oil & gas supply chain - key findings

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Supply Chain Management

[SCM Home]

E & Y REPORT

1. INTRODUCTION

This is the Key Findings document, a deliverable of the CRINE Network’s Supply Chain Management Initiative. This document details the

principal findings from all aspects of the project.

1.1 Document Structure

Section 1 provides an introduction and overview of the project. For those readers w ho have already read the Strategic Framework, there is adegree of repetition within this Introduction.

Section 2 summarises the detailed recommendations and opportunities arising out of the initiative. Section 3 is the detailed findings and draws

upon all of the sources of information utilised during the intiative. Where recommendations are linked to the detailed findings they are cross-

indexed. Both of these sections are structured on the basis of the headings represented by the following diagram.

1.2 Background

The CRINE Network’s Supply Chain Management Initiative ran from October 1998 to February 1999 and directly involved more than 120

companies (operators, contractors and suppliers, including small and medium sized enterprises (SME)), and the DTI.

The objective of the Initiative was to identify benefits from improved Supply Chain Management (SCM) both on a pan-industry and company-

specific basis which would help prolong the economic life of the North Sea Oil & Gas industry and enable the UK Oil & Gas sector to increase

its share of the global market.

The deliverables include:

an executive summary;

a strategic framework that evaluated the industry’s supply chain performance and made recommendations for improvement;

key findings;

a methodology for supply chain management;a flexible training module to improve SCM across the industry;

identification of, and implementation plans for, selected pan-industry collaborative projects;

participant-specific feedback on a company’s supply chain management performance.

This document, the Key Findings, is the fourth of the deliverables, and draws upon the results of the following:

RapidFX Ernst & Young’s proprietary Supply Chain Self-Assessment Tool;

Supply Chain Analysis workshops;

Pan-Industry Questionnaire;

Interviews with industry leaders and business champions.

In addition, the Initiative has also incorporated, where appropriate, information from the Pro-active Suppliers Group and the DTI’s review

Gas Supply Chain - Key Findings http://www.logic-oil.com/supply/book4/find

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‘Improving Supply Relationships in the UK Oil and Gas Industry’.

1.3 Scope

The study identified three business-critical and high-expenditure supply chains upon which to focus our analysis:

Development Wells;

Facilities;

Seismic.

Based on DTI data published in 1997, total upstream expenditure for 1999 was predicted to be approximately £10 billion. The current oil pricescenario probably brings this anticipated spend to somewhere in the region of £8 billion of which this study directly addresses about £4-5

billion1.

1Source of information DTI Survey 1997 and Wood Mackenzie.

2. SUMMARY OF SUPPLY CHAIN-RELATED IMPROVEMENT OPPORTUNITIES

2.1 Table of Recommendations

The following table summarises the recommendations and opportunities arising out of the initiative. Where a recommendation is in bold, that

recommendation has a quantified benefit illustrated on diagrams following this section.


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Drilling

Seismic


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3.2.1 Long-term Relationships

Construction contractors can be very project-orientated, to the extent that investment outside a project is hard to justify or fund. Furthermore,

operators may scrutinise and challenge the overhead costs of their contractors wherein most long term investment will reside. This short-term

focus adversely impacts both provider development and R&D.

This was further evidenced by the survey which found that providers are selected primarily for their technical capability, quoted prices, past

performance and lead time. Similarly, when improving relationships with providers the primary drivers are to improve price and responsiveness.

Least valued criteria were trust, continuous improvement and the conclusions of multi-functional assessment, all of which are fundamental to the

effectiveness of long-term relationships. Consequently, some customers believed that existing long-term contracts deteriorate over time. Others

reported that they found it difficult to identify when they are obtaining goods and services at “appropriate” cost.

Provider relationships are still perceived to be the primary responsibility of the purchasing department. Leading practice would suggest that the

end-user department (i.e. that part of the company using the goods or services) should manage the interface.

Clearly defined, and mutually agreed, performance targets can be used to offset some of these problems.

3.2.2 Supplier Suggestions & Customer Feedback

It is standard policy for the automotive industry to solicit suggestions from its providers, customers and employees. What has proved to be a

critical lesson learnt from the Japanese principles of Kaizen is that there can never be enough improvement suggestions made in the drive for

continuous improvement, and incentives are constructed to encourage this.

