|Date Published||April 27, 2017|
|Company||Excalibur Performance Management Inc.|
|Article Author||Stephen Mackisoc|
|Article Type||April 2017 Issue|
|Category||Articles, Oilfield HUB|
|Tags||Consultants, Cost Efficiency, Cost-Cutting, E&P, Procurement Practices, S&S|
Over the years the requesting, researching, and acquisition of goods and services has been referred to in many different ways. We have gone from simple buying to strategic sourcing to supply chain to value chain. There will certainly be a new catchy description coming soon. What started out as a simple act carried out by a buyer under the direction of a purchaser, has evolved into a massive and sometimes convoluted process.
Ultimately though, the basic process has never really changed. Someone needs something, they direct someone else to research it, and then one or more people make the buying decision. Proper segregation of duties reduces the chance of fraud, multiple levels of scrutiny helps guarantee quality, and documentation and hierarchy provides fiscal oversight. With that being said, we do seem to have lost our way once again.
What started as a simple approval for expenditure (AFE), followed by a purchase of goods or materials and then delivery of said goods or materials, has become very complex. In many cases, the process has also become very inefficient and adversarial, neither of which provides certainty of quality, whether it is materials or services. As the oil and gas industry continues to recover, the procurement part of the equation MUST become more efficient and more scientific.
At the stage we currently sit within the typical boom and bust cycle, there are still cutbacks being made. Companies have been forced to do more with less. People are again overworked as they try to fill holes left by the departed. G&A is, after all, strictly overhead, and that is always a main area of focus for cuts.
Folks who, just a couple of years ago, were comfortably ensconced in downtown office towers guiding people and processes, are now taking shifts at site. They are being deployed to handle what used to be “lower level” duties in order to stretch the administrative dollars. Of course, what many are finding out is this whole process may indeed be a little simpler than we have made it. This flattening of an organizational structure within functional groups frequently shines the light of efficiency on processes like procurement, and that is exactly what is happening here.
We run into companies every day that do not have their procurement processes mapped. Of course, without an end to end understanding or mapping of the process, they cannot possibly have had an external evaluation or analysis. Everything has been done from an internal point of view. Too often, this internal point of view is colored by the lens of kingdom building, job protection, internal power and prestige, and many other personal factors.
Procurement today is a little bit off the rails and implementing solid process is a great way to improve efficiency and reduce cost. Processes that have been properly evaluated and optimized to deliver world class solutions will save you money and help improve your product. It can also be an excellent way to generate loyalty amongst your suppliers.
There have been many attempts made to “fix” the process and almost all involved massive spreadsheets and tracking forms. Now, don’t get me wrong, I love Excel twice as much as the next person. I quite enjoy creating large, interconnected workbooks loaded with macros and contingent cells, but I do so when it is used only by me. I do not create these behemoths to architect and guide business processes or direct people working in the field. I make them to generate an end view of complex data that helps to clearly articulate where we were, where we are, and where we need to go.
Even with all the segregation of duties, head office controls, and complex procedures involved in procuring goods and services, there are still problems. Inefficiencies increase cost, and there is still plenty of room for fraud or something close to it. A lack of understanding of specific supplier groups was to be addressed by subject matter experts, but that also increased cost. Most importantly, there is the lack of a single system to accurately measure the many areas of concern with your supplier base and fairly manage those relationships. It is a system that provides an objective and verifiable summary of your partners.
These systems need to enable the ranking and rating of suppliers within many functional areas, including quality, delivery, cost, and ease of working with them, to name just a few. These ratings must be easily understood by a third party looking to purchase the same good or service. The ratings must also be defensible, fact-based, and transparent, so you actually DO know you are getting the best product at the fairest price.
In many companies, even with the huge number of controls in place, there is a fundamental disconnect between what the leaders THINK their people are doing and what they are actually doing. There are many suppliers and providers of services who rely on influence peddling to secure their sales. Lunches, dinners, hockey games, trips, and many other inducements are used to curry favour with the buyer or specifier of that particular product or service. I am not suggesting it happens everywhere, but there are still massive amounts of cash being expensed in the category of sales and business development.
The simplest way to nullify these efforts and to ensure you are getting the best product or service at a fair price
The industry needs to look critically at the process itself and to do so with maximum objectivity.
is to CHANGE THE WAY YOU DO THINGS. We are very reluctant to “direct” anyone to do anything these days. We want everyone to feel and be empowered. We want them to make their own decisions. It may also be about diverting accountability, so if something does not work, there is always someone else to blame.
The industry needs to look critically at the process itself and to do so with maximum objectivity. This cannot be done from inside an organization. It needs to be a process audit conducted by an external entity. An entity that understands and has worked in those areas directly. People who have actually been IN
THE ARENA and not just watching from the sidelines. An external consultant can ask any question, any time to completely understand and map the existing process. Functional and cross-functional groups can then be brought into the evaluation to highlight the gaps and seek opportunities for improvement. This is where the benefit of experience across multiple industries and business units can really help introduce best practices, which will then reduce time and lower cost. Change can be challenging, but without constructive change, there will be no improvement.