COMMENT

A collateral trend to "just-in-time supply" is "just-enough manpower."

Centralized technical management

A collateral trend to "just-in-time supply" is "just-enough manpower." Professional "bench strength" is a relic - washed out by cost-benefit analysis. Will tomorrow's manpower needs take care of themselves? Not likely, if one conceives tomorrow's industry as an extension of today's. How the industry deploys expertise 7-10 years from now will be quite different, however.

In the future, the speed and volume of data moving around the globe, including still and motion graphics, will allow producers to centralize technical staff, and wire in consultants and service companies on a moment's notice. Real-time movement of data is increasing exponentially and color video transmission and simulation of immediate problems will follow close behind.

The result is that incidences of operational shutdown while waiting on technical evaluation will be reduced. Producers will be able to take on more risk in remote locations, knowing that technical support is readily available. And, rather than moving expats about the globe to fill technical slots or manage drilling and development activity on location, oil and gas producers will be able to hire more local or regional talent.

Broadly, centralized technology management encourages a geographically diverse, but technologically focused, approach to business. In fact, if the communications improvements to come are as good as projections suggest, producers will be able to shave months or years off the time periods required for offset drilling and development functions - making way for the "just-in-time production" strategy envisioned by producers in the future.

Value vs. price

Differences in well-to-well geology, downhole temperature and pressure, seabed sediments, the surface environment, and even the water column, prevent standardization of offshore oil and gas drilling and development programs and production equipment. These differences historically have forced producers to customize each development and well application.

Oil and gas managers can sometimes demand (during price recessions) that in-house engineering use less expensive off-the-shelf equipment and service applications, but most often customization prevails. Technical staffs are often accused of using customization to preserve jobs, but technologists counter with the need to adequately meet safety and environmental concerns, as well as successful outcomes. Technical failure is not an option.

This degree of customization in equipment and consumables is apparent in petroleum industry e-procurement and related Internet product and service sites. Simply, there isn't enough product standardization to provide "apples-to-apples" comparisons. As a result, the classification of equipment suitable for Internet e-procurement and even catalog-type display has run into problems.

Naturally, manufacturers and suppliers are hesitant to give up the value pricing that customization requires, versus lower returns characteristic of commodity pricing on the Internet. But the larger problem is that homogenizing products is difficult. Rarely are the technical platforms common enough, and the manufacturers readily supply interfacing devices that allow different manufacturers' systems to work together. Additionally, this specialization works well with project engineering's preference for selecting "best-in-grade" items, rather than one supplier's entire system.

Studies of upstream equipment that fit into a selection arrangement for e-procurement purposes indicate the practical limit may be only 6-10% of total transactions. One survey conducted several months ago found that only 10% of production company buyers planned to use the Internet for procurement or other related tasks. If these results are realistic, then Internet transactional volumes will be constrained in the short term.

That doesn't mean Internet procurement will not prevail in the future; it probably will, but in a different form than exists today. For example, image transfer speeds and ease-of-use will someday allow a specifying engineer to select and videographically customize equipment at one or more Internet sites, before committing to an order. Until that technology evolves, equipment customization and ordering will have to rely on more traditional ways of doing business, and value competition will likely continue to prevail over price competition.

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