A consistent theme in the survey findings was the lack of a mechanism for providers to make suggestions to their customers. It is

recommended that the oil and gas industry follow the lead of other industries and actively seek vendor input into their processes. Simplemeasures such as appointing a focal point for feedback would be beneficial.

A related issue is that of customer feedback. Several providers in the study realise the potential value of customer feedback. The criticism was

made that despite their at tempts, providers are not provided with sufficient information to allow them to improve their product and/or service

offering. Data required is as much quantitative, in the form of reliability and availability, as it is qualitative in the form of customer perceptions of

provider performance.

It is strongly recommended that sources of life-cycle data - such as the OREDA availability database and equivalent for subsea systems, be

made more available to the supply base. (See Life Cycle Costing 3.4.4).

3.3 Planning & Forecasting

3.3.1 Low and Discontinuous Demand


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Global capital spend by operators is reducing by an average of around 20% in 1999, with some oil companies cutting budgets by over 30%.

Based on the global competitive positioning of the UKCS in terms of return on investment, there is concern that the UKCS will see a significant

proportion of these cuts. It has been reported that of the 40+ potential UKCS projects currently identified only around 15 will go ahead in the

current climate on pure economic grounds. The problem is compounded by the fact that, at current oil prices, some operators are severlycash-flow constrained. This, coupled with the increase in the number of operators involved in UKCS, is likely to mean that projects will become

much smaller.

In this environment the lack of robust and visible planning, on the part of the operators merely exacerbates the situation and directly affects a

company’s ability to perform effective enterprise resource planning (in terms of capacity and investment).

The pan-industry initiatives covering earlier availability of facilities and drilling activities plans, industry co-ordinated seismic acquisition, andindustry managed tie-backs, are intended to partially address this issue.

Batching of work was suggested as a possible option to address the issue of fragmented demand (with potential savings as high as 40%available in one drilling supply area). This and other suggestions are being addressed within the Pan-Industry Improvement Initiatives.

3.3.2 Consequences of Inadequate Planning

Most companies reported one or more of the symptoms arising from sub-optimal planning; avoidable mobilisation, and demobilisation,

duplication and overlap, low utilisation, overtime, shift work, rework, down-time, poor hand-over, etc. and significant re-planning.

From the industry questionnaire approximately 80% rated working together to predict future demand as medium/high business priority, with

approximately 40% claiming little progress and only 5% saying it was fully implemented. 83% of respondents considered there to be

medium/high benefit if there was public domain availability of development plans and all thought it was relatively easy to implement.

More robust planning, coupled with active risk management, and involving early input by appropriate organisation, is the mechanism which can

be used to offset planning related risks.

3.3.3 Lack of Global Optimisation

The oil industry is characterised by global demand for a number of services, especially provision of mobile vessels, drilling, seismic, installation,

support, etc. However, lack of global optimisation within the major operators was seen as a driver for higher than necessary costs - as high as

10% in the case of seismic operations against a projected spend of £140 million.

If operators were able to better plan on a global basis there is a significant potential benefit to be had for certain clauses of mobile vessel (e.g.

Seismic).

3.4 Engineering & Design

3.4.1 Supplier Involvement in Design and Development

In many cases, design is performed before a provider profile is even known - this precludes any involvement of the supply base in design or

planning of the interface between the various packages of major projects.

Engagement and lead times are further compressed by the time taken for the provider to become familiar with the design once issued, so any

potential synergies are further reduced.

There has been considerable work done on this topic by CRINE’s Proactive Supplier’s Group, and other programmes involving operators and

providers. The industry would benefit in terms of better collaboration and more effective early inclusion if it were to introduce more formal

communication programmes for transferring information along the supply chain. The industry wide extranet may be an enabler for this.

Early provider involvement was regularly mentioned as having major potential benefits.


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3.4.2 Over-engineering and Preferential Engineering

Over-engineering is often cited as endemic across the industry and is recognised as a driver of both cost and lead-time.

