Procurement transactions need to be effectively managed from pre-qualification through the post-bid stage.

The current focus on supply chain management is perhaps more sharply felt in the UK Continental Shelf—an area known as a high-cost oil and gas province in a country that ranks 21st in the “World Competitiveness Yearbook,” beaten hands down by countries such as Denmark, Sweden, and the Netherlands.

When it comes to supply chain management, there are some who fear that a renewed focus signals large-scale cost cutting. Remember that this is the industry that launched the CRINE (cost reduction in the new era) initiative, or as it is often referred to, “cost reduction in net earnings.” However, industry professionals understand effective supply chain management is about generating value, creating efficiencies, reducing waste, and improving productivity —creating an environment for success.

There has been a move away from issues focused solely around cost-cutting toward a focus on delivering value. This will be even more challenging in the current financial climate as the focus for many will inevitably come back to price.

Defining, delivering value

It is difficult to define value, as it is different for every organization. It is therefore important to define what it means for a particular company and to recognize that it will change over time as the organization evolves and new drivers come into play.

Value should be inherently positive. It involves total cost of ownership and invariably working collaboratively, especially if value is to be realized and delivered, not just identified and talked about.

Generating value can also come from reducing risk and improving productivity by getting faster and being more effective, through restructuring, by focusing on doing the right things, and by removing duplication of activities and reducing errors.

The best practice model for generating value in the supply chain involves three key principles: leadership and vision, an integrated supply chain, and a whole lifecycle approach.

Articulating what is required is critical. Communication is central to driving continuous improvement, and that is where leadership comes in. Leadership is what sets the intelligent organization apart from its competitors. If the organization is inspired and challenged to deliver and is aware of what it is trying to achieve as a collective, the organization is more likely to succeed.

A whole lifecycle perspective is fundamental to delivering a best value, sustainable project.

One approach is to use a formula: Whole lifecycle costing = initial costs + lifecycle replacement costs + maintenance costs + operational costs + disposal costs.

This approach is about so much more than just price because it recognizes that dealing with capital and operating costs, risk, and uncertainty requires a professional approach.

Developing a clear framework to improve supply chain performance is equally vital.
While purchasing is important, critical factors such as health, safety, equipment, quality, risk, and information technology have clear roles to play. No one activity is likely to provide a step-change in supply chain management—the focus therefore cannot just be on purchasing alone.

Effective systems, appropriate resources and capabilities, process innovation, controlled standards, consistent processes, and transparent delivery structure with incentivized delivery all combine to improve supply chain performance and support growth. Experience has shown that better value is achieved when project processes consistently engage the whole supply chain.In some major projects there are benefits in raising awareness of value-based thinking in first, second, and third tiers. There needs to be cost transparency, long-term and evolving relationships with suppliers, a team approach to problem-solving, early main contractor involvement, and incentivized agreements.

Now is the time for positive action, and there are many tried and tested techniques for driving improved performance. There is a need to streamline processes, protect margins by converting fixed cost to variable cost where practicable, and to position the supply chain for readiness for the next up-cycle. It is essential to be flexible and ensure that short-term goals are met within the supply chain to make sure that shareholders are kept on board and that the necessary future investment is secured to maintain a vibrant sector.

It is not a small challenge, and “business as usual” is not an option in the current economic cycle. The supply chain remains key to unlocking value, improving operational efficiency, and minimizing costs. Continuing to invest in building skills, research and development, and oil and gas exploration is fundamental to the success of this industry

Government also has a role to play in ensuring that the tax regimes encourage and stimulate the flow of capital to this important area. Energy will remain in the forefront of geopolitical thinking for many decades to come.

Delivering results

By working to create competitive advantage through the entire procurement lifecycle, EC Harris has delivered tangible results for clients. This begins with the supply chain strategy, which starts with establishing the most appropriate approach to procurement and supply chain management. Supply chain management objectives are optimized within the overall business strategy, culture, and appetite for risk. The appropriate supply chain model for allocating and managing the key risks of quality, timelines, and cost of delivery among partners, contractors, and component suppliers can then be selected. Strategic sourcing follows. Creating category and supplier strategies maximizes supply chain value and allows for review and identification of potential quick wins and risk management.

Contractual frameworks that support business needs and the design of the supply chain and commercial arrangements can then be put in place. The next stage is to provide advice on procurement and out sourcing with performance management built in to manage cash flow, maximize profits, and minimize risks.

Procurement transactions need to be effectively managed from pre-qualification through the post-bid stage. Access to experience in contract management and resolution of issues allows clients to make informed, auditable decisions, particularly in relation to cost and time over-runs.

Through proactive, continuous supplier management, organizations can deliver a step-change in supplier performance.

From this approach, organizations can start to see that supply chain management is all about sustainable value, not just cost, but with maximum positive impact where it counts, on the bottom line.