Spare parts are the Achilles heel of the global energy market and specifically the Oil & Gas industry. Operators are forced to maintain extensive inventories of a large variety of parts and components to try and minimize production losses resulting from equipment breakdowns. Despite investing hundreds of millions of dollars in slow-moving inventory, companies still suffer billions of dollars of lost production value each year.
Despite efforts to optimize the conventional supply chains, the real impact remains negligible compared to the underlying issues. The problems and inefficiencies in the logistics of parts for the Oil & Gas companies are only increasing as the lifespan of the Oil and Gas capital assets is being extended with decreasing new investments in the sector. An inefficient supply chain management process in the oil and gas industry means lower productivity, higher costs, and diminishing return on investment (ROI).
So what are the current challenges plaguing this industry’s supply chain management (SCM)?
Supply chain challenges include:
– Complex operations with multiple stakeholders
– Fragmented supply chains that invite disconnects
– Delays and unclear accountability
– Frequent plan changes that impact materials demand and service requirements
– Data management, including end-to-end supply chain visibility and management materials monitoring
– High costs of sourcing & purchasing.
But out of these issues, oil and gas executives put logistical coordination for large projects as well as visibility of materials as their top concerns. So let’s break down why these form the main concerns for this industry.
- Cost inefficiency
One common issue faced by the oil and gas industry is the economic factor of an ineffective supply chain. As such, this industry requires a consistent significant shipment of various assets. Another aspect that consumes substantial resources is the maintenance and repair of equipment. As a result, O&G companies have to maintain a sustainably large amount of spare parts. These complexities can quickly drive up costs and eat into profit margins if not well managed.
Additionally, the industry fell into the practice of keeping an excess stock of all these various items to ensure continuous operations. This also has not been cost-efficient as it brings up warehousing costs with little to no return on that increased cost.
- Time inefficiency
In the oil and gas industry, companies must meet the fierce competition in the conventional and unconventional energy market by contending to support ongoing production. According to Jonathan Shortis, Vice President, EMEA—DHL Energy Sector, “The job is to keep existing operations running, maximize asset utilization and production while also developing the new expansion areas.”
Two variables may impact this essential need:
– The first being long lead times caused by shipping spare parts across borders, potentially delaying or impacting operations if not planned for well and in advance
– The second being the difficulty and time needed to find rare or outdated spare parts for machinery that is still giving a return on your investment.
What is being done now?
To target some of these supply chain problems, some energy companies have decided to stock up on supplies and position them close to remote sites, so materials are there when needed. If an item isn’t immediately available, air charter services are used, which can become costly. However, this method is not sustainable and will drive down profits fairly quickly as costs begin to grow to avoid an operations halt, as explained in the challenges above.
Energy companies, therefore, are placing growing emphasis on finding and eliminating waste in their supply chains. Leading firms understand that just-in-time material coordination and delivery as well as warehousing and inventory must be operated with a renewed level of sophistication to keep up with the market’s growth and demands.
Introducing Digital Solutions
Over time digital technologies have had a significant impact on the development of energy systems, as they became more efficient, intelligent, and reliable. In 2014, the growth in digitalization in the energy sector reached 20%, reaching 47 billion dollars in 2016. This rise in analytics and data has enhanced the speed and reliability of the used machines, infrastructure, and appliances in the oil and gas industry. Oil and gas companies have utilized their advanced technologies in warehousing and stocking, thus enhancing the exploration, production, transportation, and decision-making facilities.
One of these developments included the Manufacturing on Demand (MOD), where products are produced just as requested and upon request, thus increasing production flexibility and lowering costs on housing inventory.
Advantages of Manufacturing On Demand
A crucial reason why more companies are turning to on-demand manufacturing is eliminating the effort and expense of storing and managing inventory. Moreover, for the oil and gas industry, here are some ways on-demand manufacturing disrupts the supply chain.
With traditional manufacturing, companies have had to predicate the need for spare parts to ensure continuity of operations. That has led to overproduction, particularly for remote locations where a missing part may easily delay operations, a risk too costly to take. Because Manufacturing On-Demand allows companies to produce only what is required and in real-time, it eliminates excessive production. In other words, companies implementing cloud manufacturing can achieve a shorter and more efficient supply chain.
Moving toward localized production
The COVID-19 pandemic compelled many businesses to rethink their supply chain operations. The regionalization of production facilities, made possible due to the advantages of on-demand manufacturing, offers an ideal solution to minimize supply chain disruptions similar to the global health pandemic.
Local production generally yields faster turnaround times since businesses can manufacture items closer to the end consumer, reducing the time from production to delivery and allowing the business to save on shipping costs. This further reduces supply chain risks because it tightens the connection between demand and supply because of the agility of a solution like on-demand manufacturing.
With on-demand manufacturing, businesses can outsource their supply chain solutions. That allows them to focus less on logistics and more on their operations.
Reduced Supply Chain Overhead
The uncertainty of the last year had a negative impact on supply chains around the world. But on-demand manufacturing provides businesses with access to a reliable network of suppliers so they can move production as needed to different parts of the world.
Improved Cash Flow
Removing the need to spend money on housing inventory frees up cash reserves for other vital initiatives. On-demand manufacturing also allows for more consistent margins because it’s easier for a business to forecast profits accurately. There’s a smaller risk of a business ending up with a lot of unwanted inventory, forcing it to either mark down the costs or absorb the loss.
The possibilities are endless. With all the available potential, the new technologies developed in the field, the vast newly discovered lands, and the future potential discoveries, the oil and gas industry will further flourish in the energy sector.
The global supply chain is rapidly evolving, and between the pandemic and the current strains on the logistics sector, multinational companies and global companies are implementing digital supply chains. DIS platforms integrate with the ever-improving Additive Manufacturing (AM) capability around the globe to better ensure that the necessary parts are available in a timely manner to reduce downtime. By utilizing digital inventory platform’s clients are able to select from hundreds of thousands of parts, have them produced at the nearest AM operator and delivered to the point of need quickly and efficiently.
In addition to reducing production losses, DIS vastly decreases operators and OEM costs associated with maintaining and managing a complicated and inefficient supply chain. Its solution delivers a massive ROI in terms of hard cash and an improved environmental footprint.
Immensa is a solution provider that leverages advanced technologies such as additive manufacturing (AM) to take physical spare parts and dematerialize them into the digital, on-demand world.
We care about transforming the world’s spare parts supply chain through a sustainable, efficient, and financially viable transitioning to digital warehousing while economically leveraging AM technologies. Check our website for more information.