Globally, there has been a growing focus on supply chain optimization across all industries to reduce costs while increasing an organization’s responsiveness to market and/or customer demands. Supply chain management requires the seamless coordination of various parties and systems to ensure the smooth flow of information, materials, products, and services, to enable operations to optimize efficiency and improve the speed at every stage of the value chain.
For the upstream oil and gas industry, characterized by its extensive operations across multiple geographies, the supply chain is even more complex, involving a network of logistics and transportation management, procurement, inventory management, technologies, and materials handling.
This article highlights some supply chain challenges that can put upstream operations at risk. It discusses effective strategies – tried and tested in Renoir’s 30 years of experience – to help operators streamline their supply chain to remain profitable in this competitive industry.
Key upstream supply chain challenges
Seamless maneuvering within the complex supply chain of an upstream oil and gas operation is challenging due to complex logistics across remote locations, long lead times, and project-specific nuances. Mismanagement of the supply chain can have a negative impact affecting operations from exploration to production.
Remote location
As the growth and sustainability of an operation depends on replenishing or increasing reserves, companies must constantly find and develop new sources of oil and gas. As a result, most are forced to venture into remote locations, which can pose significant challenges to operations, whether on onshore in North Dakota and Pennsylvania in the United States or offshore in the Gulf of Mexico.
Securing permits and mineral rights, rights of way (ROW), building infrastructure such as roads, pipelines, and flowlines can increase costs and hinder the efficient movement of oil and gas. Recruiting skilled personnel is even more challenging in these remote areas, resulting in reliance on travel-intensive contracting solutions. This fragmented approach creates disruptions throughout the supply chain, reducing the efficiency of exploration, drilling, and production activities, and impacting financial profitability.
Logistics and transportation
The movement of equipment and materials used in drilling and production processes, raw materials, waste, fuel, support vessels, and others over vast distances by land, sea, and air, is a constant challenge.
Delays or disruptions caused by a third-party logistics provider can have a significant impact on project timelines, and result in millions of dollars lost in downtime, particularly for rigs operating in deep water.
Continuous improvement framework for an efficient, seamless supply chain
Optimizing supply chain operations in the upstream oil and gas sector requires a continuous improvement framework that is aligned with the organization’s overall business goals. It requires organizational alignment and a culture that prioritizes the right people, assets and services through detailed planning.
While industry best practices provide a foundation, it is critical to understand and address your unique organizational culture and challenges. To optimize your supply chain, consider the following components of a continuous improvement framework:
1. Implement a Management Control System (MCS)
The MCS is an important procedural change that promotes organizational learning through the systematic use of the Plan, Do, Check, Action (PDCA) cycle. The system enables data to be collected and mapped across operations, to understand the current state of your organization. This system also enables the development of targeted initiatives on critical areas for improvement, outlining the planning, execution, and management of work processes.
2. Establish Key Performance Indicators
The introduction of an MCS also enables the implementation of clear and actionable Key Performance Indicators (KPIs) that support process improvement and clarify accountability, thereby shaping organizational focus and behavior.
3. Standardize operating procedures structured performance review meetings
Actual scenario: How Renoir applied a continuous improvement framework for maintenance in the supply chain for an upstream client
The challenge
The procurement team of an upstream oil and gas operator focuses solely on ordering spare parts for maintenance activities. They lack visibility into the progress of orders, resulting in missed delivery dates and poor On-Time In Full (OTIF) performance. As a result, the required spare parts may be insufficient or missing during planned maintenance. This inefficiency results from a lack of KPIs to track performance across different teams.
The solution
Implementing an MCS allows the team to track the order progress, providing transparency throughout the delivery process. KPIs established through the MCS provide insight into performance metrics such as OTIF, enabling proactive intervention and continuous improvement.
By providing data on stock levels and lead times, the MCS enables better planning of maintenance activities, ensuring that crews have the parts they need, minimizing delays and improving safety.
This framework, anchored by the MCS, therefore promotes a culture of continuous improvement through planning, measuring and adjusting. This daily cycle ensures that operational and organizational goals are consistently achieved, contributing to long-term success.
There should be clearly defined operating procedures and performance review meetings to ensure compliance and a high level of operational discipline. These meetings should provide clear answers to “who is responsible for what” and “how are we performing”. Information from the action and decision log feeds into the KPI report, enabling immediate corrective action to meet daily, weekly, and monthly targets.
With 30 years of experience, Renoir specializes in designing and installing a Management Control System tailored to uncover underlying issues. This is beneficial for organizations struggling with a chaotic supply chain that is impacting their day-to-day operational efficiency.
As a third-party consultant, our subject matter experts provide an impartial assessment of your current supply chain ecosystem (as-is). We deliver tailored solutions that not only fit your organizational structure but can be effectively managed by your team once the project is complete.
My company needs to optimize underlying processes and implement a robust, continuous improvement framework to transform our chaotic supply chain.