Operators and service companies move toward partnership arrangements for mutual benefits.

With oilfield products and services costing the industry as much as US $200 billion annually, upstream companies continue to press for more efficient and cohesive relationships with their suppliers. These tighter relationships, they believe, not only reduce costs, but also lead to vital improvements in product and service quality.
Despite the emergence of these enhanced buyer-seller relationships, research indicates that when it comes to satisfying customers, oilfield product and service companies can improve.
Supplier ratings
In independent surveys conducted over the last 2 years by EnergyPoint Research, a Houston-based independent market research firm, more than 400 respondents at more than 140 upstream companies worldwide rated major oilfield product and service companies in comprehensive evaluations. In addition to measuring overall customer satisfaction, the surveys assessed satisfaction in such areas as pricing, performance and reliability, technological capabilities, product and service quality, professionalism, safety and environmental, post-sale support, and corporate capabilities.
The results? Overall satisfaction ratings for oilfield product and service companies were near the average for the broader economy but well below those of leading sectors. Of the oilfield product and service categories evaluated, process production equipment and offshore drilling services were rated highest, while workovers and well servicing, along with rig and drilling equipment, received the lowest aggregate scores.
Focus on the customer
Interestingly, some of the best-performing suppliers in terms of customer satisfaction were not necessarily the largest or most well-known. Niche players such as Davis-Lynch, which manufactures a well-regarded line of downhole cementing products; NATCO Group, manufacturer of wellsite processing equipment; and drilling contractor Helmerich & Payne regularly scored at or near the top in such dimensions as performance and reliability, engineering and design, post-sale support, and service and professionalism.
Likewise, Vallourec & Mannesmann (V&M Tubes) finished first in the category of oil country tubular goods, largely due to high marks from respondents utilizing its products outside of the United States and Canada. Some earned top honors as respondents were particularly pleased with product durability and ease of operation.
A number of larger providers received approval for providing products and services that help customers succeed globally across the various stages of a well's life. Post-sale support, strength with national oil companies and technological expertise earned high marks.
Meeting needs
If suppliers hope to continue benefiting from the trend among upstream companies to outsource more of their key processes and operations, they must increasingly demonstrate that they can anticipate and meet customers' needs. And with many product and service purchasers moving away from a price-centric model for selecting suppliers, a crucial challenge for suppliers is understanding what satisfies customers in today's world.
A provider's impact on productivity is certainly a large consideration when purchasers evaluate suppliers. At current operating margins, the costs of lost productively due to supplier non-performance can quickly add up. In developing, positioning and implementing their products and services, suppliers must continually improve their abilities to help their customers remain productive - or risk losing them.
Another attribute that oilfield customers clearly require in their suppliers is a genuine commitment to the customers' success. Whether it's the development of quality products and services specific to current needs, accountability in resolving disputes, or completing jobs on time and as specified, they want suppliers who, across the organization, demonstrate that they have the customers' best interests in mind.
Unfortunately, there continues to be skepticism among customers about suppliers' priorities and motives, and these attitudes can have adverse impacts on satisfaction. For example, some customers are suspicious of suppliers' objectives in introducing new technology, seeing some purported technological "innovations" as nothing more than vehicles for instituting price increases while adding little in the way of real value. In the words of one survey respondent, "All new technology seems to be deemed 'commercial' these days until proven otherwise - usually at [the customer's] expense."
Finally, customers want suppliers who are willing to listen. One of the most common mistakes made by some suppliers today is that they all too regularly take a "we know best" stance when dealing with their customers. This attitude can quickly turn off even the most loyal of customers, impeding innovations and efficiencies that come from more mutually respectful and collaborative relationships.
Payoff for suppliers
Historically, many suppliers have been so preoccupied with the idea of managing through commodity cycles, maneuvering for market share or reorganizing for cost savings that they fail to recognize what can be gained from creating a satisfied, loyal customer base. The fact is, regardless of where a company finds itself in the business or strategic cycle, strong customer satisfaction offers powerful benefits that should not be ignored.
Among these - higher profits. When oilfield suppliers' customer satisfaction ratings are compared to their return on assets, a positive and statistically significant relationship is shown to exist. Greater loyalty and retention of satisfied customers contribute to higher revenues, and more stable and predictable workflows lead to increased productivity and lower effective costs.
By viewing customer satisfaction as an integral part of overall corporate strategy rather than just another consequence of doing business, suppliers gain competitive advantages that help ensure their long-term success. In addition, strong customer satisfaction enhances a supplier's reputation, which, in turn, contributes to improved morale, productivity and dedication of its own employees.
A growing priority
Some oilfield suppliers mistakenly assume that the record backlogs, high utilization rates and healthy margins the industry currently enjoys mean customer satisfaction need not be a priority. But nothing could be farther from the truth.
The market economy will undoubtedly chip away at today's outsized profits, returning margins and earnings to more historical levels. Suppliers who believe they can dictate their own terms with customers, giving only token attention to service and quality because it currently is a sellers' market, will likely be in for a rude awakening when market equilibrium returns.
In addition, with the emergence of ISO 9000 and other quality assurance programs in the industry, suppliers have additional incentives to stay focused on customer satisfaction. In fact, ISO 9000, the widely observed model maintained by the International Organization for Standardization, specifically calls for customer requirements and satisfaction to be taken into consideration and measured as part of the quality management process. This includes understanding customer needs and actively managing customer relationships. For these reasons, companies that have successfully implemented ISO 9000 are better focused, more efficient, and increasingly more able to anticipate and adapt to changes in the marketplace.
The role of customers
Productive buyer-seller relationships are not a one-way street; they can be developed and sustained only when both parties benefit. If suppliers are increasingly being asked to invest in new products and services, they rightfully expect to be rewarded for their efforts and accomplishments. Allowing suppliers to retain their fair share of profits over time reinforces collaboration and commitment and encourages further investment.
Customers can also help facilitate higher levels of satisfaction by understanding and monitoring how their own processes and requirements affect supplier performance. Those that practice open and honest dialogue, both internally and externally, and are fair-minded in their negotiations and critique of suppliers, are more attractive as business partners, and, consequently, more successful in the long run.
For both oilfield suppliers and their customers, cohesive, constructive buyer-seller relationships can contribute to business success. But they cannot be taken for granted. To gain the full benefit these relationships have to offer, suppliers must recognize their strategic importance and continually strive for increased levels of customer satisfaction so they not only will survive, but will flourish.