Discuss about The Current Risks And Issues In Supply Chain Management In The Oil And Gas Industry.
Background of the study
Supply chain management (SCM) is defined as the coordination, configuration and the continuous improvement in the systematically organized set of operations. The main goal of the SCM is seen in providing of the maximum customer satisfaction at the minimum cost. A customer is known as anyone who is directly associated to use the net output of the process (Ambituuni et al. 2014). Thus, the customers are the most integral part of the supply chain management of the company. Moreover, in the supply chain process the companies link to the suppliers the different types of suppliers upstream components and the downstream distributors in order to the customers in a most efficient manner (Aggarwal et al. 2012).
In general it has been observed that capital, materials, information, technology, financial assets and various other resources usually flows through the supply chain process of the company. Maintaining a low cost for the supply chain operations is of paramount importance. In the present situation there has been several opportunities observed for coordinating the different types of the activities with the supply chain management of the oil industries (Bargorett and Williams 2014). With the availability of the innovations in the operations of the oil and complex supply chain operations of the oil and gas has becoming relatively easy to manage. This is mainly due to the improvements made in the communication technology and developments in the sector of information systems. The integration of the operation management components with the different types of the functions of the operations allows all the different functions to contribute to the decision of the supply chain management (Carlson 2014).
The report also focuses on the various types of the contingency approach of managing the supply chain risks, which are helpful in tackling of the unplanned events such as fire breakout, hurricanes. The report shows the different types of the qualitative studies, which are helpful in addressing supply chain risk aversion process by the implementation of different types of the contingency risk aversion process (Wei et al. 2015). The contingency planning has been shown based on the different types of the methods used for the purpose of the contingency planning which clearly show the usage of the various types of the software such as the contingency planning. The various types of the software tools used for the contingency approach shows the scenario analysis of the supply chain issues and the rapid response team seeks to forecast the various types of the risk in the supply chain of the oils (Brunila et al. 2014).
According to Chu et al. (2012), the oil industry can be used to separate the different types of fractions, which are useful among themselves. This process is mainly applicable to the oil industries. The different types of the operations process performed by the oil industries are known as the refining process. The refining industries aim to achieve a wide range of the oil products from the different sources. The oil products ranging from light gases such as butane and propane and also different types fit he heavier varieties of the fuel such as asphalt, fuel oils, liquefied petroleum gas (LPG), lubricating gas, diesel among many other types of fuel (Urciuoli et al.2014). Some of the intermediate products in the oil industry like the heavy residues, naphtha and oils generated from the vacuum gas are obtained in a step procedure but it does not have the characteristics of the appropriate quality (Nnadi et al. 2014). Hence, the treatment must be done to obtain the desired finished products.
The “supply chain link in the oil and gas industry” is shown below as follows:
Exploration activities → Production of oil → refining activities → Marketing activities → Consumer activities
According to Jamshidi et al. (2013), the links related to the representation of the “supply chain” in the oil and gas industry. The relation further shows the association of the companies and materials, which are known to flow through the supply chain channel. The oil companies have been observed, the need for the phalanx of the vendors in order to keep the systems continuously resupplied (Wagner et al. 2014).
The several types of the components identified for the supply of the various types for the materials is observed in tubular goods are among the essential goods which are supplied in the oil and the gas industry on regular basis (Obaze et al. 2016).
As discussed by Santos et al. (2013), the present problems related to growing concerns for the “supply chain management” of the oil and gas industry is related to the scarce availability of the resources. However, in practical application the resources are not one of the root causes of the supply constraints, provided the potential still available in terms of the new discoveries through the exploration activities, implementation of new technologies and scope of the availability of the vast oil and shale reserves that are available at the present pricing structure. As per the majority of the industry research, it has been observed that there are sufficient resources available to sustain the present production levels for at least next 50 years (Ambituuni et al. 2015). Therefore, the main challenge is not related to the availability of oil and the gas but the integration of the reserves for the production purposes and the delivery of the final products to the consumers at a lower cost. Hence, a solid program of SCM is essential to enhance the goal (Burgherr and Hirschberg 2014).
As stated by Eckle and Burgherr (2013), the different types of the problems identified in the report are related to the identification of the various types of the upstream risk, midstream and the downstream risk involved in the supply of the oils and gases. The problems are relevant to the industries such as British petroleum and Shell (Connelly et al.2013).
