Creating a supply chain strategy

Creating a supply chain strategy

This week was the Oil and Gas UK and Chartered Institute of Purchasing and Supply conference in Aberdeen and it made me think about last week’s post and what do we need to be really good at.  From an upstream oil and gas perspective this should be:-

Asset leadership from reservoir to delivery point in terms of maximising the recovery of the hydrocarbons (maintain profit)

Project leadership from concept to decommissioning in terms of economic solutions (maintain growth)

Process safety leadership to protect and ensure no harm to people, the environment or asset (maintain reputation)

Supply chain leadership in terms to creating the right strategies to drive maximum efficiency and effectiveness and this requires us to harness the power of teams but also be informed buyers about today’s and tomorrow’s trends and where the prices should be.  (Maintain capability with affordability)

For example if you were looking for a new car today you may do the following.  Check on ‘Autotrader’ and ‘Pistonheads’ what cars are selling that are very similar to yours. You might also get a quote from ‘we buy any car’ then you might check out a couple of the pricing sites such as ‘Whatcar’, ‘Glass’s guide’ and ‘Parkers’.  Then you are fully armed with the value of your car.  Then looking at the new car you may go to several sites to check what they are selling for, what current discounts are being offered and where you can get the best deal. There is even the new ‘CarWow’ site where you can get dealers to bid for the car you want, to your specification. We do the same when buying a selling a house (Checking ASPC or RightMove and prices per square metre) or even shopping for house hold items and check Asda, against Tesco’s against Aldi.  This keeps the business or industry on its toes, competitive, maintains performance and generally helps the overall economy.

So what about the oil and gas industry?  My rule of thumb is roughly 36% of the costs are people, 36% costs are assets (drill rigs, vessels etc.) and 28% are materials.  Of course it does vary from asset to asset and project to project, but it is just to get the point across that it is about the focus on all three areas.  We have focused on people reducing the numbers employed by around 75,000 and reducing day rates, salaries and bonuses.  We have focused on assets reducing the use and day rates for the drilling rigs and vessels but, is it still enough to be competitive?  Two things are left and these both relate to the overall supply chain and how it operates.

Firstly is the efficiency and effectiveness of how we work together using collaboration, harnessing the power of teams, inspiring leadership, effective communication and alignment to a common purpose and goal that will make the UKCS competitive on a global scale.

The second is to become a really strategic and an informed buyer when it comes to materials, chemicals, technology etc.  One quote from last week suggested a piece of equipment was sold into the Oil and Gas industry for $3000 when the costs of making it were closer to $300.  Part of the problem is a lack of standardisation, over specifications and lack of knowledge about the real costs.

Just take Audi / VW group whether a Lamborghini, VW, Audi, Porsche or Skoda many the parts are absolutely standard no matter what the make of car. They know the best cost for every bolt, nut washer, circuit board, then standardise them to reduce engineering, spares, storage etc.

If we then look at the British Cycling team the success was all about the three key things

A longer term and enduring vision which everyone buys in to

The hours of training and practice with excellent coaches

Maintain the principle of marginal gains.  Break everything down you could think of, then improve it by 1% and then when you put it all together again you get a significant improvement in performance.

You might not know this but in 1996 the British Cycling Federation faced insolvency, was closing its only indoor Olympic-standard track and was 17th in the World. By 2012 the BCF was number one in the world.  The first three actions were to - create clarity, create a podium program and to plan backwards.

So back to the supply chain we have people suppliers, asset suppliers and material suppliers.  Could we use the skills better that we develop as individuals with personal purchases when purchasing items for our business?  Could we use a strategy of marginal gains to get 1% improvement in each area?  Finally, could we use a collaborative behaviour and culture and pull it all together?

As around 90% of the costs sit in the supply chain we are all responsible for the health of our industry whether the regulator, the unions, the operators and especially the suppliers. It is when we come together to plan backwards, understand how we get access to finance /investment and have a real competitive advantage that we can collaborate today on those challenges of tomorrow so we can make a real difference.

Just using our company power to drive the costs down so suppliers make a little or no profit or at worst a loss does not work. It just stops or reduces training and development, research and development, support for local communities and drives survival mechanisms.  Not good if you want to go from 17th in the world to number one in under 10 years. It has to be focused on unit costs and competitiveness of the UKCS basin.

A supply chain strategy to ensure the UKCS basin remains competitive is essential and this starts with inspiring supply chain leadership, effective collaboration and excellent communication.   It also requires a vision of where we can be in 5, 10 and 25 years, so we can plan backwards and understand the scenario’s which will help support future success. We then all benefit from this in the longer term.

Think collaboration.  Think creativity.  Think competitive advantage for UKCS.  These could then lead to access to finance and investment for the longer term and maintain jobs in the oil and gas sector. There is a big prize out there if we work together on specific aligned goals for the collective good.

P3L Fusion

Bringing together People, Policy and Processes through Leadership.