Identify Cost Savings in Your Oil & Gas Supply Chain
Global demand for oil is down, and the price of oil continues to destabilize. The U.S. shale boom and the global pursuit for oil and gas in strategic geographies have produced a saturated oil market, leading to significant industry changes. Despite changing demand, the Organization of Petroleum Exporting Countries (OPEC) recently decided to maintain the production of oil at 30 million barrels per day rather than cut production. This sent oil prices even lower, created additional marketplace uncertainty, and increased pressure on oil and gas organizations to adjust and reduce transportation spending.
Many oil companies must now analyze their future growth strategies to cope with today’s market conditions. For example, the recent mega-merger between old competitors Halliburton and Baker Hughes shows how the current market and low oil prices can impact profitability. Instead of competing with each other over lower demand, their combined resources can stabilize pricing and combat market headwinds.
While the future balance between supply and demand is unclear, cost cutting and cost management are primary objectives for companies as they struggle to meet shareholder expectations and company profitability standards. These are three cost management initiatives that can be achieved by working collaboratively with a third party logistics provider (3PL) that has oilfield logistics expertise:
- Use a transportation management system (TMS) to help develop a savings baseline. A robust TMS can enable companies to capture and correct cost gaps in a repeatable and executable process, identify negative trends in current spending practices, and generate daily tactical savings opportunities. Enhanced visibility from a TMS can also create efficiencies and drive accurate savings through consolidations, backhaul utilization, and lane modeling, all of which can potentially reduce miles and emissions.
- Engage in proactive planning for oilfield transport. Hot shot and expedited shipments are expensive. Advanced equipment planning and utilization can help alleviate these costs. Planning increases lead time and reduces the need for expedited service.
- Analyze internal practices to drive efficiency. Without standardized processes in place, valuable and costly personnel can be inundated with tactical logistics tasks rather than focusing on strategic growth goals. Whether you use a 3PL or utilize your own TMS, a granular evaluation of the time and money spent coordinating logistics activity can uncover efficiency gaps and spawn new ideas for optimizing the supply chain.
The downward cycle in the oil markets presents many opportunities for oil companies to review and recalibrate current logistics practices. Developing effective cost management practices is essential to navigating and capitalizing on today’s challenging market conditions. A proactive approach with the right knowledge, technology, and capabilities can position an organization for success.