When it comes to oil and gas development with all of its moving parts, an ineffective supply chain management process can lead to worker productivity issues, wasted money and ultimately, lower production levels and profits.
Challenges can creep into any part of the supply chain and create problems with ripple effects, whether it’s delivery of in-bound drilling materials such as mud, water or sand; transporting produced oil or gas from the field to its targeted location; or getting workers to remote locations equipped with supplies not only needed to do their jobs but also to sustain life and protect health. Another challenge facing the MENA region is mercurial regulations and complex bureaucracy, meaning that the lead time for moving equipment from one country to another in this part of the world has to be factored into the overall cost of any upstream project.
According to a good majority of the industry’s research, we have enough resources left to sustain current production levels for at least the next 50 years. Therefore, the main challenge facing the oil and gas industry is not the availability of resources, but putting these reserves into production and delivering the final products to consumers at the minimum cost possible. A solid supply-chain management program will enhance this goal. The supply chain link in the oil and gas Industry starts from exploration and production, and ends at refining, marketing & consumer. The common issue along these links is economics, or weighing benefits versus cost. In the oil and gas industry, almost all important operations are planned in advance, which allows for the whole process to be managed and fine-tuned into a high performance money-making machine.
The goal of supply chain management is to provide maximum customer service at the lowest possible cost. One of the weaknesses of a supply chain is that each company is likely to act in its best interest to optimise its profit. This way the goal of satisfying the end customer is easily lost and so are opportunities which arise from coordination of decisions across different stages of the supply chain. If suppliers could be made more reliable, there would be less need for inventories of raw materials, quality inspection systems, rework, and other non value-adding activities, resulting in lean production.
Since the goal of supply-chain management is to provide maximum customer service at the lowest possible cost, it has also been advocated that the supply chain be managed as an integrated and coordinated system. This would further reduce costs by eliminating unnecessary uses or requirements which are added loads on the chain. Recent developments highlight the need to manage a company’s supply chain in an integrated and cohesive manner. These developments include the increased demand for better and faster customer service, globalisation of the oil and gas business, competition, and the availability of information technology to facilitate information exchange. Therefore, integration and cohesiveness will reduce costs if it leads to a more efficient system.
Once a supply-chain has been established, and coordination mechanisms are in place, it can still be improved. Today, oil and gas companies are looking for new ways of reducing total operating costs and improving efficiency and profits. In many cases, it is possible for the ideal configuration to change over time, due to changes in technology and consumer preferences. In some other cases, technology may allow several mechanisms for configuration across the supply-chain.
Generally, oil and gas companies should view their supply-chain configuration and coordination systems as worthy of improvement. Making necessary improvements over time allows the firm to gain competitive advantages in the marketplace. A firm which believes its supply-chain has been optimised can easily lose competitive advantages by being resistant to changes that might lead to improvements. Strategies for improving oil and gas supply chains include enhancing individual links, segmenting customers based on service needs, customising the logistics network, forming partnerships and watching for market signals to plan accordingly.
