Challenges and opportunities

Is ERP the answer to being an energy, oil and gas supply chain survivor? By Gill Devine

Change is afoot in the world of energy and utilities. The impact of the downturn in oil and gas, increasingly complex regulations and an ageing infrastructure is reverberating throughout the supply chain. Operators are scrutinising the supply chain for areas where costs can be cut – and where revenues can be maximised. Manufacturers and producers of energy-related products and services have had to become more efficient. Enterprise resource planning (ERP) offers the promise of standard, consistent data available across the network to enable good decision making, but is ERP really equipped to do the job?

How can ERP help?
The energy supply chain is extremely complex covering multiple geographies and a wide range of machines, vehicles and people in the field. An ERP system that ensures that all elements are operating at their most efficient and cost effective needs to do the following:

  • Manage all the critical assets in their operations in real time
  • Provide remote business users with a complete costing structure that includes costs for each job in multiple languages and currencies
  • Control procurement and supply chain costs for global energy projects
  • Handle a range of legal entities for each geographic region and ensure regulatory compliance
  • Track projects from start to finish
  • Be flexible enough to adapt to the unpredictability of the current market environment

Where does ERP fall short?
ERP systems are fantastic solutions, but simply aren’t built for certain activities, for example:

  • Most companies are operating using several ERP systems alongside CRM and other software tools for analytics and order processing, as a result of mergers and business growth. The source of ‘truth’ can often be a bit foggy and ERP requires tremendous investment to integrate to multiple suppliers and dealers
  • ERP can rarely handle the volume and complexity of aftermarket data
  • Even with an ERP system, many companies don’t have a true view of their customers, products, and suppliers.

Better ways to manage data
For example, a global oil and gas company with more than 50 sales offices and ten different ERP installations can face challenges with disjointed information and no clear view of a customer’s history. To centralise business applications and gain a global view of customers, these types of companies can implement a master data management solution to match and merge source records, discard duplicates and providing a complete and comprehensive view of customers worldwide.

Master data management results in clean and accurate customer data, which enables global organisations to provide faster and more efficient customer service. Fewer IT systems reduce operating costs and improve supply chain process efficiencies to decrease service parts stock levels.

Suppliers to the oil and gas market have had to respond to market forces with operators looking to eliminate costs from their on-going operations and their supply chain. Casualties have included new equipment manufacturers and oil field service (OFS) companies. OFS companies have responded by cutting CapEx and headcount and minimising OpEx but many have found themselves struggling with margins eroded and no ability to scale up once the market improves.

Likewise, with energy majors cancelling new projects and restricting expenditure on new equipment original equipment manufacturers (OEMs) have been hit hard. Businesses that have relied on new equipment sales to the energy market are suffering. To survive, some have redefined their business model and are looking for ways to add value. One way to do this is to focus on after-sales. Maintaining and repairing existing equipment can provide more regular and higher margin work than manufacturing and is less constrained by capital expenditure.

To turn the challenges in to opportunities, manufacturers and OFS companies need to be responsive, know exactly what their customer needs and when, and be able to deliver it at a competitive price. ERP alone is not going to do that for them. Inventory management software can feed into the ERP system and is vital in the complex task of keeping track of all the critical parts a utility might need.

Service parts inventory management
In the energy market, parts are required to maintain ageing equipment, to bridge a gap before assets are replaced, and a wide-range of unusual parts are needed for completely new technologies that are being tested. The cost to carry all of the potential options in one location is prohibitive, but at the same time, immediate availability of parts is vital to avoid service disruptions. Inventory management enables service parts businesses to anticipate what to stock and where to stock it using advanced planning techniques.

Increased visibility, virtual planning and inventory redistribution functions help determine:

  • Which items can be stocked at a central or virtual distribution centre and deployed to the field when required
  • Which items are critical to stock in the field for emergency work, including what quantities are necessary to avoid excessive replenishment lead times
  • Where to access items across the network when unplanned or unexpected events require unusual parts
  • When to replenish items to minimise emergency orders and excessive transportation expenses

This ability can provide the supply chain with an indispensable service that will keep operations going for the majors while providing the supplier with a sustainable business model. As with any challenging period, there is opportunity. Although many are feeling the pinch, suppliers to oil and gas that are willing and able to adapt, be flexible, improve efficiency, offer the right pricing and deliver excellent service will succeed. ERP can help to some extent but integrating sophisticated solutions at each stage of the manufacturing process is the key to being ready for and taking advantage of the imminent market upturn.

Gill DevineGill Devine is VP Western Europe at Syncron. Syncron is the only aftermarket service provider that exclusively focuses on service parts management and pricing for the world’s leading manufacturers. The company’s award-winning SaaS solutions enable companies around the world to transform their aftermarket service operations by dramatically increasing profitability, cash flow and customer loyalty.

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