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Oil and Gas Supply Chain Procurement Innovation at Scale with Arkestro

June 25, 2024

For the oil and gas industry, the last few years have been anything but easy. Although the market has largely rebounded from the COVID crisis and all that went along with it, the industry remains in flux with a decrease in demand due to a number of factors such as expanding electric vehicle (EV) fleets and vehicle efficiencies. 

Oil and gas businesses face particular challenges when it comes to procurement, specifically for procurement at scale. With millions of line item buys happening at any given time, buyers are presently unable to keep up with the scale of operations and impact outcomes.  Automating buy processes including negotiations with predictive procurement has the potential to yield massive impact in savings, efficiency, and scale.

At such a critical moment, oil and gas leaders have an opportunity to create a procurement function of the future by adopting technology that can address their concerns head-on and seamlessly integrate into their existing work streams. In this article, we’ll break down some key terms in the industry, dive into common procurement pain points, and examine how Predictive Procurement Orchestration (PPO) has the potential to radically transform the sector.

Understanding the Oil and Gas Business Language

As a complex business with multiple, intersecting supply chain points, oil and gas procurement touches many different aspects of product extraction, process, transfer, and retail sales. Within these touch points are many other varied points. With so many facets to take into account when it comes to the procurement function at these companies, it can be helpful to define a few key terms to get a full picture of the scale of the challenge oil and gas procurement teams face.

Here are five key terms in the oil and gas industry to know.

Upstream

As the name suggests, upstream in the oil and gas industry refers to all the steps involved in the exploration and ultimately extraction of the resource. Whether mining for oil or gas, drilling offshore or on, internationally or locally, this aspect of procurement subsequently deals with the equipment, services,  and infrastructure involved in these activities.

Midstream

The midstream of oil and gas refers to the activities that occur between the extraction of the resource and refining it. This typically involves transporting the raw resource (via pipeline, railway, or truck) to refineries. For procurement, transportation, storage, and delivery are key pieces of the supply chain puzzle.

gas pump

Downstream

Lastly, downstream involves the activities consumers would likely be more familiar with. These operations include converting the raw materials into finished goods that can then be taken to market. For example, refining crude oil into gasoline, condensing natural gas into liquids, and more.

Train

For gas specifically, a train refers to the steps to process, purify, and convert natural gas into liquefied natural gas. The name derives from the sequential order of the equipment used in the liquefaction process, much like cars on a train line. This crucial process also introduces a key step for procurement, both with sourcing the equipment as well as the added step in the supply chain of transferring the raw gas to the train and then shipping the liquid gas away from it.

Assets

Much like the term is widely understood, assets in the oil and gas industry refer to any identifiable resources that hold intrinsic financial value for stakeholders. Examples of these include oil pipelines, refineries, pumping stations, offshore stations, etc. Procurement touches each of these various assets and is crucial to building and maintaining them.

What do each of these terms have to do with procurement and how it functions for oil and gas businesses? Let’s dive into common pain points procurement teams experience across all steps of the process.

When Scale is the Issue

With so many steps in between oil and gas extraction and the final sale, procurement teams have their work cut out for them to mitigate risk, drive efficiencies, and gain insights into where their money is going. Common disruptors such as shifting policies and regulations, geopolitical tensions, and macroeconomic variables like interest rates or material costs all affect procurement outcomes.

oil pumps

This leads us to one of the biggest pain points oil and gas procurement teams face — doing their work at scale. As one of the largest sectors in the world, procurement teams have the added challenge of doing everything on a larger scale than their non-industry counterparts. 

For example, one Arkestro customer in the oil and gas space does over a million line item buys. At that point, the problem has expanded beyond hiring capacity. It’s a problem of scale — no one is managing things the total spend because it isn’t feasible with their time and resources. The majority of line items are never negotiated, and teams rely on catalog buys to expedite processing at the expense of price negotiation.

Over time this can translate into millions, if not billions, of lost savings, paying over the market price, and, ultimately, losing the art of negotiation at the heart of procurement.

This is where Arkestro came in. After just a week of training and another of implementation (no complex integrations required) for a customer, Arkestro’s game-theory powered platform conducts negotiations on every line item, saving as much as 16-30% on a line item. Across a million line items, you can imagine the potential. When scale is the problem, Arkestro’s PPO unique technology will make the difference.

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Arkestro is the Procurement Force Multiplier at Scale

Ultimately, what procurement teams in the oil and gas industry need is a catalyst that can take their operations to the next level and is seamless and scalable enough to deliver results across many different areas of the business. Arkestro’s Predictive Procurement Orchestration makes this dream into a reality.

oil pump and man

By simplifying the process of onerous tasks such as negotiations or processing data, procurement teams and CPOs have more time for strategic work and decision-making. By optimizing spend and reducing friction with suppliers, the business experiences savings and better outcomes. And lastly, through automation, manual tasks become obsolete, efficiency increases, and the entire process speeds up and scales as the business does.

If you’re looking to amplify procurement’s influence, achieve optimal outcomes, and explore how PPO can make a difference in your organization, contact a representative today.