According to Obeng-Odoom (2015), the various types of the problems are based on the real time scenario analysis of the several other oil industries which are known for the risk management process of the different types of the oil and natural gas. The problems are also identified based on the various types of the unforeseen event and natural calamities which are known to solve the various types of the risk, involved in the “supply chain” process. The different types of the problems are further observed in the processing of the different type of the policies needed for the purpose of the mitigating the several issues related to the supply chain problem of the oil an d gas related transportation operations (Giwa-Osagie and Ehigiato 2015). The problems are also identified based on the study on the information obtained on the different modes of the transportation such as the use of the transportation facilities such as the water transportation, land transportation facilities and lastly pipeline transpiration facilities.
According to Andersson et al. (2016), it has been also observed that very few industries are able to implement the appropriate supply chain strategy to increase the efficiency. Limited number industries are able to arrange the immense array of supplies which are required to be moved frequently in large quantities from the domestic and the international sources both onshore and offshore (Garg et al. 2013). The various types of the industries models implemented in the supply chain operations are related to ensure that the companies are able to respond quickly to the different aspects of the supply chain process in terms of tracking the exact requirement of the materials and identifying the need of the customers. Particularly with respect to the oil and the gas companies the profit margin can be greatly improved if the companies are able to manage their purchasing orders throughout the “supply chain” market (Ambituuni et al. 2014).
The report also identifies the present problems in the linking of the tubular goods through which the oil field and the various types items such as tubing, pipes and casing can be ordered successfully at a minimized cost.
The aim of the research is to show the present risks and issues prevalent in the “supply chain management” of the “oil and gas industry”.
Some of the objectives of the research are stated below as follows:
The main objective of the research study is to find out the present problems in the “supply chain management for the oil and the gas industry”.
The scope of the knowledge of the supply chain risks is based on the various types of the analysis of the downstream, mid stream and the upstream risk, analysis and the objective is to suggesting a way for the improvement of the different risk identified in the research study.
The study also aims to show the contingency planning for the mitigating the various types for the risks relate to the supply management.
The objective for the research is to also analyses the risk, on the basis of the risks involved in the different mode of transportation.
The researches depicts the risks in the supply chain management by focusing on the different types of the present risk in the supply chain industry and give an insight into the problems of the supply chain management of the company with respect to the oil and the gas industries.
The research questions are based on the following questions:
1) What are the present problems in the “supply chain management” for the oil and the gas industry, with respect to the downstream, mid stream and the upstream risk?
2) How well are the oil and the gas industries adapted to handle the risks based on the contingency planning?
3) What are the different scope of improvement in the oil and the gas industry?
4) Which types of risk identified is most critical in nature? (Such as the risk in, midstream and the upstream risk) or the risk associated with relevance to the modes of the transportations.
Methodology Introduction
The methodology of the study has been conducted based on the various types of the tools required for gathering information, the data is related to the innovation in the refining, and the petroleum industry and the various type of the improvement made in supply chain management of the company. The primary research study is based on the implementation of the qualitative research study analysis shows the different types of the methods used, which are exploratory in nature. The research approach is based on a thematic analytical approach. Some of the important discussions considered while addressing the various types of the problems includes the Critical Uncertainties to the future of Oil, Strategies to Revolutionize downstream “supply chain in the oil and gas industry”. The research also discusses on the issues related to the pipeline transportation of the oil and gas.
The exploratory research is often conducted for exploring the different types of the existing opportunities and learning about the scope of the improvement in the present as well as future opportunities for the purpose of improvement of the different types of the problems in the “supply chain” division of the oil industries. The research study shows the use of both inductive and deductive approach. In case of the inductive approach, only specific details related to the present supply chain problems are chosen. The aim of the research further includes the development of a conceptual framework in order to form a body of the ideas related to the subject of the study and knowing about the answer
The data sources are based on the inclusion of both primary sources, technical reports and the secondary sources.
Primary Sources: The primary sources includes books, articles, congresses, research papers, dissertations papers, monographs ad seminars. The different types of the sources are documented and recorded to corroborate the immediate knowledge in the investigation process. The sources of the documents are shown in the dissertations, journals, books and the technical reports.
