Improving Supply Chains in The Oil and Gas Industry (2022)
Improving Supply Chains in The Oil and Gas Industry (2022)
Sanchay Roy
Stewart Dunbar
Improving
Supply Chains
in the Oil and
Gas Industry
12 Modules to Improve Chronic
Challenges for Maintenance, Repair and
Operations
Foreword by
Knut Alicke
Springer Series in Supply Chain Management
Volume 16
Series Editor
Christopher S. Tang, University of California, Los Angeles, CA, USA
Supply Chain Management (SCM), long an integral part of Operations Management,
focuses on all elements of creating a product or service, and delivering that product
or service, at the optimal cost and within an optimal timeframe. It spans the
movement and storage of raw materials, work-in-process inventory, and finished
goods from point of origin to point of consumption. To facilitate physical flows in a
time-efficient and cost-effective manner, the scope of SCM includes technology-
enabled information flows and financial flows.
The Springer Series in Supply Chain Management, under the guidance of
founding Series Editor Christopher S. Tang, covers research of either theoretical or
empirical nature, in both authored and edited volumes from leading scholars and
practitioners in the field – with a specific focus on topics within the scope of SCM.
This series has been accepted by Scopus.
Springer and the Series Editor welcome book ideas from authors. Potential
authors who wish to submit a book proposal should contact Ms. Jialin Yan,
Associate Editor, Springer (Germany), e-mail: [email protected]
Sanchay Roy • Stewart Dunbar
© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland
AG 2022
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Dedication
To our parents, our lovely wives,
two daughters, a son and a dog.
In the memory of my Father. I wish we had
more time together.
Foreword
For the last 25 years, I have been helping companies across all sectors to improve
their supply chain performance and prepare for the future. Topics range from setting
up integrated planning processes, ensuring the right organisational structure, gover-
nance and incentives, optimising the physical distribution network, manufacturing
and sourcing through to ways of predicting the future with new algorithms like
machine learning. I am passionate about building/improving the capabilities of
supply chain professionals and adjacent functions as an important enabler of sus-
tainable change.
This is where my journey with Sanchay started. Attending the McKinsey Supply
Chain Executive Academy, Sanchay and I started a very fruitful journey of brain-
storming and continuous exchange on the latest and greatest ideas across the supply
chain. Sanchay gave a tremendous keynote on supply chain management in oil and
gas in one of the later sessions of this event. He also contributed to a book I wrote
(Supply Chain Segmentation, Springer Publications) in 2015 with a chapter on
Philips Case Study and has always been eager to improve and give back to the
supply chain community.
In 2019, Sanchay and Stewart approached me with the idea of writing a book on
how to improve the supply chain in oil and gas. I was extremely supportive for this
important topic, to review, brainstorm and write a foreword—and indeed, here
we are.
Supply chain is a relatively young discipline—having its roots in fast-moving
consumer goods (FMCG) and consumer electronics it developed into an important
pillar for success for many other industries. It covers end-to-end planning, involving
sales, manufacturing, procurement and finance in a regular process facilitated by
supply chain managers to prepare for the order intake, to ensure the right availability
of products and finally to deliver to the customer what they ordered on time. The
latest developments in digital have helped create a depth of visibility in the end-to-
end process from customers to suppliers to further improve the supply chain
performance. With the advent of e-commerce, the customer experience in placing
ix
x Foreword
The book should serve as a playbook to improve supply chain in oil and gas.
Thank you Sanchay and Stewart for bringing it to life. Enjoy reading the book.
The idea for this book arose after the global outbreak of COVID-19 in March 2019.
This was soon followed by the low oil price which witnessed one of the global oil
indices drop into a negative position for the first time in history. The oil majors
declined to make dividend payments for the first time since the Second World War,
and there was a question mark over the future of these behemoths.
We were part of a task force to understand the vulnerability in the upstream
inbound supply chain, where it gave us an unusual opportunity to look ‘under the
bonnet’ of this organisation and consider impacts and consequences of things
outside of our day-to-day tasks.
We do not profess to be experts in all of the areas we have discussed in this book,
but we have had the opportunity to piece together the common threads and the
limitations imposed. In some cases, COVID-19 had a detrimental impact, but in
others it forced a change in the organisation that under normal circumstances would
never have been considered.
We wrote this book late in the evenings and weekends, across continents from
Nigeria to the Netherlands to the UK, with the blessing (sometimes we suspect
reluctantly) from our families as an opportunity to share what we saw and encourage
a discussion to happen on a broader scale across other IOCs and like-minded peer
groups.
We are at the start of this journey; we have by no means solved the problem nor
do we profess to have all the best solutions, but we have attempted to define the
problems and suggest ways they can be tackled from our own experiences and
observations.
Thank you for reading our book, and we wish you well in your personal journeys.
Sanchay Roy is a seasoned professional with a great deal of experience in supply
chain and Lean methodology. He has worked across several sectors including oil and
gas, consumer goods and chemicals. He is a global operation, supply chain and
continuous improvement professional with a broad background in business
transformations.
As a global professional, he has lived and worked in India, the UK, Germany,
Belgium and the Netherlands and has had significant work experience in China,
xiii
xiv About the Authors
Southeast Asia and East Europe. He has managed global programmes in supply
chain, Lean Six Sigma, quality, e-business and industrial design.
In his current role Sanchay has been transforming the maintenance, repair and
operations supply chains. This transformation is across plan-source-make-deliver
value streams and includes deployment of digital tools to create supply chain control
towers. Prior to his current role, Sanchay was responsible for deploying a fit-for-
purpose, effective continuous improvement strategy that greatly streamlined capital
projects’ execution and significantly improved productivity and performance.
Before joining Shell, Sanchay ran global Operations and Supply Chain for the
Consumer Luminaires division of Philips Lighting, receiving the CEO Award for the
Best Run Supply Chain Function. He also led the Business Transformation for
Philips Lighting and deployed Lean manufacturing and continuous improvement
across +50 manufacturing sites globally. Sanchay started his career with GE, where
he held many business and leadership roles and earned his Master Black Belt and a
Lean Master accreditation.
Sanchay is an industrial design graduate from the National Institute of Design,
India. He lives in Den Haag, Netherlands, with his wife and two daughters. He
enjoys motorcycling, ultralight flying and reading.
Stewart Dunbar has a learner mindset. He has worked in various supply chains
for over 30 years, in industries ranging from the upstream energy sector to FMCG. In
addition to this, he has been a supply chain consultant developing and executing
strategies as well as operational improvements using Lean principles.
Stewart currently works as the materials management manager and is responsible
for all MRO material movement and storage for Shell Nigeria, which generates
revenues worth ~$3 billion.
Prior to this role, he was instrumental in driving performance improvements in
the downstream lubricants supply chain through the consolidation and reduction of
production plants. He started his career working in distribution within Tesco Stores
Limited in the UK and moved on to hold positions ranging from planning and
performance manager through to managing a UK distribution centre, supply chain
strategy development and supply chain management where he was responsible for
the procurement of adult drinks with annual sales in excess of $2.3 billion. He then
moved to Sainsburys to help drive operational improvements in their legacy sites as
they moved through their automation programme. Finally, he was a consultant for
over 5 years in the UK, working with the Co-Op, Arla Foods, Frontline Publishing
and DHL.
Stewart gained his degree in mathematics from Brunel University and has an
inquisitive mind for numbers. He lives in Essex, UK, with his wife and son. He is an
avid reader and also enjoys motorcycling and travelling.
Acknowledgements
Our journey began in 2019 during a team session in Nigeria. We had just spent three
days with some of the most dedicated and knowledgeable experts from procurement,
maintenance, operations and category leads with years of experience in the industry.
We argued, blamed each other and felt really frustrated about the state of affairs, but
in the end, we realised that the ‘supply chain’ was not operating as it should. Those
that needed equipment and material could not see how they influenced the demand at
the start of the chain preferring to focus on the lack of material availability, the
procurement team observed that anything but cost was important, and the value
stream execution teams did not understand that they could influence the demand to
make life better. Our heartfelt thanks to Scott Low and Roberta Oshiobugie for
pulling us right in the middle of a core business vulnerability. Over the next
18 months as we visited many assets and joint ventures run by international and
national oil companies, we started to see a common pattern emerge despite the
differences in countries, locations and complexity of operations. These observations
and our personal experiences formed the basis for this book.
In 2020, when the pandemic started, the organisations quickly realised that the
supply chain was indeed a critical cog in the machinery and that, despite robust
business continuity plans in place, this global event was beyond what had ever been
considered. At this stage, we were tasked with identifying how to better understand
the vulnerabilities that existed in our value stream so that they could be tackled. We
would like to thank both Jack Heng and the team from McKinsey for working with
us to design, develop and deploy a framework based on supply chain fundamentals
that could be applied across all assets.
18 months later, the importance of the supply chain has remained the centre of
attention for most businesses and the global economy. We have seen little signs of
this situation abating, and the way businesses deal with it will ultimately determine
their future.
The idea for this book first appeared just after this exercise as we quickly
concluded that the supply chain in the oil and gas industry is precariously balanced
and heavily weighted towards the discipline of engineering rather than supply chain
xv
xvi Acknowledgements
expertise. We enriched the concept with conversations with frontline teams. They
shared their stories and experiences that helped us deepen our understanding and join
the dots between diverse factors and functions.
This book is about capturing our experience and insights from our dialogues. We
studied the history of the business and are observing the sociopolitical forces that are
driving the current transformations. We connected with leaders and frontline oper-
ators who are lifers in the business, with little external perspective outside of the
O&G sector. We also connected with our network of supply chain professionals in
other industries to make a comparative understanding of the gaps. This book is based
on those conversations. This is not a technical book.
Our heartfelt thanks to Knut Alicke, Partner at McKinsey, for his review and deep
insights into MRO supply chains. Special thanks to Patrick Rowe, Supply Chain
Consultant, for the detailed review and improvement suggestions. Jialin Yan of
Springer Publications for encouragement and motivation. Those who have employed
us and allowed us to develop our supply chain appreciation and many colleagues at
our workplace who have challenged and developed our insights.
Last but not the least, Ruchita, Carol and our children for their patience and
giving up the weekends and evenings for this book. We would not have managed
this without you holding the fort. Thank you all!
A Note to the Reader
Supply chains are designed to streamline the flow of goods and information. A good
supply chain will be resilient to uncertainties and prepare itself in advance. Keeping
that in mind, you, the reader, can read the chapters in the book as we intended them
to be or may decide that you just cannot wait and jump straight to the twelve modules
of transformation (Chap. 5). You can always decide to come back to earlier chapters
to reflect on whether the origins of supply chain challenges in your organisation bear
any resemblance to the ones we discuss here or are completely different. As much as
we look forward with the aim of improvement, it is always good to reflect on the past
and capture all the lessons learned and experience gathered. It is said that hindsight is
20:20, but these experiences can and should be used to create clarity for the future.
Either way, once you have been through the chapters, we hope that you have
sufficient insights for your journey of transformation. The energy industry is at a
crossroads, and it is transforming. Whether it is transforming quickly enough, time
will judge but supply chains are at the very core and are central to a successful
transition.
To understand better the nature of the supply chain being described in this book, it
is essential that we briefly explore the difference between a traditional view of a
supply chain and a maintenance, repair and operations (MRO) supply chain. The
traditional definition of a supply chain is a sequence of processes involved in the
production and distribution of a commodity to a consumer. An MRO supply chain
on the other hand is one which ensures the serviceability of a production unit or the
delivery of a construction project, where there is no final consumer. The MRO
supply chain ensures the continuance or development of a company enabling a
revenue source, rather than delivering the revenue itself.
Additionally, elements of the same supply chain will be considered differently
depending on whose perspective is being used. Say for example a company such as
GE which provides materials to an oil and gas company will regard this supply chain
as a traditional one since there is a commodity produced and a customer at the end of
xvii
xviii A Note to the Reader
it. However, from the perspective of the oil and gas company, this is an MRO supply
chain, which is supporting operations and development to facilitate production.
This book has been created from the observations made of the MRO supply
chains across the industry.
Contents
1 Lower Forever . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Sacred Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Call Me Back in 30 mins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Change Is Nigh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2 The OPEX Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 When the Going Gets Tough. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Production at any Price? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3 Supply Chain Development in Oil and Gas Industry . . . . . . . . . . . . . 13
3.1 How We Got to Where We Are? . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.2 Supply Chain Perception Vs. Reality . . . . . . . . . . . . . . . . . . . . . . 16
3.3 Three Bids and a Buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.4 The Mindset of Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4 The Missing Pieces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.1 Logistics: An International Tour Operator . . . . . . . . . . . . . . . . . . . 29
4.2 Planning: Splendid Isolation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.3 Integration: A Rare Commodity? . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.4 Does Sales and Operations Planning Really Work in Oil
and Gas? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.5 It Starts with the End in Mind . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5 Twelve Modules for Supply Chain Transformation . . . . . . . . . . . . . . 39
5.1 The 12 Modules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.1.1 Define the Link with the Asset . . . . . . . . . . . . . . . . . . . . 41
5.1.2 Implement Integrated Demand and Capacity Planning . . . . 43
5.1.3 Delivery Schedules: Fix the Basics . . . . . . . . . . . . . . . . . 49
5.1.4 Fix the Internal Decoupling Point . . . . . . . . . . . . . . . . . . 51
5.1.5 Fix the External Decoupling Point . . . . . . . . . . . . . . . . . . 53
5.1.6 Segment the Inventory and Procurement Plans . . . . . . . . . 56
5.1.7 Control the Inbound Supply Chains . . . . . . . . . . . . . . . . . 58
xix
xx Contents
When I was growing up, there were always two businesses that were considered to
be as ‘safe as houses’, the banks and the oil companies. The comments used to be
that ‘Joe has a great job in banking, they will do well, the banks are a really safe place
to work’. And so, it was with the oil industry—this person has been out on the rigs or
working in Saudi, we will always need oil. That was what they said. . .
Then in 2008 along came the global financial crisis which blew a hole in the
notion that banks were as safe as the houses they offered mortgages on, the financial
world rocked on its axis and needed to reassess their lot in life, to re-address the way
they operated, the way they sat behind their corporate desks feeling invincible.
Dr. Philip Verleger, who has studied and written about energy markets since 1971
(www.pkverlegerllc.com), observed that to 2019 there had been 19 historical oil
disruptions in the last 40 years, and he forecasted that the 20th would shock the
markets. In 2020, his predictions came true and although he did not forecast COVID-
19, oil supply outstripped the demand in a market where people were quarantined,
where the daily commute ceased, and the oil industry was well and truly out of sorts.
On 20th April 2020, the West Texas Intermediate oil price collapsed to below
(negative) $30, customers needed to be paid to take the oil away! There was no
storage capacity and no demand, and the oil prices crashed around the world.
But what is so different about the recovery from this crash and the other 19, surely
the market will just bounce back? No doubt we will see the return to the consumption
levels seen previously, we always have in the past.
Similar to the banking situation, the notion that an ever-expanding market with a
level of growth capable of sustaining investment to drive even more growth was
wrong. This 20th crash was the one that signalled a change in mindset, customers
questioned the need for consumption of oil, businesses wondered (and are still
wondering) whether to retain their office buildings and people are continuing to
work from home reducing the need for commuting. Families are questioning
whether they need multiple cars they once thought they did and whether they should
be going green anyway. What we see is a low oil price that is likely to be around for a
long time.
The oil companies have learnt from previous market crashes, haven’t they? After
19 major crashes, you would think so, but maybe not, if the good times are always
believed to be round the corner, superficial adjustment and window dressing were
sufficient to make the problem survivable, and because the market would return, the
same type (if not always the same level) of resource would be needed.
In 2020, the energy sector was rocked on its axis, as the banking sector was in
2008. This crash has left industry with surplus capacity and bloated costs. To effect a
change, the industry needs to overhaul its strategy, re-align the direction and
embrace new energies. There is also an ever-increasing sociopolitical pressure to
reduce the overall carbon footprint. The energy sector must jettison its old habits and
the waste it has allowed to grow over the last 50 years.
I was an experienced hire in a major International Oil Company. Coming from the
consumer industries where the mantra of lean was more than two decades old, I came
in confident with the notion that applying time-tested lean methodologies would be a
fantastic opportunity for operational excellence and cost saving. Then I encountered
the narrow-minded attitude that has led to the growth in waste of inventory. I recount
one particular incident very clearly. One of the new graduates found an opportunity
to save $150 k in pipeline inventory by the creation of more accurate Bills of
Materials. Eager to share his idea he called up his asset manager to share the
opportunity. The asset manager listened to him and then asked the graduate to call
him back in 30 min. The graduate attributed this to a busy schedule but an active
interest of the asset manager. So, after 30 min, he called up the asset manager and
eagerly asked what he thought about the improvement and the replication
opportunities.
The asset manager then told him that in the last 30 min while the graduate waited,
he had pulled out more dollars from the seabed than his measly inventory improve-
ment opportunity. He then proceeded to admonish him by telling him never to call
again regarding inventory improvement opportunities. With the cash he was pulling
out of the ground, he could have fields of the pipelines and not worry about them.
And literally, fields of inventory of all sorts of pipelines, equipment, spare parts
ranging from 5 to 25 years old is commonplace in most Oil and Gas assets. In some
assets, 25–28 warehouses are filled with parts and equipment worth hundreds of
millions. Many of them bought as expensive ‘insurance spares’ lie around for
decades and are poorly preserved. Naturally, when the asset actually needs them,
the equipment may be too old or unreliable to risk being used in operations. Thus, a
new part is ordered all over again at a huge expense. Interestingly no one is truly
1.3 Change Is Nigh 3
accountable for this working capital, since production and the availability of an asset
is a top priority, operations and maintenance would rather simply order a new part or
piece of equipment. To add to this, if the lead time for delivery is too long then they
will often just order an extra one as ‘insurance’ or the entire piece of equipment
itself, so that parts can be scavenged from it when needed. These items bought
directly from the suppliers would go into operations or maintenance inventory
stores, often called ‘squirrel stores’ and we all know what squirrel stores contain!
These squirrel stores are full of unaccounted and uncontrolled inventory worth
multiple billions of dollars, having grown through the heydays of oil price when
profits achieved easily drowned any such inefficiency, unimaginable in most other
industries.
The issue does not just end here. One would ask, surely, we can do a clean-up, get
rid of old inventory, and return the working capital back to manageable levels.
