BP Caps the Hole: Closure, or the Beginning of a New Era?

The announcement that BP finally capped the oil today brings about a number of questions related to on-going exploration in the gulf, the future of oil in the US, and implications for contract management and supplier relationships.  One factor that is increasing the risk exposure of a supply chain disruption is the increasing propensity of companies to outsource processes (like drilling platform management!) to external suppliers. The complexity associated with multiple hand-offs in global supply chains increases the probability of disruptions.  As the number of “hand-offs” required to ship products through multiple carriers, multiple ports, and multiple government checks points increases, so does the probability of poor communication, human error, and missed shipments.

In the recent BP event, it is increasingly clear (with the release of the BP Report) that multiple issues were responsible. The BP report paints a picture of what happened (which was first identified in a seminal WSJ article).  In the end, like so many disasters, it was a series of tiny errors, bad calls, mis-judgment, poor communication, and inexperience that led to this disaster.  Without going into all of the technical details, this boils down to the fact that deep sea oil exploration is a tricky and complex business, and that in a rush to cap the well, rushed decisions were made that led to a major disaster.   The men who lost their lives on the well were experienced, hard working individuals, who knew what they were doing.  But it was a series of errors that led to this disaster.

The cap marks not so much a closure to this issue, but an on-going set of challenges for BP and the industry.  In addition to the plethora of lawyers lining up to make their fees, there are many other issues to consider.  Executives much begin to address the dichotomous challenge of seeking to control costs and manage core competencies through outsourcing to global suppliers and while minimizing the risk associated with these newly formed supply networks. This problem can be summarized in the following research questions:

What actions can managers take to reduce the impact and frequency of unexpected supply chain disruptions while also reducing cost through a global sourcing strategy?

How can managers develop better contracts and supplier relationships to better forecast potential risks, develop contingency plans, and establish collaborative approaches to supply chain risk reductions?

We hope to address these issues in our on-going research into these areas over the next few months….(See story)