Digitalisation can help realise significant benefits for oil and gas, particularly if lessons can be learned from the experiences of other sectors including retail and automotive.
In materials management there are opportunities for forward-thinking firms to leverage digital technologies and process intelligence to bring a step-change in how we manage materials and improve operational efficiencies.
However, it will require organisations to think differently about the business and process architecture required to deliver this value.
Historically, the pace of change in materials management practice in the oil and gas industry has been slow. When commodity prices are high, the focus is on material availability, and when they fall, the focus shifts to cost reduction in “big-ticket” areas, leaving little room for innovation.
Despite the North Sea’s status as a benchmark for excellence, there is no global standard for best practice in materials management. The evidence base suggests that the oil and gas supply chain lags behind other sectors in terms of performance.
A potential solution is to build a retail logistics model, using lean processes and digitalisation, that works for the oil and gas environment and will extend the industry’s life for decades.
Broadly speaking, processes for materials management are only around 1% effective, whether that’s because of poor supplier and data integrity, poor planning and process control or materials not being tracked properly.
Meanwhile, logistics companies are typically required to follow established client systems that are often transactional, have poor user experience and lack the best technology. With manual processes, personnel continually need to update records and, where handwriting is used, errors are inevitable.
Why do we want to build the retail model for oil and gas? People are familiar with retail through self-service technologies, e-commerce and great customer service but also as one of the things the retail industry does extremely well is supply chain management.
Retail has already dealt successfully with many of the same problems facing the oil and gas industry today. For instance, when you buy a can of soft drink, it comes attached with a universal product code. Suppliers need to conform with a set of rules to sell their products in that industry.
Contrast that with oil and gas, where each company refers to that same component differently and products don’t have the ability to identify themselves.
The retail industry has used established technology, such as bar codes and radio frequency identification tags for tracking and tracing cargo, to great effect for decades – with visual recognition to register and record items vastly improving the user experience.
Not only does technology allow for greater control over planning and mean that materials can be pulled when needed, it also allows for better decision making through data analysis. The result is that transactional activity takes seconds, rather than several minutes.
For our industry, it’s about trying to agree on what the common problems are in terms of end-to-end materials management, so that we can deliver greater control within individual businesses and collaborate with others to share data and inventory.
Even something as simple as attaching a product photograph on the outside of a crate would save time and ensure the integrity of the components within. That all helps reduce unit cost within the industry and helps sustain the UKCS as a viable, long-term and competitive environment.
There is significant room for improvement but we should all embrace that challenge to shine a light on the industry and say this is where we are in comparison to others, before identifying where industry can work together to avoid value leakage. If the shop around the corner can do it, why can’t a global industry with vast resources take it into a business environment?
Allan Scott is director of materials and inventory at global materials management specialist ASCO. A former head of the MBA programme at Robert Gordon University (RGU), Allan is a part-time lecturer in business and sits on the Oil & Gas UK Efficiency Task Force for inventory and materials
To find out more, visit www.ascoworld.com