Secondary Sources: The secondary resources are based on the publishing of abstracts and the reference lists in specific area. The secondary sources are further based on the verification of the factors, which may affect the accuracy, or the validity of the sources. This category often comprises of the almanacs, indexes, encyclopedias, manuals, bibliographies and yearbooks.
Technical reports: This type of the analysis is based on the reporting of the proceedings from the conferences and meetings. The collection of this type of information has proved to be helpful for evaluating the present information usually deals with the present issues affecting particular community and group of interest.
The initial step is collected from the different sources such as newspaper, library and various types of the online databases. A careful review of the practical studies and the theoretical aspects of the study have been conducted based on the present problems in the supply chain operations. This process of the review should be based on the field of the knowledge, which are newly introduced and unexplored in nature. The different studies conducted in the research are based from the past studies and the research work previously conducted. The conduction of the comprehensive review of the literature shows how the location of the refineries directly affects the efficiency of the supply chain. The different types of the data collection techniques show the Downstream, upstream and the mid stream risks involved in the supply chain process.
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Stages |
Description |
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Identification of the several issues in the present supply chain management in the oil and gas industry |
1) The primary source of data has been collected through interview and focus group and observation method. 2) The secondary data is applied from the journal and the newspaper articles stating risks involved in the “supply chain” in the oil and gas transportation. Focusing on the upstream risk, downstream and the mid-stream risks. |
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Sources of secondary data |
1) Internal Sources Annual Report of companies like BP, Shell, Petro China, Exxon Mobil and China National Petroleum Corporation 2)External Sources Financial Magazines, Journals, Articles, Newspaper, Websites, |
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Methods used for collecting primary data |
Interviews, focus groups and observation |
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Research approach |
Inductive Approach |
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Data storage |
Using Relational database module SQL server 2014 |
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Data Analysis |
Data analysis will been done by using MS Excel |
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Resources Evaluation |
Manpower, Financial resource and Time |
The data related to the application of the oil and gas industry is largely available however due to the increase in the reliability aspect of the data by peer revilement are based on the scholarly literature used for the purpose of devising this research paper. The different types of the materials used in the research study has been properly referenced and cited for the purpose for the maximum reliability. The secondary analysis of the research process has been done based on the analysis of the abstract and the literature review of the different types of the data
There has been sufficient amount of ethical aspects maintained while carrying out the research. Some of the important reason for the significance in the validity, objectivity and reliability has been shown with the help of different types of data collection methods. The research martial used for the purpose of the study has been only used in this research. The valuable information regarding the transport operators have not been disclosed after using them in the research study.
The different types of the limitations in the research have been found while carrying the research objectives in various stages. The time constraint in performing g the different types of the research analysis has been observed as the main limitation in the research problem. The secondary analysis conducted in the research may not be able to fulfill the requirements of the main constraints of the research.
Risk involved in the upstream sector
The main findings of the upstream risk analysis state the process of the searching of the recovery process of the crude oil and the different types of the production issues. The upstream sector is the area where the availability of the crude oil takes place. The various types of the processing is based on the both extensive and the intensive analysis used by the geo physics analysts. The main problem is identified in locating the exact location of the identification of the crude oil (Asteriou and Bashmakova 2013).
A discussed by (Zhang et al. 2013), this is due to the difficulties involved in the exploration activities and the various types of the complexities of the implementation of the information technology, which is useful for the purpose of the mitigation of the supply chain risk. Due to the increasing complexity of the different integration of the technological components the supply chain is known to face various issues. Some of the limitations in the supply chain of the oil is also observed due to the lack of the availability of the prospective underwater oil and the gas fields. The drilling activity of the various types of the exploratory wells is also complex in nature, which adds to the problems in the problem redressed of the various upstream risks (Bridge and Le Billon 2013).
The main types of the upstream challenges in the supply chain are as follows:
1) Management and information: The existence of the geopolitical pressure has led to cause several troubles in the upstream industry of the business. It has been also observed that at present there is a lack of effective skills to adapt the troubles and growing insecurity in the supply chain industry. Hence, it is of paramount importance to identify the present problems and make a radical change in the global sphere (Kazemi and Szmerekovsky 2016).
