PwC: Hybrid Model Could Boost Supply Chain Efficiency with Fewer Workers

The report “Understanding Upstream Supply Chain Management: What does good look like?” examines the supply chain challenges that the oil and gas industry has faced in recent years with the advent of shale activity in the United States. The onshore unconventional and offshore conventional are very different worlds in terms of the time horizons for projects and the pace of activity.

In its benchmarking study, PwC found that companies using hybrid organizational models had more than 45 fewer supply chain full-time equivalent (FTE) employees, on average, than did those who were using fully centralized or decentralized approaches. These companies also saw a higher percent of supply chain FTEs identified as “strategic”, higher spend under formal contracts, higher annual average cost savings targets and lower currently inventory values, according to the report.

“Most E&Ps (exploration and production companies) rely on operations expertise for ultimate authority on supplier selection,” PwC noted. “But companies where the supply chain organization was involved to some degree in the supplier selection decision – in other words, where the decision-making process was shared between supply chain and the business – averaged about 1,000 fewer active suppliers than did companies where operations made such decisions unilaterally.”

PwC also reported that companies that did most sourcing and contracting through a central headquarters averaged approximately 40 fewer supply chain FTE than did companies whose main sourcing method was local and regional.

Additionally, companies that had conducted a formal spend analysis in the previous two years generally had higher managed spend per supply chain FTE, higher managed spend per supplier, higher annual average cost savings targets and lower current inventory values versus their non-analytic peers. At average spend levels, companies that conducted spend analysis had 937 fewer active suppliers than companies that didn’t conduct spend analysis. Companies that had formal supplier management programs were leaner in terms of supply chain headcount compared with companies that didn’t have such programs, PwC found.

Offshore projects tend to have much higher degrees of coordination and lead time, while onshore projects happen at a quicker pace; the difference between the two is that offshore timelines span months, and onshore, they span weeks. Because of the longer project horizon, offshore projects have more of a robust process, with multiple levels of approval needed because of the riskier environment, said Ryan Hawk, energy operations advisory leader for PwC, in an interview with Rigzone.

When U.S. onshore plays started to take off, oil and gas companies participating in both onshore and offshore had to find ways to address supply chain needs for both, said Hawk. To cope with the faster drilling cycle times, significantly higher transaction volumes and greater fluidity of plan and rig schedules, oil and gas companies have used strategies such as relying more on blanket or contract agreements rather than traditional purchase orders. Companies are also pushing procurement decisions closer to the assets, and minimizing inventory as much as possible.

Compressing horizons for onshore project timelines meant companies had to change their processes and how they conducted business. PwC saw many companies starting to get overwhelmed with onshore project timelines in the 2012 to 2013 timeline, when onshore production volumes started ramping up.

PwC sees a wide spectrum in terms of the maturity of exploration and production company supply chains. Some independent oil and gas firms don’t even have a formal supply chain or procurement organization. In many cases, supply procurement is simply carried out at the asset level, with no central coordination or visibility into materials and spending. This dates back to how companies traditionally operated before unconventional activity surged.

As unconventionals have developed, exploration and production companies have tried to integrate through cross functional teams, but oil and gas companies are spread along the path as they evolve towards a more professional supply chain. This includes maturity not only in terms of supply chain organizations, but master data for vendors.

The oil and gas industry can learn lessons in supply chain management from the trucking, defense and aerospace industries, Hawk said. These industries mirror a lot of components of the oil and gas industry, such as very repeatable operations. The decline in global oil prices mean that people are looking to get more out of their supply chain in terms of more efficiency and lower costs. One of the key surprises to come out of the study is oil and gas companies’ openness to realizing they have to learn from other industries.

PwC sees increased automation in supply chain processing as one way oil and gas companies can provide substantial value for their companies. PwC also recommends increased strategic sourcing and true category management, along with better, cleaner master data, as ways of adding value.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at


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