New logistics era for oil patch

Sept. 1, 2003
When energy companies strike an alliance allowing each to focus on its core competency, then team up with a global logistics supplier, improved efficiencies and reduced costs are typically expected.

When energy companies strike an alliance allowing each to focus on its core competency, then team up with a global logistics supplier, improved efficiencies and reduced costs are typically expected.

For example, one supplier provided parts and equipment, including maintenance and repair of operating goods as well as consumable goods to its partner's drilling units, while the latter focused exclusively on offshore drilling. But, logistics issues emerged as the companies operating units planned business strategies. Both used several logistics providers but had no common database for managing the complex supply chain. Furthermore, few niche transportation providers leverage SAP technology, and no orders in their supply chain had real visibility.

To overcome this limitation, the operators reduced the number of suppliers. They selected one company to create value using end-to-end supply chain management. This involved establishing global visibility, promoting vendor ownership until destination, and developing consolidation hubs. Customized software from the 3PL provider fully automated each rig's weekly purchase order process, batching the myriad purchase order items into a single sales order and electronically notifying the logistics provider. In turn, the provider routes inventory into a staging facility, connects with the SAP materials management system, consolidates freight, and ships it to individual rigs.

A key component is integrating the inventory system with the alliance's SAP technology, allowing real-time, line item in-transit visibility of goods worldwide. Fully integrated with bar coding, relevant information is instantly exchanged between all parties. Maximum automation reduces potential for human error, eliminates duplicate processes, reduces inventory, speeds transactions, and lowers transportation costs.

Why that's unique

While the energy industry has implemented Internet-based processes into business and operations units, many companies are still not fully employing "e-world" technology to support and supply offshore projects. For instance, until recently, just checking one part of the supply chain (whether parts had been delivered) required numerous phone calls and faxes. Now, industrial-strength tracking software makes that information available on the Internet, just a click away.

Another way to leverage the supply chain revolution centers on inventory itself. From a cost perspective, a global network provider with a physical presence throughout the oilfield allows E&P companies to approach the ongoing spare parts dilemma in a unique way. Setting up strategic warehouses and consolidation hubs within an energy company's established global network allows them to stock high-cost critical spares that typically have a large carrying cost and/or short shelf life. This means the company has more spares readily available to use at any drilling site instead of excess parts at one location and no replacements at another. Furthermore, vendors maintain ownership of their products until final delivery.

More than lightweight shipping

It is a common misconception that cargo issues are nothing more than shipping from A to B. In fact, the total order management process begins with order creation and only concludes with order consumption (where the part's installed, used, or repaired) using systematic material management processes and real-time logistics visibility worldwide.

Other common questions include:

  • Does this new end-to-end technology only apply to shipping boxes and/or lightweight cargo? Oilfield logistics reality: "If they're buying it, we're shipping it." So, whether the cargo is pipe dope, liners or computers, it is in the same supply chain continuum as mud pumps and cranes
  • Are some shipping volumes just too big for supply chain efficiencies and savings to kick in? No. High levels of service and shorter transit times are possible because a global carrier can leverage cargo consolidations (ocean or air) to get a cheaper/quicker delivery from dedicated space on aircraft and ocean vessels
  • Do "logistics people" understand E&P logistics? Yes. First, they're transportation experts who understand the supply chain's value and the value of inventory management and inventory reduction (common thread in any industry). Second, more oilfield veterans with operations and materials management experience are being brought on board at worldwide logistics providers to provide industry expertise
  • Aren't local niche logistics players an E&P company's only viable option because "they're the only ones who understand our (E&P company) business and these particular market intricacies?" Reality check: Think what knowledge, experience, worldwide presence, and track record bring to the table first.

From then to now

What hasn't changed in E&P? Project personnel want the right equipment, right tools, and right products available when needed. What has changed is how the offshore facility gets what they want more efficiently and cost-effectively.

That's what more E&P companies now recognize about today's technological supply chain solutions: enhanced material management, leveraging cargo consolidations, inventory reduction, and real-time tracking with global visibility.

Joe Bento
EGL Eagle Global Logistics

Chris Cahill
EGL's Middle East Region

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