Most people don’t realize the size and global scope of the oil and gas industry’s supply chain, which includes three entirely different types of organizations under one roof: upstream (exploration and production), midstream (processing, storage, and transportation), and downstream (refining and selling). This industry, unlike any other, can stretch efficiencies within supply base management, but can benefit the most from it. In fact, supply management operating expenses per employee are the highest in the oil and gas industry, by an average of over 20% (according to CAPS research).
- After a recent wave of mergers, oil and gas companies find themselves mining internal knowledge, capabilities, and processes to further leverage their economies of scale.
- The effects of globalization, from new production sites to the expansion of NOCs moving out of their traditional markets, have brought a proliferation of new potential suppliers to the oil and gas industry.
- Many of these suppliers, whether first-tier or subcontracted, are acquired from new markets (often ones with economic or political uncertainty).
- The demand to identify these suppliers, prequalify them, enable them, monitor their performance, and mitigate geopolitical risk has strained existing supplier management systems.
Forging new supplier relationships requires significant time and investment. Organizations benefit long term by working with local and strategic suppliers to further develop their capabilities and efficiencies. Cross-functional teams need current and deep insight into the supplier engagement, areas for improvement, and plans for development.
Due to recent disasters in the industry, often in relation to supplier failure, many oil and gas companies have embraced CSR standards. CSR is not only vital to reputation, but business sustainability. Additionally, as oil and gas companies deal with a wide variety of risks throughout the supply chain, standards and regulations are playing an increasingly important role. Ranging from safety (e.g., HSSE) to transportation (e.g., DOT), the laws and regulations vary country by country. One compliance regulation in particular, FCPA/Anti-Bribery, has oil and gas companies in the highest risk category, as they operate in areas such as West Africa and work closely with state-owned companies around the world. As such, stakeholders are under pressure to ensure that suppliers and trading partners meet multiple compliance standards, and to monitor the ongoing compliance.
Oil and gas companies operate in the epicenter of difficult environments and weather forces. Business continuity and disaster recovery capabilities are paramount to effective operations. As operations are increasingly dependent upon suppliers, information systems that can notify stakeholders of issues when they occur enable them to quickly ascertain supplier resilience. Identifying and prequalifying alternative suppliers have become keys to managing issues not yet known.
Expanding refinery capacities to meet increased demand has oil and gas companies enabling engineering and construction companies, and their subcontractors, at a rapid pace. This increase in activity is matched by an increased demand on the procurement organization to flow down standards and ensure visibility into supplier performance several levels deep.
Due to the liability associated with hauling highly flammable materials, the trend is towards outsourcing the transportation of gas. In addition to standard supplier regulation and compliance information tracking, there is increased pressure to dig deeper into the credentials and performance of the individual operators, as one erroneous decision could result in significant reputational and monetary damage.
Finally, many oil and gas companies own, or lease, gas stations and convenience stores. These stores are impacted by the reputation of the whole organization in addition to having their own unique supplier management issues to contend with. Most sell non-gasoline merchandise and many offer regional and local products. The trend toward “on-the-go” eating has most companies offering a wider range of food products as well. These retail establishments want to be nimble so they can enable suppliers while meeting corporate onboarding standards. Further, these establishments continue to capitalize on new technology, whether key cards or RFID, to improve both the buying experience and operational efficiency– requiring additional due diligence and information collection by Procurement (e.g., IT Security, PCI DSS compliance).
HICX understands the pressures faced by oil and gas companies. Our products are designed to collect and manage accurate supplier information, drive supply chain efficiencies, mitigate risk, improve quality, and coordinate local supplier development initiatives.
Whether managing geological research suppliers, land services companies, transportation companies, or point-of-sale suppliers, HICX’s offering can meet the most complex global supplier management scenarios. Our ability to harmonize policies and procedures across your organizational matrix, handle multiple language and country requirements, and track supplier risk and performance is incomparable – and we welcome the opportunity to show you why.