Oil and gas supply chain

Why oil and gas companies should optimize their supply chain function

End-to-end supply chain visibility and resilience are increasingly critical for operational success.

In brief
  • Meeting short-term energy demand while planning for a more sustainable future requires operational resilience. 
  • Recent years have shown supply chains can be both the greatest value driver and resilience challenge for companies.
  • In today’s environment, oil and gas must re-examine and prioritize supply chain excellence.

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The time is ripe for oil and gas companies to create operational success via their supply chains. On the back of a record-breaking year in profits, the industry is reinvesting in new processes and technologies. Simultaneously, it is both transforming to meet regulator and stakeholder needs as well as preparing for economic uncertainty due to persistent inflation and the state of global capital markets.

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Though COVID-19, as well as recent global tax and trade decisions, identified supply chain as both a significant value driver and a challenge for companies, many still struggle to achieve the visibility needed to make timely and effective decisions.


“While supply chain management is not typically treated as a competitive advantage in the oil and gas sector, optimization of the function means increased efficiency, reduced costs, and improved overall business performance,” said Robbie Thompson, EY Americas Energy Supply Chain and Operations Leader. “The standard in supply chain excellence is changing, and the supply chain management function is a critical component of operational success.”


Oil and gas companies need to reassess their supply chain operating model and how their function fits into their organization-wide commitments and goals as well as agree on a new definition of return on investment. Successfully navigating the future will require leaders to:


1. Commit to collaboration

Historically, cost savings has been a top motivator for oil and gas supply chain executives. Today, however, it is no longer simply about savings but looking beyond cost reduction toward the end-to-end value chain and holistic impacts of their supply chain function to drive growth and promote operational value. With rising inflation costs, decarbonization efforts, and operational expectations, there is an urgency to redefine current models and gain support from executive leadership to create an environment of inclusion and empowerment toward change.

Oil and gas companies that align internally and collaborate effectively across the supply chain will have positive impacts in finding new ways to add value.

To make this work, oil and gas companies need to effectively collaborate across their supply chain and align strategic direction across the organization vs. ad hoc and siloed efforts. Supply chain management is not typically treated as a competitive advantage in the oil and gas sector and instead is seen as an administrative arm with little investment and resources to drive transformation. Currently, companies are struggling to deliver results because of their matrixed reporting, fundamental misalignment, and inappropriate levels of supply chain controls.

“Leaders who realize the value and consider the supply chain function as a strategic solution and critical component to operational success will jumpstart growth and see positive impacts to overall business performance,” said Joe Armstrong, EY US Oil & Gas Supply Chain and Operations Leader. “Oil and gas companies that align internally and collaborate effectively across the supply chain will have positive impacts in finding new ways to add value.”

2. Create resiliency

Traditional supply chains are not equipped to cope with massive and ongoing disruptions. A disciplined supply chain program is essential for business resilience, and leaders who have a broader view of their overall supply chain function and ecosystem will mitigate risk and drive significant value.

The standard in supply chain excellence is changing, and the supply chain management function is a critical component of operational success.

Supply chain capability should include end-to-end visibility via simulation and risk monitoring, ongoing identification of alternative sources of supply, a resilient operating model, and the workforce to power it. Companies further along on this journey can respond quickly to changing demands (i.e., supply assurance) and disruptive sources through deeper insights into their supply chain ecosystem.


By shaking up traditional strategies, not only will the function become more resilient, but there will also be a better overall view of supply chain risk and the identification of opportunities that provide innovation to drive long-term growth.

Following an excellent year for oil and gas balance sheets, now is the time for companies to invest in their internal capability to enable flexibility in any market. Building an agile supply chain operating model, enabled by digital, allows companies to cope with unplanned disruptions, prepare for risk and increase safety. Understanding risks and having contingency plans to address potential issues has an enormous impact on profitability, resource planning and meeting organizational goals.


3. Connect digital ecosystems

Connected supply chain technologies are critical in providing visibility across planning, procurement, materials management, manufacturing and logistics. By leveraging data and digital solutions in their supply chain management function, oil and gas companies can operate assets safely, improve production capacity, and increase reliability at a lower cost.


Data integration across workflows and maintenance systems enables automation and inventory visibility, simplification of tools for field personnel, and the ability to access key monitoring, maintenance, and reliability applications with readily available data and KPIs. Mobile digital workflows allow for efficient real-time execution in the field, and digital twins, augmented reality, and virtual reality tools deliver safer, faster troubleshooting and decrease downtime. “Supply chain leaders should aim to enable operations and maintenance teams and work with them to increase business value by creating solutions that help the business drive differentiation in the market,” said Swapnil Bhadauria EY Americas Oil & Gas Digital Operations Leader. “Predictive maintenance alone will have significant impact to how procurement and inventory management is currently done, which drives the need further for integration of digital operations within the supply chain.”


Leveraging artificial intelligence (AI) through data standardization improves demand forecast and predictability, operational benchmarking measurements, anomaly detection and real-time logistics route optimization capabilities. By enhancing the integrity of master data, real-time supply chain decisions can be made and value realized.

Predictive maintenance alone will have significant impact to how procurement and inventory management is currently done, which drives the need further for integration of digital operations within the supply chain.

