Improving profitability and performance

Paul Boughton

Energy supply chain underperformance is costing billions of dollars a year - but use of content management technology can solve the problem, says Dag Pettersen.

Poor supply chain content management - and therefore poor information on parts and equipment used in the construction and operation of oil and gas facilities - has a negative and long-term, lifetime effect on plant operations and maintenance, inventory management and procurement, as well as delivering a low return on the owner's investment in enterprise resource planning (ERP) systems. Delays in time to first oil caused by poor supply chain co-ordination and information can also cost individual plant owner operators $5-10 million a day.

Why is this happening? During the project phase, design and construction data accounts for at least 70 percent of all information with supply chain data making up the balance. But this situation is reversed during the operational phase, when the majority of information that is used to support operations and maintenance (O&M) is drawn from the supply chain - which, ironically, was not the focus of information capture during the project.

This paradox explains why the project information handed over into O&M regularly disappoints the owner operator community by reducing the operating efficiency of its plant: and why, despite the fact that over 70 percent of supply chain information is based on standard industry equipment and components, inaccurate, incomplete information from that supply chain is still leading to plant shutdowns, wrong material purchases and inefficient materials and spares handling, throughout the life of the facility.

Industry burden

As a result, industry plant CAPEX and OPEX are simply too high. At a time when there are already pressures on energy industry expenditure, this problem is costing owner operators billions of dollars a year in plant start-up delays; in needless capital expenditure caused by inventory, procurement and maintenance inefficiencies; and in significant revenue losses from unnecessary facility shutdowns.

Industry research reveals 40 per cent of plant equipment is poorly defined and as much as 60 percent of supply chain information is duplicated, while the information imported into owners' ERP systems from industry supply chains is just 20-30 percent complete.

For brownfield sites where 70-80 per cent of investment is spent on upgrades and changes to existing assets, the impact of poorly informed management decisions on CAPEX and OPEX (capital and operational expenditure) is particularly strong, with the result that both areas of expenditure are unnecessarily high, throughout the life of the plant.


Why are industry supply chains underperforming? Because of its many participants, the process used to create, supply and maintain the industry's parts and equipment is multi-faceted, with the EPCs (engineering procurement and construction contractors), manufacturers, suppliers and sub-suppliers in the chain creating a complex hierarchy. Delivery requirements progressively 'dissolve' as they are passed down the sub-supply chain; equipment information is not always easy to obtain for components on assembled packages; and manufacturers and suppliers are typically focused on the physical equipment, rather than the equipment information.

Mergers, acquisitions and asset transfers; extended life operations; new ventures; and the importance of asset and inventory transparency add to the rich mix of industry demands on its complex supply chains. A further reason for underperformance, compounding the problem, is the industry practice of only requesting spare parts records for two years of operation: as a result, records may be missing for 80 percent of tags, limiting the effectiveness of ERP systems.

In the day-to-day running of facilities, the problem is very real. Operators' own internal O&M surveys have revealed that 80 per cent of personnel questioned find it difficult to identify material in the ERP system; 60 percent of personnel say parts lists are incorrect; and 65 percent say existing spares coverage is inadequate. Engineers spend up to two hours a day searching for materials information.

Solving the problem

If insufficient knowledge of the physical plant - its components, their location, the related supply chain information linked to bills of material and the optimum stock level - is causing inefficiencies for energy industry purchasing, operational and maintenance inefficiencies, as well as prohibiting economies of scale across multiple assets and driving up CAPEX and OPEX - what is the solution?

Supply chain content management technology now exists that can drive out inefficiencies to provide earlier, better quality and fuller information for all participants.

Underpinning it is a ready-to-use digital library populated with information on the most commonly used manufacturers' supply chain parts, equipment and standard documentation needed for the construction and operation of oil, gas and other energy facilities.

Where the information does not already exist in the library a vendor data gathering service can be used to augment the library contents with data from manufacturers and suppliers.

The intelligent, rule-based tools and techniques that are a feature of this technology also capture more information from the project supply chain, earlier. Facilities can then start up earlier as owners benefit from a higher percentage of validated, vendor data, available sooner for use in construction, commissioning and operations.

This approach improves the quality and accuracy of the data that is handed to the plant owner for ongoing O&M by at least 50 percent, extending spares inventory beyond the traditional two year limitation to capture information on all maintainable parts and allow the unique identification of any part that is to be procured, replaced or maintained.

Importantly for ongoing operations and maintenance this technology-enabled approach delivers a true, always-accurate picture of the current physical plant, its components and their location, linked to accurate bills of materials and in-depth information, for almost all maintainable tags.

Measurable, materials management benefits include an improvement in operational procurement processes of up to 90 percent, with incorrect materials purchasing virtually eliminated, and a cut in inventory CAPEX of 15-20 percent.

Using the same technology, supply chain processes themselves can also be improved. Better information visibility, together with optimum project tracking and control and smart document routing allow unnecessary internal project handovers to be removed and other steps in the supply chain to be made more efficient. Document volumes are reduced and approval cycles shortened.

A single, collaborative communications environment handles the entire document and information flow between owners, the project team and suppliers, shortening overall project delivery times significantly.

Better plant asset knowledge

But what of existing, brownfield sites where poor knowledge of the built, physical plant can result in costly, ongoing operational inefficiencies? Poor asset knowledge has caused many an industry headache too, following a merger or acquisition, when a clear and detailed view of corporate assets has been needed and when there has been a requirement to integrate two or more sets of company information. Again, information technology can help. Specialists in this field can use a mix of technology and industry knowledge to improve existing facility information.

The degradation of materials data over the years often leads to maintenance personnel losing confidence in the data they need to verify parts information: so they then raise new materials records which introduce more data and stock duplications. The solution is an overhaul of existing materials data, standardising and enhancing it to remove obsolete and duplicate records. This is of great benefit to procurement and maintenance, and also maximises the operator's investment in ERP systems.

But what about the physical inventories? Here specialists can use their industry knowledge to provide a complete audit of stock quantity, condition and status, revealing the true value of the inventory, increasing its visibility by 20-30 percent, and releasing cash value from surplus stock.

Given the industry imperatives to maximise the return on capital employed (ROCE) and manage costs down through economies of scale, supply chain content management makes sense.

Dag Pettersen is managing director of oil and gas supply chain specialists Sharecat Solutions, Bergen, Norway.

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