Low Hanging Fruits - Materials Management in Oil Industry
Written by Artur Osipyan

Materials management is the oil & gas industry is a large field of opportunities when it comes to reducing cost and being more efficient, as we described in our earlier article on the same subject Materials Management in Oil Industry - This is what you lose.

Today, when the era of megaprojects is gone, tapping to those opportunities and implementing sustainable changes is much easier, at least for two basic reasons 1) companies have to do it to stay profitable 2) Projects are less complex and smaller in size. Here we go with the list. We do recognize that some of concepts and ideas require a long-term approach, yet others could be done within a short period of time and benefits realized very quickly. 

  • Materials visibility and accuracy. By large, the traditional approach oil industry adopted has always been - end-users request what they need, procurement would buy technically-acceptable-commercially-lowest, with warehousing storing, managing and preserving purchased materials and equipment. There is sometimes little to none visibility of what is bought and why, between the three parties. Undoubtedly, visibility of materials through a central platform plays a vital role in solving the challenge of materials management in the oil and gas industry and may result in less over-ordering, less storage and handling requirements and reduced cost of materials obsolescence. Correct ERP algorisms, transactions logic and discipline in materials transactions are critical to ensuring accuracy of the inventory records, thus better visibility.  Why? The GIGO effect – the output is only as good as the input.
  • Logistics & Warehousing. Traditionally very little attention has been given as to how we design, build and operate warehouses and how to accommodate demand variability and spikes.  There are a number of best practices and warehouse management all working around picking, handling and effective space utilization.  Ensuring materials personnel at all ends have a basic understanding of the equipment and materials and its criticality is vital and would result in people working in warehouses to make rational decisions on the spot when required. To avoid unproductive decision making, a bespoke software may help to organize picking jobs, batching by path, zones, vessel deck, and address any specific unloading requirements - sometimes picking order depends on how the loading/unloading is done offshore, which is not always incorporated in the way things done during the initial loading during dispatch. Frequently re-assessing safety stock policies, as well as understanding and learning early warning signs of excessive inventory are extremely beneficial as well.  Dust is probably the easiest way to spot things quickly, before going into details. E.g. spare parts are supposed to move, if there is excessive dust on them, there is smth not right in managing the demand for those parts.
  • Track & Trace - Using track & trace technology to track, report and log equipment and materials is perhaps one the single biggest low-hanging fruit available. By using RFID tags both on company-owned materials and contractors owned, provide amazing visibility and control, that all result in significant saving in costs. By going a step further and with the right technology, it becomes very effective to manage rental equipment, in drilling services in particular, whereby all equipment is automatically tracked (arrival and departure to the site/jetty) and could be billed directly, without a need of service and job tickets. Not only that but with offshore logistics being one of the largest untapped areas with inefficiencies, tracking rental assets and providing on and off dates of billing, represent a large cost saving opportunity. In addition, visibility of materials in a project environment known to be one of the major challenges, that track & trace technology and systems can help to solve and achieve greater efficiencies.  
  • Aligning objectives – this is the area of human behaviour, whereby principal-agent theory plays a big role. Resolving conflicting objectives between project management (PM) and supply chain group (SC) represent serious challenges, as both functions tend to have departmental objectives that may not always align. For example, while PM function may be inclined to order new materials instead of checking and verifying the existing stock, SC function, inventory, in particular, would be eager to reduce the inventory by utilizing what is available. One of the fundamental reasons behind this is the desire to “please” stakeholders and deliver projects faster - checking and verifying materials takes time, hence ordering new lots is easier, faster and risk-free.
  • Engineering based on existing inventory - although projects are one-off in nature, many materials used in projects could be interchangeable, in particular with brownfield projects. In the latter case, engineering could be done to maximize utilization of existing stock, without compromising technical requirements. Today, artificial intelligence and algorithms may easily allow software to analyze which existing materials can be used, to achieve the desired engineering outcome.
  • Contingency management – adaptation of demand is driven resource planning (DDRP) is becoming more and more evident in many industries. DDRP places the right amount of contingency where it needs to be, e.g. regional or based on project similarities across the world. There is no reason for every business unit to procure 10%-30% contingency of materials, whereas only one central contingency can be placed to manage the shortages or any unforeseen requirements.
  • Develop a strategy at the project design stage. Designing effective and comprehensive materials management strategy long before the projects are commissioned, not only gives a full picture of how an asset will be integrated and maintained, it also allows to achieve the balance between over-reliance on single OEM vs. having multiple providers. This is where strategic procurement skills, life cycle costing, cross-functional and stakeholder cooperation is vital and key for a long-term success.
  • 3D printing / Additive Manufacturing (AM) is based on a principle of “clueing” layers of materials together (layer-on-top-of-layer) until a solid object is formed. While AM will never replace traditional manufacturing methods, as far as the oil industry is concerned, it would definitely complement and disrupt the way we do things. There are a number of areas where AM can be used in the short to medium term, with key criteria being 1) cost; 2) operating environment; the 3) logistics. It could be OEM parts that are not manufactured by the OEM anymore, consumable parts with short lifetime or used in high friction and rotation applications, such as pumps and rotary equipment, seals and gaskets, weight reduction applications, offshore parts manufacturing and much more. Another area of application of AM that may serve a useful purpose is a temporary solution to fill the missing “part” until the complete part becomes available.