However, aged inventory loses its physical dimensions and simply becomes a
number on a financial spreadsheet—a true no-man’s land. Once there, the inventory
can hold its original value in digital form for decades, even if the physical part has
rusted away to a piece of useless metal in the elements. These cannot be sold as they
still hold the original value in the books but the second-hand market will not pay
these prices. No asset manager worth his/her annual performance bonus will ever
take the hit on cost performance by writing off millions from the plants and
equipment, worse still if one must pay to dispose of the materials. Thus, most
asset leaders would rather ‘live-with’ or ignore the topic until they change jobs,
and it becomes someone else’s problem. The material lives on as their digital avatar
in finance books while the actual inventory is long forgotten in a squirrel store of a
‘loving and careful’ operations or maintenance manager.
This once titan of industries is being rocked at its core. The popularity and desire for
oil and gas have waned significantly across the globe for a multitude of reasons.
The desire to move away from hydrocarbon usage and into cleaner energy of the
future has taken away the option of the oil companies to simply ‘ride out the storm’,
it has changed the way the first world looks at its carbon production.
The central pillar of the 2015 Paris Agreement committed to keeping a global
temperature rise this century well below 2 C above pre-industrial levels and to
pursue efforts to limit the temperature increase even further to 1.5 degrees. In
contrast to this, oil companies rushed to acquire oil and gas fields and bring the
crude or natural gas to market. Now, analysts say, investors are sceptical of all but
the most profitable investments in fossil fuels because it is not clear that there will be
future demand for them.
Ensuing price wars (an often-used tool for political gains) between OPEC,
Russia, and the USA have further put downward pressures on the value of oil and
gas. In addition, the COVID threat continues to add sustained pressure as a result of
4 1 Lower Forever
ongoing discoveries of new variants. Figure 1.1 shows the volatility of oil price to
significant events. Top all this off with the impact of COVID-19 means that there is
no confidence that a full bounceback of the oil prices will happen and has the majors
writing down the value of their oil and gas assets (Fig. 1.2).
Less than a decade ago, Exxon Mobil was the most valuable company in the
world. Recently, it was removed from Dow Jones industrial average after nearly a
century of inclusion in the stock index. Most people did not predict that demand for
fossil fuels would start to wane, until it did. Today, all of Exxon is worth less than
Jeff Bezos, personal net worth. The sacred sectors are losing their place in the world.
This external shift in the market has created a complex situation for the Oil and
Gas industry, the dichotomy between continuing to produce in what would be a
shrinking market or transferring their focus into the new energy sector, where carbon
neutrality is the target. Even up until 2019, the sector still anticipated significant
growth by 2030 (Fig. 1.3).
Well, here is the dilemma, continue with your head in the sand pretending nothing
has changed or effectively gamble on a much smaller less developed market. In
reality, the Oil and Gas players have decided to take a hybrid approach to resolve this
issue—maximise the value from the old energy to fund development in the new
energy sector. In 2021, Shell announced that it internally would be carbon neutral by
2035 and that by 2050 this would be extended to its suppliers as well.
Ultimately this may turn out to be the transition era where oil giants, especially in
Europe, started looking more like electric companies.
In 2020, Royal Dutch Shell won a deal to build a vast wind farm off the coast of
the Netherlands. Earlier in the year, France’s Total, which owns a battery maker,
agreed to make several large investments in solar power in Spain and a wind farm off
Scotland. Total also bought an electric and natural gas utility in Spain and is joining
Shell and BP in expanding its electric vehicle charging business.
At the same time, the companies are ditching plans to drill more wells as they
chop back capital budgets. Shell recently said it would delay new fields in the Gulf of
Mexico and in the North Sea, while BP has promised not to explore for oil in any
new countries.
Prodded by governments and investors to address climate change concerns about
their products, Europe’s oil companies are accelerating their production of cleaner
energy—usually electricity, sometimes hydrogen—and promoting natural gas,
which they argue can be a cleaner transition fuel from coal and oil to renewables.
For some executives, the sudden plunge in demand for oil caused by the pan-
demic—and the accompanying collapse in earnings—is another warning that unless
they change the composition of their businesses, they risk walking the same path as
dinosaurs did, straight into extinction.
This evolving vision is more striking because it is shared by many long-time
veterans of the oil business.
All of Europe’s large oil companies have now set targets to reduce the carbon
emissions that contribute to climate change. Most have set a ‘net zero’ ambition by
A BRIEF HISTORY OF CRUDE OIL PRICES 2011
1862-1865 Arab Spring disrupts
Early 2000s
US Civil War drives up Libyan output
Production falls due to
commodity prices; tax on lack of investment
competing illuminant
raises demand for oil
1980s 2001 - 2003
Demand 9/11 and invasion of Iraq 2014
response to raises concerns of Strong non-OPEC
supply shocks Middle East stability; production and weak
pushes prices demand growth –
1.3 Change Is Nigh
Impairment ($Bn)
22
17.5
10.4
BP Chevron Shell
2050, a goal also embraced by governments like the European Union and the United
Kingdom.
The companies plan to get there by selling more and more renewable energy
and, in some cases, by offsetting emissions with so-called nature-based solutions
like planting forests to soak up carbon. While there is scepticism in both the
environmental and the investment communities about whether century-old com-
panies like BP and Shell can learn new tricks, they do bring scale and know-how to
the task.
‘To make a switch from a global economy that depends on fossil fuels for
80 percent of its energy to something else is a very, very big job,’ said Daniel
+52%
4
+8%*
3
+11% +22%
+12%
2
-2% +21%
1
+22%
0
BP Chevron Eni Equinor Exxon Repsol Shell Total
2019 2030
* BP’s planned pivot away from oil not included as company has yet to shift asset portfolio to match it.
Source: Oil Change International, Rystad Energy
Yergin, the energy historian who has a forthcoming book, ‘The New Map’, on the
transition now occurring in energy. But he noted, ‘These companies are really good
at big, complex engineering management that will be required for a transition of that
scale’.
Financial analysts say the dreadnoughts are already changing course. ‘They are
doing it because management believes it is the right thing to do and also because
shareholders are severely pressuring them’, said Michele Della Vigna, head of
natural resources research at Goldman Sachs.
The Oil Majors have a big hill to climb with this transition, to generate enough
cash in a depressed market, with a declining popularity, to fund the creation of an
equally strong and resilient company in the new energy sector. The first port of call
for the Oil and Gas Companies has been to focus their efforts on those projects and
assets that generate great benefits and away from the more marginal ones, to ditch the
risky parts of the business and let low cost and indigenous operators take them on.
However, the real question is whether this is enough? If the low and marginal
profit-making assets are disposed of, what is left is a business that still needs to
maximise its earnings to ensure accelerated investment into the new energies. The
stability of the oil price is anything but assured, therefore it is critical that every last
cent is saved by focusing attention on optimising cost as well as ensuring good
production levels whilst at the same time reducing inventory. Now is the time to
divert all attention on resolving the issues across the supply chain and truly reap the
benefits to be found here.
Chapter 2
The OPEX Challenge
Winston Churchill is credited with the statement ‘Never let a good crisis go to waste’
when he was working to form the United Nations after WW2. This was a time when
the world had indeed made a significant detrimental impact on itself, ravaging
nations, leaving industry on the floor and driving its population to the edge of
despair. There could only be one way and that was up.
The low oil price and COVID-19 impact are by comparison on a different scale,
but the sentiment remains the same. The internal focus within oil companies has
quickly turned to operating expenses (OPEX).
Back in 2016, Accenture published a paper on Five Essentials for Improving
Operating Costs (in the energy sector). In it, they talk about the need for Oil and Gas
companies to ‘abandon traditional cost-cutting responses to adverse market condi-
tions and work collaboratively with suppliers to manage costs and protect margins’.
They highlight the link between short-term cost-cutting and value erosion, a win–
lose (or lose–win) situation.
Accenture advises that a much better solution is to focus on five essential
activities to manage costs effectively and to deliver sustainable business
improvements:
• Think margin, not just production.
• Scrutinize costs and focus on controlling their drivers.
• Concentrate on improving baseline production.
• Share risks and rewards with suppliers.
• Change culture: place greater emphasis on planning, accountability and service
quality.
The Oil and Gas majors are looking hard in some of these areas. The natural and
easy one to focus on is number 3—concentrating on baseline production, since this is
(and always has been) the go-to place for the technical guys. Some inroads have been
made into looking at margins (number 1), with Shell and Total being very selective
about the projects to be jettisoned based on the likely benefit to be gained. In fact,
Shell has recently announced that beyond 2025 there will be no further frontier
upstream exploration. Both BP and Shell have declared they want to be carbon
neutral by 2050, which will no doubt mean reduced production levels, driving them
to put a much greater focus on profitable production rather than production at any
cost. This will in turn go towards funding the investment into cleaner and greener
energies which is a good step forward. These approaches align with Accenture’s first
step but again the question is: will it be enough?
With reference to the second essential activity, scrutinising costs, the ‘slash it now
and protect today’ approach is a habit the energy sector finds hard to kick and it is a
reflex reaction. The easiest approach is to reduce manpower, to focus on lowering
costs and to cancel many projects regardless of who gets hurt in the process. This
approach will and does reduce the cost in the short term but is unsustainable and the
very fact that it is still the ‘go-to’ solution means that the leaders of these businesses
are reverting to type. The oil giants are waking up to this, with BP announcing in
2020, 10,000 job cuts and Shell announcing up to 9000 a few weeks later.
The industry leans very heavily on getting the best ‘value’ (read lowest cost) from
the vendors, so the fourth step (share risks and rewards with suppliers) is truly
uncharted water, unlike automotive and aerospace industries where tiers 2 and 3 are
deeply integrated into the overall design, development and delivery. Only recently
have the oil and gas projects begun to adopt a standardised off the shelf approach to
project design driven by time and cost pressures at the Front-End Engineering
Design stage. From a risk perspective, the Oil and Gas sector has been much more
liberal and successful in sharing their safety framework with their suppliers. How-
ever, will these behemoths recognise that by sharing knowledge, risks and rewards
drives a fundamental change in the end-to-end processes that would enable both the
oil companies and their suppliers to benefit, a better solution should be the aim rather
than lower costs.
The largest gap in the current strategies within the industry is Accenture’s fifth
essential activity—Change culture: place greater emphasis on planning, account-
ability and service quality. This element is the one significant omission across their
plans. By its omission, their ability to achieve a credible and sustainable reduction in
costs (the second essential) is severely limited.
This gap is apparent in the industry due to the size and complexity of these
companies. One area may well have adopted a very strong approach to changing
the culture, but this is rare and isolated across the business. Therefore, even where
it is adopted, it is very fragile due to the regular turnover of leadership. This
fragility leads to significant culture changes following a change in leader, if the
culture were indeed embedded properly the new leader’s attention would be to
continuously improve performance rather than reinvent the team’s approach. The
thoughts and ideas following in the section dealing with the 12 modules address
this specific area.
2.2 Production at any Price? 11
In other industries, when the demand reduces, strategic decisions are made to either
reduce production or to stockpile for the future. Either way, the individual organi-
sations are free to make these decisions on their own. In the Oil and Gas industry,
this freedom is largely absent as it requires alignment between a number of different
organisations, all with different priorities and agendas. Balancing production based
on market dynamics is a significant challenge.
There are three differentiators that have a major impact on the way this sector is
able to respond to the market dynamics:
• Ownership: Oftentimes the most significant stakeholder in these ventures is the
government who relies on this income as a fundamental pillar of the economy to
survive. In the case of Nigeria, oil and gas revenues generated more than 80% of
foreign exchange revenues, in Russia this is around 50%, therefore critical to both
their national economies and for their governments in power.
• Governance: Globally there are three behemoths in the production of Oil and Gas:
Russia, 13 members of OPEC and the USA with its shale production. The origins
and ideologies of these bodies do not align and probably never will. Therefore,
the control of global prices is a very sensitive issue and can destabilize individual
nations. The moves in 2020 which lead to the negative value of the WTI for the
first time in history indicate that the existing production governance is not
sufficiently reactive to sharp changes in demand.
• Shareholder: Primary motivation for an oil and gas company is to deliver what is
known as free cash flow (FCF). FCF is earnings net of taxes minus CAPEX,
which delivers the ability to pay dividends. In order to remain a target investment
for the financial markets, dividends must be maintained. Recent actions of
removing dividends have hurt this industry significantly and are likely to suppress
the market valuation for a prolonged period of time.
Because there are larger forces at play it is critical that the focus is given to
minimising OPEX and generating FCF regardless of global oil prices. As discussed
earlier, impacts from COVID, society and the desire to transition to a carbon neutral
business will keep the pressure on this industry for the foreseeable future. A reliable
supply chain for maintenance, repair and operations (MRO) is a key dimension for
optimising OPEX.
Chapter 3
Supply Chain Development in Oil and Gas
Industry
The oil and gas sector is a very specialised and focused industry, where deep
knowledge and experience is the norm. Often there is a significant level of govern-
ment involvement through either shared ownership and/or strict regulatory controls.
Making genuine mistakes in some countries can lead to arrest and imprisonment. On
the other hand, due to the level of government involvement and the size of contract
awards, there can often be an unhealthy tension between trying to achieve the best
outcome and satisfying senior partner expectations.
Because of its specialism and the deep knowledge required it drives a very close-
knit community that is often too internally focused and seldom looks outside for
either benchmarking or inspiration, to the extent that the recognised benchmarking
companies focus solely on the Oil and Gas sector. Even in functions that are
common across businesses such as contracting, supply chain, HR, vendor perfor-
mance management, there is little benchmarking outside of Oil and Gas. This intra-
sector navel gazing results in top quartile industry performance levels that are
significantly below the level that could be achieved.
Looking into the O&G companies, this deep knowledge has driven specialisms
such as supply chain to be created simply as though they are a necessary evil to
support the primary goal of the engineering and production aspirations of the
company. In addition to this, there is a mistaken belief that only those who have
worked in the production or engineering side understand how the business operates
and therefore are appointed into supply chain roles for which they have little or no
qualification or relevant experience. This has created an entry barrier for external
supply chain professionals which is notably prevalent at the ranks of senior leader-
ship. Combine this with the introspective nature of the business, then the same
mistakes or suboptimal practices are perpetuated from one generation to the next.
Poor availability
= High Inventory
Too many FTEs
From a technology perspective, until recently spreadsheets and the like were the
only forms of systems in these critical support functions of the multi-billion dollar
companies. Even now new technology is often only at the level that would have been
widespread across FMCG during the 1980s and before this in the automotive
industry (barcoding, network connectivity, handheld terminals, auto inventory
optimisation).
The combined impact of these issues has resulted over the years in vast amounts
of waste throughout the organisation, ranging from manual processing and high
levels of equipment and spares inventory. The consequence is that not only are the
inventory levels excessive, but there is a second level of hidden inventory that has
been procured for projects either cancelled or overbought just in case due to a lack of
trust in the supply chain. Excuses abound including long lead time items, market
shortages, buy three to ensure one etc. These excess inventories can add to hundreds
of millions of dollars lying around. In one asset alone, containers of surplus stock
covered 23 football pitches. It is key to recognise the impact of poor planning and
data (Fig. 3.1).
We estimate that between 25 and 30% of unscheduled deferment1 or lack of
production availability is caused by failures created in the end-to-end MRO supply
chain. This can seriously impact the interval between incidents (i.e., the frequency of
failure increases) as well as extend the mean time taken to complete repairs. Overall,
this has two major impacts, in the short term a detrimental effect on production levels
but just as importantly a reduction in the longevity of the equipment in service.
By not addressing these fundamental issues, the benefits from deploying tech-
nology are oftentimes undermined by poor processes and a lack of end-to-end
understanding driving a silo execution mentality. For example, achieving a reduction
in spares inventory without considering the impact on the operation is at best
foolhardy.
The industry as a whole is much more investment driven therefore much more
susceptible to asset stripping. The only true USP in upstream is the innovative
engineering solutions, for example deepwater exploration, sour gas management,
1
“Deferment” in Oil and Gas context is a term where the extraction of oil and gas from a reservoir is
delayed as a consequence of a stop in operation. Since the resource is still available in the reservoir,
this is not considered a production loss but a production deferment. We believe that since the
production of the same barrel of oil at a later date is met with the prevailing market prices, it
therefore has an impact on operating profits and thus the concept of deferment as a concept of
“delayed” versus “lost” production can be misleading. Figure 3.2 shows how deferment is tracked
in addition to production.
3.1 How We Got to Where We Are?
There is still a very mixed understanding of what a supply chain consists of within
this industry. The views range from it being Procurement to it simply including
Logistics. Very few people recognise that the supply chain not only encapsulates
these functions but also starts with planning and continues through to the execution
of production operations, repair and maintenance.
The process starts with the business defining the level of material they require.
They have immediate control over the part that is ordered for direct consumption and
are central to establishing and approving inventory levels for the material held in
stock. Since this demand generates a requirement for significant quantities of
material (across production, projects and planned maintenance shutdowns etc.) the
power and perception of the procurement function are artificially enlarged despite
being essentially limited to achieving lowest bid negotiations. In some organisations,
the Contracting and Procurement team is responsible for the material management
itself and, consequently, most improvement initiatives are focused on the cost of the
material rather than the improvement, resilience and sustainability of the entire
supply chain. In addition to this, the very nature of the organisational structure
means that the supply chain is operated in a silo manner. Supply chain knowledge
and innovation are fundamentally undermined by this fixation on unit cost and silo
working. Suppliers are often treated as a second-class party in this relationship with
the Oil and Gas companies who take great pride in defining detailed specifications
resulting in bespoke and ‘gold plated’ equipment and material requirements.
There are national and global standards bodies in industries such as automotive,
healthcare and aerospace that allow suppliers to standardise resulting in cost opti-
misation. In the oil and gas sector there are only national bodies and no global
standards. The absence of them results in bespoke specifications which can drive an
added premium of 60% upwards.
Next to procurement the other major supply chain function, Logistics, sits within
the supply chain but is not the entire supply chain despite the perception often held
by operations leadership. Logistics is focussed on the movement of people and
material, using land, marine and air transport. We have observed that often Logistics
may be assigned the task of storing material and warehouse management thus a
larger part of the supply chain. However, within the warehouse or supply depots
where the functions meet, procurement and logistics may easily duplicate efforts or
create multiple internal billing operations due to poorly defined and executed
3.2 Supply Chain Perception Vs. Reality 17
Procurement
interfaces. Figure 3.3 shows how procurement needs to support the three key pillars
of the MRO Supply Chain.
