According to Malcolm Wilson, collaboration can reduce contract risk
With the $50 barrel, there is sustained pressure for oil and gas companies to improve efficiency and reduce costs. In the UK alone, over 5500 direct jobs have been cut and the knock-on effect in the support sector adds an estimated further 60,000 lost jobs. This picture is mirrored worldwide.
Is the rush to cut jobs also removing in-house expertise that could expose operators and main contractors to higher contract risk? Where do accidents and non-compliance issues typically arise? Research shows that these companies typically spend around 80 per cent of their annual revenue with their suppliers and this introduces potential contract risk on health and safety, quality and compliance with a growing number of new laws concerning anti-bribery and corruption and the Modern Slavery Act.
Global supplier information firm Achilles works on behalf of 300 oil and gas companies across the world to manage business critical information about 25,000+ suppliers. The firm commissioned independent research agency IFF to carry out telephone interviews with 300 supply chain professionals across the UK, USA, Spain, Brazil and The Nordics. This included 65 major oil and gas buying organisations.
It has been said that if you think safety is expensive, try having an accident but many oil and gas companies don’t have an effective method of supplier selection that assesses suppliers’ HSE management systems and other important compliance issues. Knowing that the information held on suppliers is comprehensive and up to date is critical but that can be an expensive task if a collaborative approach is not taken.
The survey results showed that:
- Many oil and gas companies don’t have basic information about their suppliers – such as financial reports, and policies for health and safety and anti-bribery and corruption
- This is compounded because the data they do have is not updated regularly
- A high number don’t have clear processes for assessing and selecting suppliers, leaving decisions to chance
- Despite a high level of synergy, oil and gas companies are still unwilling to work collaboratively on collecting, updating and managing critical information about suppliers.
With ever-increasing scrutiny on oil and gas firms, it is more important than ever that they are seen to be operating, and treating suppliers, in a fair and transparent way.
- Yet one in five firms (19 per cent) used only their own judgement to select suppliers
- 27 per cent used only a risk model, without any of their own expertise
- Only 36 per cent used the ‘best practice’ combination of a risk model supported by individuals’ own expertise and experience
- More concerning still is that more than one in 10 (13 per cent) don’t use either their own judgement or a formal risk model when it comes to choosing suppliers.
With the global oil and gas industry facing challenging times it is vital that businesses within the sector put perceived ‘competition’ on managing supplier risk to one side and join forces for the benefit of the industry as a whole.
Malcolm Wilson, Director of Achilles FPAL, said: “True collaboration is the cost effective solution to managing supply chains. It takes a certain amount of culture change but by working together, oil and gas companies can benefit from very significant cost savings and reduce contract risk. We know this approach works but there huge room for improvement in behaviour and now is certainly the right time to take a renewed look at how a collaborative approach to supply chain management can help to deliver the cost saving that the industry currently demands.
“In our experience, best practice is for buying organisations to agree a standard pre-qualification approach to capture all non-commercial, mandatory information from suppliers. The data can then be published on a central portal, allowing all buyers to view official documents and use the information to make decisions about which companies to add to their supply chains. Suppliers cannot see each other’s data.
“This allows buyers flexibility in how they manage their supply chains – centrally or by region. It also presents new business opportunities for suppliers, since they become visible to a new pool of buyers. This approach introduces an important element of transparency to the supplier selection process and this fits in well with the ethical standards expected by senior management and shareholders.”
A collaborative approach to supply chain management will not on its own solve the current challenges of the oil and gas industry but applying the principle of a marginal gains management style means that the industry must exploit opportunity for efficiency.
Malcolm Wilson is FPAL Director, Achilles. Achilles creates and manages a global network of collaborative industry communities, allowing trading partners to share high quality, structured, real-time data. Using cloud-based technology and industry expertise it acts as an independent partner, providing validated data and insightful analytics to enable buyers across a sector to identify and manage risk and suppliers to increase market reach while increasing compliance and minimising costs for the network as a whole.
For further information please visit: achilles.com