In order to address the various types of the issues related to the management and information it is important to assess the existing interdependencies between the senior management and increase the operational effectiveness and the overall decision-making process. The critical elements of the supply chain risk are seen in the management involvement of the information system and the advanced implementation to include the crucial elements of information system and MIS (Borenstein and Kellogg 2014).
2) Sources of Crude Oil: As discussed by Huang and Gan (2013), the sources of the oil and gas has supplied are often taken from a non-renewable natural source. In the recent times, the main problem in the oil supplies has been identified in the excessive use of the oil and gas. This problem is prominent in the countries like China, Brazil and India. Hence, it is a challenge for the oil companies to restrict the usage of the crude oil (Olive 2016). The solution to deal with the problem is associated with the discovery and the analysis of the alternative sources of the energy. The supply chain challenge is seen in the sourcing of the alternative sources to supply the oil and employment of the state of art technologies in the supply chain business for the purpose of efficient distribution of the resources (Li et al.2013).
3) Operational inefficiencies in the supply chain: As stated by Goerlandt and Montewka (2015), the main issue is seen in the integration for the of the digital logic in the supply chain business which is responsible for providing the natural hedge, balanced funding and market accessibility. The primary risk in the operational supply chain challenge is seen in the integration of the oil and gas with the both upstream and downstream integration which will be able to reduce the volatility an in the risk involved in the distribution of the oil supplies (Siddiqui and Verma 2013).
4) Fluctuating demand and supply: The main analysis of the problem in the supply is seen in the varying demand and supply. It has been observed that the demand for the crude oil is seen to be higher than the supply. The ongoing tensions in the middle east and the economic uncertainties were seen in the 13th International oil summit to eliminate the several downstream related risk in the supply chain (Kerschner et al. 2013).
According to Goerlandt and Montewka (2015), the problem of the fluctuating demand was further observed to be enormously high due to the increasing population and the economic growth. The global energy demand folr the crude oil was observed to double in the first half of the century. International Energy Agency (IEA) further stated that the demand for the global fuel is forecasted to rise by 26% in the next 25 years, this is observed to be more than 110 million barrels every day (Vinnem 2014). This particular emerging problem in the supply chain risk is observed to be highest in the Asian countries. In order to keep the pace with the supply chain demands China needs to triple the fleet of vehicle to 600 million in the next 20 years of time. It has been identified that the global oil supply will be facing lot of problems in keeping pace with the increasing demand by 80% in the year 2035 (Kang et al. 2015).
According to Jamshidi et al.(2013), the availability of the data management services and for the various types of the possibilities in solving the various type of the challenges is seen to be problem solving in nature. The various types of the pre requisite data has been further analyzed, archived, digitalized appropriately. This is dependent on the XML technology, which deals with the unstructured format of the data. The various types of the data is further analyzed on the basis of the structure data analysis techniques. The differ type of the data analysis techniques for the improving the supply chain risk is further seen the management of the unstructured data. Structure data analysis is vital or the reporting of the various types of the importance related to the supply chain models (Gonzalez et al. 2014).
5) Environmental Pollution: According to Mitchell and Mitchell (2014), the main issue in the supply chain problem is related to the environmental problem observed in the upstream oil and gas sector. This is due to the dependence of the oils supplies on the basis of the pipeline transportation and in several situations it has been observed that the due to the corroded pipelines the resulting oil spill has degrading effect in the environment. For example: Shell has encountered several types of the supply chain problems in the Niger Delta. In many pipelines it has been observed it has been observed that the pipeline is already corroded. However, the several oil companies have denied the responsibility of causing the environmental pollution by the oil spillage (YANG et al. 2013). In the Niger Delta residents have strongly protested against the pollution caused by the oils spillage due to the pipeline transposition of the oil (Kang et al. 2015). In the year, 2013 it was further observed that the Dutch court has rejected five allegations of Shell for causing the pollution, instead a subsidiary firm was asked to pay the compensation to the local farmers of the Niger delta. Hence, the main problems is not only identified in the supply chain of the Niger region but also the denial of the several companies in denying the charges for causing the pollution in the Niger Delta. Several types of the storyboards also reported that the simulation of the industrial accidents and the condensate. This showed that the sensitive information available for the knowledge base was used for the purpose of the Narrative Knowledge Representation Language (Gogoi et al. 2016).
