Leveraging Procurement Software for a More Resilient Oil & Gas Supply Chain
Anyone who has filled up at the gas pump over the past few years can testify to the volatility of the oil and gas industry. And though the industry is no stranger to supply chain disruptions, the current landscape presents unique challenges.
Economic downturns, geopolitical tensions, and trade and policy changes all highlight the urgent need for supply chain transparency and resilience in the oil and gas industry, along with complex procurement processes that can be easily streamlined with predictive procurement orchestration (PPO).
In this blog, we’ll dive into the current pain points of the oil and gas industry, then discuss resolutions to address the most pressing problems. We’ll also share how the right sourcing or procurement software can help oil and gas companies increase supply chain efficiency and transparency while simplifying and streamlining procurement.
Key Challenges of the Oil and Gas Sector
The pain points of the oil and gas industry are seemingly endless: volatile market conditions, regulatory pressures, environmental concerns, digital transformation resistance, and opaque supply chains all make for ongoing challenges.
Let’s take a closer look at some of the top hurdles of the industry today.
Lack of Visibility into Supply Chains
The oil and gas industry’s supply chain is complex and multi-tiered, which leads to a significant lack of visibility. Processes, procurement, transportation, and storage all suffer from hidden inefficiencies and operational risks.
Recently, planned work delays, worker strikes, labor shortages, and a reliance on a small number of suppliers have further exacerbated the challenges of supply chain visibility. Oil and gas companies are also having a difficult time securing oil rigs, making supply chains more unpredictable than ever before.
Large Amounts of Data to Process
Oil and gas companies rely on data processes to optimize every aspect of the supply chain and business operations. For example, geological surveys are used to explore and analyze drilling operations in real time. Seismic data is used to guide decisions about where to drill, and production data is used to optimize output.
Because large amounts of data come from separate data sources, it’s extremely challenging for oil and gas companies to integrate data, manage the volume, and ensure security across all platforms.
Volatility in Consumer Demand
Consumer demand for oil and gas is notably volatile. Seasonal changes, economic growth, geopolitical events, and the shift towards renewable energy all affect the fluctuating demand. Most recently, the COVID-19 pandemic dramatically and unexpectedly decreased demand for gas and oil by an unprecedented 20%, which slashed six years of ongoing growth in the industry.
Volatility in Pricing
Russia’s invasion of Ukraine sent oil and gas prices soaring in mid-2022, jumping from $108 per barrel in April 2022 to $120 per barrel in June 2022. Since then, prices fell to $70 in June 2023. The change in production, demand, and pricing is a vicious cycle that is hard to slow down.
Labor uncertainties, inflation in the cost of raw materials, and a global recession are also at play in the roller coaster of gas and oil pricing. For example, the cost of materials like casings and tubing steel parts are rising at a rate of 5% annually, while catering costs for offshore operators have risen by 10% this year.
High Demand for Qualified Procurement Professionals
The demand for qualified procurement professionals in the oil and gas industry is high. The industry’s complex and global supply chain requires skilled individuals who can manage sourcing, contract negotiations, supplier relationships, and risk mitigation. The shift towards digitalization further increases the need for professionals who can leverage technology into procurement processes.
The Power of Predictive Insights: Advancing Procurement with Arkestro
Despite the many challenges facing the oil and gas industry, there’s hope for the future. Organizations can increase supply chain transparency, security, and resilience in two ways. First, by conducting a comprehensive risk assessment, and second, by leveraging predictive insights and predictive execution.
Build a Risk Assessment Plan
Building a risk assessment plan is critical to streamlining field operations, project delivery, labor costs, and more. In fact, a recent report by McKinsey revealed that organizations taking measures to secure their supply chain and avoid market volatility can cut costs by 15%.
McKinsey suggests a three-step plan for solid risk assessment:
- Evaluate existing pain points and risks at the supplier level.
- Assess the level of exposure to market inflation.
- Create levers to mitigate risk.
Oil and gas companies can also boost resilience by shifting from a cost-reducing mindset to a value-adding mindset, and by adopting more strategic, sustainable, and integrated processes.
Leverage Predictive Insights and Execution
Though a comprehensive risk assessment plan can go a long way to reduce the impact of supply chain volatility, it’s not enough to completely ensure long-term success. Oil and gas companies must also leverage predictive insights and execution.
Arkestro’s predictive procurement orchestration can help oil and gas companies:
- Reduce friction with suppliers.
- Speed up negotiations.
- Amplify procurement’s influence to achieve optimal outcomes.
PPO combines the power of machine learning, game theory, and behavioral science to improve procurement results and collaboration across teams. It’s a comprehensive solution that learns from buying decisions and speeds of processes, allowing oil and gas companies to tackle all categories of spend, faster and at scale.
Koch Engineered Solutions (KES), a subsidiary of KOCH Industries, recently adopted Arkestro to strengthen the company’s global supply chain, procurement operations, and supplier collaboration.
“With Arkestro, we were able to transform single source spot buys to multi-supplier, multi-round events in the same amount of time,” said Mike Novello, VP of global supply chain at KES. “The results yielded material value, including new suppliers that performed better not just on price but on other value indicators. We achieved significant positive results at scale, thanks to Arkestro.”
This success story is just one example among many. Ultimately, it represents the new era of supply chain and procurement transformation made possible with PPO.
Harnessing Data with Predictive Procurement Orchestration
Supply chain and price volatility is an inherent part of the oil and gas industry. But with PPO, companies can harness the power of their data to gain insights that drive real action.
If you’re ready to join the top enterprises leveraging Arkestro to confidently optimize procurement cycles, get in touch today. We’d love to share how PPO can help manage spend at scale — without increasing headcount.
Book an Arkestro demo to learn more.