Often a difficult issue to quantify, one supplier has shown that a minimum of 10% of the cost of its service is due to the over-engineering in its

customers’ requirements. Ironically, over-specification often occurs in non-critical areas, but the effect is nonetheless wasteful.

Awareness of the excessive and wasteful costs of over-engineering must be raised within the customer organisations in order to halt thispractice. Senior management could give individual engineers targets for re-usability and percentage reductions in existing specifications and/or

part numbers.

3.4.3 Standardisation

The need for standardisation is a long-debated issue within the industry. In view of the installed base and the limited number of new projects,

there is a general feeling amonst the project community that it is too late to make a significant impact.

However, this sentiment was not borne out by the findings of the survey. One supplier calculated that being forced to adhere to company-

specific specifications rather than using industry-wide ones contributes 8% to their engineering costs. For a contractor participating in the

project, the impact was higher: standardisation would allow the engineering budget (around 5% of total costs) to be reduced by up to 30% per

annum - an annual saving of £4m - through a reduced demand on manpower; lead times could reduce by 25%; and 20% of the cost of

outsourced goods could be removed (outsourced goods comprising in excess of 30% of total project costs).

From a maintenance perspective the lack of standardisation also has significant downsides including, difficulty in obtaining spares,non-interchangeability and heavier dependence on specialist expertise.

Another ramification of the non-standardisation is that of excessive inventory holdings. As much as 10% of the typical inventory levels of one

supplier are the direct result of the need to supply to prescriptive company standards rather than functional ones.

The industry should introduce greater standardisation, particularly in peripheral areas such as colour coding, coating, tagging, instrumentation,

actuator selection, e tc.

3.4.4 Life cycle costing

One important theme voiced with regard to specifications was that of the need for a life cycle focus. Operators will usually take Opex into

consideration when securing project sign-off, but have difficulty translating the Capex/Opex trade-off when decomposing the project (e.g. into

major project components such as specific pieces of equipment). Lack of attention to this process is estimated to cost one operator in the

region of 10% of their operating costs.

The analysis highlighted participants’ recognition of the importance of life cycle costing, but also the acceptance that relatively little had beendone to implement it.

The reasons for this are many, however the industry would benefit considerably by:

more active support of the Whole Life Cycle initiative and the resultant ISO standard soon to be published;

investing in training to apply such a life cycle based methodology;

making operational data, such as that contained with OREDA and similar databases, more widely available;

introducing life cycle based incentive mechanism in controlled conditions; and,

increasing the adoption of longer term relationships which span both development and operation.

3.4.5 Late Design Change and Change Control

All suppliers voiced concern over the degree of change in requirements and specifications once work on a project had begun. Re-planning

frequency runs on average at 20% and the percentage of orders subject to change as high as 15%. Unlike other industries, design isrecognised by the oil industry to be an iterative process. Consequently, the issues for many participants surround the volume of change and

appropriate compensation mechanisms.

Lack of appropriate control and audit over design change can lead to issues for both vendor and customer. Late changes are, relatively

speaking, more costly to implement than early requests and, due to the speed with which changes have to be made late in projects, can lead to

poor quality in terms of defects, rejects and late delivery.

Where modifications are undertaken without order cover, disputes can arise over the payment for the changes. This in turn can cause back-end

loading of prices either by adding premiums to variation orders, or by adding premiums to maintenance, workovers or spares and after salesservice.

3.5 Sourcing & Supplier Management


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3.5.1 Bids and Tenders

3.5.1.1 Tendering

In many instances, tendering is wasteful and will result in “the best price on the day” - without necessarily any regard to the true cost of the

good or service. Several customer organisations claimed that they were moving away from competitive tendering and tender boards, but in fact

were seen to rely heavily upon them.

Of the criticisms leveled at tendering, the following are the most prevalent:

Poor clarity of client requirements and inconsistency over time;Tendency for smaller and smaller projects to be subject to the same bid process;

Tendency for pre-sanction work to be tendered and then cancelled or substantially changed;

When operators put a tender out to bid, providers will often get ITTs for the same work from multiple customers, which will have to be

re-cut and resubmitted in a number of ways.

