Change is in the air. The global oil market is on the up. Not only did Brent crude surpass the $71 marker for the first time in three years at the start of the year but some experts are predicting that 2018 will see stability finally return to the market.
However, as a recent Financial Times article pointed out, the increasing cost of Brent Crude brings with it a number of knock-on-effect factors. From geopolitical stirrings in Iran, to US shale and non-Opec supply, to the improving world economy providing confidence in both global oil demand and oil demand growth.
One thing’s for sure, with global oil demand anticipated to rise by 1.5 million b/d – and, in doing so, pass the 100 million b/d for the first time in history - the need for those tasked with the process and supply of one of the world’s most vital, and certainly most traded, commodities, to operate with agility and efficiency is apparent.
So, how does supply chain fit into this big picture, global market narrative? And what, if anything, should processors and suppliers be doing differently to capitalise on this upturn?
Understanding the barriers to optimum efficiency
The rising cost of oil represents good news for the sector but also a potential risk if businesses aren’t prepared to fulfil the enhanced demand due to a lack of flexibility within the supply chain. For example, if vital processing machinery requires replacement components to operate – and fulfil order requirements – but the component supplier is unable to provide the right part, to the right place, at the right time, opportunity could be wasted – and profit lost.
Unfortunately, this isn’t unusual, especially with larger suppliers, who are often limited by their size and corporate complexity, and sometimes even by a lack of desire to respond to customer needs quickly. In some cases, in fact, said suppliers often consider smaller, or one-off orders to be more bothersome than beneficial. As a result, these orders are often dismissed to prioritise large-scale projects. Indeed, partly because of this and partly due to the restrictive specifications imposed within the oil and gas sector, it is becoming more common for businesses to wait more than 20 weeks for some components such as actuators and associated controls. Although an unfortunate fate in the wider industry, companies are to be reassured that some manufacturers are willing to take on smaller projects, and deliver all orders in a much more practical time-frame. In the case of ASL, for instance, refined business processes have allowed us to fulfil orders in half the time taken by preferred suppliers and, in some cases, in less than 10 weeks.
There isn’t necessarily a simple solution to this problem, however, as many oil and gas businesses will struggle to rid themselves of the constraints dictated by procurement frameworks and, to some degree, brand loyalty to cumbersome approved vendors.
Making hay while the sun shines
For businesses looking to introduce flexibility into their supply chains and supplier relationships, there are a few points worth considering and steps to take.
Firstly, communication is key. Even if procurement frameworks are rigid and service levels obscure, opening up dialogue with suppliers and nurturing a shared sense of project ownership is more likely to yield positive results. Also, exploring alternative supply options and implementing a back-up plan in the form of a smaller, more agile, and more pro-active supplier could offer a vital contingency.
Indeed, working with suppliers who keep their finger on the pulse of market fluctuations and support customers through pro-active demand forecasting will help businesses to safeguard against process downtime. Suppliers that care about reacting quickly to customer demands will have used the lull in the market as an opportunity to make lemonade of the lemons thrown at them. They will have seized the opportunity to work closely with approved parts manufacturers to increase stock holding of components – in our case, we’ve been working with European supplier Quifer on the availability of castings and springs for heavy duty Scotch Yoke actuators – in order to reduce lead-times for mission critical products by up to 75 per cent, compared with reactive suppliers who are happy to have their customers wait.
Ultimately, oil and gas businesses should be embracing the market upturn as an opportunity to re-evaluate existing partnerships and, if necessary, take action to create safeguards – such as contingency plans for obtaining parts, should existing suppliers be unable to provide them within desired timeframes. As the market recovers, competition in the supply chain increases and so too should a firm’s expectation of what value a supplier should add. Is it really appropriate to stick with a supplier that simply shifts boxes, and slowly at that, just because they are on the approved vendor list, or should firms demand more? Again, this is where it can be of real advantage to opt for suppliers that not only have the connections, ability and desire to get the right part delivered quickly, but that can provide extensive technical knowledge to help specify packages that meet unique needs.
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