6) Fluctuating prices of the crude oil: As stated by Sun et al. (2014), the various types of the supply chain risk are also observed due to the fluctuating barrel price that has been observed mainly in the year 2008. The different types of the fluctuations in the oil price s has been also observed due to the political issues and the squeezing of the talents as an outcome of the early requirements and the different types of the early retirement and the acquisition activities (Pitilakis et al.2014).
7) Shortage of people: The lack of manpower in the supply chain required to the manage the different types of the supply chain operations has been seen to be a major barrier in the management of the supply chain. The shortage of people especially in the upstream sector has been seen to affect the processing of the exploration for the different types of sectors in the oil industry (Ramos et al. 2014).
8) Economic Uncertainty: According to Sahebi et al. (2014), The risk related to the oil and gas sector is further observed to be affected due to the economic uncertainty, which leads to the slow movement of the goods especially in the upstream sector. In most of the time, it has been observed that the main challenge is seen in the careful analysis of the different types of the changes in the government pricing policies in the supply of oil and gas. Due to the adverse economic situation, it has been observed that the various types of the suppliers of the industry face several, issues in the supply of the oil and gas, in the different types of the modes of the transportation used in the delivery of the supplies (Ghadge et al. 2012).
The different types of the risks involved in the downstream sector of the industry deals with the current crude supply and trading of the refined oils. The downstream process has been further identified with the supply of the crude oil based on the trading activities and the production distribution techniques. Some of the supply elements involved in the downstream risks analysis includes production distribution and crude oil supply (Saaty and Vargas 2013). The challenges identified in the downstream risk related to the supply chain are listed below as follows:
1) Joint ventures- The main problems presently identified in the downstream risk, is associated with the lack of the information for the various types of the supply chain information required for the purpose for of the identification of the supply chain risks. For addressing these issues several types for the joint ventures and alliances are formed with the different types of the oil industries. The risk in the supply chain needs to be averted by the implementation for the different types of the techniques in the oil industries (Pergler and Rasmussen 2014). The government official and OPEC should further share the various types of the risk. These will enable the joint identification of the various types of the risk, and address the same. The joint venture collaboration of the various types of the alliances will show that the risk are shared and resolved based on mutual understanding (Kazemi and Szmerekovsky 2015).
According to Naiyeju et al. (2013), the natural gas association and the development made in the areas have been observed in the industries such as Shell, which gives new hope to the supply chain operation of the company. Thee effective implementation of the aforementioned technique has been seen in the supply chain operations of the North America. The natural gas operations are further maintained based on conversion of the liquid fuel and directly using them in transport fuel. Shell and Qatar Petroleum has been further observed to implement the innovations in the supply chain bring new changes which are significant to the industry. A total of $18 Billion and $19 Billion has been observed to show the rising demands due to the infrastructural needs (Lun et al. 2013). The most promising g innovation in this sector has been observed to be done by shell by the implementation LNG refueling technology in Canada, which enables the trucks to use the natural gases instead of the diesel. The development with the use of this kind of innovation the transportation has got a new edge due to the fuel mix (Gülen 2016).
2) Global Refining capacity- The emergence of global refining capacity is seen in the structural global surplus with the advent of the economic growth in the different areas. The national oil companies identify the important factors in the area of the planning of the expansion strategies (Shiravi and Majd 2015).
3) Corporate communication- The corporate communication is the process of orchestrating and the managing of the various types of the internal and external communication to create a favorable point of view among the stakeholders (Ismailand Karim 2013).
4) Crude oil supply mechanism- The crude oil supply mechanism is known to faced several issues mainly due to the challenges in meeting the timely flow of the appropriate information. The only hope lies in the proper sharing of the information technology by supporting adequate flow of the information. In order to ensure the efficiency a reliable transportation needs to be operated which will be quick enough to dissimilate the information (Stephenson and Agnew 2015). The oil supply needs to be mechanized and carrying cost can be minimized. In order to implement this effectively into the system it is important to integrate the various types of the supply chain operations with the ERP systems. The practical example of the implementation of the ERP system has been seen with the integration of the GTL project with the Qatar petroleum. Shell has observed to play an important role in the perfecting of the supply chain operations (Parvizsedghy and Zayed 2013).
