Three Ways to Drill Down Costs in Oil & Gas Supply Chains

Here are three ways companies are optimizing their oil and gas supply chains and creating more predictable financial returns.

A few years ago, rising energy prices were the main concern of the oil and gas market. Today, the price of oil has dropped to its lowest levels in years. New markets, extraction breakthroughs, and shifting geopolitical relationships are also affecting financial returns. The resulting market volatility is forcing the energy sector to rein in costs by maximizing their supply chain efficiencies. The oil and gas industry faces a wide range of logistics challenges along the upstream (exploration and production) to downstream (refining and marketing) spectrum.

Here are three ways companies are optimizing their supply chains and creating more predictable financial returns.

1. Increasing supply chain visibility. In oil and gas supply chain operations, companies must balance the high cost of downtime with the expense of carrying slow-moving parts and supply inventories. The difference between profit and loss can depend on losing a drilling day or even a week of production from waiting on parts, and companies can miss out on millions in sales because their supply didn’t meet demand.

Companies need a clear view into the operations of the suppliers, projects, customers, and business processes to ensure complete tracking and monitoring of the movement of goods. Using technology enables real-time tracking and the ability to immediately and proactively address issues as they occur. With real-time supply chain visibility, companies can benefit from lowered safety stock inventory levels; shortened inbound supply lead times and order cycle times; and reduced purchasing and order expediting costs.

2. Improving compliance. Oil and gas producers must deal with changing regulations, numerous government agencies and complex import/export requirements from multiple countries. Many materials used in the oil and gas sector are highly controlled, including explosives and hazardous or radioactive materials. Deemed exports and controlled technologies—the transfer of sensitive U.S. technology information or material to foreign nationals—also requires an export license. Avoiding shipments to embargoed countries (such as Iran) and entities is yet a third export compliance consideration.

As mentioned earlier, the speed of the supply chain can make a tremendous difference in bottom line performance for oil and gas companies. In addition to the distance and geographic logistical challenges of an international operation, there is an additional challenge—customs clearance. Getting replacement parts through customs quickly can be an issue. Knowing the customs requirements for each country in advance of clearance is imperative. Using technology to highlight the regulations and documentation requirements before the emergency occurs is imperative. Leveraging the same technology to manage the compliance information and supply chain execution, can virtually eliminate the customs clearance bottleneck. Even the best operating global supply chains can be thwarted by customs clearance issues.

3. Enhancing supplier collaboration. Procuring goods from international suppliers is wrought with complexity, with oftentimes diverse supplier bases, geographies, time zones and government regulations. These complexities can lead to communication problems, inventory shortages and improper goods documentation.

An interactive supplier portal promotes efficient communication with partners and enables prompt decision making around issues such as diverting inventory or resolving bottlenecks. By extending purchasing and compliance processes to inbound trading partners, buyers can manage all facets of the purchase order (PO) process with their partners. Shortened cycle times, improved service levels, lower supply chain execution costs, reduced regulatory risks, and better support of compliance initiatives are the result.

Applying these three techniques can lower costs and flatten the variables in your supply chain. A global trade management solution can assist by streamlining and automating the business processes associated with conducting global trade, including compliance with global import and export controls, supplier management and supply chain visibility.

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