Lead time to complete ITTs and plans for work are being compressed.

Tendering is being used to provide benchmarks against which to evaluate the ongoing commercial attractiveness of existing long term

agreements.

3.5.1.2 Negotiation

Little importance is placed on market-based target pricing or formula-based pricing, and even less on open-book methods. This is not in line

with trends in pricing policies in other industries - especially for critical componentry.

At the same time, operators claim that their estimates do not match contractor and vendor pricing, and that contractors’ prices do not matcheach other’s in comparison. This contributes to the low levels of inter-organisational trust in the industry.

By moving away from the reliance on competitive tendering as the basis for negotiation, and by selecting a reduced number of providers by

competence, it is suggested that a firmer base for negotiation is achieved. Having established market and fact-based targets for the equipment

and its sub-systems these targets can be discussed with the provider on an on-going basis so that both customer and vendor can understand

the variances. This overcomes the perception that provider prices are over-inflated and prevents any unnecessary damage to relationships.

3.5.2 Supplier Management

3.5.2.1 Supplier List Control

There is substantial evidence that operators still have significant control over the supplier lists used by their contractors. This reduces the

contractor’s ability or desire to develop its suppliers over the long term, since the relationship becomes transactional.

Whilst applicable to some projects, the above comments primarily relate to operational support contracts. Regardless, operators shouldproactively request that contractors challenge such lists and put forward cases for changing them if there is a strong total cost of ownership

basis for doing so.

3.5.2.2 Supply Base Management

Several of the larger organisations visited in the study admitted to having poor intelligence with respect to their supply bases. One participant

had a supply base in excess of 6000 providers and had recently identified that this could be reduced by as much as 60%. Provider switchingwas common and contracts were short term. Whilst some individual companies reported recording details of provider performance, and much

mention was made of FPAL, the general concensus was that widely available performance data was lacking. It was commented that

performance feed-back should be two-way i.e. t hat the customer should also be assessed.

3.5.3 Long Term Agreements, Alliances and Contract Issues


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3.5.3.1 Provider Confederations

Extending the application of the Alliance concept down the supply chain, to create confederations of mutually dependent providers, involved in

the same sub-system, is seen to be a route for improvement. Examples of where this might apply include: topsides control systems, sub-sea

corrosion monitoring and control, umbilicals and termination heads, driver and pump/compressor and control systems.

60% of industry survey respondents viewed such provider confederations as medium to high priority, compared with only 40% who were moving

forward with implementation (none having completed implementation).

3.5.3.2 Long-term Contractual Relationships

Longer term relationships are very attractive to providers. They remove the need for frequent re-tendering (this can be anything from 1% to

10% of cost) and, according to approximately 80% of industry respondents can; generate predictable cash flow; allow workload to be

managed more effectively; help streamline work processes; provide for greater continuity of people; allow synergy and relationships to be

developed, and to a lesser extent, enhance the ability to perform R&D (~65% of respondents).

Estimates of savings to individual companies go as high as 15%, particularly if these long term relationships are cascaded down the supply

chain (with one company having reported a recent saving of 12% as a result introducing longer term relationships where it could).

Some customers have expressed concern over the lack of competitive pressure; agreement ‘lock-in’; insufficient volumes of work and therefore

discontinuity of people; lack of mechanisms to share the benefits (with one company believing that it is currently paying premiums of up to 5%

compared with the current market).

Studies of outsourcing arrangements suggest that periods in the range of three to five years are optimal from the perspective of maintaining

competitive balance within the relationship, (this is in line with North Sea practice). Appropriate clauses such as year-on-year performance

target improvements, (not favoured by industry questionnaire respondents with 54% c laiming added risk, and 32% added cost) open-bookcosting, coupled with buyer knowledge of market developments have been found to be sufficient to maintain competitive pressure when coupled

with clear alignment of objectives.

3.5.3.3 Framework Agreements

Framework agreements are a useful tool for implementing long term relationships. An outline contractual framework is established, agreeing

terms, scope of coverage, basis of pricing, usually year-on-year improvement targets, and expected medium term volumes of work. When

goods or services are required, all that is normally required is a price - tendering times are significantly reduced. A degree of standardisation

and earlier than normal involvement is often a feature of the relationship. The potential savings and barriers are as described above.