The various types of the additional adoptions of the crude oil supply chain has been seen with the implementation of modern web server technologies which enables the users to access high speed data to take part in the sensible operations related to the tracking of the goods.
5) Distribution Activities for Oil Products – The various types of the distribution of the oil products faces lot of downstream issues without the availability of the establishment of the appropriate avenues for trading. Hence, the various types of the value chains have to be properly examined in order to ensure the efficient trading and the distribution of the different types of the supply of the oil products (Uusitalo et al.2014). Moreover, the growing concern for the increase in the supply process has also laid an impact in the transportation charges. The increase in the transportation risk, has also been seen due to the increase in the transportation risk which clearly states that the company are responsible for the increase in the oil prices (Routroy and Shankar 2015).
According to Gülen (2016), the various type of the over the dimension machinery used in the midstream analyses of has been observed in the hazardous shipments. Oil is considered to be among the one of the one of the most important component to be transported but at the same time it is also one of the most hazardous components which needs to been transported across the land and sea. The different types of the mid stream risk of the company are observed in the maintenance of the proper equipment of the cargo (Panayides et al. 2013). Every shipment is at the verge of huge risk in the midstream distribution of the oil and the penalty of the accident has to be paid with a huge cost. It has been further observed that the midstream transportation risk becomes more competitive. For the purpose of the maintenance of the high safety standards, the companies are often known to vet and select the reliable carriers, thereby creating a routing guideline. The growing problem in the supply chain has been observed due to the growing problems of the creation of routing path and track work activity (Anifowose et al. 2014).
A short-term issue is observed in the loosened capacity and the truck capacity is generally observed to be tighter. The various type of the mid stream risk in the companies are observed with the delay in the continuously searching for the new carriers for the most suitable oil carriage. There have been several issues observed in the form of focus on the daily operations and optimization of productivity and concentrating on the gas flow for giving the top priorities to the mid stream companies (Lima et al. 2016).
According to Heckmann et al. (2015), the minimizing problem is observed in the time consuming technique and the degrading of the risk management. In order to minimize the risk several midstream companies rely on the third party logistics companies. In order to prevent even the greater loss of the the 3PL qualifies the various types of the carrier checks and is actively responsible for tracking the movement of the and placing the request for the historically high performing carriers (Pergler and Rasmussen 2014). The 3PL is further noted to save unnecessary time which being spent on the transportation. The prevalence of the risk is observed to be much higher when the midstream companies are found to be relying in the 3PL companies. For minimizing the risk the 3PL oil carriers are associated in pre qualifying the selection criteria and the checking of the CSA scores along with the vets driver. The 3PL service providers not only actively tracks the movement of the cargo but also request for the historically high performing of the carriers to take more load (Naiyeju et al. 2013).
According to Saad et al. (2013), the 3PL further provides various schemes to curb the different types of the supply chain problems by the inclusion of the various types of the MRO service, inventory and the inbound process. Other than the 3PL, a good amount of the resource is given for the safety instruction of the Federal Motor carrier safety administration (FMCSA). It is responsible for the purpose of the improvement in the safety of commercial motor vehicles by providing more education and enforcing of the new guidelines to the drivers. Hence for the analysis of the various types of the problems identified in the midstream risk in the supply chain management the midstream companies needs to comply with the with the different types of the safety guidelines to maintain a controlled supply chain environment (Meyer et al. 2015).
In order to study the different types of the contingency methods it is important to consider the different hierarchy of the risk. In order to do this, at first the main components involved in the supply chain of oil have been shown and at a later stage. The above discussed have been shown below with the diagram as follows:
Figure 1: Main components of the supply chain of oil
(Source: Briggs et al. 2012)
The contingency approach deals with the mitigation of the possible disaster that may occur in the water transportation of the oil and gas. Some of the important aspect which are to be considered for the purpose of the prevention of the risk in the supply of the of the oil and gas industry are discussed below as follows:
Mapping of the problem related to the supply chain- The contingency approach deals with the mapping of the possibility of the different types of the problems which may be prevalent in the supply chain of the oil and natural gas. It is important to consider the different types of the factors such as the carriage of the oil from a particular country and trying to source the refining process of the oil. The political events also play a deciding factor in the transportation process of oil and gas (Dupont et al.2015).
