How Oil and Gas industry use inventory management? How automation helps them?

Oil and gas companies run in vibrant and complex multi-functioned environments, where they face endless challenges especially in terms of supply and demand. Now with the oil prices at historic lows, the time has come to gauge the supply chain and procurement techniques and costs.

Oil and gas companies need to focus not only on their product supply chains, but also on the non-hydrocarbon supply chains that handle the parts, materials and services required to run the business. The non-hydrocarbon supply chain is very critical to deliver the equipment and services required to find, extract, refine and finally market the oil and gas. Procurement and supply chain strategies are set to be in the front of critical issues dogging oil and gas companies especially with the current downward twisting of oil prices.

According to Harvard Business School Review, purchased products and services account for more than 50 per cent of the average oil and gas company’s total costs. Thus, even a 5 per cent reduction in purchase costs can result in a significant increase in the profit margin for oil and gas companies.

Even though the arrival of technology has helped oil and gas companies to find and extract more oil, there is a need to seriously consider supply chain and procurement systems which provide additional real value. Pointless to say, modern enterprise resource planning (ERP) systems are really helpful to address the above mentioned concerns. These ERP systems should provide for inventory management; demand forecasting, contractor management, master data management and e-procurement. Demand forecasting/planning coupled with inventory management and e-procurement form the crux of the oil and gas supply chain strategy. Oil and gas focused ERP systems have completely transformed the way enterprise resource planning is being carried out in different industries. There has been a paradigm shift in the way oil and gas companies have embraced e-procurement or shown interest in e-procurement systems.

Effective management, tracking and maintenance of tools, MRO, indirect materials and equipment are key productivity drivers for most oil and gas companies. These companies also employ a high percentage of contractors, and must accurately account for all materials and asset usage by direct employees, as well as contractors.

Automation of Inventory Management in the Oil and Gas Industry

Inventory management solutions provide the most efficient technologies and methods for tracking indirect materials to reduce tool loss, downtime and costs associated with manual methods, ultimately reinforcing a culture of productivity and accountability among all workers.

Mobile storage containers with scales, RFID, barcode technology and wireless connectivity can be moved from job to job, providing tool availability and worker accountability to even the most remote of areas. Easy optimization of order quantities and reduction of on-hand carrying costs. Serialized tool tracking and location, using RFID technology to reduce downtime spent searching for missing/lost tools or supplies. Timely servicing and inspection of safety equipment, according to industry standards, providing risk mitigation and safety compliance automation. Detailed contractor inventory and asset usage tracking with digital signatures for greater accountability across all trades and locations. Accurate tracking of inventory records with up to 6 cost centers to improve procurement processes and reduce waste.

How to improve inventory management

For years, companies that manage truck and marine fuelling have searched for new ways to improve overall profits. Some of these methods include using strategic sourcing to decrease equipment expenses, renegotiating contracts with service companies, and improving maintenance measures to abate costs and turnaround times. Many companies have enhanced these areas with procurement and lean operations, but have not paid as much attention to optimizing inventory management.

The following are five guidelines that can help:

Implement a comprehensive value chain method

Evaluate your value chain, and your supplier. This can be achieved by assessing all costs along the value chain as opposed to focusing solely on purchasing, transporting and fuel warehousing.

Ensure correct tracking and visibility

Exhaustive value chain management requires consistent and up-to-date data on the location and status of all available resources across all projects and production sites. Proper tracking and visibility requires adequate information technology, capable equipment and systems for picking and tagging. Employees must take advantage of these systems to sufficiently allocate materials, thereby ensuring that excess fuel from one project can be used elsewhere.

Establish a performance management scheme

What gets measured gets managed in fuel delivery. Establish the appropriate key performance indicators for overarching goals and keep an eye on the “big picture.”

Develop a strategy during the early design stages

Inventory management teams must be deeply involved in project planning and implementation during the early stages. Best practices require developing a strategy that includes planning the supply chain, establishing communication needs for all parties, and designing a policy for managing handover requirements. This type of strategy will help reduce excess contingency, speed up project delivery, and enhance quality and safety.

Reduce complication in what you buy

Codifying and standardizing assets can significantly decrease the complexity of inventory management. Commonality among assets is a qualification for cross-site utilization, which is crucial for best-practice management and optimization of the value chain. Streamlining purchases is also a great way to reduce costs.

By using Inventory Management tool, materials activity records are easy to access, search and analyze, and can create new insights into current business processes, enabling procurement to spend less on lost tool replacement, as well as providing access to detailed information needed to improve replenishment strategies. Inventory management users consistently experience greater efficiencies through the software, vending, RFID and tool control solutions combined with professional services.