What happens when you urgently need a two and a quarter ton, 1.6 meter diameter blind or a high specification ball valve for your oil and gas operation in the middle of a global pandemic? Your usual Italian valve manufacturer went into lockdown several weeks ago and your usual Chinese pipe fitting manufacturer has only just returned to work with a backlog a mile long; nowhere has such heavy and expensive items ‘on the shelf’.
Had this situation arisen even just a couple of years ago, you might have been stuck for a solution, yet the rapid digitalization of supply chain management has created new ways of working, just in time.
COVID-19 has highlighted the weaknesses in many oil and gas operators’ procurement processes: diversification. Seeking economies of scale, it is not uncommon to find operators sourcing as much as 70 percent to 80 percent of their supply from just three or four companies. This has now left many operators in a pinch, unable to source what they need, and not necessarily having the right processes and certifications in place to source elsewhere.
Importing something from abroad? You’re in for a long wait. The rapid decline in travelling abroad has had a knock-on impact on airfreight. With over 40 percent of air freight carried in passenger jets, and reductions on commercial air traffic exceeding 60 percent in some regions, this mode of logistics is under significant stress.
While many airlines have scrambled to offer commercial freight services to replace consumer carriage, the whole process is still being ironed out. Shipping lanes remain active, yet the virus has impacted docks and landside logistics; typically, a shipment from China to the Middle East might take four weeks, right now you’d be lucky to receive it in eight. Even overland shipments have struggled. At one point, deliveries from the eastern states of Australia to Western Australia were taking two to three weeks, instead of the usual two to three days. Everything is running much more slowly than usual.
Putting the pieces back together
In the case of our valve, you could be waiting longer still. However long that manufacturing site is in lockdown for, it will likely take just as long for it to get back up and running – reemploying, regrouping the supply chain and stabilizing stock levels will all take time. So, for a large, high specification valve, we could be looking at months, if not a year or more in stock disruption. If that product is not already on a shelf somewhere, you need to begin to diversify. Looking closer to home is a good start. What kind of manufacturing capabilities and raw materials options do you have locally that would allow you to make the rest of the supply chain work in the time that you have available?
You may also be contending with a run on prices. With the instability of the oil market, and shut-ins looming, many operators will see it as an opportunity to take on large maintenance projects that had been scheduled for later in the year. If they do not have that part to hand, they will soon be looking to source it. And, all the usual requirements for safe operation still apply. Plants need parts. But that’s not to say that they are not available, simply that the procurement processes many operators follow do not give them enough visibility to assess and access other options.
Out with the old
Many operators continue to rely on their tried and tested ERP system: Functional, yet often siloed and closed source, ERP systems leave no real room for improvement. Operators lose out on all the visibility that comes with adopting an end-to-end supply chain solution that can integrate with third party platforms, and it also typically lacks the same level of trust that digital solutions now build in as standard.
A digital twin of the procurement process is one innovation that can help companies gain better visibility over the weak spots in their supply. It can highlight a breakdown or bottleneck in the supply chain early on and incentivize procurement teams to reallocate resources or find alternatives. Having used digital twins to improve asset management, health, safety and performance, it is a concept that the industry knows works.
Yet, right now the disruption is so extensive that most companies will need to do a lot more than a real-time review. To maintain safety and uptime in the long-term, most operators will need to think about how to source the critical parts that could cause major outages and put in place thorough supply chain risk mitigation measures.
A complete picture
The end-to-end digitalization of the supply chain has been on the oil and gas industry’s horizon for some time, but for many operators, the mass disruption from COVID-19 is accelerating the transition. Nothing dismantles resistance to change quite like the need for survival.
While there is a lot of fallout, the disruption is also helping to crystallize priorities and get decisions made. For supply chain procurement, there really is no better time to be trialing digital techniques that will create much needed agility and diversity. Many supply chains will remain fragile for quite some time, and trust will need to be rebuilt. But with digitalization, much of that trust will be built in from the start, whether that’s through complete visibility of the asset’s document history, or knowing your local 3D printer and advanced manufacturers who have the industry expertise, should you need a new part at short notice.
To learn more about the need for digital transformation in the wake of the market crisis, register below for our webinar on 27 July, “Oil & gas at a digital tipping point.”
