Supply chains in the oil and gas industry can be quite complex, often extending hundreds or even thousands of miles as multiple intermediaries shepherd products and services between suppliers and customers. Managing the various transactions among vendors and customers along a supply chain, which often crosses a patchwork of geographic and political boundaries, can be cumbersome and expensive. Moreover, the inconsistent quality and availability of transaction data can invite opportunities for fraud and disputes.
I believe blockchain is a technological advance that will have wide-reaching implications that will not just transform the oil and gas industry, but many other businesses and industries worldwide. With Blockchain being the future, the disruptive business model supply chain can be applied to the entire oil and gas value chain with three main focus minimising logistic cost, minimising waste and inventory planning.
The first blockchain was theorized by Satoshi Nakamoto in 2008 and applied the following year as a key component of the digital currency bitcoin, but that was just the tip of the iceberg. A secure public ledger concept can be applied to almost all aspects of doing business whilst removing slow and outdated workflows.
Are you ready to harness the capabilities of blockchain technology in oil and gas operations? If so, click here to join
BLOCKCHAIN IN OIL & GAS 2018
September 20th – 21st, 2018
For the two-day event to:
– Develop blockchain scalable solutions for your company
– Examine open source blockchain development
– Understand why blockchains are an ideal technology for IoT oil and gas
– See why early adoption will save time and money in the future
– Learn how transparency, security, and convenience are all in one place
To define oil and gas logistics, we must first understand the meaning of logistics itself. In the simplest possible terms, logistics may be defined as the detailed planning, organization, management, and implementation of complex operations. With the oil and gas, logistics extending to not only the flow of both physical inventory and information. But encompassing all the varied, complex factors – organization, movements, and management. However, managing the oil and gas logistics around extraction operations creates new complexities. Such complexities would require policies and procedures to be in line with the following four requirements.
Access to Local Expertise
Logistics is all about knowing the local markets – ports, infrastructure, roads, facilities, and regulations. Such expert would need to have an integrated energy logistics and able to meet the energy industry’s needs with its extensive network, capabilities, and experience. The use of local market facilitates the efficient utilization of oil and gas logistics network. To ensure availability of material and carry extra capacity.
Oil and gas logistics cost is incurred to guarantee the flow of materials from suppliers to the development or production site along with storage and inspection cost. These cost typically represents up to 15% of the total operating expenditure and can be as high as 30% depending on the location of the exploration, development or operations. The average cost of production for a major oil and gas is said to be approximately $10 per barrel of oil equivalent (excluding taxes and royalties). So if a company producing a million barrel equivalent per day it would spend $3.5 billion per year, with logistics cost ranging from $175 million to $525 million. So cutting 10% of this cost can lead to much as $50 million in savings which is a significant amount.
Visibility and Control
The company’s excessive reliance on legacy tools (MS Excel/e-mails) and mechanisms that were employed to manage its day-to-day logistics operations take a heavy toll on its operational efficiencies. The approval process primarily manual and mainly handled through e-mail would lead to lack of visibility. And lack of visibility to logistics requirements led to lack of planning, resulting in underutilization of resources and further lowered operational efficiency generating an increased operational cost.
Think of it this way: When oil and gas logistics are run smoothly with control, material availability is properly accounted for, the right item is sent at the right time, is replenished when needed, fewer errors occur, and all the people, processes, and systems fall into place as they should, your operates more efficiently. There are fewer errors and fewer problems, and that means maximized revenue.
Compliance and Safety
Though we have the benefit of controlled oil and logistics being – increased revenue. Such control in oil and gas logistics are implemented with people and material logistics forming a critical part of operations based on standards. One of such standards in the oil & gas industry is HSSE (Health, Safety, Security, and Environment). With the oil and gas companies using solutions, that has the ability to manage people safely, alongside its logistics requirements in full compliance with the standards. The solution has to be robust, manageable, scalable, efficient, off-the-shelf, and have a track record of success. Such solution provided by IBS’ iLogistics platform was able to provide an integrated people and material logistics management solution helping 100% compliant with regulations, significantly reduce costs and transforming workflow across various departments.
Over the last five or so years, there has been a dawning realization within companies that spending on indirect goods and services is a big area of opportunity for creating efficiency and cost savings. This is not news to those of us within the profession. However, the need to do better is prominent towards achieving set goals hence, we are constantly asking the following questions.
Are we employing the right professionals?
To begin with, you ask the question ‘What kind of talent is needed?’ At the highest levels of the profession, the skills people want are the ability to analyze market demands and industry trends and put together an excellent sourcing strategy. This takes very good business acumen because we’re looking at suppliers across everything from their financials to their ability to be able to produce and deliver in different geographies to how well can they manage the customer experience.
It’s a very broad business evaluation, and it requires a person who can really spread themselves across lots of functional areas from finance to marketing to sales to relationship building and customer satisfaction skills.
Are you taking a strategic approach to your company’s indirect procurement processes?
Investing in these indirect procurement management solutions can allow for in-depth analyses, provide real-time data for better decision making, reduce your risk of working with new vendors, quicken the onboarding process, allow for easier and safer payment processing, reduce cycle times, allow for greater visibility into your category spend, and increase overall efficiencies so you can reduce the costs associated with the function. It can provide insights into opportunities, identify potential areas for savings, and alert you to liabilities that you should be controlled before they hurt your business.