In a couple of instances where these agreements were in place low volumes of work were impacting the ability to deliver expected savings.

Companies also reported inconsistent application of these agreements across asset based organisations and contracts where their use was

voluntary, or where there were loose escape clauses based on ‘technical leading edge’. Reasons for this included lack of internal buy-in to the

relationship within the operator and pressures within the asset to modify the agreement to suit their specific application and live within their localbudget constraints.

On average 20% of spend was covered by this type of arrangement for those who completed the detailed questionnaire.

3.5.3.4 Standardised Terms and Conditions

The standardised CRINE contracts were seen as a significant step in the right direction. Successful adoption however has been hampered by

existing contractual relationships which are more attractive; a view that some are operator biased, and by ‘addenda’ which effectively nullify the

standard nature of the contract, particularly in the areas of risk allocation and incentives (see below).

3.5.3.5 Appropriate Allocation of Risk

Companies felt that they were being asked to carry an increasing proportion of risk. In order to offset this, risk and warranty clauses are simply

cascaded down the supply chain often to a point where the ability to carry the risk is simply not there (and becomes irrelevant).

Lack of clear definition of scope and unrealistic time-scales at point of contract signing, coupled with commencement of work prior to contract

signing were further risks which were being negotiated in. There was evidence that some companies would under price to win the work and

pursue a policy of premium rate variation pricing to recover costs during execution.

The majority of industry questionnaire respondents viewed risk sharing in a positive light with 43% claiming an overall reduction in risk and 46%

a reduction in cost. However, a relatively high percentage (~25%) saw increases in both these dimensions. 73% of respondents saw benefits in

having performance bonds removed.

It is recommended that the topic of r isk allocation be addressed by an appropriate grouping of operators and providers.

3.5.3.6 Incentive Mechanisms

There were wide variations in the application of incentive mechanisms - most still having a CAPEX focus and some having incentives too low in


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3.7.1 Testing & Inspection

There is a proliferation of quality testing & inspection specifications and documentation across client organisations. This is another area where

vendors perceive there to be no forum for them to bring this issue, and the effect it has on their organisation, to the notice of their clients.

Many of the participants of the study recognised the need to review the approach to quality control and inspection. Several companies

recognised that inspection (particularly by 3rd parties) was often focused upon outputs rather than upon processes - where a lasting difference

can be made. There is a widespread belief that the industry as a whole spends too much time on inspection, and, moreover that much of this is

duplicated effort. It is interesting to note that the survey showed little differentiation or prioritisation of inspection requirements by eitherproduct-line or supplier performance.

The issue is felt most strongly by SMEs for whom the down-time caused by inspection can have turnover implications. In view of the oftenspecialised nature of the SMEs product or service, the ability of the inspector to certify a product without input from the SME staff is also called

into question.

3.7.2 Poor Quality Performance

There are significant areas of consistently reported ‘poor quality’ within the industry. Depending on the perspective, this has been attributed to:

unrealistic expectation; lack of sufficient testing; overstretched capacity; late change; and, inadequate quality of personnel.

On the wells side a number of ‘train wrecks’ have been attributed to poor quality equipment and/or service, with one customer quoting cost of

failure as high as 50%.

At the SME level, it has been stated that, as a consequence of cost cutting, there is an increasing tendency to use unproven suppliers operatingat lower quality threshold.

Consequently there needs to be a realignment of objectives between customer and supplier to:

a) reduce the reliance and focus on inspection;

b) increase the responsibility and accountability of the supplier to ensure the appropriate level of r ight-first-time quality and importantly;

c) ensure that quality objectives and risks are shared up front.

d) determine the appropriate level of external quality assurance in instances when this is required. The level should be determined based on

the criticality of the service for which the goods will be used, and the performance of the supplier.

FPAL has a potential role to play in addressing these performance issues.

3.7.3 Delivery Performance

From the perspective of ongoing procurement activity, delivery performance is low, with best quartile performance for on-time delivery of only

90%. Required-on-site conformance is even lower. This compounds the perception of poor product or service quality and encourages theoperator to over-order and further compress lead times.

