Oil, Gas Supply Chain Leaders to Focus on De-Risking in 2017

During the oil price downturn, supply chain and procurement leaders focused on cost containment. With market activity starting to recover in some plays like the Permian Basin, these leaders should focus on de-risking the supply chain in 2017, panelists said at a recent conference.

Due to massive industry layoffs, the size of the oil and gas skilled labor pool and skilled management to oversee these workers is much thinner. This presents a major concern for procurement organizations, whether they are with an operator or a service provider, Dave Hutchison, global strategic sourcing manager at Repsol, said during a panel discussion at the Energy Conference Network’s Oil and Gas Supply Chain and Procurement Conference Dec. 6 in Houston.

The right practices need to be in place for this de-risking to occur, such as having a good qualification program to vet suppliers, Hutchison explained. Supplier relationship management programs are also critical, particularly if activity ramps up. But even if it remains flat, leaders need to build their supply chain capacity to prepare for future growth.

As the market recovers, supply chain professionals need to work with customers to create a more integrated approach in supporting customer applications, Constantyn Chalitsios, global director of procurement and strategic sourcing at Weatherford International, stated. To avoid amassing all the fat that oilfield service organizations had acquired before 2014, supply chain and procurement leaders will need to leverage existing technology more than ever.

“Supply chain should become part of the fabric of the value chain of a company. This requires a cultural shift where cost reductions are not an afterthought,” Chalitsios stated.

The biggest challenge facing supply chain leaders in exploration and production companies is internal alignment, Tracie Slone, director of global supply chain with Marathon Oil Company, said.

“One of the great things about being a supply chain leader in the past two years is that leaders kind of got to save the day.”

As the pace picks up, getting rigs back to work and hydraulic fracturing restarted will be the priority over value or cost structure. The question now is how supply chain leaders should use internal relationships with operations to show supply chain can drive value in different ways, rather than just savings, Slone said.

“We have to recognize that every type of spending we support has a different type of strategy,” Slone explained. “Rather than using the same technologies, it may be time to switch to a new technology. Getting the operational team comfortable with new technology will be critical for supply chain leaders.”

Continuous improvement in supply chain performance comes down to talent and technology, Hutchison explained. Once a company decides on a business model, it’s important they have the right people, practices, tools, technologies and training in place to enable success. To ensure its supply chain professionals are getting the best deals possible, Repsol has developed a standardized common framework for supply chain negotiations. The company is also looking at ways to measure at a detailed level what is going on in supply chain deals.

“One of the best parts is that we will be able to identify objectively who are our good negotiators and how we can get them more exposure across the company,” Hutchison explained.

It also can help companies determine who’s in the middle of the bell curve, and what kind of training and experiences workers need to enhance their performance, Hutchison added.

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