Technology and data analytics are transforming supply chain management. Having access to advanced analytics drives sourcing strategy to optimize supplier portfolios, and adopting new technologies like cloud-based supplier collaboration tools increases visibility across the value chain. Both add direct value and increase profits. In addition to their own functions, supply chain executives should also analyze how to capture and monetize newfound digital capabilities and efficiencies within the tax and finance departments and pave the way for future organization-wide transformation opportunities.

4. Commit to sustainability

Investing in supply chain sustainability can significantly contribute to helping an organization achieve its ESG goals. According to an EY survey of over 525 supply chain executives, 80% of companies are emphasizing environmental, social and governance (ESG) and sustainability initiatives. Energy respondents are more likely than any other industry to say they make industry-leading sustainability criteria mandatory when selecting suppliers (71% vs. 61% total). They are also among the most likely industry group to say they are willing to sacrifice short-term profitability to meet long-term sustainability goals (74% vs. 64%). Motivated by the desire to reduce carbon emissions and meet publicly stated goals, oil and gas companies who put their supply chain function front and center to help activate their organization-wide sustainability commitments will thrive.

Supply chain sustainability
of energy executives make industry-leading sustainability criteria mandatory when selecting suppliers

With complex supply chain ecosystems, single-use philosophies are being replaced with digitally validated circular business models and deploying the right technology will enable supply chain executives to gain increased visibility and accurately measure their progress toward their climate goals. The increased focus on supply chain sustainability considerations will decrease material waste, improve efficiency, and reduce carbon footprint. Other benefits include lower inventory, working capital and operating costs, not to mention trailblazing these efforts will have the extra benefit of improving brand reputation and helping with talent attraction and retention efforts.

In a recent EY survey, nearly two-thirds of executives said they consider carbon emission data, both when purchasing or divesting assets or companies or making partner, vendor, or supplier decisions. With this in mind, few supply chain functions have the appropriate level of visibility, technology, or comprehensive programs in place to properly measure their progress. Because of this, sustainability is a major challenge for companies across the globe. It’s no longer a choice. Many countries are imposing regulations to attach taxes and fees to products produced with carbon-emitting processes. Further, many are in the process of requiring disclosures of sourcing information to align with their sustainability and labor requirements. Supply chain leaders need to work closely with their tax, finance, and legal departments to help mitigate risk and capitalize on potential tax credit opportunities. Leaders that realize tomorrow’s opportunities will take advantage of their digital investments and create a more responsive, sustainable and resilient function that results in competitive advantage.

5. Consider your workforce

Addressing industry talent shortages is an important step in the process. Many oil and gas professionals are taking early retirement, diversifying into renewables or alternative energies, or left the industry to other sectors during the last downturn. “When so many workers were forced out in 2020, valuable experience and wisdom was lost that enabled companies to safely and efficiently meet a variety of work challenges,” said Tim Haskell, EY US Oil & Gas Leader, People Advisory Services. “Talent attraction, recruiting, and retention is essential and requires organization-wide focus and commitment.” 

Ninety-two percent of surveyed oil and gas companies recognize that the ability to reskill their workforce quickly is crucial to extract value from their digital investments, but effective adoption requires organization-wide behavior, mindset, and skill shifts. With current resource shortages and industry perception challenges impacting recruiting new talent, supply chain leaders need to invest in retaining their current workforce and focusing on reskilling and upskilling for future success. It’s important to accurately assess employees and their current skills and development potential, and therefore, a sense of how many workers need to be reskilled or upskilled and what skills gaps may still exist. Taking a human-centered approach is critical to operational success.

6. Capitalize on created value

Evolving into a better connected, more resilient, digitally enabled, and sustainable supply chain ultimately improves customer satisfaction. Happy customers lead to increased sales and higher profitability. However, once supply chain teams achieve prescribed operational metrics and cost efficiencies, the analysis historically stops, and companies often fail to continue to capture and capitalize on the value created by their enhanced supply chain functions.

By collaborating with tax, new supply chain value drivers can be viewed as profit centers rather than cost centers. Companies can design operating models to better preserve profits via appropriate income tax planning and intercompany pricing policies and procedures and help reduce friction caused by delayed cash flow from transactional taxes (e.g., VAT). Conversely, designing an enhanced supply chain without peeking through the tax lens may actually cause harm. If designed incorrectly, new profits could actually increase income tax or transactional tax costs. How a company decides to allocate or charge costs for enhanced or specialized services (like data analytics, smart systems, resilience, and sustainability management) should be analyzed through a tax lens to help make smarter decisions.

Executives are concerned about financial and operational risk, profitability, and cash flow. Designing and analyzing an operating model that includes tax is imperative for the supply chain function to respond to all three of those concerns. Achieving metrics and efficiencies is only part of the success story; with the help of their tax and finance colleagues, companies can fully capture financial benefits too.


Compliance with regulatory requirements, pressure from investors and customers, competitive differentiation and potential for improved revenue growth are key drivers for operational success. Between collaborative decision-making, informed tax decisions and process improvements, oil and gas companies can set their supply chain function up for success. Technology will transform operating models and also act as a lever to advance sustainability efforts across the enterprise. To do this, oil and gas supply chain executives should have a plan around not just the technical side but also the skills side of work to fully unlock value and create the supply chain of the future.

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