The contingency approach is also based on the identification of the events that may affect the functioning of a particular company. Some of the important events are identification of risk such as the cave- in at the quarry and possibility of oil spillage due to leaks in the containers (Shuai et al. 2012).
The cargo risk should be further assessed based on the several types of the risk involved in the natural calamities such as earthquakes in case the oil is being transported via land route. The sea route risk should be further assed based on the possibilities of natural calamities such as hurricanes and tsunamis. The in such situation the cargo needs to b e safeguarded with the implementation of letter of credit (Sodhi and Tang 2012).
The contingency planning also included the auditing process of the suppliers, which is used by the Supply Council Operations (Liu and Dick 2016).
The contingency planning also include planning of an alternate route for the purpose of the risk aversion process of unforeseen events (Chang et al.2013).
The hierarchical model of the risk, mitigation mode, has been shown below with the diagram as follows:
Figure 2: Risk mitigation approach for contingency approach
(Source: Briggs et al. 2012)
This research follows a qualitative research study with description of the different scenarios to address the current risks and issues in supply chain management related to the oil and gas industry. This qualitative research utilizes observations while analyzing the data using thematic analytical approach. This discussion section, thus caries huge potentiality for the research to make understand the impacts of the risks related to the supply chain management. By this thematic analysis, the data have been identified and analyzed the potentialities of the proposed risks and limitations associated with the oil and gas industry. In this section, there are four themes have been considered for discussion which are quite relevant for addressing the research topic.
Theme 1: The Critical Uncertainties to the future of Oil and Gas Industries:
The uncertainties regarding the oil and gas industry can be divided along two main axes. The first refers to the global economic-political environment. Huge uncertainties may outbreak due to conflicts in several regions, impend the advance of the international economy (Woodhouse et al. 2016). On the hand, the second axis portrays the competitiveness of sources of energy. Nowadays, it has observed several contrasting position between fuels and fossil origin, in the case of the gas and oil industry, and those from renewable sources. Currently, all the predictable resources are dependent on oil, but there is an uncertainty about what will be the case in 2040. In this discussion, there is a huge importance of climate change, technological advance and the economic feasibility of alternative sources.
According to Elía et al. (2016), the axis refers the uncertainties of the geopolitical conditions has two extremes Firstly, it has been gradually intensifies political tensions, making trade difficult and decrease the generation of the wealth. However, there is a growth opportunities in the industries for the new multilateral accords between countries and completion of the ongoing World Trade Organization (WTO) negotiations.
In the geopolitical context, the oil and gas industry is strongly influenced by the favorable conditions for supplying energy demand (Demirbas 2016). In contrast, there is a chance of the drastic fluctuations in fuel supply and price in case of the periods marked by wars and disputes. For this reason, the global market of oil and gas were faced a huge oil crisis during the year of 1973, 1979 and 1990.
Thus all such components related to the global politics may result steep increase in the barrel price. In other words, reduced demand for energy can lead a big problem during the phase of the recession. With having young democracies, countries impacted by the Arab Spring, there is a lot of geopolitical uncertainty, which impacts the gas and oil market.
The economic development of emerging countries is facing uncertainties due to consequent decline in imports in energy supplies. With high GDP growth rate, the Chinese economy has a huge demand for raw materials and fuel. Another of the emerging countries, India maintains the levels of economic growth in recent years comparable to those of China, but is still has to overcome the huge infrastructural deficiencies that impedes greater acceleration.
Graph1. Growth rate of the Chinese GDP
(Source: Ak and Demirbas 2016)
Graph 2: Comparison of Indian and Chinese development and infrastructure indexes
(Source: Guo et al. 2016)
These infrastructural deficiencies are also matter of concerns for countries like in Middle East and Europe, Turkey; and in Southeast Asia, Vietnam, Indonesia and Malaysia. On the other all countries are facing competitiveness in sole sourcing of fuel and oil. Both consumer relations and supplier relations are the key to establish an effective coordination of supply chains of oil and gas (Mani et al. 2016). However, this often faced challenges due to ineffective negotiation contract that spells out all the terms and conditions due to collaboration process between oil and gas operating company and its suppliers. For instance, there is an uncertainties regarding to this potential global market for oil and gas supply. It is still indeed relevant to evaluate the competitiveness of liquefied natural gas with other energy resources considering the actual costs related to the “liquefaction”, “re-gasification” and the method of the supply chain. Emerging global energy source competitiveness and volatile eco-political conditions, therefore, hugely impacts of the import-export negotiations related to the oil and gas industry and it leads critical uncertainties.
