Why You Should Invest in Your Supply Chain
September 11, 2017
Interested in identifying shared supply chain challenges across the oil and gas industry, we asked three questions to a panel of employees at oil and gas companies. Respondents belong to all levels of the supply chain organization, from team members to senior leadership. The most common answers received from interviewees have been summarized as follows:
Resourcing capabilities, commodity pricing dependency, and underlying culture are the three most commonly cited challenges for change in the oil and gas industry.
To achieve strategic procurement, supply chain needs to be at the table to be part of the planning as well as the execution for initiatives. Existing mindsets need to be challenged – and sacred cows and existing processed examined for efficiency.
Interviewees remain divided regarding if an internal bias exists in the industry against methods from outside the oil and gas industry. While some think that the industry has since moved away from prior bias, citing the increasing amount of consultant engagement, others believe that there is still a reluctance to change that is contributing to an unspoken bias.
Question 1: In your opinion, what are the three biggest challenges for change in the oil and gas supply chain?
The number one challenge interviewees shared is resourcing, more as a function of the lack of diversity of skills and capabilities, rather than a headcount focus (although it was mentioned a few times). Historically, Calgary was a mono-industry environment, and so many of the supply chain resources in oil and gas come from the same background and knowledge base. This results in an identical skill base, and many companies struggle with bringing in personnel from other industries to add diversity. Often, even when resources from other industries are introduced within the company they struggle to gain credibility with stakeholders due to the lack of industry knowledge despite the valuable supply chain skills they can bring.
The second most common challenge is the dependency on commodity prices and the current unpredictability and fluctuation in commodity pricing. During low pricing periods, there exists difficulty in planning for long-term capital expansion projects, and the focus becomes centered around smaller projects focused on increasing existing production. These events are more unpredictable, and it is harder for supply chain to be a proactive partner in the planning stages.
Lastly, the third most common challenge we heard from interviewees was in the underlying company culture for many oil and gas companies. The industry used to focus heavily on tactical procurement, and tends to under-value supply chain as an organization. In fact, in many companies, supply chain is still the first department to face layoffs during a recession – while simultaneously being asked to deliver higher savings. In addition, the oil and gas industry is still risk-adverse when it comes to exploring cost savings opportunities, often giving less weight (or in some cases no weight) to supply chain’s voice at the table. As a result, many supply chain employees still struggle today with viewing themselves as an equal partner and voice for commercials in decision making.
Other notable answers: lack of focus on total cost of ownership and sustainability; Fear of the unknown steers away from long-term contracts; maintaining supplier loyalty with reduced pricing contracts when commodity price begins to rise.
Question 2: What is the one thing you believe oil and gas needs to change for strategic procurement?
The number one answer we heard from almost all participants was that supply chain needs to be a part of the planning, tying themselves into the end to end support for an initiative (from conception to execution). supply chain needs to be involved from the feasibility study of an initiative all the way to supporting the initiative to final execution and actualization.
In addition, there is a need identified by senior leadership to question existing mindsets – particularly with how supply chain has historically operated. Sacred cow projects and existing dogma in traditional procurement strategies need to be examined again. Technology should be leveraged to work smarter, so teams can concentrate on delivering consistent change throughout the organization.
Question 3: From your experience, do you believe there is an inherit bias in oil and gas supply chain towards traditional oil and gas procurement (the way it’s always been done) vs. methods from other industries? If so, why do you think this exists?
Answers to this question were divided almost down the middle. For the interviewees who answered no, they acknowledged that historically there may have been a bias, but believe the industry has shifted to look outward for new methodology, particularly in recent years with the growth of consulting activity in companies. Still, there exists a reluctance to change due to the lack of a quick line of sight to the ultimate value, so many do find it easier to stay status quo.
For interviewees who answered yes, they cite that the industry is still very operations driven and there is still a prevalent belief that if a team member has not been to the field, they are underqualified to source the materials needed. In addition, because both the existing talent and existing leadership in most oil and gas companies are from internal to the industry, the pressure for change is not coming from the existing supply chain team nor the leadership team – the two principal areas that would traditionally drive change.
In conclusion, the oil and gas industry has faced numerous challenges over the last years. The economic struggles encountered by companies in this industry has forced an internal examination of costs and opened the door of opportunity for changes in company culture. However, change takes time – and companies are facing the same challenges across the industry. By recognizing these challenges, we can work together to address them in a manner that is both sustainable and collaborative.
Lastly, a big thank you to all our interviewees who took the time out of their busy schedules to answer these questions for us: Todd Betterton, Catherine Finnie-Wolff, Jennifer Bray, and many others who have asked to remain anonymous with respect to their contributions.