While the pandemic lingers on, the logistics and supply chain in the upstream oil and gas industry is getting back on track thanks to onsite vaccination programs and expeditious shipment clearances. There are reasons for optimism, and it is time to look at how companies can accelerate the recovery, avoid possible pitfalls in the post-COVID world, and build resilience to future challenges.
The pandemic has served as an accelerant for myriad of changes, many of them substantive and irreversible. It has fundamentally reshaped the logistics and supply chain in the upstream energy and resources sector. Going forward, technology initiatives will run deeper with major players deploying emerging technologies to secure competitive advantage. The future will see more democratization of software-as-a-service (SaaS) logistics technologies, with greater deployment by medium-sized and smaller players.
Some of the key emerging technologies will include:
Artificial intelligence. AI and machine learning will come of age to improve demand predictions and manage supply chain disruptions. Natural language processing will establish virtual travel agents for cost-effective travel administration. AI-driven features that focus on capacity planning, demand forecasting and crew rotation scheduling will accelerate productivity gains, and offer recommendations for improving logistics capacity utilizations.
Network modeling. Complex logistics network-optimization problems can be resolved with powerful mathematical modeling, simulation, and analytics. Mathematical optimization models can determine the optimal location of hubs; fleet size; and help optimize logistics plans at minimal cost and maximum demand fulfillment, under a complex set of operational constraints.
Digital twins. A digital twin is a virtual supply chain replica of an actual supply chain, consisting of all company facilities, logistics assets, airports, supply bases and warehouses. Using advanced analytics and artificial intelligence, the digital twin simulates the supply chain’s performance, identifies potential uncertainties, and allows scenario planning. The value of digital twin technology is directly proportional to the reliability and depth of the supply chain data powering the underlying model.
Other technologies. Vision picking supported by augmented reality could improve warehouse productivity. Blockchain technology could allow energy companies to establish smart contracts with supply chain stakeholders and improve supply chain traceability. The Internet of Things could steadily increase supply chain visibility and connectivity, leading to a touchless people and cargo supply chain. Virtual payments, utilizing a single-use payment number tied to a master account, can make corporate payments further easy. Robotics process automation bots can automate repeatable supply chain tasks on invoice verification and automated bookings.
The crisis is not over yet and the virus variants are yet to be defeated globally. But with vaccinations on the rise, more field operations are returning to normal and global travel restrictions are expected to ease. Logistics and supply chain leaders should look to maximize business value and build supply chain resilience utilizing already implemented technologies, as well as those still on the drawing board, when they are ready.
Key points to consider during this process include:
Maximize value creation. Early implementation of emerging technologies has risks but waiting has the greater risk of competitive disadvantage. A standard value creation assessment framework helps measure business value quickly and prioritize investments that generate greater returns.
The skills shortage. The pandemic has sparked a historic overhaul of the workforce, with more than one-third of workers changing or losing jobs over the past year. While EPC contractors look for a careful and gradual return to construction activities, labor shortages will likely shake energy projects in North America and Australia. To flourish after the pandemic, companies will need to invest in skill training and collaborative recruiting to complete their mega projects.
Underinvestment. Traditionally in the energy sector, logistics and supply chain technologies are adopted at low to moderate speeds. Research and development efforts are focused mainly on exploration and production technologies rather than logistics and supply chain systems. But the recent technological developments need to be sustained for continuous improvement. This is especially important considering the fact that most energy companies responded to the crisis with around 30% capex reductions and 10% opex reductions.
The scale at which the pandemic affected upstream supply chains has showcased how underprepared companies were for such a disruption. Now, companies must adopt strategies that will make them more resilient and better able to manage the flow of people and cargo, responding more efficiently to frequently changing demands. As NYU professor Scott Galloway puts it in his best seller Post Corona: From Crisis to Opportunity, pandemics, wars, depressions – these shocks are painful, but the times that follow are often among the most productive in human history.
