Can digging deep with data analytics deliver savings?
Oil and gas procurement functions steward significant amounts of money each year, often overseeing purchasing for multiple business units and teams in diverse locations. Because of the complex scope and scale involved, many companies lack a macro view of their purchasing information, which is critical in understanding how to effectively manage and reduce costs to improve the organization’s bottom line.
This lack of detailed insight — often overlooked in the industry, especially when commodity prices are high — is an ongoing drag on efficiency and profitability. Digging deep into data analytics through strategic technology will identify new areas of opportunity for savings and efficiency. In today’s competitive market, companies need to drive increasingly higher levels of operational excellence to deliver both the agility and innovation they need for top-line growth, while implementing productivity improvements to achieve bottom-line goals.
With an eye toward those competitive benefits, one major oil and gas company engaged an EY team to assess its current procurement and materials management processes, data and strategies, and identify opportunities to qualify, adapt and digitize a smarter supply chain. Ultimately, together, the team leveraged a quantitative and qualitative analytics tool and accompanying supply chain dashboard that showed a macro view of how dollars are spent. As a result, the company’s expenditures can be appropriately categorized, segmented and analyzed in multiple ways, enabling both procurement and operations to understand spend per category; realize cost management opportunities utilizing multiple levers; identify improvements in both contracted and catalog spend; recognize where there are opportunities for competitive sourcing events; and much more.
Accelerating supply chain performance requires data accuracy and visibility
The supply chain function is a critical component of any large manufacturing or industrial company. That’s especially true in oil and gas, where operations may be spread out geographically with the need to rapidly deploy high-dollar services, materials and equipment — often specialty and high-spec in nature — to support well development and production activities, and also provide adequate materials to support ongoing maintenance and reliability for production.
To start this project with a strong foundation, the client and EY team first had to identify the appropriate data availability from multiple systems, extract the data based on EY extract templates — built from the team’s deep technical and industry knowledge — and validate the data completeness and understanding.
Then, using the EY Supply Chain Intelligence Platform and proprietary SmartMaps™ technology, the team ingested this high-volume information to include all third-party spend and all consumption transactions. Ultimately, SmartMaps™ analyzed nearly 17,000 unique line-item descriptions, around 600 unique suppliers, more than 400 different categories of spend, 20 different buying channels and over 12,000 material movements in a short time frame.
The EY team then created a baseline of both spend and materials management activity that highlighted opportunities to close master data gaps, improve cost efficiency and organizational performance in process execution, and identify automation through digitalization options.
As part of the project, multiple complex data files were consolidated into a master dashboard for analysis and modeling to include overall spend analysis, supplier insights, category and material segmentation, and transactional value analysis. This accompanying dashboard enabled the company’s authorized supply chain, operations and accounting employees to clarify the “big picture” of what opportunities are available and why they are so important to their business.
“This project demonstrated how managing supply chain spend appropriately — based on accurate data — can save significant dollars, reduce expensive downtime in the field and limit the amount of capital tied up in unused inventory,” said Robbie Thompson, Executive Director, Energy Supply & Operations. “We found substantial savings where they’d not historically looked — allowing for strategic deployment of capital elsewhere in the organization. It also showed how the company could improve lead times on key purchases and enhance spending and purchasing forecasts.”
Today’s supply chain must be driven by data
For this global energy company, SmartMaps™ enabled supply chain to shift from a tactical mindset to a more strategic, focused one. Specifically, the dashboard demonstrated significant savings opportunities that were not visible both at the micro and macro levels. At the micro level, opportunities included price variances among supply base for common materials, spend at above-market pricing, sourcing and negotiation strategies, and proper management of tail spend. This represented a 5% to 15% cost reduction opportunity. At the macro level, the dashboard identified categories of spend that are not normally managed due to resource constraints. Over US$15m of cost-saving opportunities were found through volume bundling, supplier rationalization and spend control, which represented overall a 3% to 12% reduction in costs per micro category. Further, in some cases, the identified cost savings were able to be redeployed and enable more strategic spend elsewhere in the business unit.
The future of supply chain will rely heavily on data integrity and how that information is mined and managed to increase supply chain agility and resiliency.
Ultimately, all cost management strategies instill the same quality and technical expectations required. Additionally, increased visibility means enhanced service, stronger accounting controls and governance, more efficient supplier relationship management, and more leverage to secure competitive rates. It also enables significant materials management benefits, to include identification of material for redeployment, appropriate minimum and maximum reordering levels, and surplus stock requirements due to extensive supplier lead times.
On an ongoing basis, this type of awareness and visibility gives the client the ability to leverage its substantial buying power and align to the appropriate supply base to secure leading-class pricing, services and capabilities. It also means companies can easily examine their existing supplier contracts and prices paid at invoice verification to identify pricing gaps.
“The future of supply chain will rely heavily on data integrity and how that information is mined and managed to increase supply chain agility and resiliency,” said Joe Armstrong, EY US Oil and Gas Supply Chain and Operations Leader. “There are many challenges to fully optimize supply chains, but it starts with one of the most important elements, which is supply chain and business intelligence that allows companies to analyze their data and make informed, real-time decisions to improve demand management, cost management, inventory sizing and levels, warehouse management, logistics and so much more.”
EY Supply Chain SmartMaps™ can reinvent supply chains in the digital age and elevate operational performance by providing end-to-end insights for supply chain that prioritize improvements for impact and return on investment. Together with the EY team, the client transformed their supply chain into a valuable, digitized function that can consistently deliver value and enhance competitiveness. As a result, quick wins were realized right away and a roadmap for other cost reductions initiatives was identified. What could a smarter supply chain deliver to your organization?
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