Your account already exists. Please login first to continue managing your settings.
Some oil and gas companies are turning to new software to help them improve capital management.
A payment paper trail that takes more than 80 days to get to its processing destination is causing some E&P companies problems that can be avoided.
The lag time means that it is difficult for companies to determine just how much cash is on hand, with an unknown number of possible commitments in the pipeline. Those could include variances, spend by employees, material transfers, and field invoices, just to name a few. The Aberdeen Group suggested the amount of time needed to process an invoice should be 2.9 days, instead of the 86.8 days that Ernst & Young revealed it typically takes oil and gas companies to process an invoice.
If not corrected, the problem could lead to out-of-control spending.
The revelation comes at a time when companies are looking for ways to trim expenses amid market volatility.
In the report called “Cash in the Barrel,” Ernst & Young examined capital management of companies and determined there is plenty of room for improvement. Although global oil and gas companies improved working capital performance in 2010 compared to the previous year, it wasn’t enough to reverse poor performance trends of prior years.
The industry’s cash-to-cash (C2C) dropped by 4% in 2010 compared to 2009, but the C2C was up 21% between 2003 and 2010, the report stated. Cash-to-cash is days of outstanding sales and inventory less days payable outstanding. The latest good showing was impacted by oil prices, which drove capital spending, increasing 2% from 2009 to 2010.
“While measuring ‘like for like’ progress has been made difficult by changes in the oil price, analysis also shows varying trends across the industry,” according to the report. “For leading performers, benefits have been achieved by streamlining supply chains [although much of the focus in this area has been on reducing complexity and costs], managing payment terms more effectively with suppliers, collaborating more closely with each partner of the extended enterprise, globalizing procurement, and enhancing risk management policies.”
Some E&P companies sought technology to help with the purchase-to-pay process in hopes of improving “real-time visibility into spending,” according to Verian, which provides E&P companies with software that automates main purchasing and invoice processing from start to finish. The software is capable of handling purchase and non-purchase order spending. It also has a system of checks and balances, which checks budgets and expedites email and mobile approvals among other functions.
“The goal is to gain 100% visibility and mastery of your [spending],” Mark Schaffner, the company’s vice president of marketing, said in a prepared statement. “So you can drive down invoice processing costs, increase control of working capital, and be prepared for whatever oil prices do.”
One oil and gas company found itself buried in paper, time-consuming processes, and limited spend visibility with a large number of vendors amid the volatile and unpredictable oil market, according to Verian’s website. Not wanting to hire more people to handle paperwork, reducing duplicated efforts in processes and shortening approval times were among the company’s goals.
After purchasing two software modules – purchase manager and invoice manager, the company saw a 4% savings from supplier consolidation, 10% to 12% expense reduction, 40% net annual savings in processing costs, and a total annual savings of $6.4 million, Verian reported.
“Not only did [the] purchase manager streamline and speed requisitions to mere mouse clicks on an easy-to-use Web-based interface, the centralized purchasing data [is] now housed on a single database, giving management instant, real-time data on how much was spent and how much remained on all their capital budgets,” according to Verian. “Because of the new level of visibility the system provided, the director of logistics was able to [consolidate] spending to fewer suppliers, enabling the purchasing team to drive [prices lower].”
Contact the author, Velda Addison, firstname.lastname@example.org.