Procurement Tips for the Oil and Gas Industry

The following guest blog comes to us from Megan Ray Nichols of Schooled By Science.

Every drop in crude prices sends oil and gas companies scrambling to find savings in their discretionary spending and their ongoing expenses. The energy sector is sitting on untapped potential and readying billions of dollars in investments in 2019, but this isn’t always the case. When seasons of slow demand hit, some companies end up shelving their anticipated projects to protect their bottom line.

Making reactionary changes isn’t the way to go, though. Players in the oil and gas industry need to take the longer view to remain stable and solvent. Taking a greater interest in how your company procures replacement parts and other essentials is one great place to begin your push for optimization.

Find Ways to Cooperate and Consolidate

Buyers and sellers can often find ways to cooperate with one another to achieve mutual savings on one-time or ongoing purchases or expenses.

For example, transporting equipment or batches of parts can be expensive. So work with other parties to combine shipments and save on freight. Transportation costs can be a significant expense when remote oil fields are involved, so any opportunity to consolidate such efforts between partners, or rework multiple parties’ schedules for maximum overlap and efficiency, could be a great cost-saving move.

Get Involved in the Design Process

Whenever possible, it’s a good idea for oil and gas companies to get involved in the development and design processes for the parts and equipment they rely on. This provides several advantages.
First, it lets all parties collaborate better in the name of standardization and modular design. Reusing basic designs and features helps avoid uncertainty and complexity, and it ensures current inventories of spare parts work with newer equipment.

Second, working closely with parts suppliers and designers helps reveal opportunities to make cost-saving or expense-reducing design changes or parts substitutions. For example, balancing high-pressure flow against the possibility of equipment damage is a major challenge in this field. A different type of seal in a high-pressure pump could be the switch you’ve looked for to reduce maintenance tasks, equipment downtime and money spent on spare parts that wear out before their time.

Be Open to New Bids and Renegotiation

Comfort is easy. And relying on the same vendors for years at a time is definitely comfortable. If it’s been a while since you actively took a look at new bids from competing alternative vendors, now might be a good time. If you find that somebody else has a better price or more convenient services, don’t be afraid to negotiate with somebody new — or, as the case may be, renegotiate with a party you’re already familiar with.

Insulate Yourself Against Risks

Knowing how to detect and mitigate risks is a huge part of optimizing your parts supply chains. There are a few ways to go about this, including performing supplier audits to better understand their performance over time and the degree of risk they bring to your supply chain.
It’s also well worth taking the time to understand which technologies can bring security to your spare parts supply chain.

Counterfeit goods are a major source of frustration, unnecessary expense and reputational loss in a variety of industries. But solutions built with blockchain already help companies improve the authenticity and traceability of their supply chains and ensure they rest easy in the knowledge that they get what they pay for. Like it does with cryptocurrency, blockchain provides a unique identifier to spare parts during manufacturing, ensuring they can be traced or recalled if the need arises.

Use Scenario-Based Planning

The best procurement teams take a broad view of the entire sector’s outlook and plan for specific scenarios based on the state of the market, competitor moves and any other evolving conditions which may affect the flow of vital parts and materials. Each scenario should include details on every eventuality and how the company plans to react.

Here are some examples of events an oil and gas company may wish to develop scenario-based responses to:

• Geopolitical shifts
• Natural disasters
• Cyclical and unexpected spikes in supply or demand
• Disruptions to public infrastructure
• Mergers, acquisitions, and other competitor activity
• Urbanization and changes in population density and distribution

With the right approach to scenario-based planning, your company could potentially fool onlookers into believing you can see the future.

Engaging in data mapping of these and other meaningful variables in your region, like areas that are booming in terms of re-locations for new jobs, helps companies think a little deeper and more strategically about their distribution networks, potential business partners and supply chains — and have their networks for parts and materials ready so they can hit the ground well before the competition.

Make Cost-Consciousness a Cultural Matter

When crunch time hits and global events send crude prices spiraling downward again, don’t get caught up performing knee-jerk cuts to your budget like buying thinner coffee filters for your worker break rooms. These kinds of cuts will make only a very small difference in the very short term. Worse, they can damage morale.

Instead, cost-consciousness has to happen across the organization all of the time — and that begins with cost transparency. Purchasing can be difficult in this industry because folks in the procurement department aren’t always the people who end up using those tools and parts. Consequently, they aren’t in the best position to tell the difference between “cost” and “value,” or to weigh an expense from one department against what it brings to the rest of the company.

In other words, cost-consciousness requires a holistic view of the organization and its many parts as well as a commitment to cooperation and collaboration.

You may have some procurement pro tips of your own, but hopefully now you have a few other ideas to work with. Keeping any company supplied with the right parts over time is a challenge, but it tends to get easier with the application of logic, some strategy and a touch of cooperation with your business partners.