There is an increasing focus on supply chain optimisation across all industries, underlining the importance of supply chain management to an organisation’s success. Supply chain management is defined as the strategic coordination of parties and systems involved in the flow of materials, products, services, and information. It enables organisations to optimise efficiency and speed at every stage of the value chain.
For the upstream oil and gas industry, a robust supply chain involves a global network of domestic and international logistics, inventory management, materials handling and information technology. Operating within this complex ecosystem presents unique challenges due to logistics challenges, international shipping and customs, long lead times and operational space constraints.
This article discusses some of the supply chain challenges that can put offshore operations at risk. It explores approaches to achieving a streamlined supply chain for operators to remain competitive and profitable in the marketplace.
Common challenges to effective supply chain management
The upstream oil and gas industry operates in a complex ecosystem characterised by remote locations, demanding logistics, and project-specific nuances. These factors present challenges to effective supply chain management, impacting operations from exploration to production.
1. Remote geographic locations
Driven by the depletion of easily accessible reserves, most upstream companies are forced to venture into remote locations with limited infrastructure and logistics capabilities, such as the Natuna Sea, the South China Sea, offshore Brunei, Myanmar and Vietnam. Securing permits, rights of way (ROW), and building infrastructure such as roads, pipelines, and flowlines pose significant hurdles.
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, hindering the efficiency of exploration, drilling, and production activities, and impacting financial profitability.
2. Transportation/logistical challenges
The movement of equipment and materials used in drilling and production processes, raw materials, waste, fuel, support vessels, among others, across vast distances by land, sea, and air, is a constant challenge.
Delays or disruptions caused by a 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. This can also result in additional costs for extended labour, scheduling issues and long periods of downtime.
Overcoming challenges with a continuous improvement framework
Optimising supply chain operations in the upstream oil and gas sector requires a continuous improvement framework that is aligned with the organisation’s overall business goals. It involves organisational coordination and a culture that prioritises 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 organisational culture and challenges. To optimise 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 organisational 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 organisation. This 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 organisational focus and behaviour.
3. Standardise operating procedures structured performance review meetings
Real life scenario: Applying a continuous improvement framework for maintenance in the upstream supply chain
The challenge
The procurement team in 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 a 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 crews have the parts they need, minimising 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 organisational goals are consistently achieved, contributing to long-term success.
There should be clearly defined operating procedures and performance meetings to review compliance, ensuring 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 Consulting specialises in designing and installing a Management Control System tailored to uncover underlying issues. This is beneficial for organisations 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). Based on our hundreds of successful projects for a wide range of upstream oil and gas operators, we deliver tailored solutions that not only fit your organisational structure but can be effectively managed by your team once the project is complete.
My company needs to optimise underlying processes and implement a robust, continuous improvement framework to transform our chaotic supply chain.
