SUPPLY CHAIN

Improving Efficiencies and Costs in the Energy Supply Chain

Maintenance, logistics, and materials management professionals in upstream and downstream production are facing challenging times. Price volatility and increasing operating costs are causing energy companies to examine sourcing strategies and the costs associated with vendor managed inventory (VMI), consignment, and integrated supplier programs.

Energy companies have responded to the escalating cost of doing business by looking for savings in the indirect material supply chain. Unfortunately, cutting costs can defeat efforts to develop a more efficient indirect material supply chain that meets changing marketplace requirements. As a result, companies are struggling to optimize maintenance, repair, and operations (MRO) functions. In order to achieve performance goals, improve productivity, and make sound business decisions, it is critical that companies have robust and timely information.

In the MRO industry, three trends address the increased pressure to gather this important information:

Ø  Firsts, critical key performance indicator (KPI) for materials management. 

Today, few organizations have robust visibility into the components of their materials management performance and MRO spend. Because discreet supply chain nodes are not fully controlled and measured by product, it is challenging to separate end-to-end cost management and performance improvements. For a more robust tracking and panoramic supply chain view, a firm can provide Level 1 KPIs (such as total inventory value and inventory accuracy), plus those that demonstrate a more integrated supply chain management perspective (such as warehouse productivity, stock outs, and receiving/shipping accuracy).

Ø  Seconds, C-level focus on supply chain. 

C-level is the executive level of a corporation. MRO has great potential to contribute to business goals. Since significant cost savings can typically be found in the indirect material supply chain, C-level awareness and focus on this part of the business is growing. In order to pave the way for that success, the need to identify and eliminate waste, improve supply chain productivity and standardize effective processes across sites has become important.

Ø  Thirds, drive for external expertise. 

Projects in the energy industry now involve cross-border supply chains, work in small sites, and the use of unconventional extraction methods. As a result of the evolving business environment in the gas and oil sector, many companies are realizing they do not have adequate MRO expertise to accommodate the increased expectations. One approach to address these challenges involves hiring people with extensive MRO oversight skills, or investing the time in training current employees in a range of specific disciplines.