3.7.4 Service Level Performance Measurement

The need to improve performance as described above should be combined with the need to improve the process of monitoring performanceagainst customer objectives. There is wide recognition of the need to measure customer satisfaction on a regular basis. The findings from the

detailed questionnaire show that this is not being done to an acceptable degree. Annual surveys are more common than monthly ones.

In the Strategic Framework, balanced scorecards have been identified as a way to monitor performance. It is recommended that the same

approach be adopted for the monitoring of customer service levels. This is to ensure t hat the criteria used are appropriate to the business and

supply chain, and that the frequency is sufficient to provide:


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a) enough historic data to produce meaningful trends; and,

b) timely data to allow rapid response.

3.8 Inventory Management

Several issues relating to this topic are covered in the pan-industry initiatives. In particular there is a recommendation to share inventory across

operators. Other findings are listed below.

3.8.1 Over-ordering and Returns Clauses

While driven by fear of non-availability (through poor quality or late delivery), over-ordering is costly to the industry overall. Currently

over-ordering can be as high as 100%. For one contractor this means an average of £750k per annum - the financing of which all has to be

born by the contractor. For one supplier over-ordering ran at an average level of 35 DSO (Days Sales Outstanding) representing a cost of

£1.5m. Although these costs are not immediately allowable as charges to a project, they ultimately have to be paid for by the operators if the

provider is to remain in business in the long run.

3.9 People & Organisation

3.9.1 Unclear definition of responsibilities and lack of empowerment

Unnecessary shadowing of jobs is still an issue in some quarters, together with a lack of single-point contact.

Greater use of RACI (Responsible, Accountable, Consulted, Informed) type responsibility matrices may help to solve this.

3.9.2 High turnover of people

Several companies reported difficulties in establishing an ongoing relationship as a consequence of high turnover of people (either within a given

role or within a company). Greater continuity of teams was a suggested improvement.

3.9.3 Lack of multi-functional team operation

A large number of companies reported that greater functional integration into teams would produce benefits, often in conjunction with earlier

involvement. Value increases if this can be extended to collaboration between other, related projects and operations teams - given the currenttrend toward brown-field developments.

The use of formalised team-building as a means of overcoming the ‘forming-storming-norming-performing’ team development cycle was


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mentioned in the context of some projects.

3.9.4 Lack of skilled, experienced people

Furthermore, operators and providers, irrespective of size, raised concern over the quality of offshore personnel. Equipment is misused

resulting in shortened usable life or extra industry cost to repair. Generally, comments about the quality of offshore personnel were common. In

particular the skills level in drilling projects was lacking. One operator estimated that the savings on well projects could be as high as 5%

through an improvement in skills and quality of personnel.

An improved, common, and consistent training programme, coupled with an appropriate certification process, would benefit the industry.

3.9.5 Lack of commercial skills

Companies identified that both technical and commercial staff would benefit from greater awareness of the broader economic drivers affectingprojects. Improving the technical knowledge within commercial/procurement functions was also seen to have benefits.

Amongst the engineering community there is a skills gap in terms of commercial acumen. Similarly, particularly within the wells environment,

there is a need to raise the technical knowledge of commercial staff in the industry. This was viewed as very important by the RapidFX

contributors with a gap in terms of current performance. Examples here include the ability of engineers to understand the costs built into

projects over the total project life cycle, or the costs of adding extra complexity to a project as opposed t o re-using existing componentry.

It is recognised that, in order to make knowledgeable and informed decisions, both technical and commercial skills are required. In order to

facilitate efficient communication between buyers and engineers it is further recommended that a basic level of cross-training be carried out

within the industry.

3.10 Knowledge, Communication & Information

3.10.1 Disparate locations and lack of face to face communication

A number of companies reported communication problems, exacerbated by geographical spread.

3.10.2 Poor hand-over, lack of single points of contact, and poor feed-back

Wherever there was a hand-over; sales to engineering/production, new product to post -sales services, project to operations, and/or between

different parties, at least one company reported either misunderstandings, failures of communication, and/or lack of feedback.

