Tier 1 oil marketers expected at least 40% of their sub-suppliers to file for bankruptcy due to lower oil prices. Industry companies needed to cut operating costs by up to 50% to break even.
Unfortunately, most businesses still rely on traditional cost-cutting methods, most of which fell short in the face of the COVID-19 crisis. In fact, conventional cost-cutting measures often jeopardize a company’s future.
Addressing this crisis required a more sophisticated approach to supply chain management. Oil and gas companies need to develop new risk management toolkits. Below are some key actions to take to better position yourself for your response.
Supplier Risk Intelligence
Supplier risk intelligence is essential to understanding current and potential future risks. The oil and gas industry has a vast network of equipment, technology, and personnel suppliers. Ultimately, oil and gas companies bear the entire risk of their supply chains if they lack proper supplier relationship management.
The industry needs greater visibility. By benchmarking supplier performance, oil and gas companies can stop doing business with companies that lag in safety standards, staff training, and adequate staffing.
Supply Chain Mapping
Supply chain mapping analyzes the geographic sources of the items you procure. It helps identify key distribution routes and reveals vulnerabilities resulting from over-reliance on a single country or market.
This is a focused process that verifies supplier locations and subcontractor locations. In the event of a disruption, companies with a good mapping process can predict how their supply chains will be affected in the short and long term. We have ample lead time so that you can plan accordingly.
Supply Chain Market Intelligence
The procurement of oil and gas is volatile in nature. It is intertwined with the foreign market and geopolitics. Industry affects every sector of the global economy. Oil and gas companies must constantly search for information about their supply chain. For example, investigations are required to locate bottlenecks when lead times increase. The organization then evaluates if alternatives need to be found.
Intelligence also includes analysis of spending categories and determining if there is a need for optimization. For example, if most of the procurement budget is spent with suppliers, the company should negotiate to use favorable terms. If not, the company may consider working with another supplier.
Institutionalizing Capability Requirements of Supply Chain
As the oil and gas industry begins to realize the need for a modern approach to supply chain management, it needs to consolidate supply chain talent needs. Talent acquisition is expensive due to the shortage of modern supply chain professionals. You need to be able to ingest massive amounts of data and make critical decisions quickly. But they can also be a big competitive advantage.
Companies should also choose suppliers based on their sustainability orientation. ESG is no longer just a buzzword among investors. Companies take concrete actions to demonstrate their commitment to sustainability goals. Companies must hold their suppliers to strict, practical standards related to ethics, corporate governance, and sustainable business practices.
The Value of E-Procurement Technology
Oil and gas supply chains can become more agile with e-procurement solutions that improve decision-making accuracy. Businesses can profile suppliers by location for better supply chain mapping. Robust source-to-pay software visibility to Tier 1, Tier 2, and even Tier 3 suppliers.
The availability of such information will improve risk assessment and mitigation. If your business is in the oil and gas sector, Prismecs oil and gas procurement services can help you develop a strategy for dealing with the sector’s complexities. We can build custom software solutions to fit your business needs.
Dolya, A., & Bliznakov, K. (2020, June). A New Reality for Oil and Gas Procurement and Supply Chains. https://www.bcg.com/publications/2020/new-reality-oil-gas-procurement-supply-chain