Supply Chain Prominence in O&G Industry
By Sanjeev Madavi, May 29, 2015
The O&G [Oil & Gas] sector has been plagued by price pitfalls over the last 9 months. Apparently, this puts a lot of strain on the productivity within the sector for deploying critical resources towards improving the oil production, reduce production related costs, and improve margins. It is a well-known fact that E&P [Exploration & Production] companies want to draw out maximum oil so that they can sell it while the oil price per barrel gives them maximum margins.
However, just like in every other industry sector, market sentiments and geopolitical forces play a pivotal role in the oil price fluctuation also; notwithstanding the fact that the oil company itself may run into events, which can erode shareholder’s trust and thereafter their investment due to production disasters (for example: BP Deep Water Horizon) or unsound economic principles.
It is a well-known fact that O&G companies try to explore newer avenues for cost reduction and efficiency enhancements whenever the oil selling price gives them low or negative margins. This is when the ideas fly in various directions from drilling more efficiently to renegotiating vendor agreements to reduce operating expenditure and cut marketing campaigns. Besides, there is another vital factor that they definitely want on their decision charts – supply chain!
As per the general principles, supply chains consist of complex, interconnected, and integrated networks of resources, namely – people, companies, material, machinery, goods and services that help you do whatever you do (mining, manufacturing, assembly, production or a combination) in the most efficient manner (be it on cost or service or time) and deliver it to your customer(s) at the desired time in the desired state and quality. Across industries, companies perform standard and mandatory periodic exercises to plan, execute, monitor, and review their respective supply chains.
Across industries, supply chain characteristics are no different; while the O&G supply chain displays same characteristics as other industry chains, the stakeholders and participants have set same expectations and have the same type of opportunities, limitations, and competitive advantages [which separate the aspirants from the acknowledged].
At a high level, you can slice your supply chain in many ways – demand gathering, procurement, inward supply, processing and value-add (if any), transportation and distribution, warehousing and storage – until the point and time of consumption of the goods or services or both. This blog is going to explore the above areas, either in isolation or coupled with one or more of the other areas to find out the current scenario and what can be improved further.
(To be continued…in the next blog)