Strategy for improving supply chain and logistics precision

June 8, 2011

Offshore service companies have traditionally faced formidable supply chain, inventory, and logistics challenges as their work takes them to some of the world's most remote locations. Recent price pressures have added new complexity to the equation. Oracle's Charles Karren looks at how one company is leveraging expanded business intelligence to surmount these challenges and improve supplier performance as well as inventory and logistics management.

In December 2010, IHS-CERA issued a report with the headline: Costs of Operating Upstream Oil and Gas Facilities Begin Measured Rise. After a year in which costs moderated from the 2004-2008 steep rises, increased drilling activity in the offshore area began to create supply chain and logistics capacity constraints. These constraints continue to drive project costs for service companies operating in Brazil, deepwater Gulf of Mexico, and West Africa.

In addition to rising costs, service companies also face enormous supply chain procurement, inventory management, and transportation and logistics visibility issues as they procure and ship equipment and assets around the world, especially to remote offshore assets. Operating offshore, service companies need to be able to sense demand quickly, increase responsiveness and improve the agility of the supply chain and logistics network at the strategic, tactical, and operational levels. Furthermore, service companies operating in the offshore sector have faced enormous additional challenges, including:

  • improving the operations planning process that incorporates risk mitigation;
  • determining a right-sized inventory; l implementing accurate, demand-based replenishment; and
  • monitoring supply chain and logistics improvements continuously.

The resumption of cost increases and a continued lack of visibility are driving service companies to adopt new approaches. Many are looking to new technologies to improve supplier performance, collaborate with both operators and vendors, optimize inventory, and reduce holding costs and material shortages. Many are also using transportation planning and execution capabilities to bring these materials to an offshore asset.

Improved visibility
One of the largest global providers of innovative mechanical solutions, technology, and services for the drilling and production sectors of the oil and natural gas industry has been at the forefront of adopting these new strategies. Underlying this is a commitment to:

  • continuously improve the efficiency, productivity, and quality of its products and services;
  • develop and commercialize new products and services capable of meeting the evolving needs of its customers and further extend its global infrastructure in scope; and
  • scale at a level consistent with meeting customer demand for its products and services.

Specifically, the company faced supply chain challenges. Its inventory was large and contained multiple products and equipment, and it operated in remote locations, including servicing deepwater operations. Furthermore, inventories have been allowed to build up over time, and the company did not hold anyone accountable for inventories as they continued to grow.

To execute on its business strategy, the company needed to increase its working capital through better inventory management controls and insight. To support this goal, it launched an oil & gas business intelligence initiative, built on Oracle technology, to provide a 360° view of its operations.

As part of the initiative, the company created a single data warehouse and gained the ability to extract data from more than 3000 operational tables – in multiple software sources – and load it into the warehouse. In tandem, it expanded capabilities for analysis and reporting order, inventory, fulfillment, and receivables data. The new environment also supported the creation and monitoring of benchmarks by embedding best practice calculations and metrics for financial users, executives, and other business users. A best-practice library of over 250 pre-built intelligence dashboards, reports, and alerts – designed for specific roles in the company – provides personalized intelligence for sales representatives, analysts, managers, and/or executives.

The company is significantly improving its supply chain precision with its new business intelligence environment, including significant gains in the following areas:

  • business scenario planning for key decision makers;
  • integrating analytics and planning;
  • continuous improvement;
  • detailed scheduling; and
  • expanded visibility for the executive suite.

Scenario planning
When making supply chain decisions, the service company often needed to consider alternative business strategies, such as:

  • which products should be produced/ stored in which locations?
  • in what quantities?
  • how many locations are needed?
  • what's the risk-adjusted profit associated with reducing locations?
  • what might happen with global demand in the next five to ten years?

Now, the company can define business planning scenarios that represent these alternatives. To execute the scenarios, personnel assign tasks that trigger collaboration between the various stakeholders who are executing the various elements of a scenario, such as creating a consensus forecast, making inventory postponement decisions, and running supply plans. They can also attach related documents that provide background information or illustrate why or how a task needs to be executed. Once scenario tasks are completed, personnel can analyze the supply chain metrics, which are comprised of linked demand and supply plan data in a uniform and consistent format.

For example, personnel are now running daily, weekly, and monthly sales and operations process baseline plans and comparing them to alternate scenarios that calculate the effect of planned and unplanned supply chain events in that month. They can also analyze the supply and demand metrics of their last operational plan run and compare it with the plan that was calculated the day before.

Analytics and planning
When performing root-cause analysis on supply chain planning problems, personnel can easily translate very detailed planning information into performance metrics that quickly illustrate the impact of a specific business scenario.

For example, the company was able to expand visibility of sales information to serve its global team and quickly incorporate variances into forecasts for more accurate projections. Once the variances were identified, a plan of action could be then executed and personnel could be held accountable.

Continuous improvement
Personnel are now able to calculate a variety of key performance indicators, such as how much global inventory the company was carrying. In combination with extensive reports and workflowenabled exception alerts, users were able to discover areas for focus, as well as to track the benefits of continuous improvement programs. As a result, the company was able to slash $8-$10 million inventory.

Detailed scheduling
Personnel can now provide scheduling results down to the minute, which enables the company to ensure that the equipment and assets are delivered to the well site as needed. An example of the detailed scheduling includes sequence scheduling of equipment to meet shipping time requirements to offshore bases and then to the platforms. As a result of increased scheduling capabilities, the company was able to achieve 50% monthly shipment increase, boosting delivery times and fostering product line expansion.

Expanded visibility
Most important, this service company's executives, including the chief financial officer, now have on-demand access to information on the company's entire inventory. This includes:

  • ability to measure actual inventory against target inventory; 
  • inventory by branch plant/product line/region;
  • inventory turns;
  • inventory by day/week/month across all product lines; and
  • the ability to support multiple product hierarchy analysis to corporate accounting and engineering.

The most important aspect for executives is the ability to hold managers accountable. With a business intelligence solution, executives can see the issues immediately and begin to work with managers to correct supply chain and inventory issues. With this level of visibility, the company is positioned to optimize, rationalize, and reduce inventory. In addition, executives can validate that the cuts are actually implemented.

As service companies feel increased cost pressures, they are looking to generate new efficiencies in their supply chain and inventory management processes. Extended visibility and real-time information are essential to this goal. Companies that focus on improving planning capabilities that support inventory management and scheduling of materials and resources will be positioned for success in today's market and the years ahead. OE

Charles Karren is the director of oil & gas industry strategy for Oracle. He is part of Oracle's global industry business unit and is responsible for strategy, planning and industry relations for the oil & gas industry.

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