The document summarizes key challenges in the oil and gas supply chain and proposes solutions to address them. It notes that while oil and gas resources are sufficient, the main challenge is efficient production and delivery costs. A solid supply chain can help meet this goal but traditional business silos hinder collaboration and alignment. The document recommends restructuring into a customer-focused, process-centric model with aligned strategies and incentives to reduce complexity and better serve customers.
The Role of Fishbone Diagram in Analyzing Cause and Effect
Customer-Focused and Process-Centric Supply Chain in Oil & Gas Industry
1. Action Learning Project
Supply Chain Management
November 30, 2013
Customer-Focused and Process-
Centric Supply Chain
in Oil & Gas Industry
By: Monzer AL Shaikh Warak
Under supervision of Dr. Kanishka Bedi
2. • The Challenge Today IN Oil & Gas Industry.
• Supply Chain link in the oil and gas industry
• Oil & Gas business process issues.
• Factors that erodes customer and shareholder value
• The suggested solutions
• Conclusion
• References
The content
3. According to a good majority of the industry's research, there is enough
resources left to sustain current production levels for at least the next 50
years.
Therefore, the main challenge facing the oil and gas industry is not the
availability of oil and gas resources, but putting these reserves into
production and delivering the final products to consumers at the
minimum cost possible.
Thus, a solid supply-chain management program will enhance this goal.
The Challenge Today in Oil & Gas industry
4. Exploration → Production → Refining → Marketing → Consumer
The links shown above represent the major supply-chain links in the oil
and gas industry. The links represent the interface between companies
and materials that flow through the supply-chain.
As long as oil companies have needed
a phalanx of vendors to keep their systems
continuously re-supplied,
there has been a supply-chain.
Within each stage there are many operations.
Supply Chain link in the oil and gas industry
5. Exploration → Production → Refining → Marketing → Consumer
Exploration includes seismic, geophysical and geological operations,
while Production operations include drilling, reservoir, production, and
facilities engineering.
Refining is a complex operation and its output is the
input to marketing.
Marketing includes the retail sale of gasoline, engine
oil and other refined products.
Each stage of the link can be a separate company
or a unit of an integrated firm.
The common issue along the links in the oil and gas industry supply-
chain is economics; weighing benefits versus costs along the chain.
For Example:
6. • Typically, downstream companies are structured and managed in a
manner that does not promote collaboration among their internal
supply chain partners. This contributes to a misalignment of strategies,
processes and management models that erode shareholder value and
customer experience.
• Furthermore, globalization and the relentless pursuit to reduce cost
across the supply chain are increasing the complexity of supply chain
operations further eroding shareholder value.
The Challenge Today
7. • The supply chain business model for downstream companies is
traditionally organized into business groups that are formed around a
set of related assets.
• Each business group traditionally “owns” certain business
processes for which they have primary responsibility.
• As supply chain partners, the business groups interact with
each other to execute these business processes to provide
products and services to their company’s external customers.
• These Interactions can be complex, as the supply chain processes in the
downstream business are often tightly integrated.
Oil & Gas business process issues
8. • Although all these interactions must be completed in a timely manner and
without error to perform seamlessly from the customer’s perspective!
• Each business group executive puts in place the strategies, performance
metrics & incentive plans to assist him in managing the performance of his
processes and assets.
• Business group strategies and metrics traditionally focus on individual process
and asset performance and not on the performance across an integrated
process, such as the purchase- to-pay process or the order-to-cash process.
Furthermore, they are typically not constructed in a manner that
measures performance from a customer perspective or from the
perspective of value creation across the supply chain.
Oil & Gas business process issues
9. Below are factors that erodes customer and shareholder value within the
O&G supply chain:
• Misaligned strategies, metrics
• Ineffective management structures, incentives
• Limited customer-driven processes.
• Overly complex processes.
The flowing slides describe each one separately
Factors that erodes customer and shareholder value
11. • As I mentioned at the beginning, Supply chain business model for
downstream companies is traditionally organized into business groups and
Each business group has his own strategies, performance metrics plans which
is traditionally focus on individual process and asset performance and not on
the performance across an integrated process. That process when managed
independently, it can cause conflict of interest and oppose each other and
erode value.
