The oil and gas industry, by nature vulnerable to supply chain risks, faces fresh headwinds in 2023.
Grappling with inflation and the fluctuating prices of essential materials like sand, copper and steel, it also experiences a double-digit rise in labor costs. The result: overall production costs are expected to rise by 6-10% after a similar increase last year.
To minimize their exposure, companies are banking on more integrated supply chains, better materials and of course, digitization and automation. In our recent LinkedIn Live, two of Hexagon’s most seasoned industry experts discussed the trends and challenges ahead.
Oil & Gas Supply Chains Under a Triple Threat
Understanding the current challenges requires a focus on some of the recent evolutions that have affected the industry’s supply chains.
The supply chain's complexity has grown significantly, a trend largely driven by globalization and the shift from consolidated stick-built execution to modular approaches. Such modular strategies might involve orchestrating a project in America while managing fabricators in the Middle East or India and coordinating with suppliers from Europe to East Asia. They make precise, and ideally autonomous, tracking and tracing essential.
"One-size-fits-all" approaches to supply chain management have failed. A few years back, McKinsey debunked the idea that large buying companies could implement a single, standardized supply chain strategy and expect it to be universally effective. Since then, companies have recognized the merit in fragmenting large, unwieldy supply chains into more agile, smaller units. This approach not only streamlines operations but also offers the potential for cost savings and greater visibility.
Fluctuating costs and challenges in labor and material supply are here to stay. However, best practices have emerged to address these factors. Establishing price agreements and fostering long-term partner relationships have proven effective Additionally, extended-term planning has helped refine CAPEX efficiency and obtain early insights into potential bottlenecks, allowing for risk mitigation rather than crisis management.
Strategies to Brace for Turbulent Times
These multiple challenges lead companies to embrace a number of strategies that help make supply chains more resilient and transparent.
The first is digitalization. Even the most technology-averse companies are aware that the days of pen-and-paper are over and adopt a vast array of technologies, such as mobile devices and RFID systems, in an effort to streamline supply chain operations. “We used to hear a lot ‘I’ve been doing supply chain for the past twenty years the same way. If I have a shovel and it still digs, why do I change?’ The answer lies in the efficiency, accuracy, and scalability that digitization offers,” explains Mitch Shewchuck, Senior Country Manager at Hexagon.
The second is greater supply chain integration across projects and operations. The traditional siloed approach, where each stakeholder operated within their own confines, is evolving. Instead, companies are seeking to create an integrated supply chain that seamlessly connects fabricators, suppliers, and freight forwarders, all the way to the Engineering, Procurement, and Construction firms (EPCs) and oil and gas company owners. This approach fosters deeper collaboration and partnerships across the entire supply chain.
EPCs are at the forefront of this effort as they can clearly gain from driving greater visibility efficiency from the assembly line to the final delivery. They therefore seek to move up the supply chain and drive advancements in work planning. "By aligning EPC schedules with advanced workplace planning, we ensure that every component, whether it's a piece of steel or a spool from the assembly line, is synchronized with the engineering and construction work packages. This guarantees timely availability and seamless execution," Mitch Shewchuck explains.
This proactive approach is designed to mitigate potential disruptions, reduce field worker downtime, and ultimately, drive supply chain excellence in an increasingly competitive environment.
The Crucial Role of Technology and Teamwork
In the next five years, two factors will further reinforce these trends.
First, technologies will provide stronger visibility and real-time information. Innovations such as Bluetooth low-energy (BLE) and autonomous devices are helping companies automate human procedures. The integration of drones and robots further refines the granularity of supply chain operations, enhancing both accuracy and efficiency.
Accrued visibility will also result from the increasingly collaborative mindset between owner-operators and EPCs. “Everyone now understands that applying penalties for missing delivery never pays back. That’s why the very vertical approach to buyer-supplier relationships is giving way to a more collaborative approach,” Maurizio Granata, Executive Industry Consultant at Hexagon explains.
Digital transformation acts as a catalyst in this changing environment. By fostering information sharing, it enhances transparency across all tiers of the supply chain. This heightened visibility allows stakeholders to detect potential disruptions or inefficiencies earlier in the process. As the common adage goes, bad news early is good news.
If you missed the live session, you can watch it here