The oil and gas supply chain may have gone through a challenging few years, but the industry is on the cusp of another period of substantial change – one we’ve already seen take hold in other sectors. Digital transformation is opening up huge opportunities to operators, service companies, and suppliers – but it’s a double-edged sword.
Much of the changes brought about by digital seem to focus on a select group of companies – we all read about Google, Uber, Amazon, and Airbnb on a daily basis. The kind of disruption they are bringing to their respective industries, at first glance, doesn’t seem to cast much light on what digital could mean for oil and gas – but the fundamental changes they have wrought should resonate for the industry.
Some people will have read about the introduction of Industry 4.0 technologies in energy, manufacturing, and beyond, to deliver capabilities like predictive maintenance and help drive proactive asset management. But that’s just one form digital transformation can take. Less discussed is how the digital evolution can transform a company’s entire supply chain by increasing visibility, boosting transparency, creating efficiencies, improving integration and optimisation and helping to identify and address issues in real time.
This has been enabled by the exponential technological advances seen over the past few years. The processing power available, and the volumes of data that can be stored easily and cost-effectively, combined with greater connectivity and bandwidth makes it possible for businesses to illuminate their supply chains and analyse them from end to end. The internet of things and machine learning will drive integration of operations and supply chain to the next level – it is estimated that 80 billion devices will be connected by 2025, a fivefold increase on today.
Upstream oil and gas companies can now realistically draw on hundreds of thousands of sources of data – both internally and externally. This data combined with the right analytics and aligned to the right use cases is a source of true transformation with the potential to drive a step change in productivity across the industry.
For example, we can already see how traditional supplier relationship management and supply chain risk management is being impacted. Armed with the latest analytics and using methods and tools proven in other industries like defence, cyber security and even social media, companies can now illuminate the entire supply chain and perform detailed targeted analysis at the touch of a button.
While it was previously only possible to go as far as tier one or two, they can now look far beyond – as far as tier 12, in especially complex cases – a feat that previously would have been debilitatingly difficult to do. In addition, models can be created that provide real-time supply chain monitoring to provide instant feedback on supply chain performance and risk.
Companies are already using these techniques to identify suppliers in financial difficulty or to ensure they are adhering to regulatory and legal practices. A company can now use technology to spot these kinds of risks quickly, and offer support to critical suppliers where necessary, request a change in practices or alter the supply chain approach.
Digital technologies are also being used to boost efficiency and identify opportunities to remove unnecessary costs. In some cases, that could mean going directly to tier four or five suppliers for components, cutting out the layers of bureaucracy and inevitable pass-through costs – the mark-up added by different levels of the supply chain. This enhances market transparency and also creates a big opportunity for smaller suppliers to be more visible, and enhance relationships with their ultimate customers.
Of course, it’s not going to be a straightforward experience for all of the oil and gas industry – there are risks and rewards for everyone in the supply chain. While it will undoubtedly drive supply chain resilience by making the market more transparent and open, it could also pose a risk to some; particularly those who are not able to adapt to the new digital order and take advantage of the changes that are coming.
In some cases, companies will have to make fundamental changes to their operating models, processes and systems to benefit – but this is already recognised by the industry as necessary to transform to a more sustainable, productive and efficient future. Digital provides an opportunity for the industry to make the necessary structural changes more quickly and effectively and for those that are ready and willing to take action now, it could provide them with a competitive advantage.