Background
The drilling of oil and gas wells is a crucial activity carried out by exploration and production (E&P) companies to extract valuable hydrocarbon resources from beneath the Earth’s surface. It is a complex and capital-intensive process that requires expertise in geology, engineering, and operational management. E&P companies constantly strive to improve drilling techniques and technologies to enhance efficiency, reduce costs, and minimise environmental impact while maximizing the extraction of valuable energy resources.
Our client is engaged primarily in the drilling of oil and gas wells for exploration and production companies. It is a global enterprise with land operations across the United States, offshore operations in the Gulf of Mexico, and international operations in South America, the Middle East, and Africa.
The client has been a top industry performer for over 95 years and is committed to maintaining this reputation through unparalleled innovation and service. We had already been previously involved with the client through a 15-month implementation of rig operations improvement and organisational effectiveness assignments. That gave us the foundation we needed to transform the client into a world-class supply chain organisation.
Analysis
Our analysis revealed that the client was rooted in building and operating drilling rigs. Management was centred on — and driven by — operations and engineering. Sourcing of materials and supplies to support drilling operations had evolved as a totally decentralised supply chain. This resulted in a company with five separate supply chain operations — and very limited cross communication, integration and leverage.
Based on individual sourcing at the rig, and due to the client’s organisational structure, the potential benefits to be delivered were not recognized. With oil price fluctuations, the client had been trying and struggling to keep up with growth and market pressures.
Project Approach
Based on the results of our analysis, we began our transformation roadmap by installing an improved management control system (MCS) with effective operating metrics and KPIs. The MCS included reporting to senior management on initiatives underway and weekly savings opportunities. With the increased visibility, the client was able to enforce efforts in supply base reduction, catalogue consolidation, and consolidation of vendors and contracts.
The next phase in our roadmap involved setting up a formal RFQ process for key commodities and services. Many of these were previously procured ad-hoc with no formal supplier qualification, competitive bidding, or supplier management. In one area alone, we were able to help the client reduce total costs by 25% — about US$1 million — simply by reducing mobilisation, travel, and ancillary charges.
Finally, the project focused attention on raising the participation of Supply Chain department with other key functions in the organisation. The client’s culture transformed from a culture of silos to true integration of development and solutions, across all functions, not just with Supply Chain.
Project Implementation
We worked with the client’s project team to install an MCS that updated and set standards for weekly alignment meetings both within the centralized Supply Chain department, and with inventory control specialists in the field. We also installed metrics for reporting status and results from the various sourcing and fulfilment activities in support of field operations.
As the Supply Chain department continues to gain stature, they have been able to facilitate other aspects of supply chain management. An example is the planning and scheduling of structural audits. These were previously scheduled ad hoc by rig managers or engineering without visibility, or a perspective of the total cost involved. In some cases, mobilization, per diem, and overtime costs represented over half the cost of the audit.
With contracts in place and centralized planning and scheduling, the client will be able to further reduce costs beyond the savings generated from the RFQ process.
Our core principles relating to MCS, KPIs and performance management governance structures proved invaluable in taking a methodical approach to creating a solid foundation of core processes for the client.
Key Results
Over US$22 million
In overall savings
