Energy Insight

June 3, 2019

The disappointing downslide of 2014 has somewhat subsided in the oil and gas industry. Most segments have recovered to some degree. The global operator is enjoying increased profitability and cash flow. Where the drilling segment still has a significant amount of stacked assets and day rates have not recovered, there is clear upswing and many assets are getting back to work. The service industry still struggles to regain profitability and steady work, but overall the situation is improved from just 5 years ago. 

In the meantime, the industry is in the midst of a major shift in operating protocol. Where the 'old way' was focused on 'get it done' and 'cost is no barrier', the new paradigm requires a strong focus to costs. Oil companies promise more efficient stewards of capital. Planned, measured and focused to the bottom line is the operator's mantra. That cost focus trickles down to the service sector and across all actors in the oil and gas value chain. 

Logistics represents a significant cost factor in the energy sector's service delivery plan, generally speaking and dependent on the sub-segment, about 3% to 8% of gross revenue. However, the cash burden in inventory and opportunity costs far outstrip hard spend in logistics. Succinctly, lack of a qualified logistics program affects cash utilization, capital efficiency and perpetuates a waste culture across the entire organization. Logistics, or lack thereof, presents distruptive potential to asset integrity and continued uptime. Efficient downhole activity to complex and remote geographies is largely dependent upon the reliability of global supply and resupply. 

Effective logistics are in reach with a focus to 5 key areas: 

1. Integration - Integrated logistics programs drive consistency across the value chain. Integration should be systematic, but also across all aspects of the logistics program. Utilizing a qualified Lead Logistics Provider (LLP) drives consistency in Safety, Delivery and overall performance across all logistics partners in effecting a global delivery plan.
2. Visibility - Visibility can be elusive in the logistics space. Driving visibility across all transactions to formulate a global, cross-provider and cross-functional strategy assures global consistency and the ability to take strategic supply chain solutions across the global logistics program. The qualified LLP utilizes systems, global standards and process to achieve global command of logistics performance. Predictive capacity through systems architecture drives forward planning and mitigates delivery risks across the supply chain.
3. Reliability - The qualified LLP is drive to performance and KPI mastery. Focus on meeting operating and delivery standards across the global hub structure ensures alignment of global standards. Consistent process and globally aligned measurement ensures all actors in the chain are driving toward the same objectives. In short, a focus on getting it right, every time. 
4. Efficiency - The focused LLP looks for efficiency in every operation. Utilizing global competence in procurement, freight consolidation opportunities and buyer consolidations for example, generate economic benefit to the user. A comprehensive systems architecture drives effectual execution as well as enables strategic decision making in the logistics process. Automation and system activities drive down fixed costs and align the cost structure to utilization. 
5. Scalability - Perhaps most importantly in the volatile energy space is the ability to scale global logistics requirements. The qualified LLP maintains a footprint near globally strategic supplier clusters. Activity based structures align capacity to the actual work activity, elimitating waste as found in a fixed base cost structure.

Selecting a qualified LLP with a proven Vertical focus on the oil and gas industry creates opportunity to achieve capital efficiency in the logistics program and across the organization. A process and performance driven approach enables a strategic focus to effecting global supply as opposed to an inefficient transactional approach. Focus on performance and systems enables operational excellence to the oil and gas operation. A primary focus on safe and reliabile operations aligns to global industry objectives. LLP selection aligns global strategy to global execution in Oil and Gas Logistics.

Learn more about Crane Worldwide's Energy vertical here