The ability to drive improvements as an industry requires a considerable coordi-
nated effort. As an example, the automotive industry has standards across all of its
elements of design, production, lifetime production and maintenance. Today it is a
significant challenge to achieve this in the O&G industry. It is very interesting to
observe that in this sector there are many and varied levels of joint ventures between
oil majors (IOC) and the national ministries (NOC) and yet when it comes to
standardisation it is severely limited if it exists at all. They all approach their
operations as well as the maintenance of the asset in their own unique way. At
the time of crew change or shift change as is common in many of the joint ventures,
the teams operate in a way that is native to their own IOC. You can imagine the
disruption, lack of continuity and often contradictory choices and decisions that are
put in motion. In reality, the teams are actually doing their best, in accordance with
their key performance indicators and performance measurement. Often these stan-
dards are specific to the IOC as they have developed over a period. This results in a
spiral effect where the complexity drives variability in the supply chain and these
variabilities in turn impact performance and cost, leading to lack of reliability along
with the interfaces of the supply chains.
Most IOCs have a formidable Procurement function. With billions to spend, this
function prides itself in managing the spending of the company. The opportunity for
making savings is based around a principle of 40% based on the specification, 40%
on the demand and 20% on the price. Although the procurement teams understand
the basic principle of 40:40:20, the business finds it difficult to change its ways on
either demand or specification. Therefore, the procurement team is persistently
forced to reduce price, at all costs, which re-enforces the silo approach. This constant
focus on price undermines the resilience of the supply chain and the vendor to say
nothing about the corner cutting or failure to supply which diminishes quality and
service. Due to the short-term focus and lack of attention on the lifetime of the
system when equipment was procured, today many assets that are ageing, miss
critical spare parts and they are also no longer available from the suppliers. This
could be a result of the Bill of Material being updated, or the part itself discontinued
or upgraded and even in some extreme cases the supplier itself no longer exists. To
18 3 Supply Chain Development in Oil and Gas Industry
even get the information on the product required by the Maintenance and the Repair
team often will start with a very time-consuming and expensive investigation by the
supplier on the part or its equivalent in its currently available form.
Overlaid on this is whether to keep the materials in inventory, which should be
tied directly to both the reliability supply and the lead time of procuring new parts.
Although the main part of the lead time is the time to manufacture and deliver the
material, our observations reveal that a significant additional element to this lead
time is the complexities inherent in the procurement process (internal approvals,
senior stakeholder approvals, regulatory approvals etc.).
If these delays can be reduced, then there is an opportunity to reduce the overall
inventory levels. The impact of procurement decisions extends far beyond the supply
chain and is critical to maintenance, repair and operation during the asset lifetime.
However, siloed functional approach often impedes decision-making and collabo-
ration that must be put to effect to improve OPEX and asset availability.
Let us illustrate how silo thinking may impact the supply chain. As a case, we can
explore the challenge of critical spare parts availability that is fundamental to
operational continuity and asset availability. During the time of design and build
of an asset, the Engineering and Procurement Contractor (EPC) works with the
supplier to define the ‘critical spares’. These are defined by suppliers with the best
intentions of part or systems performance. Now any asset will typically have many
‘systems’ that keep it operational. These could be hydraulics, electrical, fuel man-
agement etc. and each system will have its own critical spare parts. Now put them all
together at the asset level and you have a long list of parts that are marked ‘critical’.
The position held by both Engineering and Maintenance is often that the Procure-
ment and Material Management teams must hold all critical spares in inventory. This
can and does result in containers of spare parts and components that stack up on the
site. If it is an offshore operation, then this can consume significant square meters of
valuable real estate.
In reality, as an asset age, conditions change, elevating some systems and sub-
systems to become more important than others. In fact, although some systems may
be upgraded the old systems may still remain in place as a contingency. We have
observed that despite the change in priorities of these systems and subsystems (up or
down), the criticality of the supporting spares is infrequently reviewed and even
when they are, it takes great effort and a project team to complete the task. The
consequence is that the critical material being held is dated and has significant gaps
in it, simultaneously resulting in downtime of the asset and overstock, the worst of
both worlds. It is essential that the business recognises a few ‘critical’ spare parts are
more ‘critical’ than others and that it needs to continuously monitor and update its
critical material, holding the most critical closest to the operation and removing from
its inventory material less critical.
It is not an uncommon event, despite inventory worth millions, the asset will stop
producing because a $20 gasket was not available. Its procurement and lead time for
delivery mean it requires expediting as well as leading to higher cost to replenish-
ment. These events will trigger the usual war rooms, email chains that run into pages
and pages, and heightened emotions across board. The engineering team fed up with
3.2 Supply Chain Perception Vs. Reality 19
waiting on orders for the part directly from the supplier will often order more to
avoid future shortages. There will be the usual firefighters and the celebrity operator
or the manager who manages to get the part and save the day. Functional silos do
indeed drive similar narratives of crises and victory in many different flavours.
The way to solve this requires an end-to-end (e2e) perspective. A collaborative
environment where the list of critical spares are reviewed on a regular basis and new
parts added whilst others are delisted based on operational performance. This allows
the procurement team as part of the supply to maintain the right inventory at
locations that allow rapid delivery of parts at the point of failure or ensure that the
supplier holds the right insurance part or inventory for speedy supply.
We observed that a similar analysis at one of the offshore locations reduced the
number of critical systems to 30 from over 600. This was a result of historical failure
analysis. From these 30 systems, only 600 spare parts were deemed to be essential
for operations continuity. This was a reduction of over 90% from the original list of
critical items that required inventory to support the operation. This joint and
focussed analysis allowed many parts to be declassified as critical, saving inventory
and working capital while improving the availability of the asset.
The only way to prepare and succeed in the current market and deliver resilience
in future is to focus on supply chain optimisation that reduces the complexity and
demand for materials whilst ensuring security of supply and only then focus on cost
reduction. A continuous improvement and optimisation drive towards more preven-
tative maintenance to improve production and operational continuity as opposed to
continuous bleeding through an inefficient patchwork of expensive corrective main-
tenance. It is a recognised fact that running equipment to failure is more costly both
in terms of lost production as well as damaging equipment than maintaining it to the
set maintenance schedule. Deploying a preventive maintenance strategy in an e2e
fashion will drive improved cost and availability performance as illustrated in
Fig. 3.4. Further, by increasing preventative maintenance it is often seen that the
frequency of corrective maintenance events reduces by a greater percentage, the
difference between a well-maintained car versus a poorly maintained one that
frequently breaks down! (Fig. 3.5).
The business relies heavily on the supply chain to deliver people, goods and
services to the front line to support production continuity and therefore the lifeblood
of a successful business is its supply chain, which until recently was the most
overlooked function in this industry. So, let us talk more about why this is so.
There Are No External Customers. . . . . . just internal operations and if they say,
‘we need one, we will buy three! We will allow for one to be out of spec, one to get
lost leaving one to use’. Something traditionally heard from maintenance managers.
The supply chain is there to support operations, wells and projects, however,
traditionally it has been treated as a function within each of production, wells and
20 3 Supply Chain Development in Oil and Gas Industry
High
strategy (A N + 1 operating
strategy means there is more
capacity in the system than Corrective N+1 Preventive N+1
is required and is intended to
Critical to Production
protect the most critical Supermarket
parts of the organisation. replenishment
This is described further in model for
the tenth module later in this critical spares
book.)
Run to fail/
Corrective Preventive
Low
projects. This shows that it has never been recognised as its own integrated function
but just as an activity, or necessary evil, that involves movement of goods and
services.
We see this gap at all levels, at an asset level as well as at an enterprise level. The
oil and gas industry does not have a supply chain at the country level and therefore
will never have it at corporate level such as other industries. Such is the level
importance of the supply chain in the most advanced industries, they have achieved
distinct leadership roles such as Chief Supply Chain Officer to manage this function
corporately. This is not something we have seen in the Oil and Gas sector.
There is a misconception that price is the only thing that matters. Fundamentally
there is no supply chain because there is no integrated and unified goal. Produc-
tion ¼ availability, Procurement + accountant ¼ money. In turn, this lack of
integration leads to an inability to meet the schedule as well as driving significant
waste throughout the supply chain (Fig. 3.6).
Maintenance Events
Corrective Corrective
Preventive Preventive
Operational Cost to
requirements procure
Logistics
Large corporations often roll out initiatives such as Lean and Six Sigma intended to
highlight the missed opportunities to reduce waste and to improve performance,
whether by removing non-value added activities or encouraging departments to
work in a coordinated way or removing complexity. In addition to this, another
objective is often to simplify and harmonise performance indicators so all the
functions are aligned towards the stated corporate goals, but is this enough?
Figure 3.8 shows the purpose of and difference between Lean and Six Sigma. It is
critical that this is understood prior to labelling work with these titles, removing
waste in one area without considering how it impacts the end-to-end value chain is
not good practice.
As we have observed earlier, some of the more visible waste in this context can be
inventory, expediting parts, secret inventory (squirrel stores), interdepartmental
billing, poorly stored parts beyond their shelf lives etc. Figure 3.9 shows the eight
wastes, including underutilised talent, and it is clear to see where excess inventory,
defects and over processing fit in. However, in addition to these, there are some less
obvious areas of waste, for instance, due to missing standardisation of parts there is a
huge variation in lead times, the time it takes for routine maintenance, distorted plans
created on the assumption that it will fail and therefore it does—a genuine self-
fulfilling prophecy!
The objectives of Six Sigma (Fig. 3.10) are twofold, firstly to align the average
output of the process with the customer promise, ensuring that it at least achieves this
goal. The second and arguably more important objective is to reduce the variability
of the process, to enable delivery of results closer to the mean. Through these two
objectives, the customer will receive what was promised and will receive that
consistently.
There are many different types of employees throughout every workforce, people
with vastly different experiences and approaches. Some believe they can change the
world, and do not get us wrong, some of them are very capable of doing this, but
many do not want to change. Change is alien and more importantly it is hard work.
It focuses on variaons in a
It is the relentless pursuit process and uses stascal
of perfect process through tools to reduce process
waste eliminaon along standard deviaon and
the enre value stream. shi the mean towards
target.
24 3 Supply Chain Development in Oil and Gas Industry
• Not applying cross training and skills • Underutilising people’s talent, skills and
upgrade across manufacturing cells knowledge
UNDER UTILISED
TALENT
The real question here is, why are they like this? Why do some people put more
effort into resisting change than it would have taken to make the change itself?
Consider that people can move between these groups, from eager and open
individuals to reluctant to change, with the underlying reason that ‘we have tried it
before, and it didn’t work then’ or ‘why bother others will stop it from working
anyway’ through to ‘I tried to implement change before and got my fingers burnt’.
Aside from the naysayers who believe that this is just another initiative that will be
forgotten in a short period of time (and these are bad enough), there are those who
have tried to change in the past and not had a pleasant time through it, being
penalised in performance assessments for trying to do the right thing and failing or
3.4 The Mindset of Waste 25
Statistical objective of Six Sigma - customers feel the variation more that the mean
TARGET TARGET
LSL USL
LSL USL
TARGET
CENTER PROCESS REDUCE SPREAD
LSL USL
helping another department achieve their targets, whilst appearing not to worry
about their own goals even when it was the right thing to do. This second group of
people can be much more damaging as they typically change the culture of the whole
enterprise, not just now but for the future too.
Often, misaligned KPIs are the root of the problem. Leaders want to achieve a
personal goal or have a specific emphasis on delivering a set outcome, which might
not align with another part of the organisation. This could be a consequence of
having an eye on the next job or only considering short-term goals or it could be
down to a lack of understanding of the bigger picture or indeed little knowledge of
the underlying principle.
Take for instance the situation where a production unit is tasked with maintaining
production ‘at all cost’. Well, they will be really focused on ensuring that inventory
availability will not harm production and so will embark on making sure that
everything they think they need is available. Even if they do not really need it, it
will be insurance. Later when a different leader is in place, no one knows or
remembers why this inventory is here. In fact, often no one knew the inventory
was there in the first place. We have observed such a leadership decision to stock
2 years’ worth of spares resulted in a massively bloated inventory problem. Years
later the rule was still in place though its original intent was long forgotten and no
longer relevant. The leader who made the decision moved on and subsequent leaders
continued to work with an archaic and OPEX intensive process. The insurance has
run out and the viability of the inventory too. This means that what was once
26 3 Supply Chain Development in Oil and Gas Industry
working capital now needs to be written off against OPEX, dealing with the error of
those who came before.
It is critical that the business, any business, focus on changing the mindset rather
than just the process or the system. It is essential that the workforce understands the
current business objective and is aligned with it, to recognise waste and challenge
paradigms, even if they do not understand well the rationale that put them in place.
The leadership should place their trust and forgive mistakes if things do not turn out
successfully while making a positive change. This is an essential part of a learning
mindset and has to be the mantra adopted throughout the whole organisation.
In the O&G industry, it is not unusual to see procurement creating waste by
incurring significant OPEX and working capital costs through unnecessary spending
on inventory. Alas, this approach is not limited to procurement, but it is also
common to see the same approach in Logistics and Services with the justification
of protecting production or ensuring the project delivery schedule is met. Rarely are
surplus inventory and resources critical in themselves, but their presence
(or availability) is often used to cover for inefficiencies in other areas. This in turn
leads to significant waste through Inventory write-off and redundant resources. This
inherent distrust on reliability of functional partners has significant financial impacts,
either by requesting more resources than is required, or through bypassing the
prescribed processes and therefore losing benefits from enterprise level supplier
management and negotiations.
All of this has a knock-on effect through the rest of the value stream, it increases
pressure on vendors to supply what is not required, it increases expenditure to buy
what is not needed and it drives up working capital. This extra inventory contributes
nothing to the performance of the business and the material is likely to either
deteriorate before it is required or, in the worst case, it will be written off which
will impact profitability.
The relationship between the level of inventory and the risk it mitigates is not well
understood. The common misconception is that inventory is a guaranteed way of
mitigating all risk, rather than the understanding that only carefully selected inven-
tory mitigates a portion of the risk.
These examples of waste have been observed across the board and in discussion
with our peers across IOCs and NOCs.
• KPIs—The lack of understanding about an e2e supply chain, or the
interdependence of the functions drives a silo mentality, higher costs and poor
handovers on the interfaces. Bureaucratic measurement of success within a
function drives delays across the e2e process which in turn drives distrust and
is at the root of the poor practices leading to a slow and overweight Supply Chain.
• Process—Paying for the negligence of previous stocking policies, or at least poor
stocking practices. Commercial decisions are based on least cost and not value.
When cost of procurement is the prime driver, the potential short-term savings
can become outweighed over time by dis-optimisation of the overall supply
chain.
3.4 The Mindset of Waste 27
The history of Logistics in the Oil and Gas Industry is complex. Given the remote
location of assets it includes all modes—Land (ranging from pick-up trucks to large
trailers, buses and cranes), Aviation (Rotary and Fixed wings) and Marine
(Tugboats, security, houseboats, barges, Jack up barges, PSV, water taxis, flotels)
with all its complexities and regulations. All of these modes also include the inherent
health and safety (HSSE) exposure and in certain countries security measures. Theft,
robbery and armed assault are often part and parcel of asset operations in some
geographies.
Unlike the majority of supply chains, logistics in the Oil and Gas sector also
includes movement of people and, following COVID challenges, it has been
expanded to include Hotels, Transit canters, Quarantine layovers and much more.
Thus, the typical oil and gas supply chain not only concerns itself with material
movements but is effectively equivalent to a tour operator as well! If you add to the
mix the complexity of expat contractors, it becomes an international tour operation
dealing with visas, government regulations and restrictions, and back-to-back
schedules.
Metrics define actions and with all the inherent complexities, the primary purpose
of logistics remains to deliver material and people to the assets on time at any cost.
Upstream business measurement typically is based on Material on Time (MOT)
whereas the Downstream business measurement is On Time In Full (OTIF). Neither
of these measures the efficiency of the supply chain. The metrics are designed to
serve the immediate needs of the assets which are trying to maximise or meet daily
production targets and as far as the asset team is concerned, that is all that matters. To
add to the grief, sadly there is constant rhetoric and comparison with online retail
giants which is not useful for the team members where the supply routes are complex
and long. We have become used to the service level, ease of order and track and trace
of online retailers and expect the same level and quality of service without investing
in any of the infrastructures that would make it possible.
Another illustration of a misleading and unhelpful metric is helicopter utilisation
based on the number of seats paid for by the business rather than number of people
sitting in the helicopter for each flight. This measurement was designed to meet a
functional KPI (cost recovery) rather than end-to-end cost optimisation (resource
utilisation). This changed when helicopter availability became low due to recent
industry crises amongst the helicopter operators and the focus turned to resource
utilisation. Similar challenges are endemic across all modes of transport and
resources, for instance, the maintenance of a fleet of pickup trucks and grab trucks
(i.e. with hydraulic loading arms), which are often kept on standby for any request
for parts or components from the asset. We have observed a single drum of lubricants
being delivered on a pick-up truck. Little thought is given to creating a ‘milk run’
route between the assets where possible to reduce the fleet size, related fuel con-
sumption and resource requirement. These concepts are common in the retail
industry and do not require much effort to adopt.
Referring to an earlier section—a supply chain “designed” by engineers has
delivered a solution which may be a functional working supply chain as per the
specification but have little consideration towards an efficient supply chain opera-
tion, that may put priority on end-to-end cost optimisation and reducing the working
capital (inventory) required to meet service requirements. Unfortunately, we
observed that the focus has been on prioritizing delivery service towards asset
availability at any costs. There are very few real supply chain experts in the
ecosystems and we (author’s opinion) do not believe procurement and the category
managers to be supply chain experts. Lately, we have observed that realising the
importance of supply chain, procurement has rebranded itself to supply chain in
IOCs. Recognition and adoption of the identity is a step in the right direction,
however, unless true supply chain experts are put in the leadership role little
fundamental change will be made. Thus, supply chains in this industry will miss
an opportunity for a step-change improvement in performance, limited by the rate of
process evolution based on experience gained.
But that is not all—so far, we have talked from a cost lens. Very little is driven
from a demand angle. Logistics needs to know the demand presented by the asset
operations, but they also need to be able to influence the demand to optimise cost.
During the course of a turnaround campaign offshore, we observed that the logistics
project teams were set in the sequence that they needed to follow as per the project
plan. However, this sequence required two accommodation vessels to be mobilised
for a four-week period. The mobilisation costs for these vessels were significant.
Through the intervention of the logistics marine team, it was possible to influence the
timing of the project work execution. This removed the requirement for the overlap
in accommodation vessels and allowed the use of a single vessel for both of these
campaigns. This effective dialogue illustrates the power of enabling those who
understand the ‘cost to service ratio’, which operates at an end-to-end level of
operations versus delivery of a discreet project or activity.
