Driving Supply Chain Engagement in Oil and Gas: NOW is the Time!

I recently participated in a workshop of oil and gas leaders in Calgary Alberta. With the announcement of $30/bbl oil, the long-term view of the oil and gas industry is that it is going to be a long time before oil goes back up to prior levels of $50/bbl plus, and may never reach the levels of prior years. The need for oil and gas companies to re-think their supply chain operating models has ever been greater. This was echoed by many of the comments of leading companies participating in this effort. Some of the comments that came out included the following:

• There is a gap in people skills, and negotiation and conflict management is key. People are struggling to deal with difficult situations brought on by economic challenges, and the ability to derive appropriate solutions when having challenging conversations will be key. Pulling in market opinion and cost models can help diffuse many of these problems.
• We need to understand what is truly “best in class” for market and service providers. What is happening not only nationally, but what does it look like regionally. Building a market opinion on the required level of capabilities is critical to ensure we are establishing the service expectation, and establishing a dashboard to monitor the relationship is key.
• Logistics is a major opportunity and logistics knowledge is low.
• SCM is too focused on their own abbreviations and alphabet soup. Business stakeholders don’t care about what SCM people are talking about. We need to speak in their language.
• We need to be able to work more closely with suppliers, and align them with our business stakeholders to survive. We have to find different ways to be effective. Taking heads out of the business isn’t a solution to the problems we are facing. We have a key role to play with the business partner, and we need to get internal alignment and include them in the business solutions that will result in value. The biggest challenges are the people problems, and we need a process to address this.
• SCM is about the multiple organizations that are in the network – the producers and the distributors – and there is a tremendous need to get everyone to pull together in the same direction. We are too worried about price, and not about solutions that drive value.
• The biggest and most important skills in the supply chain that are in short supply are commercial acumen and business relationship skills. How to establish deals that work for both parties and that both can commit to. How do we become a customer of choice – the current environment is when we need your suppliers more than we’ve ever needed them.
• Our business partners are walking in the room and asking us to please help them. Back when a barrel of oil was $100, nobody cared. Our CFO is acutely aware that supply chain can deliver value. Now is the chance for supply chain to stand up!

These comments are very similar to ones I heard in workshops during 2008-2009 and one of my observations was that people were frozen and didn’t know what to do. They extended payments out to suppliers to save cash. They cut training. But they didn’t act. What I emphasized then – and what is applicable now – is that action is required. This is an opportunity for the SCM organization to deliver real value – in a time of need. But SCM needs to be able to make the business case, to begin to harness suppliers to create innovative approaches to drive value and sustain the business because this is something that is not a blip there will be major fall out in the industry.

The biggest opportunity today is in working capital – driving cash out of the supply chain and what is one days of working capital to your business! Logistics is a big opportunity!

Organizations in the oil and gas industry, as well as others, need to develop a business process that can help to deal with the current challenges in the current environment. This is a process which begins with engagement of stakeholders, understanding their needs, and development of market research and market opinion, leading to a strategy, and building of cost models and converting into a negotiation strategy, followed up by execution management.  Now is the time!