• Since downstream business group strategies are
traditionally focused on the functional excellence of the
assets and processes within their control, investments are
traditionally made to improve the performance of these assets—not
necessarily the performance of the larger supply chain.
Misaligned strategies, metrics
12. • Because the downstream supply chain is typically divided across several
executives who govern a functional business group; their plans is
typically focused on the performance of the business group that they
manage, Thus their incentive plans are typically structured in a manner
that promotes the functional performance excellence of assets and
processes within the executive’s control not necessarily excellence
across the integrated supply chain.
• He has no another choice, he cant extend is plans to cover other
business units because he don’t have permit or authority or control
over an integrated, end-to-end process. That clarify the reasoned of lack
of integration of certain supply chain processes
Ineffective management structures, incentives
13. • Some O&G companies appear reluctant to examine their supply chain
processes from a customer’s perspective to understand how value is
created for the customer and how to best adapt processes to fulfill
customers’ needs. Thus, O&G supply chain customers (Service stations)
cannot track the status of their orders, understand the scheduled timing
of fuel deliveries, and proactively recognize when they may run out of a
product at their service station due to a supply chain problem.
• If such visibility exist, it will gives them the information to make
decisions to best serve their own customers.
• Without this supply chain visibility, service stations lack some of the key
information to manage the service relationships with their customers.
Limited customer-driven processes.
14. • Supply chain processes in Oil & Gas are complex, there are millions of
transactions and settle millions of dollars in revenue daily.
Therefore any unnecessarily or complex processes will
compounding the problem which is result in discontinuities,
defects, errors and inefficiencies that erode value through
increased operating costs, decreased supply chain
performance and decreased customer satisfaction,
both internally and externally.
• Process complexity may also occur at the point of handoff
from one individual or organization to another. As well as adopting certain
organizational models can contribute to process complexity.
• Ineffective use of technology and poor data integration can create duplicative
work or highly manual processes that contribute to complexity and erode
value.
Overly complex processes.
16. • Create alignment strategies, metrics plan.
• Review the Designing Channel of distribution
• Restructuring
• Create an effective management structures, incentives
based on all business units as a one mass.
• Eliminate the complexity
• Applying Customer relation Management
• Implementing Customer Service Standards
• Develop the Technology Infrastructure
• Implement Key performance indicators (KPI)
• Perform Business Process Re-Engineering & ESTABLISHING A PROCESS-
CENTRIC SUPPLY CHAIN
Suggested Solutions are:
17. • Setting the business main strategy and vision.
The strategy sets the direction and guidance
for the organization. It must be pro-active for
the company to reach its vision.
• Based on the main strategy,
Management should create a goals
for all business units in form that serve the
main strategy.
Create alignment strategies, metrics plan
18. • A channel of distribution consists of one or more companies or
individuals who participate in the flow of goods, services, information
and finances from the producer to the final user or customer.
• Designing a distribution channel is an important decision
in meeting overall supply chain objectives.
Review the Designing Channel of distribution
19. • The best channel structure forms when no other group of institutions
generates more profits or more consumer satisfaction per dollar of product
cost
• To achieve that, Management must determine channel
structure within the framework of the firm's corporate
and marketing objectives, its operating philosophy, its
strengths and weaknesses, and its infrastructure of
manufacturing facilities and warehouses (as a one mass not
as isolated Business units).
• Restructuring the downstream supply chain into a customer- driven, process-
centric model requires coordination across the organization’s functional areas
to promote alignment of supply chain business processes.
Restructuring
20. • Restructuring of the downstream O&G supply chain into a customer-
driven, process-centric model will promote
collaboration among the functional
organizations, increase alignment and
synchronization of the supply chain,
and ultimately drive creation
of shareholder and customer value.
Restructuring
21. • Rewards and Recognition Systems that need to be reviewed to ensure
that they enforce the desired behavioral changes that is required to
excel in today's challenging environment. Management training on how
to use the rewards and recognition system is a must.
• In additional, The organization structure provides the means to
implement the strategy as it defines the power and authorities within
the organization. It also defines the reporting relationships and
organizational roles.
Create an effective management structures,
incentives based on all business units as a one mass.