4.2 Planning: Splendid Isolation? 31
The above case study is again a reflection of historical evolution of the function
which is primarily designed to respond to the requirements and not necessarily be
part of the optimisation process together with the asset operations. This is made even
more complex when you consider that the operations across Assets, Wells and
Projects can each have their own logistics functions (including contractors and
EPCs suppliers).
Typically, Oil and Gas companies are very good at planning projects, focussing on
cradle to grave asset planning with little attention to operational execution planning.
The expertise focuses specifically on getting them from the concept through the
relevant decision gates to execution, with the supporting functions expected to fall
into line and deliver them. Significant energy is focussed here to ensure a successful
project level outcome. However, our experience is that little energy is given to a
coordinated plan, one that encompasses the projects, wells and maintenance aspects
in the business. It is the equivalent of ‘build it and they will come’ but it is not done
in a way that will be efficient for the future.
Operational planning existed but in siloes. Functions such as projects, wells and
maintenance created their own limited plans, which do cover elements of the supply
chain (especially logistics), which resulted in discreet plans even at the logistics
level. This has led to duplication, overcapacity and inefficient contracts being the
norm. Not only were the rates not optimised, in some instances, functions went into a
bidding contest against each other driving up the rates even further. The vendors
naturally took advantage of the left hand not knowing what the right hand was doing.
The lack of a cohesive plan naturally leads to suboptimal execution. Surprisingly this
still exists in most Oil and Gas assets.
When setting out on a journey, it is a good idea to know where your destination is
and to plot out the journey for all involved. However, in Oil and Gas the functional
teams continue to develop their own roadmaps and plans. There is a gap in the
organisational structure whose role is to unify the plans, standing on both sides of
production and supply chain to recognise and align priorities to genuinely drive
availability gains.
There is a desire to be like Amazon in the Oil and Gas industry getting the benefits
of visibility and traceability, but this goal completely misses the need for the process
to start with aligned, excellent planning upfront.
Fail to Plan? Then Plan to Fail! In response to the Low Oil Price (LOPR) there
has been a significant effort across operating units to reduce their cost. The initial
32 4 The Missing Pieces
part of this exercise has been fairly easy. Identify cost components, create a pipeline
of opportunities and set rhythm and discipline of weekly cadence to ensure that value
opportunities are matured and delivered and captured in the financial systems.
However, once you have scraped the fat and trimmed the low-hanging fruits the
exercise requires end-to-end collaboration across functional teams to get the next
level of saving. This alignment is critical to address the inefficiencies that build up in
the value stream as each function overcompensates to achieve their own goals and
objectives. Evidence of this is where the Wells’ team arranges their own supply of
materials to meet their delivery performance, Procurement creates their own Cost
improvement targets, planned major maintenance projects concentrate all their
activities in the first half of the year as they plan to fail, with little trust in supply
chain delivering material on time.
This is deep rooted and perhaps the biggest vulnerability of the supply chains in
Oil and Gas companies. The scale makes it easier for the inefficiencies to continue,
as these supply chains are big in themselves, but the opportunity for making
significant improvements through integration and alignment is also huge.
A good start would be to resolve the planning issue which will address the giant
hairball of a problem. There are multiple plans across logistics, wells and operations.
For example, instead of tactical management of over 200 vessels, the specific effort
behind proper planning will optimise the demand (fleet size), maximise service
(availability) and have a much bigger impact on the cost than negotiations alone.
This creates a much more sustainable business and prevents the vendors from
coming back and saying they cannot deliver on agreed prices because in reality
they were unrealistic in the first place. In order to keep the ecosystem strong and
effective, we can and should help the suppliers become business partners, instead of
pushing them to bankruptcy. A case in point highlight would be the bankruptcy of
many helicopter service providers, through inefficient planning that had created a
capacity based on seat utilisation. That meant that booking of seats ensured that seat
utilisation was always very high. However, here was the hidden inefficiency,
booking the seats does not mean someone actually travelled! The helicopters
would depart with booked but empty seats. With the cost pressure, the focus went
on ensuring people actually travelled only when required or faced penalties for
no-shows. Suddenly the bookings dropped, and a good part of the helicopter fleet
went on standby as overcapacity. Naturally with high cost of maintenance, pilots,
crews and infrastructures meant that many suppliers started to file for bankruptcy. A
double whammy, as oil and gas companies were faced with fewer suppliers who
were far more demanding and an increased risk to operational continuity, if the crew
or urgent materials could not be delivered on time to the asset.
Working without a single plan drives significant effort and resources to ensure
alignment across plans, which in turn becomes the primary activity adding little
value to the enterprise. By using a single plan and investing this time and effort into
4.3 Integration: A Rare Commodity? 33
Improve Do
Review
optimization and streamlining drives real value at the beginning rather than trying to
recover value at the end.
If you miss the good foundation of planning upfront most of your energy will go
into Cost recovery at the end. This is where Cost Improvement targets become the
primary KPI of the procurement team. There is little bandwidth left for effective
contract performance tracking and continuous improvement initiatives because this
focuses on the symptoms, not the root cause.
The well-known illustration in Fig. 4.1 has a simple insight. The less time you
invest in Planning, the more time needs to be spent in Doing and Reviewing and
hardly if any in Improving. That is why Taiichi Ohno from Toyota would always
maintain that we must plan long and then act fast. Insufficient time and energy in the
planning phase results in significant time and energy in the doing phase to simply
deliver required expectations. This in turn drives a behaviour to ‘get the job done’
versus what it should be to ‘get the job done efficiently’. As a consequence, there is a
business culture where the ‘firefighters’ are rewarded and good planning is viewed as
‘just part of your job’, it will not win you medals or recognition. When in reality the
focus should be the other way around since great planning significantly removes the
need for firefighting.
Recognising people at the moment and not for their preparation is neither an
effective nor sustainable way of working. A popular Bollywood movie scene has a
great illustration of this where a successful businessman drives his car into a garage.
He looks at the mechanic and asks if he can fix it. The mechanic looks under the
hood for a while and then picks a small hammer and taps it on one of the mechanical
parts and voila—the problem is fixed. The businessman is very pleased and asks for
the bill. The hero says a thousand rupees, a very significant amount in the 1970s
when the film was made. The businessman is aghast and loses his cool. ‘You are
charging me a thousand rupees to tap a hammer once?’ he shouts incredulously.
Indeed, our hero, the mechanic, calmly looks at him and remarks, ‘You are right, it
cost you 5 rupees for the hammer tap and the other nine hundred and ninety-five
rupees to know exactly where to tap!’ What a triumph of knowledge and wit. It
became folklore for generations. Though a nice story, it contains a powerful message
for organisations. Experience and talent are developed over years. If someone makes
tasks look simple and executes it efficiently, do not cloud your perception and
34 4 The Missing Pieces
conclude that this is easily done thus naturally low value add. Take time to under-
stand. There might be numerous ‘fires’ that the skilled operators are avoiding with
ease, but they never get the due recognition for it. As previously said, organisations
often reward last-minute crises solvers but not the one who prevent crises from
occurring in the first place.
In some organisations, it is believed that people's development is more important
than knowledge retention. This plays into multiple reorganisations where continu-
ously refreshing talent bleeds experience. It is not uncommon for an employee to be
subjected to a major reorganisation every 18 months or so.
In a departmental meeting, recognition was sought and given for a significant
contract being delivered. Praise and accolades were given to the team involved in
this achievement. However, the question of ‘When’ this contract should have been
delivered was never asked, it was over a year late. The team missed an opportunity
to learn from this event like in so many others in the past. Poor planning in this
instance meant that the deadlines were missed, and we spent all the time ‘doing’,
there was no time for ‘reviewing’ and improving. This was further exacerbated by
giving recognition after delivery rather than following it all through to review and
improve.
This type of approach basically shortcuts the process to Plan and Do whilst at the
same time condoning the extension of the timeline. Sadly, we keep on repeating this
pattern over and over again. Rinse and Repeat, rarely, if ever, taking the time to step
back and review. As an industry that leads in ‘Causal Analysis’ of engineering
failures we do not apply the same rigour to supply chain failures. This drives a ‘who
is to blame?’ culture rather than a ‘learning organisation’ and further reinforces
siloed mentality.
This mentality drives a vicious circle through functional point scoring and
localised praise, rather than a virtuous circle with shared goals and improvement
agenda. We have observed the community of Wells engineers, proudly carrying the
label ‘we are tribal’ on their shoulders. Wells delivery scored the highest perfor-
mance, however, not from the perspective of the asset they were meant to serve,
leaving in their wake excess inventory, premature handovers driving ongoing
corrective actions necessary by the asset.
In most consumer industries, a sales forecast is the trigger point for all manufacturing
and procurement activities. It includes the impact of promotions, the launch of new
products and changes in price points but is based on effectively predicting what the
market will do under various circumstances, market dynamics are influenced by
events and activities which are outside the control of the organisation. This is
normally managed through a Sales and Operations Planning (S&OP) process
(Fig. 4.2).
4.4 Does Sales and Operations Planning Really Work in Oil and Gas? 35
EXTERNAL EXTERNAL
SUPPLY S&OP DEMAND
FACTORS FACTORS
In contrast, an MRO supply chain in the oil and gas industry has complete control
of the demand side of the planning process. But it does not have total control over the
inbound materials or supply of resources, thus is bound by prevailing market
conditions (Fig. 4.3). Ultimately, in oil and gas, there should be more control over
internal demand than the FMCG has over their sales. But additional control is neither
recognised nor effectively managed. In the Oil and Gas industry, we have a ‘known’
set of demands as against a demand with inherent ‘variations’. Thus, the only reason
we should hold inventory in Oil and Gas is to manage the variability of the inbound
supply. Any inventory to manage the demand variability should be unacceptable,
though it is a common practise.
The belief that an easier and more controllable supply chain has a better chance of
succeeding is incorrect. The reason being that freedom to exercise discretion without
the necessary alignment and controls ultimately fails to satisfy expectations and
EXTERNAL INTERNAL
SUPPLY P&OP DEMAND
FACTORS FACTORS
causes unnecessary disruption throughout the value chain. Control and manage
strictly this internal interference and success becomes much more likely.
In fresh food supply chains, not only is demand highly variable (salad on hot
days, BBQ on sunny days etc.) but also the supply is also highly variable because
of its short lead times and its dependencies on other factors such as weather.
However, the design of the fresh food supply chain relies heavily on solving all
issues within a period of 24 h or less. Thus, there is no cumulative effect, tomorrow
is another day with another set of challenges. In order to manage these restrictions,
strict controls and processes are in place and understood by everyone in the supply
chain. The aligned understanding of the ultimate goal allows the supply chain to
focus on delivery rather than managing and investing time and effort into failure
management.
In the Oil and Gas MRO supply chain, the less variable demand and more
forgiving delivery service should improve cost and service but in actual fact serve
as fundamental obstacles in this delivery. This is because the whole supply chain is
based on a wide latitude of parameters. If an order is received today, scheduled for
delivery tomorrow, as in fresh food distribution, this requires a very focused
operating model. It is essential that Oil and Gas adopt more of this type of approach
to drive a step change in performance, but to achieve this there has to be a significant
change in behaviour.
For some reason, the oil and gas industry misses this insight of the significant
advantage it has with a fixed and stable demand that can be internally adjusted or
modified to keep the cost and thus the OPEX low. In fact inventory is used
increasingly to manage the demand planning inefficiencies. The resultant excess
inventory usually falls in no man’s land. The Functions do not own it, Procurement
does not own it, the asset does not own it and it appears as a line item or working
capital (i.e. in asset) in the financial ledgers rather than a liability that it will become
an excess or obsolete stock.
The S&OP process is not directly transferable to MRO supply chains but should
be modified to take advantage of the Planning and the demand stability that is
within the controls of the organisation, thus creating an updated Production and
Operations Planning (P&OP) process. This new P&OP process needs to be
cognisant of the controls required to take full advantage of the relatively stable
demand profile whilst having the primary objective for asset availability and
production continuance. Change management and control are critical in ensuring
that decisions are made which consider the impact across the entire value chain,
rather than biased towards one specific series of objectives from one area in the
value chain (See Fig. 3.7 Balancing the corporate strategies in Sourcing and
Procurement).
4.5 It Starts with the End in Mind 37
For a plan to have any chance of success, it is essential that we start with the end in
mind. By understanding the destination, the plan to get there is much easier to
visualise and create. As a minimum, the parties involved should all be aligned with
this end goal (see later defining where you want to be—the North Star), however, for
a fully integrated plan, the parties should have an understanding of the impacts on
and the opportunities between each of them: where is it possible to align to be more
efficient; in a situation where resources are constrained whose need is greater etc.
We need a common goal and a unified plan that everyone understands and is
committed to delivering. Making time to create the plan is more important than
firefighting to execute and recognition should be focussed on good planning.
So, what is a Good Plan?
A good plan is strategic, it is common across all functions, and it has an understand-
able goal that can be easily translated into functional requirements. It is not only
about ‘where’ you want to go but also ‘how’ and ‘when’ you want to go there. It is
measurable and has relevant leading indicators to show progress being made.
Probably the most important of all, it is co-created.
It is critical for a good plan to recognise its interdependencies. In the organisation,
a major maintenance schedule was created to be delivered in the first 6 months of the
year. From a supply chain perspective, this was going to be difficult to deliver both in
terms of resource levels and in terms of material availability. When enquired why the
plan could not be level loaded throughout the year, it became apparent that it had
been built to allow for slippage and catch up in the second half. Thus, the plan was
designed with ‘failure’ as a key driver. Rather than planning in case of failure, this
approach guaranteed failure. At the root of this mindset is a lack of understanding of
end-to-end supply chain, lack of integrated plan, a lack of co-owned interdependent
plan and insufficient challenge back from supply chain, because this is always how
we have done it (Rinse and repeat as mentioned before).
To reiterate a good plan is understandable, aligned, co-created and recognises
interdependencies. It also needs to have a commitment to its delivery from all levels
within the business, people helping people to deliver not simply cascading what they
should do.
Who owns the plan?
Plans must have their origins in the need of the business to sustain, improve and
grow. However, that does not mean that the plan is owned by the ‘business’. It has to
be owned ‘across’ the business with a genuine shared ownership. It is not a top-down
plan, even though this is how it is always treated. It should be built from the bottom-
up to meet the business objectives. Thus, whilst the business ‘owns’ the objectives,
the plan to ‘deliver’ the objective is owned across the functions and co-created.
The plan should not only be about what we deliver but it should also include
when we deliver and how we deliver. The element that is missing in almost all plans
is ‘how’ we deliver. The normal method of communication is to cascade the plan
38 4 The Missing Pieces
The biggest challenge for most supply chains is to create a repeatable process that
runs effectively with minimal interventions and is capable of resilience within
planned parameters. In most consumer-facing industries, significant effort is
invested in designing resilience based on the variability of demand.
In our work over a period of 18 months, we understood that close collaboration
with asset maintenance and engineering can narrow the demand pattern for critical
spares making them more predictable. As the reliability in specific categories within
the supply chain improved this principle could be extended to include planning for
additional categories over longer horizons (ultimately moving from 1 to 3 years).
Increased collaboration with the Integrated Planning team as well as Logistics
thorough weekly/monthly cadence only served to make the process more robust.
As supply reliability increases, the noise from the value stream reduces allowing the
team to put more attention on event planning such as shutdowns, drilling sequences
and projects as well as dealing with genuine emergencies.
We can identify 12 modules of supply chain transformation that helped us deliver
a remarkable improvement in the supply chain, which often seemed impossible to fix
(Fig. 5.1). There is no set sequence in the deployment of the modules however all of
them serve to draw a common thread across the value stream. Although they can be
implemented in any order, it is critical that the end user focus and attention to
planning are considered early in the process. Any supply chain transformation
should remain cognisant of them as they focus on their own gaps/opportunities.
The core concept is based on data flow in one direction (asset through to supplier)
and material flow in the other (supplier to asset). The fundamental principle is that
this should be as seamless as possible with all attention focussed around removing
waste in these flows. For us to be a truly agile supply chain we should be able to spot
the inefficiencies fast allowing swift and direct mitigations. This requires KPI’s
MATERIAL/SERVICES FLOW
Suppliers Logistics Asset
8 Streamline link to 7 Control Inbound supply chain 5 Fix the external 4 Fix the internal 3 Managed & Define link to assets
decoupling
1
suppliers with fixed lead-mes & decoupling point. roune delivery •Producon
Lead mes standard volumes Healthy inventory point. schedules. Using •Turn-around
Forecasts and low working Supermarkets milk-run •Wells
Effecve PACM capital for crical replenishment • Projects
spares
6 Segment inventory
2 Integrated Demand
and procurement
& Capacity
plans
planning
INFORMATION FLOW
(*PTI, PTO)
11 KPI standardizaon
focussed on leading indicators to enable prevention rather than lagging that can only
ever enable reviews. We should build our dashboards and control towers based on
these as a single source of truth across the value stream.
The concept of Plan-Source-Deliver for a supply chain is robust but has its
limitations since it uses a functional lens on the value stream. The primary purpose
of any supply chain is to deliver in full what is required, when it is required and at
the optimal cost, rather than at the lowest cost. It is critical that the ability of the
asset to produce is not undermined by tactical response to minimise cost in the
short term.
Here are the 12 modules starting with the information flow.
There is a legacy of assets getting what they want. Historically if they have not got
what they wanted through the correct methods—they bypass and place direct
delivery orders. Through bypassing procurement and using direct charge mecha-
nisms they often buy more than they need to make sure they get what they want and
also ensure that in future they are not let down by procurement. Thus, creating their
own personal insurance or ‘squirrel store’.
The assets have an expectation that it should be like ordering from the internet. ‘I
place an order and you (procurement) must deliver’. There is a fundamental gap
between their appreciation of what can actually be delivered against what they are
demanding.
All of the above leads to distrust in the supply chain for materials (and services),
even though these supply chains are integral to the success of asset operations. There
remains a functional divide and a missing recognition that supply chain is an
extension of asset operation whose primary objective is to be a reliable partner for
them and contribute to value improvements, not just by better contracts but deliver-
ing reliably on time with the lowest working capital possible. To reach this integra-
tion across functional divide we need to overcome two things:
(a) The recognition that the operations are a full-fledged member of the supply chain
(b) Identify and remediate gaps in the supply chain delivery capability.
The wells function traditionally operated by themselves in isolation because they
were a discipline in their own right. Their services were contracted by an asset. They
would go in—do their job and leave. To ensure efficiency or their own KPIs for
delivery, they would prefer to control all aspects of material and service delivery and
not rely upon any other (supply chain) function. To ensure failsafe delivery of long
lead time items, ordering excess is almost a standard practice. There is today
probably no single asset globally where there are not tons of materials or kilometres
of tubular left behind as evidence of this malpractice.