Is the execution of your processes the best in practices i.e ‘tactical or strategic function’?
Many organization has not clearly defined what role the indirect procurement plays at a corporate level. In many cases, indirect procurement is relegated to the simple task of acquiring goods and services upon request. As a result, there’s no clear sense of responsibility for the efficient purchase of goods and services. Having an established, structured and standardized procurement process is essential—and procurement specialists and software can help. The fact is indirect procurement is just as valuable as direct procurement and should be managed in the same strategic way.
Are you achieving an optimal use of your existing systems?
Optimisation of the systems is necessary toward achieving profitably. So have you created optimal plans that include the resources provided by your partners? Drive these plans from an intimate understanding of real demand and profitability-driven segmentation policies. This would result in optimising your indirect expenditures and trade off significantly with an effect on your bottom line. You cannot neglect this function any longer.
Risk has always been part of the supply chain. It’s a reality inside and outside the four walls of any organization. They have naturally addressed with anticipated and unanticipated events occurring both upstream and downstream in the supply chain.
Upstream of an organization are the suppliers who create goods and services used in a company’s own operations.
The downstream supply chain efficiently distributes a company’s products or services to its customers.
All contracted suppliers, both upstream and downstream, must be proactively managed to minimize financial, confidentiality, operational, reputational and legal risks. Ideally, if the risk is properly managed, nothing occurs that has a negative impact on operations or profitability
Therefore, the objective of procurement and supply chain leaders should be to create a secure but high-performing supply chain. One in which risk can be minimized while value-added business relationships can flourish. Think of it as “intelligent risk management.”
Five techniques towards “intelligent risk management” across the supply chain.
Technique 1: Innovation and efficiency in contracting management
Technique 2: Strategic requirements for supplier insurance and limitations of liability
Technique 3: Provider optimization and redundancy
Technique 4: Supplier financial stability visibility
Technique 5: Proper diligence in operational supplier assessment reviews
Using these five Supplier Risk Management Techniques is a solid starting point for building a supplier supply chain that can greatly contribute to your organization’s overall organisation strategy. Obviously, this is only the tip of the entire supplier relationship management iceberg; however, it is a huge improvement over the typical methodologies used by far too many companies to manage supply chain exposure.
The UK’s offshore oil and gas industry is putting the recommendations of the landmark Wood Review into practice, according to the findings of an annual sector survey published by Deloitte and Oil & Gas UK today.
The Wood Review identified collaboration as a fundamental behavior towards securing the successful future of the UK Continental Shelf (UKCS). Now the 2017 UKCS Upstream Supply Chain Collaboration Survey – which sought the views of over 150 operators and suppliers across the UK Continental Shelf – has returned a 7.1 Collaboration Index score, the highest score to date. As part of the survey, the Collaboration Index measures the effectiveness of companies as partners in collaboration.
• The Collaboration Index score has increased to 7.1 in 2017 from 6.6 in 2016 (out of 10)
• 95% of operators and suppliers say collaboration is an integral part of their day-to-day business (86% in 2016 and 74% in 2015)
• 43% of survey participants considered their collaborative engagements successful in 2017 compared to 27% in 2015
Commenting on the findings, Oil & Gas UK’s Continuous Improvement Manager Dr. Mariesha Jaffray said: “The results demonstrate that for most operators and suppliers, collaboration is shifting from being an aspiration to a reality. The third successive improvement to the Collaboration Index score has been achieved despite the prolonged period of flux faced by the offshore oil and gas industry, with many companies still experiencing tough conditions.
“Industry, in general, has a long-standing record in working together towards shared goals and this survey shows our sector has taken the same approach. It also underlines the importance of Oil & Gas UK’s Efficiency Task Force, which continues to seek out, promote and provide access to efficient and collaborative practice across the sector.”
Graham Hollis, senior partner for Deloitte in Aberdeen said: “In this year’s results, we are starting to see real progress in terms of improved behaviors leading to more successful collaboration outcomes in the UKCS. The messages on the benefits of supply chain collaboration are starting to be embedded.
“Cost reduction is still the main driver of collaboration, but the focus is shifting from transferring risk to sharing knowledge, new ideas and solutions. The results suggest more openness towards business partners and that more companies are taking a closer look at how they can incentivise collaboration better financially. Engaging suppliers earlier in the project lifecycle is also becoming more widespread.”
The report was launched at an Oil & Gas UK breakfast briefing event held in Aberdeen today. Deloitte, who sponsor the event, took part in a panel discussion exploring the results of the report alongside leading figures from Shell UK and the ECITB.
Underlining the value of collaboration to the sector, Dr. Mariesha Jaffray concluded: “Through collaboration companies are able to reduce costs, share knowledge and maximise the economic recovery from the basin. We can speak with tentative confidence that these behaviors are the new normal. Provided these results are built upon, we have every reason to believe that the UKCS will become the most attractive mature basin in the world with which to do business.”
Graham Hollis concluded: “While the extended period of lower oil prices has been very challenging, it has also given many companies the impetus to take a transformative approach to their own cost structures and ways of working. Many of these companies are now reaping the benefits of more direct relationships with their partners. Companies now need to accelerate the transformation and embed these new ways of working to ensure their future high performance, regardless of oil price.”