22. By:
• Analysis the AS IS processes
• Identify the unnecessary processes that not
serve the main strategy
• Create faster and simpler processes for
manufacturing and customer service.
• Delete repeated Processes
• Organizations should avoid strategic excesses, as these result in
complexity.
Eliminate the complexity
23. • In order to be successful an organization must provide good customer
service not just prior to shipping, but post shipping as well.
• setting performance measures that focus on the customer
and the point of product delivery is the key.
It not only provides the data to help evaluate how
successful the product delivery system is, but also provides
an early warning system of potential problems as they develop.
Applying Customer Relationship Management
24. • Companies should be very cautious in adopting easily achievable
performance standards.
• The key is to set and monitor meaningful standards that
help differentiate the company from competition.
• Oil & Gas companies should develop their customer
service policies and standards through consultation with
customers. After the standards have been adopted and
the system designed to meet them, the firm should
communicate formally the standards to their customers. however, it
should communicate their policies, performance targets and standards
to the customer openly.
Implementing Customer Service Standards
25. • Companies should develop specific procedures to measure, monitor
and control the specified customer service levels.
• A number of techniques are available for
this, such as statistical process control
(SPC).
• Companies can then take corrective
action before the problems escalate
and tarnish the company's reputation.
Implementing Customer Service Standards
26. Investment across the downstream supply chain business group in technology
and management processes that provide increased visibility to key
management information, Investing ERP System that have SCM & CRM Module
and KPI system measure will answer the management to several questions like:
• Are we making optimal spot rack pricing vs. exposure
managreement decisions?
• Should we buy at the rack in places where we have
negative supply margins?
• Did we forecast demand accurately enough to
maintain the stock positions we wanted to?
• Do our poorly utilized terminals have any unique
trading value?, etc.
Develop the Technology Infrastructure
27. • In the process-centric model, functional business group silos are
replaced by process groups that are organized to promote collaboration,
alignment and synchronization across logical,
customer-focused groupings of
supply chain processes.
Perform Business Process Re-Engineering &
ESTABLISHING A PROCESS-CENTRIC SUPPLY CHAIN
28. • There is a need to ensure that each company or operator along the
supply-chain can respond quickly to the exact material needs of its
customers, protect itself from problems with suppliers and buffer its
operations from the demand and supply uncertainty it faces.
• For oil and gas companies, the profit margin can be greatly enhanced if
the companies manage their purchasing dollars throughout the entire
supply-chain.
Conclusion
29. Additionally, close and deliberate integration between the traditional
supply chain functions and the customer-facing functions keeps the
whole organization focused on aligning or developing company
capabilities to best meet their customers’ wallet or increase price
premiums.
This approach synchronizes supply chain inter- actions to drive down
costs through more efficient supply chain processes, thereby creating
value for both the shareholder and the customer.
Conclusion
30. • “Supply-Chain Management Issues In The Oil And Gas Industry”, By: Christopher M. Chima, Journal of Business &
Economics Research – June 2007
• “Energy, Oil & Gas Industry Update”, By: Gary Kilponen, SCOR for Energy, Oil & Gas
Forum for Benchmarking and Practices, May 21, 2010
• GlobalNxt University, Supply Chain Management course content.
• “Adopting a customer-focused and process-centric supply chain”, By: B. WEST and T. LAFFERTY,
Deloitte Consulting LLP, Chicago, Illinois, JANUARY 2007
• Online article: “Executive Management Workshops & Consulting Engagements for Senior Corporate
Executives”, Harrington Institute, URL: http://hgint.com/institute/consulting/organizational-design-
alignment
• Wikipedia: Statistical process control, URL: http://en.wikipedia.org/wiki/Statistical_process_control
• Images Resource:
▫ http://total.com/en/energies-expertise/oil-gas/marketing-services
▫ http://energytomorrow.org/energy-101/~/media/EnergyTomorrow/sub%20page%20images/pipeline.jpg
▫ http://claude-investlogic.blogspot.com/2012/12/doing-business-in-russia.html
▫ http://www.webmanagesystems.com/solutions/index.asp
▫ http://www.saint-gobain.co.in/_images/04%20Conflict-of-interest.jpg
▫ http://www.lefthandwriter.net/wp-content/uploads/2012/03/Workflow-Processes-Complex.gif
References