With the cost of rig rentals being in the region of many tens or hundreds of
thousands of dollars per day, the wells team can always justify having waste of
42 5 Twelve Modules for Supply Chain Transformation
In order to have an effective and efficient operation, there needs to be a clear goal,
and everyone needs to be aligned and bought into that objective. The Oil and Gas
industry has a lack of appreciation of who the customer is and therefore a traditional
S&OP process is difficult to visualise and execute.
Historically, the business has recognised that all functions need to be on the same
page with the same plan, but in its usual way it has failed to actually engage
effectively with the relevant functions to ensure an overarching integrated plan is
the end result rather than many plans being the trigger point for integration and as a
stimuli for all function to pull together their supporting plans. In reality, typically the
plan contained where we wanted to get to, but the how and who did what was
omitted. The organisation was genuinely trying to do the right thing but without the
ability to enable the flow of information this resulted in a suboptimal execution plan
leading to mistrust and ultimately failed to execute them effectively.
The planning horizon is multi-faceted with a long-, medium- and short-term
perspectives. The long term is typically well aligned with the overall business
goals for the assets, with a cradle to grave approach for each production asset.
However, the continual refinement of the medium-term plan moves further away
from the long-term objective and therefore gets diluted the closer it gets to the short
term either because of break-ins (late changes) or from financial pressures, which no
longer allow the plan to be executed as expected.
Starting with an aligned set of targets, the business can work on the aligned plans
to deliver them as well as optimising the capacity plans within the functions. An
example of this is shown in Fig. 5.2, where optimising against an aligned plan can
deliver significant benefits in Logistics.
There is a gap between the aims and objectives of the long-term strategic plan and
the more immediate pressures and influences when transitioning into the medium
and short term. This means that unless there is an agile and robust medium-term
planning process, the expectation of the original plan will drive waste into the supply
chain due to the changing nature of the shorter-term pressures. This further exacer-
bates the mistrust in the supply chain to deliver what is required and therefore drives
additional ‘contingency’ behaviours by the business.
Although it is critical that all plans are aligned, it is critical that they are agile in
responding to the immediate pressure as they move towards the point of execution.
This issue can be alleviated through a number of approaches:
1. Ensure all functions are aligned and bought into the plan at the start.
2. Listen to the feedback from all functions who need to critique the plan to make it
more robust. A good example of this is the 2 Flotels planned in the North Sea
which by altering the sequence of the work resulted in only requiring 1 flotel and
removing the significant additional mobilisation and demobilisation costs.
3. Measure the reasonableness of the plan (is it too front-end loaded, where are the
capability pinch points, can the assets manage this level of work etc.)
4. Monitor on a frequent basis the plans against any changes to the base assumption
used in building it and adjust accordingly.
5. Ensure there is a contingency plan in place for the critical elements of the original
plan (refer to “Vulnerability”).
Figure 5.3 shows how a single point of supply chain planning simplifies
processes and enables the deployment of more robust KPIs (see module 11). An
integrated demand plan will consider the demand requirements from all the assets
and is also multi-year in dimension. Similar to the S&OP process, it is reviewed at
the leadership level and signed off every quarter with the latest updates and
deviations. On a monthly and weekly basis, the working team is making sure
that the demand is updated with any minor changes and in conjunction the supply
plans are kept robust. Figure 5.4 shows the main steps to achieving an aligned plan.
Unlike the consumer industry where the Marketing and commercial teams are
looking into the crystal ball and advanced forecasting to define the future, in Oil
and Gas, this can be relatively easy as the Operating Units have a static asset and
the life, age, replacement of parts and systems are known well in advance (well, in
theory anyway).
There are four key stages in driving an integrated demand and capacity plan
across the operating unit.
1. Segment the supply chain horizontally by Value/Consumption matrix. Low
value/High-Consumption materials such as stationery, safety gloves etc. should
have a different procurement channel. These are Procure to Inventory Items (PTI)
which should be routed through a low touch/automated channel. This creates
more capacity for items in the High Value/Long Lead time group that requires
tendering. These are our Procure to Order (PTO) items. Refer to Module 6, later
in this book.
2. Ensure there is a Supply Chain planner in place (we have observed that this role,
although common in most industries, is missing in O&G). This is different from
Activity Planning baked in Wells, Turn Around and Maintenance teams. Activity
planning is siloed and often it is completed with the intention of failure on the
pretext that there will be last-minute changes that we have little control over and
then we must expedite. The supply chain planner’s role integrates the Activity
5.1 The 12 Modules
Define
opportunities
& constraints
Planning and related demand plan across the functions to create a single unified
view of a Demand Plan across the operating unit.
3. Together with functional planning leads agree on planning items and the associ-
ated horizon. Agree on the threshold within which changes are counterproductive
and make visible the cost of change.
4. Develop a combined capacity plan and thus the supply chain assurance of
material and services delivered over the agreed period. This will need to be
updated on a regular period.
This process is illustrated in Fig. 5.5 and in its first attempt takes some effort, but
will ultimately prove its worth, as it takes out all the noise and source of variations in
the supply chain. Besides, all the subsequent iterations will become much more
exception driven.
The most frequent question asked was what is a capacity plan? The best way to
demystify this is that it is not a single capacity plan and can possibly take many
different forms, depending on the role of the function. So, for instance, where there is
a limited resource (aircraft, fleet or warehouse space) this can be directly translated
into a ‘does it fit’ capacity plan and if it does not fit, what do we need to do to
increase capacity? On the other hand, where we need continuous and regular
delivery of materials such as fuels or chemicals, the capacity planning approach
requires a change in the relationship with the vendors, they need the capacity to
deliver what is needed when it is needed and therefore, they also need to be capable
of being flexible. A third example of capacity planning is whether there is capacity
within the contracts, is there sufficient time, coverage and finance to complete the
work as intended.
Capacity Planning
It is important to understand where capacity planning sits in the overall planning
process. Many businesses drive plans based on the business needs and then ensure
the contracts are in place to deliver them. However, it is important to ensure that the
plan is also viewed and adjusted in light of the prevailing market conditions and
tracked through execution to track performance of the plan (Fig. 5.6). As an output,
the capacity plan will look similar to an S&OP plan (Fig. 5.7). The difference being
that for a given registered demand, we need to capture the contract coverage for
procurement. Starting from the earliest time frame and extending up to the planning
horizon, we ensure that contracts are ready for procurement, they have sufficient
value, they do not expire halfway or are about to expire. Once we have created this
view it can be presented along the axis of Projects, Disciplines and an asset or a
group of assets (Figs. 5.8 and 5.9).
Business
needs
Capacity Planning
Business
needs Execution Planning
FROM TO
Prevailing
Contracting Planning Market Refinement Contracting
Conditions &
Factors
OVERALL READINESS 77 22 1
Brownfield maintenance 89 10 1
Well Intervention 33 67
Instrumentation, Automation 95 5
IT 25 40 35
Major projects 80 20
Pipelines/Flowlines 84 16
Rigs 96 4
Rotating Equipment 14 79 7
Well Construction 80 20
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
% Readiness Adequate coverage Extensions and replacements Gaps
Brownfield maintenance 89 11
IT 100
Engineering projects 15
Rotating Equipment 35 65
In order to attribute costs to the producing assets, all logistics costs are typically paid
for directly by those assets. As such this means that the individual producing assets
will target their own optimisation with little or no consideration of optimising the
costs across the company. An example of this is an asset that requires material and
sends a pickup truck or other small vehicle to collect it from the warehouse.
There are many consequences of this action:
• Suboptimal vehicle utilisation, since nearby assets will also be doing the same.
• Overall high demand for small vehicles.
• No advantage taken from the economy of scale—why not use an articulated truck
rather than smaller vehicles.
100 4
7 6 7
17 18
26 11 15 25
20
45 43
75 49
55
56
91
50 100 100 100 100 100
83 82 79
65 82
74 73
55 57
25 51
45 40
9 10
0
• Increased HSSE exposure for both personnel and equipment due to the additional
distance travelled by road, which is further increased in areas where escorts are
required.
• Uncontrolled demand at the despatching warehouse drives inefficient use of
personnel and equipment since peaks are high and troughs are frequent.
• Up until recently, no one considered the CO2 emissions perspective of running
multiple inefficient journeys.
• Although on the surface this might seem like JIT, it is in reality capacity that is
kept on standby with the attendant costs. True JIT requires a good degree of
planning to get the balance between resource demand and availability. In this
instance, the resource availability is effectively not a constraint and therefore the
benefits of JIT are wasted through increased inventory storage/maintenance/
financing costs.
Similar issues apply across all modes of transport (marine, land and aviation) and
by simply focussing on these areas specifically, significant optimisation can be
achieved.
In the vessel space, each region had a good justification for all of the vessels
required (again driven by the asset requirement rather than the corporate need). This
resulted in the inevitable over capacity. Through diligent focus and attention in this
space combined with a central planning function, the team was able to identify and
remove c100 vessels from the organisation. The service was not impacted but cost
and complexity were significantly reduced. This was underpinned by a strict process
for approval to step out of the agreed fleet size.
In the aviation space, the approach was different primarily due to the limitation in
the availability of helicopters from the vendor. This limitation resulted in the need to
re-examine the utilisation and planning of the movement of personnel by helicopter.
Although utilisation was high, the measurement was based upon the number of seats
PAID for rather than the number of seats actually carrying a passenger. Once these
two issues were resolved, the lack of resources was overcome by working smarter
rather than securing helicopters from elsewhere.
From a road perspective, the solution was to implement the concept of a milk run
that was on both a regular and scheduled basis. Although this concept is not new in
many sectors, it required a change in mindset of the organisation. The concept itself
is fairly simple (fixed schedule, variable load), but because the ‘power’ of account-
ability was moved from the assets to the central team, it was not an easy transition.
Once in place, however, the end user (asset) really understood the benefits they
gained in terms of regularity of supply as well as the spare capacity that they could
use to expand the scope, e.g. returns to the warehouse/workshop, collection of
refurbished materials from the workshop etc. Further work here could be done to
incorporate all returns including waste and scrap materials, thereby really utilising
this return leg capacity.
All of these initiatives resulted in a reduction of fleet, reduced greenhouse gas
emission, reduced HSSE exposure, simplification, regular scheduling and ultimately
reduced overall OPEX. In the end the trust in the supply chain also increased.
5.1 The 12 Modules 51
The oil and gas material distribution network typically is not simple and essentially
consists of two broad types of material stores, those centrally and those held locally.
In principle, this is very similar to the retailing network where there is often a central
network, to allow for a diverse range of items to be kept and a local backroom in
store where items are kept to fulfill customer demand.
Within the O&G industry, the central stores are typically called supply bases,
whose role is to keep the range of materials, which may extend from a rubber washer
through to a 20 tonne 4000 valve or a 12 m length of concrete coated pipe. Typically,
these materials will be transferred to the asset either by road or water (large vessel,
barge etc.). The characteristics of the supply base are that there are good transpor-
tation links, the stock is accurate, visible and relevant.
The second level of inventory store is the one held locally at the asset, normally at
the large producing assets. The characteristics of this type of store are that it is close
to the point of use, the stock is accurate, visible and critical.
There is a third type of store, affectionately known in some circles as Squirrel
Stores. These are essentially very small versions of the local stores, even to the
point where they could exist in a cupboard or a drawer and typically exist because
of a legacy or a trust issue where local maintenance staff have decided they will
keep their own ‘spares’ to ensure they never ‘run out’. The characteristics of these
stores are that they are small, the stock is unknown by most, invisible to anyone
beyond the people who ordered it and uncontrolled. It is important that these types
of stores are removed, as they can be considered at best as simple overstocks or at
worst, they are write-offs waiting to happen. In one situation observed, a squirrel
store had been created to house rubber belts, undoubtedly, to make sure they were
always on hand. However, they had been there so long that they were all out of date
and unusable.
Considering the two main types of stores (Central and Local), they are essentially
decoupling points and, in our experience, these are set up with the right intent,
however, rarely executed well. For instance, in a recent visit to an asset, an
unidentifiable item was spotted on the shelf (Fig. 5.10). After investigation, it turned
out to be a rubber thimble (for protecting fingers) and two questions were asked:
• Why was this item in stock, since there was no one who could conceivably need a
thimble?
• How long had it been there as it had melted into the bottom of the box!
Getting the Right Supply Chain
With the network as complex as it is, the first important step is to appreciate and
understand what the potential paths material can take to travel from a vendor through
to the end users. There are four different routes as shown in Fig. 5.11.
The first supply chain holds inventory in both the central and the local stores and
satisfies the need of having inventory to support the operation through a breadth of
material items (central) and having materials close to the point of use (local).
52 5 Twelve Modules for Supply Chain Transformation
However, this supply chain needs constant management, adjusting what needs to be
stored where and how much, as space is often very limited at the asset. It should be
used carefully and constantly monitored moving material to the second supply chain
as soon as materials become less critical, or space is required for materials with a
higher priority. Too often this supply chain is neglected, and significant levels of
obsolete material take up critical space at the asset.
The second supply chain has a central storage location which still allows for a
significant range of materials to be held in the country but without the additional
decoupling point at the asset. This supply chain needs less material management
resources than the first, but since the distance from the asset is further, it is less able
to respond to critical emergencies at the asset.
The third supply chain delivers directly from the supplier to the local warehouse
and whilst it takes out the largest storage location (and therefore the associated
working capital) it is reliant on two specific points, firstly that the vendor has security
of supply of the material and secondly that the vendor has the capability to deliver
directly to the asset, which may be inaccessible (offshore or in the swamps). This is
really only suitable for a few specific items, large bulk items or fuels etc.
The fourth supply chain is also a direct to asset one and although it sounds similar
to the third supply chain is typically done via the central and local warehouses,
although the material does not appear in inventory at either of these sites. This route
requires great planning and more management of the ‘in to’ country supply chain. It
should be used for well-planned activities where demand and requirement times are
known well in advance.
There is a central difference between the old and new economies: the old industrial
economy was driven by economies of scale; the new information economy is driven
by the economics of networks . . . (Carl Shapiro, Haas School of Business at the
University of California, Berkeley).
The oil and gas industry has long worked on the principle of driving costs down
through leveraging the incredible economies of scale available to them. However, as
Carl Shapiro points out we need to move away from economies of scale to the
economics of networks. This industry has many resources to hand but is unable
(or unwilling) to make them accessible to each other. The major issue is one of
standardised equipment specifications which precludes inventory sharing across
companies or globally across the same company. Holding inventory centrally in a
country would enable significant opportunities and benefits to the industry beyond
that of simple economies of scale, with all operators drawing from this central point.
Where there are insufficient operators in a country to do this, it would even be
possible to have hubs of shared inventory held in other countries. This would not be
an easy solution to put in place but would help to drive the global inventory levels
down. The potential benefit of this approach is shown in Fig. 5.12.
The oil and gas sector is typically built up of Joint Ventures (JVs) since there is a
large level of investment required to create the entity in the beginning. It is quite
common for the JV to appoint a lead operator, often the partner with the largest share
of the business, although where there are two equal partners a JV operating company
may be formed. The operating company will have an agreement in place with the
co-venturers detailing how they should operate, often with mandated processes and
54 5 Twelve Modules for Supply Chain Transformation
Standardisation
INVENTORY
Shared Inventory
Traditional inventory reduction
Optimised Supply
in relation to demand Chains
practices they need to follow, including the accountability for cost in the event of
failure. As such, there is little incentivisation for sharing of inventory across JVs as
the operating company may be exposed if failure is caused by the use of it. The
operating company will often protect itself by ensuring new material is procured to
safeguard this issue. This single point of accountability works against the sharing of
inventory across the industry and drives increased waste into the supply chain. In
essence, the operator is accountable for procuring inventory and inventory levels and
the other partners simply pay their contribution.
This can cause many challenges, specifically around whether the operator really
needed the inventory in the first place and then whether the partners are willing to
pay or indeed when they pay for it, either at the point of purchase or at the point of
consumption. This can be an even bigger issue when the inventory is deemed to be
obsolete, and the partners are required to write off this working capital.
Since the operator tends to be the senior partners in the JV they bring their own
unique ways of working which may not necessarily include learning from or freely
sharing good practice.
Typical industry standards (or rules of thumb) do not exist in the supply chain in
the O&G sector like they do in other sectors such as Automotive, FMCG and
Healthcare. Internally technical performance standards exist, however even in this
space there is a lack of standardisation as each Oil major may (and do) define their
own specifications and standards.
The challenge deepens even further as some of the companies may have different
standards even within their own organisation. This is a result of some very smart and
innovative engineers trying to solve a standard problem in a new and unique fashion.
Else what is their value add? Cut and paste is not necessarily the most exciting
solution to a given problem even though in most cases it is the most cost effective.
The 1970s oil crises put many automotive majors in difficult situations where
they had to manage costs more effectively or die. Their response to the challenge was
twofold: the first was standardisation which laid the foundation for quality and
reliability; the second big change was ‘repeatability’, which in turn drove
5.1 The 12 Modules 55
consistency. The ability to duplicate modular non-visible parts of the vehicle. Some
examples of this include the chassis of VW Sharon, Seat Alhambra and the Ford
Galaxy all being made on the same production line because of their shared modular
components. The difference was in the trims, engines and visible to the consumer
features. The Oil and Gas sector is only talking about this approach five decades later
following the ‘Lower forever’ scenarios.
To fund the new energies, they have to wring everything out of the old energies.
Therefore, it is critical they look under every stone to find these savings and if they
do not, then they risk premature demise before the new energies take off.
What is stopping these companies from looking under every stone for savings?
• There is no real incentive to do it—inventory is a small cost compared to the value
from daily production.
• The oil companies are too inward looking believing they know best.
• By changing the name of the function or expanding the scope of one they believe
they have the necessary supply chain expertise, rather than bringing in truly
experienced professionals from other industries recognised for their excellence.
• There is no industry pull.
• Little value is attached to the supply chain contribution to the USP of the
company.
The NCS (Norwegian Continental Shelf) Sharing Economy program was initi-
ated in late 2016 based on agreement between operators in the Norwegian Oil and
Gas Operations Executive Committee to elaborate areas for collaboration to maxi-
mise value and strengthen the competitiveness of the Norwegian Continental Shelf.
Actors in the industry acknowledged a common responsibility to maximise the
profitability of production from the shelf. The project started in early 2017 under
the name Market Place project and has now developed into a program called NCS
Sharing Economy. You can learn more about it by visiting their site at www.
virtualinventory.no.
