Devel­op­ing a world-class sup­ply chain infra­struc­ture — and gen­er­at­ing over US$22 mil­lion in savings

Back­ground

The drilling of oil and gas wells is a cru­cial activ­i­ty car­ried out by explo­ration and pro­duc­tion (E&P) com­pa­nies to extract valu­able hydro­car­bon resources from beneath the Earth­’s sur­face. It is a com­plex and capital-intensive process that requires exper­tise in geol­o­gy, engi­neer­ing, and oper­a­tional man­age­ment. E&P com­pa­nies con­stant­ly strive to improve drilling tech­niques and tech­nolo­gies to enhance effi­cien­cy, reduce costs, and min­imise envi­ron­men­tal impact while max­i­miz­ing the extrac­tion of valu­able ener­gy resources.

Our client is engaged pri­mar­i­ly in the drilling of oil and gas wells for explo­ration and pro­duc­tion com­pa­nies. It is a glob­al enter­prise with land oper­a­tions across the Unit­ed States, off­shore oper­a­tions in the Gulf of Mex­i­co, and inter­na­tion­al oper­a­tions in South Amer­i­ca, the Mid­dle East, and Africa.

The client has been a top indus­try per­former for over 95 years and is com­mit­ted to main­tain­ing this rep­u­ta­tion through unpar­al­leled inno­va­tion and ser­vice. We had already been pre­vi­ous­ly involved with the client through a 15-month imple­men­ta­tion of rig oper­a­tions improve­ment and organ­i­sa­tion­al effec­tive­ness assign­ments. That gave us the foun­da­tion we need­ed to trans­form the client into a world-class sup­ply chain organisation.

Analy­sis

Our analy­sis revealed that the client was root­ed in build­ing and oper­at­ing drilling rigs. Man­age­ment was cen­tred on — and dri­ven by — oper­a­tions and engi­neer­ing. Sourc­ing of mate­ri­als and sup­plies to sup­port drilling oper­a­tions had evolved as a total­ly decen­tralised sup­ply chain. This result­ed in a com­pa­ny with five sep­a­rate sup­ply chain oper­a­tions — and very lim­it­ed cross com­mu­ni­ca­tion, inte­gra­tion and leverage.

Based on indi­vid­ual sourc­ing at the rig, and due to the clien­t’s organ­i­sa­tion­al struc­ture, the poten­tial ben­e­fits to be deliv­ered were not rec­og­nized. With oil price fluc­tu­a­tions, the client had been try­ing and strug­gling to keep up with growth and mar­ket pressures.

Project Approach

Based on the results of our analy­sis, we began our trans­for­ma­tion roadmap by installing an improved man­age­ment con­trol sys­tem (MCS) with effec­tive oper­at­ing met­rics and KPIs. The MCS includ­ed report­ing to senior man­age­ment on ini­tia­tives under­way and week­ly sav­ings oppor­tu­ni­ties. With the increased vis­i­bil­i­ty, the client was able to enforce efforts in sup­ply base reduc­tion, cat­a­logue con­sol­i­da­tion, and con­sol­i­da­tion of ven­dors and contracts.

The next phase in our roadmap involved set­ting up a for­mal RFQ process for key com­modi­ties and ser­vices. Many of these were pre­vi­ous­ly pro­cured ad-hoc with no for­mal sup­pli­er qual­i­fi­ca­tion, com­pet­i­tive bid­ding, or sup­pli­er man­age­ment. In one area alone, we were able to help the client reduce total costs by 25% — about US$1 mil­lion — sim­ply by reduc­ing mobil­i­sa­tion, trav­el, and ancil­lary charges.

Final­ly, the project focused atten­tion on rais­ing the par­tic­i­pa­tion of Sup­ply Chain depart­ment with oth­er key func­tions in the organ­i­sa­tion. The clien­t’s cul­ture trans­formed from a cul­ture of silos to true inte­gra­tion of devel­op­ment and solu­tions, across all func­tions, not just with Sup­ply Chain.

Project Imple­men­ta­tion

We worked with the client’s project team to install an MCS that updat­ed and set stan­dards for week­ly align­ment meet­ings both with­in the cen­tral­ized Sup­ply Chain depart­ment, and with inven­to­ry con­trol spe­cial­ists in the field. We also installed met­rics for report­ing sta­tus and results from the var­i­ous sourc­ing and ful­fil­ment activ­i­ties in sup­port of field operations.

As the Sup­ply Chain depart­ment con­tin­ues to gain stature, they have been able to facil­i­tate oth­er aspects of sup­ply chain man­age­ment. An exam­ple is the plan­ning and sched­ul­ing of struc­tur­al audits. These were pre­vi­ous­ly sched­uled ad hoc by rig man­agers or engi­neer­ing with­out vis­i­bil­i­ty, or a per­spec­tive of the total cost involved. In some cas­es, mobi­liza­tion, per diem, and over­time costs rep­re­sent­ed over half the cost of the audit.

With con­tracts in place and cen­tral­ized plan­ning and sched­ul­ing, the client will be able to fur­ther reduce costs beyond the sav­ings gen­er­at­ed from the RFQ process.

Our core prin­ci­ples relat­ing to MCS, KPIs and per­for­mance man­age­ment gov­er­nance struc­tures proved invalu­able in tak­ing a method­i­cal approach to cre­at­ing a sol­id foun­da­tion of core process­es for the client.

Key Results