Distribution Channel: As used in this study, distribution channel refers to media to which products are moved from the source to the end user.

Petroleum Products Distribution: Within the context of this study, petroleum products distribution has to do with the movement of refined petroleum from the refinery to the final consumers across various locations of delivery.

Nigeria Petroleum Industry: This is an industry that deals with the production and distribution of petroleum products such as PMS, AGO and DPK.

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