What could the future look like:
Activity Benefit
Standardise specifications across the Ability to share inventory between companies
industry Less time to create bespoke specifications
Hold inventory across the sector In country common stocking points reducing working
capital inventory and OPEX
Lower HSSE exposure due to fewer stocking points
Industry-wide availability driving cooperation
Focus on optimising supply chains Delivering lower GHG emissions
for the good of all Sharing equipment
Being more resilient
56 5 Twelve Modules for Supply Chain Transformation
In module 4, we discussed the physical supply chain, i.e. how we manage the
physical flow of materials through the network. We discussed how it is essential to
manage the materials depending on a number of business factors, that is how critical
they are to the running of the operation and whether they are used for planned or
corrective maintenance. The business has moved from one supply chain to fit all
where the default was to stock (safest) as much as possible to the deployment of the
supermarket model creating the four supply processes, but this in itself is not entirely
world class and further fine tuning is required.
Across other industries, there is a granularity of segmentation that goes to the
next level where the specific characteristics of the product drive a different way of
handling it through the supply chain. Take for example the food retailing business.
Fresh food is handled in a very different way to ambient goods as mentioned
earlier, it is managed in a stockless way, clearing the decks at the end of every day
whereas ambient goods are traditionally stocked items. Even here, the stocked
items have been further subdivided into super-fast moving items, managed in
display units (dollies, half pallets etc.) which are managed much more like a
just-in-time product. This enables the business to hold little inventory (if any at
all) whilst minimising the handling effort through the supply by having supply
chain handling units that also double up as display units. The fashion industry
shows another way of effectively managing products depending on where they are
in their life cycle, at launch they are delivered in single launch packs containing
different sizes and colours to make it easy to merchandise, but thereafter treating
each size and colour as a single SKU and replenished accordingly. These types of
refinements have been in existence for many years, but similar principles have not
been adopted in the oil and gas sector.
The very blunt instruments used in oil and gas deprive the business from fine
tuning, although there have been attempts to implement it. For instance, one such
system we came across tried to fine-tune the replenishment levels at an SKU level
through quite sophisticated data and trend analysis. However, the ambition was too
great since it was targeted at a level of detail that never asked some basic
questions—did this material need to be in inventory in the first place? did it need
to be in all warehouses? etc. A better approach considered the criticality of the
equipment based on performance history and therefore whether the associated
spares should be held locally, centrally or ordered as required. This type of
segmentation ensured a robust and cost-efficient segmentation strategy. When
you plan a trip, it is essential that you prepare properly, know where you are
going, decide the route to be taken, prepare the car, make sure there is enough fuel
etc. You cannot simply expect to get to the destination if all the basics are not in
place first.
Segmentation is a prerequisite to deciding whether to procure to order (PTO) or
procure to inventory (PTI), these decisions in turn should drive the contracting
strategy (Fig. 5.13). The current approach is that the contracting strategy drives
procurement which in turn drives the level of inventory, the supply chain has a
5.1 The 12 Modules 57
FROM
Warehouse
Footprint
Procure to
TO inventory (PTI)
Price
agreements
MATERIAL REQUIREMENT
Procure to
Tendering
order (PTO)
The easiest way of receiving materials into the country is to have them delivered to
the point of internal distribution, i.e. delivered duty paid (DDP). This way, all the
effort of getting it from point of origin, inbound logistics, through customs and at the
point of need is contracted out. This approach no doubt again has its origins with
engineering, procurement and construction contractors (EPC), where the cradle to
grave delivery of a project is outsourced to a third party. DDP is a good way of
working, especially in countries where internal experience and resources are limited.
However, using DDP does not come without risk, and it has been recognised that the
DDP deliveries have in them two inherent weaknesses:
First DDP has an inherent lack of effective compliance control in that it is
assumed all regulations and laws are being complied with by the supplier. Unfortu-
nately, this is always open to interpretation and can vary on a case-to-case basis. The
Panalpina facilitation payment is a significant example where this lack of visibility
and control caused substantial fines to both Panalpina and companies for whom they
were working. In a US plea bargain, they agreed to pay $236.5 million in penalties in
relation to the payment of customs officials for customs clearance. As part of that
investigation, a well-known Oil and Gas company became involved through a
subsidiary and, ultimately paid $30 million in criminal penalties in relation to $2
million paid to subcontractors for the purposes of making these payments to the
customs officials.
Secondly, the use of DDP incoterms can lead to an inflated cost to bring materials
into the country, which can be significant with the importing company adding their
mark-up to all aspects of the costs without stating what these base costs are.
Currently, suppliers are measured fundamentally on cost with service, as a
requirement, nowhere on the selection criteria. This has a significant impact on the
overall supply chain performance since we do not learn nor deal with vendor
inadequacies. In many cases, we observed that the same vendor was constantly
being awarded contracts because they were the cheapest or they are an approved
partner in our framework agreement. This gave rise to the following outcomes:
• Mistakes were repeated at both the enterprise and the country levels.
• The focus was almost always based on cost and not performance.
• The only situation where punitive actions were taken were based on ethics and
compliance failures.
In many cases, we have observed that the local teams still have to manage and
guide the vendors on customs controls to ensure compliance. This means that
companies are effectively paying for this service twice and still, there is a risk
that compliance is vulnerable at critical points especially in the relationship
between individual clearing agents and the customs officials directly. In one
instance, over 150 different clearing agents were being used to service one
company and the integrity and compliance of all of these companies could not
be guaranteed.
5.1 The 12 Modules 59
This has resulted in an anomaly in the organisational design where the role of an
expeditor is not seen as an exception but normalised into everyday activities. An
expeditor’s role should be to troubleshoot the outliers to progress the issues here. In
reality under this scenario, all orders are outliers, therefore all require expediting.
• Step one of the compliance processes was to consolidate this number to less than
10 and ensure all vendors in the country used one of these nominated clearing agents.
• Step two was to move from DDP to FCA (Free Carrier) terms, where the
purchasing operator buys the materials and arranges themselves for collection
from the producing OEM and arranges for the entire primary logistics leg into the
country through a limited number of freight forwarders.
This control of the inbound supply chain has an additional benefit above the
compliance and cost, namely that the visibility, control and sequencing of inbound
materials are much greater and can be aligned better with the demand within the
business. This additional control is not free and requires additional internal resources
and capability within the operator supply chain organisation. In conjunction with
module 6 (segmentation), we should be much better placed to track supplier perfor-
mance with this approach, and we should limit expeditors to manage exceptions only
and invest the effort into performance managing the vendors to improve their
service.
All of the parties involved across the end-to-end supply chain are critical in deliv-
ering success, but as important is the type and effectiveness of interface between
them. Often suppliers are simply considered as a provider of the required goods or
service (and as previously mentioned chosen on the lowest cost option) very rarely
are they elevated to the status of partner, with whom problems are shared and
solutions arrived at together. The biggest misconception is that since the oil company
is a big customer what is needed should be delivered despite late and poor planning,
late placement of orders and highly customised specifications.
In reality, the Oil and Gas industry is important to many OEMs but not neces-
sarily critical to their overall business success and therefore are lower in priority than
some other sectors (e.g. power generation). To achieve agility in the capacity plan it
is essential that the OEMs are front and centre in the planning process so that they
can establish a foundation plan that can be modified as time moves on. The motor
and aviation industries have refined this process considerably over many years such
that it is difficult to distinguish between where the manufacturer plan starts and the
OEMs plan finishes, it is just one seamless continuous plan. In IOCs, this is not a
common approach, although it does happen in project planning and execution, but
rarely happens in the run and maintain side of the business.
In addition to the integration with suppliers, the pan industry integration yields an
even greater opportunity for instance Pettersen in Norway/UK/Nam coordinates fleet
60 5 Twelve Modules for Supply Chain Transformation
requirements across the Oil and Gas sector. This does, however, often take a
significant and driven intervention from external parties (e.g. government) to facil-
itate and encourage this alignment across the companies to achieve specification
alignment and complementary processes. Examples of this are that in Norway there
is a drive to hold common inventory across the industry in order to reduce costs and
in Nigeria the OPTS organisation (Oil Producers Trade Section) has a specific
program to share both inventory and logistics resources also to reduce costs.
The stronger the influence of these external parties the quicker and more complete
the solution that is driven. Where the industry is left to deal with these issues by
itself, they often fail due to their perceived internal difference which no party is
prepared to change which has been seen in the United Kingdom where inventory
shares seem to be too difficult to achieve.
In West Africa, we have seen that in one of the ports, 4 IOCs have independent
inventory storage locations. Roughly each of the IOCs has inventory to the value of
c$250 m, which means that overall, along the length of the facility, these inventories
total upward of $1 bn. There is a good chance that much of the inventory is repeated
across these IOCs and, although the specifications vary, it would be possible through
inventory integration and sharing to reduce this overall by two-thirds. This has
certainly not been the attention of these companies. As discussed previously, there
is a significant role for the government or pan industry bodies to drive this type of
inventory sharing. Without this stimulus, the general attitude from the individual
companies is that they have sufficient inventory so why bother.
The government plays a pivotal role in driving this level of integration and may
need to resort to legislation as a means to achieving compliance1 with it. Simply
having well-intentioned bodies is not sufficient to achieve the required outcome.
Without legislation, the oil companies view these initiatives as an interesting, but
diversionary, opportunity that takes too much effort and too long to deliver any
payback. The Government must be involved to look at the long-term viability of this
industry rather than taking short-term ‘get rich quick’ decisions.
Do the right thing vs doing the thing right. The answer to this dilemma often lies
in the type of approach to an issue an industry has, is it a response to an immediate
need or is it a strategic decision, to do the thing right vs to do the right thing. As an
example of this, you can look at the difference between safety in the motor trade and
safety in the oil and gas industry. In order to understand the difference, it is important
to establish the origin of the decisions. Oil and gas companies have had significant
and major safety incidents, for example Deep Water Horizon in the Gulf of Mexico
and Piper Alpha in the North Sea. These tragedies resulted in multiple losses of life
and significant financial penalties, but it drove stricter cultures of safety in these
organisations and an attitude ‘of doing the thing right’.
Looking across to the car industry, however, there are a number of examples of
philanthropic actions taken by industries to improve the overall standards for that
1
In many places, with local content requirements, an additional level of complexity is introduced by
needing to buy goods and services from an indigenous vendor, who in turn purchases them from the
OEM. It is therefore critical that the extended nature of these relationships is appreciated and
incorporated into any Supply Chain development plan, or these will result in inflexibility.
5.1 The 12 Modules 61
industry. For instance, the invention of the three-point seat belt by Nils Bohlin at
Volvo, which was shared across the industry to become the industry standard. Tesla
is on the verge of sharing their electric vehicle technology, which could become the
standard in this area for the future. These sorts of actions drive an industry forward
and demonstrate an approach of ‘doing the right thing’.
It is therefore critical that vendors and OEMs are included as part of the definition
of the solution rather than simply being viewed as a service provider. In this way,
they will be part of the solution, know the goal and understand the flexibility
required in the delivery plan.
Nearly all businesses have defined business continuity plans, which focus on what to
do if any one of a number of events happen, for instance, if a particular warehouse is
unable to operate due to industrial action or fire. These events are often short term in
their nature although the more serious occurrences (e.g. fire) might have a longer-
term impact. These are reactive, near-term solutions to unplanned events.
However, one of the lessons learned from COVID-19 was that there are global
events that have far-reaching impacts on an organisation for which the business
continuity plan is not able to cope adequately. We quickly came to realise that
although these plans were necessary, they were not sufficient to manage these
prolonged and multifaceted events, impacting different countries, sectors and busi-
nesses all of whom had some dependency on each other. Many sectors were
unprepared for this situation (PPE, medical etc.) and this included O&G.
So, what to do? Is it sufficient to assume that this type of situation will not happen
again? Or that everyone will take the lessons learned and make their supply chains much
more resilient? No, it certainly is not the right approach. It was identified early on that
there could be hidden vulnerabilities, some so small that in themselves they seem
insignificant, but if they occur, it could have a devastating impact. Think for an instance
where the manufacturer of pipeline clamps can no longer supply these items because
their raw material supplier has a problem. So despite the tier 1 supplier being ok, the
non-availability of critical repair material results in leaks not being able to be repaired.
To combat this, we developed a more holistic approach of looking at the supply
chain vulnerability to:
1. Establish significant potential risk scenarios (at a country level and specific to it)
(Fig. 5.15).
2. Test the resilience of existing plans against these scenarios to highlight the
weaknesses (Fig. 5.16).
3. Conduct a deep dive analysis on the most vulnerable of these areas (Fig. 5.17).
4. Create a mitigation plan for these risks, where some of the mitigations may only
be triggered in a specific situation (Fig. 5.18).
5. Monitor and react to the plan on a regular basis.
62
IDENTIFY CRITICAL PRIORITISE RISKS & RESILIENCE OF STRESS TESTING SC SCENARIO MITIGATION
CATEGORIES AND CRITICAL CATEGORIES CRITICAL CATEGORIES SCENARIOS CADENCE
STEP 1
STEP 2
STEP 3
STEP 4
STEP 5
ASSOCIATED RISKS
▪ Few one-off outbreaks situations that can be ▪ Virus resurgence leads to social distancing for ▪ Failure to control virus until vaccines are developed
contained several months
▪ Oil price remains suppressed or experience a
▪ Oil price recovery in mid term ▪ Oil Price remains suppressed further precipitous drop
▪ Strong policy response prevents structural damage ▪ Policy responses partially offset economic damage ▪ Ineffective policies lead to self-reinforcing recession
and recovery to pre-crisis fundamentals and banking crisis is prevented and wide spread bankruptcies
Scenario 3
Scenario 2
Scenario 1 is BCP level considers 3 sub-scenarios that deal with specific issues
tests if the BCP can last longer and exposes weakness
related to an OU.
Operate
for 30
days
Crises
measures
(out of
scope)
Manpower Medical supplies FPSO Fuel Critical spares Logistics Fuel Supply Base
Emergency Suppliers -
Food & Water Chemicals Critical equipment Security
services Materials
Suppliers -
Waste Accommodation Land transport
Services
Offshore transit
SMA Contracts Vessels
center
Helicopter
Illustrative Events (not exhaustive) 1. Virus Contained 2. Virus Resurgence 3. Uncontrolled escalation
IMPLICATIONS
▪ Supplier of critical spares facing disruption of done remotely
▪ SMA Flex Joint project for Life extension of Bonga additional spares as insurance ▪ Align with NAPIM upfront on likely depression, suppressing demand
comes to halt due to limited access to Expats ▪ Effective training of local Field scenario to set expectations of oil further with limited storage
Service Representatives (FSRs) ▪ Consider other mitigations captured capacity
▪ COVID outbreak on Bonga or on fabrication yards ▪ Oil price crumbling and offshore
MITIGATIONS
▪ Runout of storage capacity on Bonga operations grind to almost a halt
In the same way that end-to-end planning is critical when optimising a supply chain,
it is also essential to have end-to-end visibility of the physical flow of materials
across the supply chain.
Depending on where in the world the asset is located will determine the length
and complexity of the supply chains. For instance, if the asset is based in the USA or
Europe, suppliers are often close to hand or at least within the same continent. In
addition, the systems deployed by these suppliers are typically modern and have the
5.1 The 12 Modules 67
Strategic Asset
Plan
Business Plan
(5 yrs.) Long Term Planning / Strategic Asset Management Plan allows
to design of the supply chain strategy to support business goals.
Medium Term
(2 yrs.+)
Medium Term Planning allows understanding of the size and
Short Term characteristics of demand for supply chain services and
(3 mths+) optimisation of contracts and resources with capacity planning.
machines and there is a significant risk, which we have frequently seen, that when
failure occurs and you need to swap over at the time needed, the spare machine is not
available. If on the other hand you have an ‘n + 0’ design (i.e. no spare capacity),
then you cannot run to failure, a corrective maintenance plan must be in place.
Therefore, a run to failure strategy is counter intuitive to the supply chain and
counterproductive to the business.
In order to drive a reliable and resilient supply chain, it is essential that the
operational team keeps on the top of their maintenance schedules and plans. The
temptation to allow the ‘tail to wag the dog’, i.e. to allow financial pressures to drive
the maintenance strategy must be avoided at all costs. Deploying a run to failure
approach creates a bow wave (or bullwhip effect) of cost in 2–3 years’ time when all
the production systems reach a critical repair requirement within a very short period.
Many businesses employ a Plan—Do—Review (PDR) approach to problem
solving, however, this approach has a fundamental assumption that the original
plan itself was good, it was integrated, and it was reviewed properly across func-
tions. In an ideal world it would be better to adopt a Plan—Review—Do—Review
process, which allows a full review of the plan (maybe by an independent party)
prior to execution. We are not judging the integrity of the time-tested model of PDR
in a continuous improvement world, however, in the Oil and Gas sector the plan
needs to have gone through its own iterative process before the execution. Simply
using PDR is not good enough, if the Plans lack completeness and detail. If the PDR
cycle is short, typically on a weekly basis, then the process continuously corrects
itself. However, for medium and long-term planning it becomes imperative that we
improve the plans through multiple iterations before the execution date to check and
recheck the plan.
Management of change (MoC) in the Oil and Gas industry is almost always seen
in the context of safety, as this is indeed the most important thing in this industry.
Lower priorities are production and finance impact but rarely is any consideration
given to Supply Chain impact during MoC.
Historically we failed to plan. Now we have a plan but with failure built in and
therefore it comes as no surprise when we fail. In this situation, no one worries about
MoC as the failures are per plan. The core issue with this situation is that since we are
in a constant failure mode, our norm is one of firefighting not continuous improve-
ment. All related inefficiencies (poor planning, poor availability etc.) are masked by
production and oil prices.
A supply chain control tower is designed to execute a plan that is clearly defined
to begin with. Whilst it is not designed to change the plan for production, turnaround
or project execution delivery, it helps to improve the plan and manage unforeseen
risks towards the successful execution of it.
Control Towers are often misrepresented. Any set of visibility KPIs are often
deemed to represent a control tower, however, typically the KPIs are lagging and
therefore offer little control and are simply reporting mechanisms or dashboards. A
true well-defined control tower needs to have the following attributes:
70 5 Twelve Modules for Supply Chain Transformation
DECISION SUPPORT
All decisions are central and based on recommendation from intelligent agents.
Control tower supports all transaction decisions.
AUTONOMUS
AI OR AUTONOMUS DECISION MAKING
Transaction executed without human intervention.
AI embedded in supply chain network to drive autonomous decisions and execution.
Asset
delivery Demand
Signal
Offshore Capacity
transport Planning
CONTROL
Supply TOWER
Base Procurement
generally do not talk to each other! This may be a common challenge across most oil
and gas assets.
