Complex Value Chain Best Practices Solves a Critical O&G Puzzle

Oil and gas projects are among the most costly infrastructure and operational asset bases to set up and run out of any industry, and they are only getting more expensive – and risky for investors. What can oil and gas companies – who are facing intense pressure to deliver significant returns on these massive investments – learn from some of the most effective global supply chain verticals? How can O&G operations improve value chain efficiencies that not only yield profitable results, but also give them advantages in a fiercely competitive global environment?

The primary answer is to recognize that each operation is part of a complex value chain. In fact, oil and gas value chains are not only extremely complex, they are, more importantly, very dynamic: fluctuating demand, volatile market pricing, unforeseen delays and disruptions, exceedingly high penalty rates for things like demurrage and missed loading slots, performance and maintenance variations, roster challenges, etc. The impact of complexity and a dynamic strategic and operational environment creates significant challenges for managing performance, competitiveness and ROI.

There are lessons to be learned from other complex and dynamic verticals, such as mining, maritime and fleet optimization, bulk commodity rail systems, and complex process industries. All of these verticals have implemented some form of ERP systems, reducing the differential advantages of these systems. So where is the high-level improvement opportunity to be found?

One of the most significant advances in technology offers companies who have made investments in people, process improvement and ERP transactional systems a true competitive advantage: integrated supply chain planning and optimization (SCP&O). But there is also a significant difference that O&G executives need to understand when investigating the value and ROI of investing in an SCP&O system.

First, planning and scheduling each of the interconnected value chain components effectively requires the synchronization (and optimization) of many “moving parts” that all interact dynamically, constantly complicated by daily variations, changes and disruptions. Planning and scheduling are all about making key business decisions to achieve customer satisfaction and business performance outcomes. All operational activities occur because of a business decision: a maintenance activity is planned, scheduled and executed by a series of decisions; digging new wells are a result of a series of strategic analyses, ending in a green light to develop a new well. Think of how many decisions, across the entire supply chain, are made every day; some relate to long-term decisions (strategic planning), some medium-term (operational planning), some short-term (committed schedules, orders), some reactive (unplanned downtime, breakdowns, delays.)

Planning and scheduling, including sales & operations planning (S&OP) processes and even “optimization” systems, as currently done today, are, in fact, static. That is, the moment you decide on any particular plan or schedule, even if optimized, and commit it to “live” status, the plan or schedule is, by definition, inaccurate and out of date. This is true because your O&G operations are operating: production and people and assets are working, trucks, LNG trains, and vessels are all moving, variation and disruptions are in effect. In other words, your business does not simply stop while you decide on or publish a plan or schedule. Hence, despite your best efforts, your plans and schedules, whether you use a spreadsheet, an ERP system, an S&OP process, or some advanced planning and optimization solution, are always static and out of date when published, and most are unresponsive to reality.

What your business really needs is a methodology and a set of tools that transforms a static planning/scheduling process into a dynamic supply chain management system. Anything less means that your business will forever continue to manually adjust plans and schedules to fit reality, and your team will be reacting continuously to the realities of performance variation and disruptions. This is why nearly all organizations, despite all their investments in ERP and APS systems, still find that people throughout the organization still rely on spreadsheets, ineffective technologies, and manual processes and communications to manage the day to day operations. They act dynamically, doing the best job they can, but with static tools and reactive processes.

The solution is to find a way to transform a static plan or schedule, into a dynamic process which

  • • Reflects or monitors your current reality

Can detect and alert your business when reality—in the form of changes, performance variation or disruptions—is going to adversely impact your KPI’s

  • • Provides rapid decision support to help you select the best (optimal) response from a variety of possible scenarios (since there are always trade-offs.)

How your business is prepared and able to respond to these realities, and how well your team’s decisions impact your KPI’s is what matters.

The most effectively run complex value chain operations ensure that their people have the tools and planning/execution methodology to plan and schedule production to meet demand, execute these plans and schedules, and then monitor, assess and respond effectively as their value chain is affected by changes, variations and disruptions. In other words, the best run businesses simply have proven effective integrated dynamic value chain planning, scheduling and responsiveness, complimented by robust optimization and responsive technology – and they never stop refining these processes and tools to extract even more value from their investments.