This problem was made worse by lack of clear single points of contact on each side of these interfaces. Having no clear route into the

customer to discuss future technology requirements and/or new products/ideas was regularly mentioned.

3.10.3 Under-use of current communications and information technology

The industry has yet to take full advantage of modern low cost communications technologies such as low cost desktop web-camera (providing

inexpensive video conferencing type functionality), and the full capabilities of the internet in general as a means of communication, data transfer,

and knowledge access.

Hard copy transfer of project data is still in common use and suppliers reported difficulty in trying to issue documentation in CD-ROM format.

The proposed Industry Extranet described in the Pan-industry Initiatives is intended to enable and encourage increased use of electronic

communication and shared storage.

3.10.4 High costs of seismic date storage and copying


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Costs of seismic data storage and copying are still high. Greater co-operation between the operators and accelerating the move to full use of

CDAL provide an opportunity to save up to 3% of direct costs and save 10% in indirect costs (through reduced need to shoot new seismic).

3.10.5 Failure to capitalise on past projects

Project teams, by definition, are transitory. Some companies have set up ‘lessons learnt’ systems to capture knowledge gained from one

project and there have been industry attempts to share such knowledge. However, these have met with mixed success and knowledge transfer

usually relies on the movements and experience of individuals. The culture is usually to start each new project with a clean sheet of paper andwork in isolation from other similar projects being carried out by other operators .

The similar types of projects now being undertaken in the North Sea, coupled with the increasing recognition that predicted production

characteristics from new reservoirs are rarely accurate and that they can be managed, suggests that there could be much greater use of

‘photocopy’ engineering and cross-project synergy, facilitated by some form of industry programme co-ordination.

83% of industry questionnaire respondents saw medium to high value in formalising a process for sharing learning.

3.10.6 Exchange of technical ideas and implementation of standards

The industry relies primarily on conferences as the vehicle for exchanging ideas. Existing industry working groups were regularly perceived to

be ‘talking shops’ taking a long time to reach agreement even when specific objectives were clearly defined.

There was seen to be a benefit in establishing more focused forums in specific areas for the purpose of sharing detailed ideas and working

practices. More proactive leadership by supplier forums was requested.

Such working parties may benefit from greater accountability to the industry, greater use of roundtable review and comment, and a clear

facilitation role within such groups.

An example of where this concept is beginning to operate is the Stretch Performance Network. The Network provides the tools and processes

to deliver leading practice and capture project learning.

3.10.7 Lack of common industry work breakdown and part numbering

There is a lack of commonly agreed structure and identification of parts and activities across the industry. For example, FPAL have published a

coding system, OREDA has a pan-industry agreed identification system, and there is a distinct structure commonly used in Norway.

The transfer of electronic information and pooling of historical data in a format suitable for re-use would be greatly facilitated by industry

agreement in this area.

3.10.8 Lack of common industry data repositry (and format)

Document management systems are in common use with operators and providers. However, each company has implemented it in its own way

which does not lend itself to data sharing. If a common industry data warehouse structure and agreed formats were established moreinformation could be stored in a shared environment in a format suitable for re-use.

3.11 New Product Development & Innovation

Although there is a need to reduce the complexity of design and drive towards standard specification, the upstream oil and gas industry is a

technology led industry, and therefore has a dependency on technological innovation. There are however, several factors which are currently

inhibiting innovation.

3.11.1 Source of innovation - vendors and SMEs


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The industry is typified by late inclusion of providers on projects. It is not uncommon for each level of the supply base to receive a complete

design. Whilst it is, therefore, a truly demand-driven industry there is no room for a technology push to complement the demand pull. The cost is

that associated with lost innovation.

Particularly affected is the SME level - arguably the last to be included, but often the most innovative level of the supply system. In other

industries, SMEs are held up as an important source of innovation. From the survey, however, the contribution of SMEs to success is only

thought to be of moderate importance, the survey found even less importance attached to the concept of a programme to develop SMEs.

The CMPT is an industry funded body with remit to broker the movement of innovation from the SME community into its application within the

industry. However, the industry would benefit from further improvements in the process for introducing innovation and sharing potential risks.


oil & gas supply chain - key findings

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