Modern ERP systems offer such end-to-end information functionality, however,
from our experience, this is rarely specified and designed from the outset, and
therefore becomes a difficult and cost-prohibitive transition at a later stage.
The tried and trusted way of pulling a Control Tower together would be to bring
everyone together in your War Room, where visual management, active exchange of
information and change in plans will ensure the process flows across the entire
supply chain. Co-location of key team members in the operations also helps with this
situation. With the combination of virtual teams as well as COVID-19, this type of
solution will become less and less feasible and therefore it is critical that these
attributes are replicated as closely as possible onto the digital platform.
It is critical that the teams and organisation go on their own journey of discovery.
When Tenzing and Hilary first conquered Everest they achieved something that no
one believed to be possible. Since then, however, with improved path definition,
equipment, weather prediction, advances in medical science to overcome the impact
of altitude etc. it is possible for ‘tourist climbers’ to achieve this feat with a fair
amount of certainty despite the risks and challenges. However, for anyone to say
they have climbed Everest, they physically need to climb Everest. The same applies
to the maturity of Control Tower development. Whilst it might be easier and quicker
to progress through steps, you still need to go through all of them.
The manual Control Tower is probably the best way to start this process,
especially in large organisations, because it does the following:
• Demonstrates to the organisation the reason for the process working the way it
works, since it is manually developed and adjusted to fit the specific environment
it is being used in.
• Demonstrates to the leadership how a change in organization and behaviours can
deliver benefits.
• Once an autonomous system is created, it should not be seen as an opportunity to
de-skill or replace the workforce, instead it should be used as a tool for the smart
operators to enhance the results and achieve better execution.
• Enables the principle of working ‘smarter and not harder’.
• Drives cost reduction from better interface points, removing duplication and
delivering improved service with lower working capital.
It is critical that organisations go through this process from start to finish and that
they do not get blindsided by promises of quick fixes delivered by digital tools. If the
tools are already in place, an organisation should consider using the digital tools
together in a Manual Control Tower room to educate and upskill the organisation in
the basics of this principle. The tools themselves are not the solution, they only
support the human capacity to extract the maximum from them (Fig. 5.23).
This is about driving leadership behaviours to understand the benefits to be
achieved from visual management and to appreciate why it is important to have
daily stand-up meetings. It is therefore critical that for a control tower to be effective
72 5 Twelve Modules for Supply Chain Transformation
Systems
People Tools facilitating process and
Behaviour, Ways of Working, Skills people ways of working
Process
Standard Operating Procedures, Roles &
Responsibilities
People Process
Behaviour, Ways of Working, Standard Operating Procedures,
Systems Roles & Responsibilities
Skills
Tools facilitating process and people ways
of working
it must have the support and fundamental understanding from the leadership, and it
must use a standardised set of KPIs.
As an example, for almost 20 years, Tescos used a balanced scorecard, covering
Customer, Community, Operations, People and Finance and they deemed it critical
to get the balance right between each of these quadrants. In this way, they tracked if
they were too focused on one specific area to the detriment of another. Although this
was replaced in 2015, it had served its purpose to ensure that the focus across the
business covered the major elements.
It is critical for businesses to, first of all, establish what the most important areas
of focus should be and then to ensure that KPIs are developed to ensure performance
is measured in them and to assess whether the business is going in the right direction.
There are different levels of KPIs that should be driven from the business at the top
and to the functions at the bottom. The KPIs at the top are Lagging, showing the
performance of the business overall and as they go progressively lower in the
organisation, they should progressively become Leading at the bottom, because
this is the level that can change and influence the top-level Lagging indicators.
At the top-level, it is about measuring performance and at the bottom it is about
holding people accountable to deliver and focussing their attention on the improve-
ment areas. Getting this structure and cascade wrong will render any set of KPIs
useless. It is important to understand that ‘cascade’ does not equate to ‘replicate’, all
too often this is the common misunderstanding that if it is in the business’ scorecard
then it needs to be in the functions. In truth, the behaviours must change and
whatever is in the business scorecard needs to be ‘translated’ in the functional
scorecard by asking the question:
5.1 The 12 Modules 73
That may seem common sense, but we are hardly the first to observe that common
sense is often not common!
Let us just for a moment explain a little more about Leading and Lagging
indicators. Lagging indicators are effectively the rolled-up result after something
has happened, they report historical performance, and they cannot be changed but
they are designed to show trends (e.g. sales growth) or comparisons between specific
periods (e.g. Profit and Loss statement). Leading indicators on the other hand show
what is happening during the process of delivering and they report KPIs that
contribute to the final performance and allow corrective actions to be taken to
influence the final outcome. An example of a leading indicator could be the length
of time it takes to place an order, getting internal approvals and processing to raise a
purchase order. If this time starts becoming extended, then it needs to be dealt with
immediately in order to ultimately minimise the delays in the time the materials are
delivered and therefore the impact on production downtime. Both types of KPIs are
critical but it is essential that they are used at the correct level in the organisation.
So how does this relate to the Oil and Gas sector? Well, our observations have
shown that we focus on lagging KPIs at all levels through the organisation
(Fig. 5.24), so we effectively accept the results for what they are, promising that
things will change in the future. We are always looking in the rear-view mirror when
we should be looking at the front to chart our path, avoid crashes and drive the
business forward.
We are creatures of habit and we have been brought up on lagging indicators,
where significantly fluctuating KPIs are the norm and initiative after initiative is
deployed to try to get them under control. It is imperative that the leading indicators
(in every function) report on Cost, Revenue and Safety and this should not be
optional. The entire enterprise mantra is that the business should make money safely.
It is not unknown for senior leaders to shy away from confronting KPIs. A good
example we observed was On Time KPI for the procurement function. The On Time
% was stubbornly low and therefore almost always avoided by leadership and
therefore effectively became a ‘soft KPI’. This is a classic example of a cross-
functional KPI, i.e. one where many ‘fingers’ are in the pie. By holding this ‘lagging’
KPI in the second or third level of Fig. 5.24, it just resulted in a blame game.
However, if relevant leading indicators had been used in the functions, it would have
driven cross-functional collaboration which would have eventually improved the
overall On Time KPI. The leadership should seek out these opportunities for cross-
functional engagement and collaborations. The leading indicators need to be relevant
and explicit to what each function needs to deliver. The following functional leading
KPIs are examples of what should be measured:
74
Figure 5.25 illustrates the KPIs appropriate to the different levels in the organi-
sation and the intended audience that should receive them.
At level 1 these KPIs should be common across the industry. You only need to
look into benchmarking companies to realise how unstructured this space is for the
Oil and Gas industry. At levels 2 and 3, the KPIs have to be relevant in relation to the
state of maturity of the functions. Thus, they should not be static but driven by the
needs of that business at that particular moment in time.
A good illustration of this relates back to 2008 when safety was being driven hard
in the industry. If the leading indicators at L2 and 3 had been operational at that time,
the business would have focussed KPIs on personal safety, i.e. holding the handrail,
using seat belts and not walking under suspended loads. In 2012, the focus changed
to Process Safety and these KPIs should have been changed to reflect this new focus.
Again in 2018, these KPIs would have been changed to System Patterns.
What is important for the KPIs is that they are relevant to the business, the time
and environment in which it is operating. The current focus should be on CO2
emissions, and a leading KPI could be ‘Are we building sufficient gas storage and
compression to stop the need for flaring?’ The problem is we just have a single
lagging KPI to measure this ‘how much flaring has happened’ without any Leading
KPIs to support this.
There are three things we need to be careful about in the structure illustrated in
Fig. 5.25
(a) Make sure there are no lagging indicators in level 3 and a balance of Leading and
Lagging at level 2. Lagging indicators at L3 will absolve ownership of the KPI as
there are too many dependencies. Lagging indicators at L3 should be treated
with suspicion and challenged at all accounts. Figure 5.26 gives an example of
how these KPIs could look.
(b) There is a real risk, and it has been observed that the leadership has an
inflexibility towards KPI once they are onboarded. It is critical that the breadth
and depth of KPI in the organisation are kept relevant and concise. This means
less relevant or irrelevant KPIs should be jettisoned to make room for current
relevant ones.
If this does not happen then a proliferation of KPIs will swamp the business,
which in turn will allow people to choose the ones they want and will ultimately
deliver suboptimal results. Keep them tight and keep them relevant. Getting rid
of a KPI does not mean it was always wrong, just that it is not right for the
current moment in time.
76
SUPPLY CHAIN
as a whole
• Service & Materials OTIF
LEVEL 1 : METRICS FOR • Supply Chain costs
THE ENTIRE SUPPLY CHAIN • Inventory as Working Capital TARGET AUDIENCE
(Lagging KPIs) • Production availability OPERATING UNIT, TOP MANAGEMNT
Business Performance Metrics • Availability • Opex per BOE production • Project costs: Actual vs. target
• Planned vs. actual (Planned vs. actual) • Time per Well
production • Cost per Well
• Capacity utilisation
Driver Metrics • Schedule adherence • Productivity (% capacity utilised) • Design standardisation and
• Planned vs unscheduled • Logistics costs replication
deferment • Maintenance spend
• Turnaround cycle time
• Labour costs
Process Metics by Functions • Deferment by reason code • Maintenance plan completeness • Plan stability
(Maintenance, Service, • Planning backlog • Standby time • Schedule exceptions
Procurement) • Inventory costs
(c) Often organisations include KPIs as shown in level 4 in Fig. 5.27, however,
these are not really genuine KPIs, these are enablers and not drivers. They do
create the building blocks for the organisation and are an essential component in
its success.
It is critical to embed the KPIs to deliver across L3 and then L2 and finally L1.
Focussing on L4 KPIs is seldom beneficial. Do not fall into the trap of measuring
how many people have been trained as this does nothing for the KPI of the business.
The next section deals with the importance of dealing with this level.
Most problem resolutions start with the 5-W—Who, What, When, Where, Why
(Fig. 5.28). This is a good solid approach to get an understanding of a specific
situation, what happened, why and how it happened as well as when it happened. It is
a tool that gets to an answer quickly and enables a plan to be put in place. This
approach is used extensively in the Oil and Gas industry, at all levels throughout the
organisation. At the asset, the operators, maintenance staff and management are keen
Cause or
5-W’s Effect
to get the problem understood and resolved as quickly as possible to get production
back online as quickly as possible. At the higher management levels, the problem
solving has a similar nature, in part due to it always being done that way and in part
being wary of the next crisis already in the making. This gets the business to an
immediate technical solution, but rarely does it solve the problem in a sustainable
way.
The common approach to Lean is to focus specifically on ‘Why’ in the 5-W, to
develop this further into 5-Why’s, which is specifically driven around a series of
‘why’ questions to identify the root cause of a problem in order to establish a relevant
solution. Whereas the 5-W gets to a speedy solution, which is deployable and often
resolves the issue, the 5-Why’s dig much deeper into the causal reasons behind a
situation and will deliver a long-term sustainable solution. A great practice is to use
the 5-W as a starting point to establish the scope of the problem and then progress to
5-Why’s to drive a more precise solution to the issue.
In the supply chain, however, to be successful it is not sufficient to have just a
strong 5-W capability, we must also develop our 5-Why’s skills (Fig. 5.29) because
the majority of the challenges are not from within the functional domains but almost
always across them and beyond to include external parties.
The 5-W organisation spends much of its time describing the structure of the
problem rather than understanding what needs to be done about it. It attempts to
answer the issue from a technical perspective only rather than a causal perspective.
Cause or
5-W’s Effect
Cause or
5-WHY’s Effect
1st WHY
Further Further
subcause subcause 4th WHY
Root Root
cause 5th WHY
cause
An organisation focussed on 5-Why’s identifies the root cause of a problem with the
objective of finding a sustainable solution to it.
Can an organisation rely entirely on a 5-W expertise? Yes it can, however, the
resolution will be short lived and the issue will often reoccur requiring the same
problem to be solved multiple times. However, deploy the 5-Why’s approach after
the first incident and the problem has a much higher probability of being resolved at
the root cause level preventing recurrence.
In order to achieve a successful drilling campaign, it is essential that problems
encountered are solved safely and quickly. This is a classic situation where a
technical problem needs an immediate solution for a successful outcome. In the
Oil and Gas industry, we are experts in technical problem solving. These issues need
to be solved by the experts in that field within a short period by people who may not
have the luxury of time for detailed analysis. In comparison, solving the problem of
ensuring the right material and resources are in place to address the issues for the
same drilling campaign is an organisational problem that requires prior planning and
external engagements. The 5-Why’s approach delivers a continuous improvement
mindset that builds the organisational problem-solving muscle.
For problem solving, we should not expect everyone to understand each other’s
functions in detail, however, it is important that we understand the interdependencies
and impact on the rest of the value stream. We should be prepared to receive
feedback and proactively jointly solve problems even when issues occur further
along the value stream. It is therefore critical that we have a common language
across the functions for problem solving. The most successful organisations are ones
who do not waste 80% of their time trying to understand each other, instead, they
spend 80% of the time solving and improving the situation.
The Oil and Gas industry is often exceptional at vertical problem solving and
often receives plaudits for the work in this area, e.g. HSSE management and new
drilling techniques. However, opportunity lies in solving issues across organisational
interfaces and by addressing this weakness we will undoubtedly save both resources
and expenditure.
Chapter 6
When Culture Meets Transformation
The definition of insanity, according to Einstein, is to keep doing the same thing over
and over again but expecting different results. So would the right answer be to take
the opposite approach and always try something totally different? Neither of these
tactics is effective—the first one is akin to banging your head against a brick wall
with invariably no noticeable change except perhaps a sore head. The second
approach can have such a disruptive impact on the culture of the organisation that
it can end up doing more harm than good and if it is done too often, it can appear that
the leadership is clutching at straws maybe to appease shareholders rather than to
secure the longevity of the business.
Reorganisations are often the straws that large corporations clutch at, an unhappy
combination of doing the same thing whilst changing everything. So what is really
going on? Why does this approach not work? Should businesses avoid
reorganisations?
Well, the problem here is that there is no feedback loop, one which identifies why
the last reorganisation did not achieve as much as it should or what external factors
have changed enough to require something to be modified or changed completely.
Those businesses that have a heightened sense of awareness are typically the ones
who make corrective adjustments which are much more successful than those who
make wholesale changes. It is not uncommon for a change in leadership to start with
an immediate reorganisation, perhaps as a point to prove that this leadership will be
different from the last or that the new leader wants to be seen to be their own person
who is not content with inheriting the previous organisation. However, this in itself,
talks more to the leadership culture than it does about organisational effectiveness. It
indicates there is a lack of a cohesive leadership direction for the business and a
much stronger individual competitive streak.
Often during a reorganisation, the control of the helm is given to individuals with
a high potential or who are on a fast-tracked development programme with signif-
icant sponsorship. In the process, the true knowledge and experience often get side-
tracked as the focus shifts to ‘new’ ideas and strategies that the new leader feels
compelled to introduce. Else how is the promotion justified if you have not found
things to fix and turn around in the first 90 days? Although this may appear to be a
cynical view it occurs often in large organisations, indeed sometimes it is an
expectation of the new leadership team. Every organisation has its own capability
to successfully deal with such disruptions and come out stronger. The question we
should ask ourselves is if this approach should remain a practice in an industry that
must reinvent itself to remain competitive.
If the reorganisation button is hit too frequently, regardless of the leadership
narrative, the teams end up going into survival mode. Fear and anxiety take root and
there is no real commitment towards the business. This is no doubt the biggest
indirect loss for an organisation, that is when the spirit of its community is ampu-
tated. The resulting culture is resistant to change, shy of trying new approaches and
has little spirit to continuously improve.
Faced with rapid changes in the marketplace, the software companies have
learned, adopted and mastered the Agile way of working. This was based on a
cadence way of working with incremental progress check-in and firm commitment
from Leadership to front line and it delivered against stretch targets, often
exceeding them.
This type of approach was adopted by one of the North Sea Operating Unit, once
on the brink of divestment turned themselves around by this culture of focussing on
clear, measurable objectives, that contributed to the overall goals. A weekly follow
up and culture of making small but firm progress. Teams openly shared ideas and
sought help if they hit a roadblock regardless of their functional domains. So
remarkable was this cultural shift that this unit became the recipient of capex
investments for future growth in a few years, as opposed to a candidate ready for
divestment.
If it had not been for the discovery of Penicillin by Alexander Fleming in 1928
and the subsequent further developments by the Department of Pathology at Oxford
University and the biochemist Norman Heatley, we may still have been dying in
hospitals from blood infections caused by cuts or scratches. Aside from the remark-
able achievement of developing the first antibiotic which could be mass produced,
the way it was developed was a great example of collaboration. People learned from
each other, taking what was already known, making changes to it and enhancing
it. Whilst Fleming discovered penicillin, it took the combined effort of five compa-
nies in total to bring it to the masses.
To draw a parallel from the two case studies, the biggest changes and remarkable
progress come from a culture of openness, sharing good ideas and building upon
each other’s achievements to deliver what may seem an impossible task. Continuity
helps on the journey as people are naturally resilient to changes and rise up to
challenges if they do not have to operate in a mode of survival. This culture can hold
its ground against big changes in a way that a set of reorganisations will never
deliver.
We have often been told that what works in Japan may not work in the USA and
what works in the USA will certainly not work in Nigeria. The challenge being that
there is too big a difference in the culture. True, the communities in these countries
6.1 Culture Through Organisation 83
have a different society, a different history and political setup which make them
unique. However, if we shift our focus to communities in an organisation, even with
the geographical diversities, it is possible to create a strong sense of purpose that
transcends these cultural differences. Today in the world of social media, commu-
nities are formed across political boundaries on varied topics of interest. These
communities can get a momentum that has power to influence individuals, societies
and politics.
A diverse community with a common purpose can come together to address
issues jointly and the role of leadership is to create an atmosphere where problems
can be shared, solutions freely traded and great ideas replicated and enhanced. This
requires a different cadre of leadership who do not come to the table, with readymade
strategies and solutions but focus on (a) defining the targets in response to the current
situation plus future trends and (b) creating an atmosphere where culture of exper-
imentation, collaboration and rapid problem solving can thrive.
Having said this, we recognise that this might be easier to practice in large
international oil companies versus the indigenous ones. Since the government is
involved and material purchases are seen as national assets, there is a reluctance to
deviate from old processes even if they are inefficient. We have observed paper-
based processes where every decision must be signed and countersigned by multiple
layers of leadership to distribute the decision across multiple stakeholders. This
avoids direct ownership and persecution if something goes wrong and the conse-
quence may even lead to a prison sentence. Such draconian outcomes surely stifle
any desire for change.
