COVID-19 pandemic underscores need for digital supply chain solutions

Sept. 1, 2020
COVID-19 has highlighted weaknesses in many oil and gas operators’ procurement processes.

What happens in a global pandemic when you urgently need a two and a quarter ton, 1.6-m diameter blind or a high specification ball valve for your offshore assets? Your usual Italian valve manufacturer went into lockdown several weeks ago and your Chinese pipe fitting manufacturer has only just returned to work with a backlog a mile long. And nowhere are such heavy and expensive items available ‘on the shelf.’

Had this situation arisen even just a couple of years ago, you might have been stuck. But the rapid digitalization of supply chain management has ridden to the rescue by providing new ways of working, just in time.

COVID-19 has highlighted weaknesses in many oil and gas operators’ procurement processes. It is not uncommon to find offshore operators sourcing as much as 70-80% of their supplies from just three or four companies in order to streamline receipt. But this has left many operators at present, unable to source what they need, and in cases without the right processes and certifications to source elsewhere.

The swift decline in overseas travel has had a knock-on impact on airfreight. With over 40% being transported in passenger jets, and reductions on commercial air traffic exceeding 60% in some regions, this mode of logistics is under significant stress. While many airlines have scrambled to provide commercial freight services in place of consumer carriage, the process is still being ironed out.

Shipping lanes remain active, but the virus has impacted docks and landside logistics. Ordinarily, a shipment from China to the Middle East might take four weeks – now receipt at dockside could take eight weeks or more, and only then can it be brought offshore. Even overland shipments have struggled, with deliveries from the east of Australia to Western Australia at one point taking two to three weeks to arrive, compared with the usual two to three days. 

As for the valve, however long the manufacturing site was in lockdown, it will likely take just as long for it to resume operations, including the process of re-employing, regrouping the supply chain, and stabilizing stock levels. So, for a large, high specification valve, delivery could take months, if not a year or more in the case of stock disruption. This highlights the need to start diversifying sources of supply, and looking closer to home is a good start. What kind of manufacturing capabilities and raw materials options are close by that would allow you to make the rest of the supply chain work in the time you have available?

There may also be a run on prices. With the continued instability of the oil market, and production shut-ins looming, many operators will take the opportunity to undertake large maintenance projects originally scheduled for a later date. If a certain part is not to hand, they will soon be looking to source it, with all the usual requirements for safe operation still applying. It’s a simple fact that plants need parts. This is not to imply that parts are not available; simply that the procurement processes many operators follow do not provide sufficient visibility to assess and access other options.

A digital twin of the procurement process can highlight a breakdown or bottleneck in the supply chain early on and incentivize procurement teams to reallocate resources or find alternatives. Right now, however, the disruption is so extensive that most companies will need to do much more than a real-time review. To maintain safety and uptime in the long-term, they will need to consider how to source critical parts needed to avoid major outages, and put in place thorough supply chain risk mitigation measures.

The solution does not need to be to physically hold parts in stock. An offshore operator could roll out an asset performance management system on the most high-risk equipment to provide better early warning signals. Or the engineering team could work with a bespoke 3D printing provider or an advanced manufacturing facility to get an idea of the timeline for manufacturing the parts in-region instead. Alternatively, the operator could assess what inventory might be available close by through an e-commerce platform.

As the industry focuses on cost savings to weather the present instability, many see the benefit in turning surplus and used assets into cash. Digital supply chain solutions make this far more time-efficient while maximizing value by connecting the right people together. 

End-to-end digitalization of the supply chain has been on the oil and gas industry’s horizon for some time, but for many operators, the mass disruption from COVID-19 is accelerating the transition. The need for survival stimulates change.

The present the disruption is also helping the industry to crystallize priorities. For supply chain procurement, there really is no better time to be trialing digital techniques that will create much needed agility and diversity. Many supply chains will remain fragile for quite some time, and trust will need to be rebuilt. But with digitalization, much of that trust will be built in from the start, through providing complete visibility of the asset’s document history, or access to a 3D printer and an advanced manufacturer that has the necessary expertise, should a new part be needed at short notice.  

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