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Offshore Supply Chain - Managing Variability
Dinesh Divakaran, Procurement Manager, Schlumberger Asia Services Ltd Upstream oil and gas industry is not yet known for its supply chain practices. However, the industry, increasingly pushed to explore deeper and challenging waters to find more discoveries, is certainly waking up to the needs of optimising its supply chain as it enters into riskier terrain and requires higher capital investments and requires better working capitals.

FMCG, Consumer durables, Retailers companies are harbingers for good supply chain practices and generally accounts for the top and widely regarded supply chain companies in the globe (Dell, Unilever, P&G, Walmart). Upstream oil and gas industry is not yet known for its supply chain practices. However, the industry, increasingly pushed to explore deeper and challenging waters to find more discoveries, is certainly waking up to the needs of optimising its supply chain as it enters into riskier terrain and requires higher capital investments and requires better working capitals.

Theoretically, supply chains are classified as Lean or Agile on the basis of their response systems to manage customer demands. Lean environments are forecast driven (with fixed demand) while agile systems are market sensitive and respond quickly to changes in actual customer demand. Oil and gas upstream sector can be categorised under the Agile supply chain because of the following:

Supply Constraints
• Highly technical industry and need to involve certain niche or specific technologies which impacts the no. of sources available world over for a product or service.
• Offshore logistics encompasses the hiring of supply boats for transportation of fuel, water and rig supplies, choppers for crew movements and shore bases to support the offshore logistics operations. Supply boats and chopper availabilities are demand/supply driven and shore base management is a highly specialised activity.
• Industry organisation and government structure for offshore logistics companies (boat owners) and chopper companies. These bodies impose certain licensing or industry related conditions which affect the industry and operations.

High opportunity costs
• Cost of having the operator's rig waiting is very heavy on the operator and consequently gets passed down the chain. A jack-up rig may cost upto USD 100K a day, while a drill ship could cost anywhere upto USD 600K a day.

Variability in Demand
• Operational conditions and safety factors once drilling operations commence. Urgencies for parts, people are common occurrence and needs to be catered to.
• The list of players involved in any offshore operations is multifarious. It includes the operators, rig providers, oilfield services companies (which could be a single company or could even be upto 12-18 different companies) with multiple and complex relationships. Managing communication and needs between each of the parties is a complex task

Now that offshore supply chain complexity is established, it is important to understand the following; supply-chain related costs for an integrated oil company can be USD 300 to USD 500 million annually. Even a modest reduction in these costs through optimisation can produce substantial savings. Some of the major areas for optimisation in offshore logistics could be;

Improving Utilisation of Vessels:
The utilisation improvement in vessels across multiple fields can help in optimising the fleet required to be hired. Collaboration between multiple departments within an Operator company is critical. Taking a leap and moving to the next level could also involve collaboration between Operators, in order to share, improving utilisation and optimising cost.

Improving the turn around times at shore bases:
A typical PSV would require anywhere between 24-48 hours to turn around the vessel with loading of well material, utilities for the fuel (including water and fuel). The turnaround time is a key factor in planning for wells for the operators. Turn around times can be significantly improved through.

• Technology: Employing modern material transfer technology between the shorebase to the PSVs.
• Better Planning: An absolute key element would be planning for well materials for the entire turn around, which involves the management of a lot of back room order and inventory planning. This would involve collaboration with fuel suppliers, logistics companies, oilfield service companies.

Offshore supply chain is complicated given the nature of the business and the variability in the entire chain. There will always be risks to be managed in remote areas like offshore rigs. However, synchronisation between various stake holders inhibits complexities.