In our opinion, such work cultures have no place in the current and future
societies. Unable to modernise in a rapidly changing society these national industries
need to invest in new ways of working, adoption of new technology that drives
transparency to stay relevant in a low oil price future. As it has been said and what
we have observed working across many countries, when culture is pitted against
transformation, culture will eat transformation (or reorganisation) for breakfast
every day.
The major catalysts for culture are the senior leadership themselves and they need a
specific set of skills in order to be successful. They must understand their role in
embedding and promoting a continuous improvement culture rather than just using
the continuous improvement terms and phrases. We need more leaders who are
effective coaches. A leader who dictates is not as effective as one who leverages and
coaches their people. The power of the whole is greater than the sum of the
individuals.
A Leader should be an ambassador of continuous improvement and does not need
to be an expert practitioner. The key to coaching is helping people think for
themselves, to use their own knowledge and understanding to drive a better solution.
Culture is the way an organisation naturally responds to a common stimulus
84 6 When Culture Meets Transformation
regardless of the function, it has a common understanding of its purpose and clarity
on how each individual is contributing to that purpose.
Thus, the Nobel prize winner economist Amartya Sen quotes, ‘Culture is the
smell of a place’. Culture is driven from the top down and is defined by the
leadership by their everyday actions. The skills and capability drive the quality of
the solution provided and are driven from the bottom up. These skills are
manufactured and delivered in house or by recruiting externally those with
the right talents. The combination of the top-down culture and coaching with the
bottom-up skills and capability determines the quality, speed and relevance of the
solutions created.
All organisations should also be aligned in delivering a balanced scorecard
(Fig. 6.1) and although not an exact science, the sum total of all the individual
targets should reflect the direction the business wants to move. If this summation has
a bias towards delivering a transactional outcome, then the organisation is typically
focused on delivering for survival. If it has a significant bias toward a strategic
objective, then the organisation is focussed on the future and is potentially suffering
losses now (e.g. a start-up enterprise). Established organisations should be some-
where in the middle, delivering now (transactional) and planning for the future
(strategic). However, it is not unusual for even established companies to have a
focus on annual-based targets which detracts the business and typically pushes the
overall organization to the right (Fig. 6.2). Success and rewards are therefore based
on the ‘in-year’ achievements, rather than looking forward at the growth and
longevity of the business for the future.
This is even more exacerbated the higher up the organisation you progress. Sure,
there are senior leaders whose main aim in life is to deliver the cash, to produce the
goods and fund the business today. However, even in this situation it is critical that
they have a good connection with the strategic side of the bow tie to ensure what they
6.2 Technology Shopping 85
do now is in the context of future strategy and does not impair or derail the future
direction.
So how does this apply to the supply chain? Well in many organisations it is seen
as a cost centre, rather than what it is—the lifeblood of the organisation. It is critical
that the Chief Supply Chain Officer (CSCO) role is defined and operates at the right
level in the organisation although this often depends on the maturity of the supply
chain function within the organisation. Embryonic organisations should be biased
their focus towards the left of centre (strategy), ensuring that a credible supply chain
is first of all defined and then created. As it matures, it should move towards a more
central position to ensure the right balance between strategy and execution. A bias
towards the right will ultimately result in a supply chain organisation that is too
heavily focused on cost saving, which in turn drives poor behaviours.
The aim of the CSCO is to drive the supply chain forward, not only to set the
directions, but to manage and enable more end-to-end integration. To do this the role
has to increase the supply chain capability and to be able to paint the picture of the
end goal along with the major steps in getting there. This should form the basis of the
goals for the rest of the Supply Chain organisation and it is critical that this goal
setting is done meticulously to set the tone for the rest of the organisation.
In most cases, efficiencies are driven by the need rather than a strategy to become
more efficient. This ‘short-termism’ results in decisions being made that often drive
long-term inefficiencies as well as a localised cost reduction focus which will hurt
vendors and undermine the collaboration required with them. If there is no overall
high-level supply chain strategy solutions are always derived at a tactical level.
Recently, we observed that in a particular business, most of the top quartile digital
‘toys’ had been bought and deployed without sufficient attention to how they
integrated the end-to-end value stream. As a result, with a suite of best-in-breed
solutions, the teams were still working with manual information gathering and Excel
spreadsheets. Perhaps in the world of supply chains, the Oil and Gas industry has the
most catching up to do regarding digital tools. It is not that they cannot afford this
technology, after all single wells cost many millions to drill, but with a 5 What
86 6 When Culture Meets Transformation
approach (defined previously) the focus has been on delivering a technical solution
rather than using data to make supply chains and operations more efficient (i.e. a
5 Why approach). The use of data has been primarily in engineering development,
exploration etc.
Lately, there has been a surge in adoption of digital tools. Following articles in
newspapers such as The Economist, stating that Oil and Gas data is more valuable
than the oil and gas itself, there has been a series of engagements between the
monarchs of digital domain and the oil industry executives, who realise that unless
we capitalise and make better use of our data, our business performance is at risk,
and we cannot depend on oil prices alone. This is a welcome change and transition
towards modernisation of rather archaic supply chains.
On the journey, the leaders need to take into consideration a few aspects that can
impede the impact of technology adoption and that indeed comes back to culture.
We must align the team towards what the technology is supposed to enable and why
that is important. Adding technology is easy, they are plentiful in the marketplace.
However, it must address a clear specific pain point where we are bleeding in the
value chain. Without a clear business case and or without a follow-up on delivery,
we are just delivering a hobby horse.
Any technical solution should be clearly based on user needs. It should supple-
ment the current initiatives and be aligned with the overall business purpose.
Developing in isolation and then expecting a broad adoption across the business
often delivers a quick solution but alienates the stakeholders. This results in wasted
development time and cash whilst undermining internal relationships. In an oil and
gas industry where digital stock tracking (i.e. barcodes) is still a novelty, perhaps the
attention should be more towards adopting industry standard solutions rather than
bespoke in-house developments.
Technology itself does not normally deliver the results it must be supported by the
organisation and therefore culture is critical in a successful deployment. Even with
new enablers, the leaders will have to spend time coaching and encouraging the
teams to adopt new ways of working. The most successful, do this by walking the
talk. They will review the situation using the operational tools rather than static data
snap shots in presentations. Leadership should be directed and encouraged to view
the key performance indicators directly in digital tools and we should limit gener-
ating non-value-adding reports and updates. As the old saying goes, ‘What interests
my boss fascinates me!’
Although this is not a new concept and has been said many times before, it
seems a hard lesson to learn by most organisations. In a rush to show results and
deploy shiny new tools, it is often the case that poorly designed processes are
digitised. Therefore, with a poor understanding of what parts of the processes are
value adding, often the non-value-adding parts are digitised, rather than pruned
or redesigned prior to digitisation. So what happens? You still get a poor output,
just that it is produced faster and provided by an expensive digital tool! There is
but a simple mantra to be adopted by all leaders—improve first and digitise
second.
6.3 Organisational Design to Meet Your Goals 87
Supply chain KPIs are much more than delivery or replenishment performance or
indeed cycle time and cost reduction. We must consider a multidimensional
approach to improving the overall efficiency and sustainability of the organisation.
The CSCO must champion the supply chain as the lifeblood of the organisation
rather than a support to the cash engine (production). They must be capable of
driving the future agenda, development and strategy rather than being defined by
delivery of the current set of KPIs. The focus must be more towards the future than
they are currently. If this approach is neglected it will drive exactly the same
outcome in the future as there is today regardless of the organisational structure
changes. Change the behaviours through expertise rather than simply changing the
organisation structure.
The Oil and Gas industry should deliberately seek and attract experienced recruits
at the highest level of supply chain to drive the change. These organisations need a
change agent at the top who will present a very different paradigm and perspective of
the purpose and design of the supply chain, that is much broader than just procure-
ment and material supply management. Their task is to create a ‘supply chain’ or
better still ‘supply ecosystem’ which reacts to changes in an agile manner where all
parties involved feel listened to and part of the solution.
Recently, we observed in several large oil companies a trend of Procurement
specialists being appointed into Supply Chain roles. In our view, this transition of
Procurement professionals towards Supply Chain professionals is a good step
forward. However, just a job title change is not sufficient, it must be supplemented
with a fundamental understanding of how supply chains work and its role in the
business. A good supply chain team should be a combination of strong procurement
and supply chain execution experience. In the absence of this holistic approach,
procurement experts will miss the operational supply chain expertise and focus on
cost improvement rather than improving the entire supply chain. On the flip side, the
absence of seasoned procurement experience often leads to fulfilling demands of the
functions regardless of cost. It is essential that the right balance is struck during the
transition to a Supply Chain organisation.
A supply chain leader needs to define the target summit and perhaps also the first
base camp. The next biggest task should be to develop the skills and culture that
88 6 When Culture Meets Transformation
rapidly defines the next base camp and the journey towards it. The common practice
is to loosely define the destination, identify the tools to get there (projects) but
completely miss the routes and skills necessary to deliver it. Sometimes the end goal
cannot be achieved through a straight line or by cutting and pasting solutions from
other deployments. Since the business and market are a dynamic force, it is of critical
importance that the team adapts to dynamic forces while still focussed on the
destination. The focus must shift from dictating the next steps to creating a focus
on continuous improvement towards the end goal.
There are repeatable processes in all industries, and these are the very foundation of
any business operation. Recognising and making them more efficient using the
simple code of Plan Do Review should become ingrained in the culture of any
organisation. Often teams and leadership believe that this method stifles creativity,
or this is suitable only for certain cultures and is not necessarily the mindset
acceptable in societies that encourage individualism and personal growth. It is true
that in this area culture makes a difference, but these sceptics miss a subtle and
important distinction, repeatable tasks create standardisation, without which you can
never improve. We should unleash creativity to solve all issues and obstacles that
prevent an effective and error-free execution of the required standard. Variations in
standards can drive up cost and increase the number of safety incidents.
There is a perception even in capital projects that every project is unique and
therefore there is no attempt to apply continuous improvement, this is the domain of
the manufacturing industry, isn’t it? Once again, the difference is subtle but a
remarkable one. If you view the project as a unique product being developed at
one station, the crew and material required to produce it are constantly changing in
order to build that one off unique product. But even if it is a truly unique project
(which they rarely are) there are repeatable processes that should be adopted for
instance handover from one crew to next, transfer of quality standards, defining the
safety standards, the expectation of daily target setting and its delivery from one
crew to next and so on. These are all repeatable processes even in a unique capital
project.
Often the teams and organizations try to learn from the ‘After Action Review’
(AAR). This is like learning from a post-mortem. It will tell you the cause of death,
5 Whats, but had the 5 Whys been carried out earlier the death could have been
prevented through early detection and elimination. This is exactly what a culture of
Plan Do Improve embeds in an organization. AAR is not important by itself but from
the lessons we learn from it and what we do with them.
A humble ‘learning mindset’ is at the core of everything. Somewhere on our
journey we stop learning and the challenge for any leader is to rekindle that spark in
every team member.
Chapter 7
Getting Started
It is essential that the supply chain develops its own balanced scorecard to ensure
that it delivers across the various aspects rather than simply relying on ‘the way it has
always been’. These scorecards must be assessed to make sure they align with the
goals of the business, and they have the right balance between delivering now and
improving for the future.
If you recognise some, maybe all, of the issues raised in this book in your
organisation, you might identify with some or all of the 12 modules that can benefit
your organisation. You will no doubt have other areas where you need to focus on,
but what is critical is that you ensure you follow the steps below.
Define where you want to be (North Star) as the umbrella for a consolidated journey.
This will help to visualise the future desired supply chain both at an organisational
and an individual level. This will give a purpose and a view of the ‘promised land’.
Senior leaders need to be fully conversant with what this looks like and how it
benefits the industry as much as how it benefits the organisation since individuals are
key to enabling the transformation. Transformation does not happen because of a
plan but because those involved buy into that plan. Invest more energy into the ‘buy
in’ rather than delivering a perfect plan.
Figure 7.1 compares the traditional procurement approach to supply chain, where
cost is central to the decision-making. However, do not be seduced by trying to
deliver the cheapest option. Do not let the procurement mindset of ‘lowest cost’
determine your supply chain strategy, but consider: resilience, agility, consistency
and quality in addition to cost.
STRATEGY
CULTURE QUALITY
QUALITY AGILITY
Fig. 7.1 The mindset of procurement driven supply chains vs. industry standards and requirements
91
92 7 Getting Started
80% of aenon
It can be seen that many organisations prefer to listen to and act on a good story
regardless of whether it is backed up by fact or not. The story is the important part,
where those who are good orators are more successful. If this is not counterbalanced
by data-driven decisions, the strategy can often be flawed. The 80% attention to
outliers drives a business to constantly firefight which means there is no time to look
at continuous improvement and therefore no advancements made to improve the
core of the supply chain performance. There will ALWAYS be outliers.
Do not focus all your attention on outliers, focus mainly on reducing the variability
around the median.
The median is a woefully badly understood statistical concept, which many busi-
nesses do not recognise. The average is almost always the statistic of choice but this
covers a multitude of sins and often drives the outliers to be the target of attention.
The median gives much more visibility to the health of the supply chain process
rather than the average which is skewed too much by the extreme outliers.
Additionally, businesses also consider their performance data to be a typical normal
distribution, equally distributed on both sides of the average. If this were the case, then
average and median would be very close but in reality, the supply chain performance
curves are very rarely normally distributed and are usually significantly skewed (see
Fig. 7.3). In this situation, the average and median are distinctly apart.
Average Outliers
(mean)
7.4 Choose the Best Starting Point 93
Whilst there are numerous ways of undertaking a gap analysis, one we have found
extremely useful is the value stream analysis. This works on multiple levels.
1. The first level is to walk the process from end to end, requiring a documented
version of what the process should be.
2. The second level would be the immediate debate on whether or not this is what is
actually happening. Some corrections may become apparent even at this early
stage and deliver small quick wins.
3. At the third level, you would have the understanding of the interfaces between
functions and how data and information are moving from silo to silo, showing
actual vs. perceived.
4. The fourth level would highlight the difference between value-added and the non-
value-added activities.
5. Progressing to the fifth level will allow the functions up and down the value chain
to understand the impact of their behaviours on each other.
6. The final level will deliver the recognition and mitigation of actions that usually
result due to lack of trust in the value chain (order too much, order too early, keep
squirrel stores active, set unnecessarily high replenishment levels etc.).
As we know these actions create a series of bullwhips, which instead of the
traditional bullwhip where one mistake at the beginning gets amplified at the end,
this phenomenon has a series of mistakes (or counter actions) which actually
change the outcome completely, for instance resulting in 27 football pitches of
containers of unnecessary inventory!
It is important to choose your starting point very carefully. Businesses often create
a 4-box matrix, with impact plotted against effort (or cost) to establish the big easy
wins. The temptation is to constantly focus on these low effort improvements or
quick wins. In turn, they often become all-consuming and absorb significant
amounts of time and effort. These activities that drive quick wins, especially
those around the biggest pain point, are a great place to start but they should be
done with little (or no) senior leadership involvement, if they are simple fixes then
just do it!
It is important to tackle some of those improvements that are truly transforma-
tional or else are forever consigned to the ‘too difficult’ or ‘we’ll get to those later’
pile. These improvements need to be treated differently from the easy low hanging
fruit ones. As mentioned earlier, not only do they need to be data driven but they
must also be heavily sponsored by senior leaders and be communicated to all those
whose involvement is needed to make it a success.
94 7 Getting Started
These transformational changes must take the business towards the North Star, if
they do not, then either they are not the right improvements or just as possible,
the north star is wrong and needs modification. It is also important to recognise
that in many cases the changes to be implemented have an inbuilt sequence
(i.e. activity A must happen before B and C can be delivered). Do not be
under the misapprehension that everything can be done at once—to climb
Everest you must pass through a series of camps, each with their own set of
challenges. The leadership must recognise that in order to get to the top of
Everest, the organisation must transit through these camps before achieving the
desired goal.
Multi-year transformation is important (Fig. 7.4), do not fall into the trap of
acceleration simply to look good, it is essential that the whole organisation goes on
the journey. Go too fast and you leave critical people (especially some senior
managers) behind, and they end up becoming opposed to the change rather than
curious about it. Small wins are needed to prove the journey is worthwhile and
capable of delivering results.
The end goal (North Star) needs to be firmly in mind through the whole transition
in order to keep driving towards it. Each change will deliver benefits in their own
right but the benefit of the whole is much greater than the sum of the components.
We have seen that this can be difficult in organisations where people are moved roles
every 3–4 years since the transformation will often last beyond the assignment of the
individuals. The way to overcome this is to embed the supply chain transformation in
the corporate 5+ year strategy to ensure longevity beyond the individual assignment
lengths. To achieve this, an appropriate approach would be to use the same as that
used in major projects.
Although tempting, it is important not to start the journey of transformation with a
massive reorganisation. Instead, use the journey to define what the future
organisational structure should be and have an equivalent multigenerational
NORTH STAR
Step 4
Step 3
Step 2
Step 1
YEAR 1 YEAR 2 YEAR 3
organisational change plan to move the organisation towards the end goal. Rarely
does a single reorganisation achieve what it was designed for or survive any length
of time. It also destabilizes the organisation and undermines performance.
It is critical that the HR changes are in response to the process changes, HR
changes must never be the driving factor. Use the continuous improvement approach
to your organisation, change relevant areas at the right time, trying to implement a
single reorganisation does NOT fit with a multi-generational project plan MGPP and
will often derail the whole intent of the change programme. This is often the mistake
made by large organisations.
Needless to say, it is also important for the key elements of this strategy to be
made visible and accessible to the shareholders and, where appropriate, to the market
in general. The intent of the strategy should not be a secret, a public announcement
makes clear the direction in which the business is aiming for, ‘to be the biggest in the
sulphur market’, ‘have the best conversion rate of prospective customers’ etc.
It is important though to keep in mind the principles stated by Michael E Porter
where he describes three main principles that a strategy should contain:
• A clear perspective of where the business wants to go (e.g. a deep or a broad or a
specific customer base).
• Get the scope right, especially making the decision on what is not going to be part
of the strategy.
• Ensuring it is a good fit with the activities of the business.
In 2021, many of the International Oil Companies made clear their strategy for the
future of being carbon neutral, for example Shell declared that by 2035, they would
be carbon neutral and that by 2050, the whole Shell supply base would be carbon
neutral. This public declaration means very specific decisions will need to be taken
in the medium and short term to ensure alignment with this end goal and through
specific remuneration targets the whole organisation will be redirected to achieve the
desired result.