Oil & Gas sector firms risk being left behind by technological change unless they manage their supply chains effectively.
The challenges facing procurement in the oil & gas sector are varied, considerable and long term. Unless they are identified and managed now they could compromise their companies’ ability to continue to deliver a holistic quality service to their customer base. To enable business retention procurement needs to be driving the development of supply chains that support this effort. Oil and gas exploration and development has changed beyond all recognition that what it resembled at the beginning of the century. Back then the challenge facing procurement was developing a supplier base that as well as coping with existing demand could effectively provide new technology goods and services for ultra-deep E&P applications. During the first decade oil and gas prices and demand then climbed to the extent that operators started to develop fields that had been discovered previously however left alone till market forces dictated otherwise. Additionally huge new sources of oil and gas started to be discovered and opened up that in turn is altering the whole dynamics of technology as well as power of supplying countries: new major slack oil and gas fields, oil & gas shale, coal seam gas and methane territories; these are being identified and developed on a worldwide basis. Current market indications are that, although quieter due to economic and political factors it shall return and grow, as increasing global energy demands shall require this to be. As an indicator of forward projections a recent resources seminar highlighted that, in terms of car ownership per 1000 head of population, in order for India, (38/1000) and China (101/1000) to equalise with Australia (723/1000) these alone pointed to ever increasing demand for fossil fuels and this did not mention the remaining burgeoning economies of SE Asia. So what challenges are out there? The shift in dynamics, although generally predicted, has still caught the industry somewhat flat footed. The infrastructure is still being stretched to respond to present demand. Supply availability ex Far East fabricators and valves ex Italy are examples. Lead times for primary materials are lengthy, which in turn is having a negative impact on goods production further along the supply chain. Lack of forecasting and subsequent short-notice demands do not help this situation. Suppliers have been and continue to be pressured to reduce lead times, with no prospect of any relaxation anytime soon. To manage this situation better, procurement needs to work very closely with current and potential suppliers to provide information that will enable better planning of sufficient capacity and hence meet business needs more effectively. This sentiment has been referred to in a recent blog as well. Going forward the work that will be generated and the investment required to take this head on shall continue to be substantial and in addition to current work levels within the sector. If this is to be effectively managed, procurement needs to be aware now of what this will mean, so that early supplier involvement and new supplier development programmes can be planned and introduced in time.
As exploration and production activity opens up new sources of resources provision, challenges will increasingly revolve around competitive technology. Case in point is with the gas and shall oil and gas fields. The technology required to make this a reality very much differs from what currently exists, and may require the identification and establishment of an independent supply base.
In addition to developing new fields and squeezing as much resources as possible from these and existing ones there is now a growing requirement for decommissioning spent fields. This in turn shall require supply capacity and in all possibility from the existing identified resources sector suppliers. Procurement needs to be working closely with their suppliers to ensure that they have a proper supply infrastructure in place, from capacity and R&D perspective and in time to meet these needs. It may well be the case that those suppliers that are key for current business cannot be so in the future. However, this requires proper investigation now. The oil & gas industry won’t accommodate those suppliers that are unable to meet the challenges presented to them. Instead, it will take its business elsewhere and to those suppliers that have done all of the necessary research and have the right holistic set up. It’s up to procurement to ensure their own companies can accommodate.