Figure 3: Intersection between Energy source competitiveness and sustainable globalization
(Source: Mani et al. 2016)
The above intersection of the axes of uncertainties clearly displayed the trends of the industry that will affect the future outlook of the industry, allows developing four reasonable scenarios for the gas and oil sector in the coming decades.
By the above discussion, this can be said that the oil and gas industry see environmental accountability as a top priority, underlined by the intersection between an efforts of the industry and the public concern. In other words, companies struggle with the policies of the government and political situations is at the top most concern of this industry. Specifically, legislation and regulatory changes and increased compliance costs and overall industry competitions have generated huge problems while developing corporate communications, implementing crude oil supply mechanism and many others.
Theme 2: Strategic Supply Chain and Procurement Best Practices in Gas and Oil
Companies of oil and gas generally operated under the complex environments where the authorities often face challenges in terms of demand and supply (Mani et al. 2016). Now, with the oil prices at historical lows, this is the right time to discuss and evaluate the supply chain and the used techniques of procurement and costs related to this industry. As per the new research done by the Harvard Business School, gas and oil companies need to consider not only the their product supply chains, but also on non-hydrocarbon supply chains while handling the parts, services and materials required to run the business operation. Despite the scale and complexity involved in the non-hydrocarbon supply chain, oil and gas companies have tended to rely on their firm’s enterprise resource planning systems, rather than seeking to complement their companies’ enterprise-wide systems with targeted point solutions to help them operate and manage the supply chain. It has been identified that procurement and strategies for supply chain are all set to be in the forefront of sensitive issues for the oil and gas companies more prominently in future years and generally in the area of the downward spiral of oil prices. Furthermore, several industry professionals are found that the oil and gas supply chain practices clearly lag behind those of industries that use superior techniques including “optimised inventory management”, “collaborative supplier relationship management” and so on. However, several companies are already recognised the necessities to reduce costs and services to internal customers and gives an extra effort after highlighting other industries from which the companies of oil and gas industry can learn.
This has been evaluated that majority of the companies of this industry are purchased services and products, which is more than 50 percent of the average costs of the oil and gas, company (Val et al. 2016). Therefore, even a 2 percent reduction in purchase costs can significantly generate higher profit margin for gas and oil companies. In order to deliver better supply chain management within the workplace, companies of oil and gas industries have opportunities to insight three main areas such as
Market intelligence related to supply chain
Building relationship management with materials/suppliers
Supply chain talent and technologies
The market intelligence related to supply chain is the process of gathering and discussing information for understanding the current and future market relating to the present and future sourcing and execution of the market sector strategy and thus, enable the business to better propose to changes in the market place externally. Several market analysts already recognised that “supply chain market intelligence” is core to any industry and more so for the dynamic gas and oil industry (Al-Sharrah, Lababidi and Ali 2016). By using this, the companies can effectively deals with strategic supply chain challenges including “constrained capacity”, “infrastructure” and “volatile markets”. Moreover, this guides companies to make the appropriate decisions regarding the price fixation of the oil and gas supplies.
The oil and gas industry is largely dependent on suppliers to provide complex services and critical equipments for supporting ongoing projects and operations. To improve oil and gas supplier’s relationship management, companies should adopt the method of suppliers benchmarking. In this case, several identified internal management issues relate to this industry can be minimized by necessary obligations in terms of training, safety, equipment and the requirement of staffing. This process indirectly would help to measure the robustness and performance of different contractors and ensure the smooth supply chain operations in the oil and gas industries.
To recover the complexities in terms of price negotiations in the industries of oil and gas industries, several companies can use “total-cost-of –ownership (TCO model)”. By choosing TCO approach, the costs are differentiated in terms of cost of acquisition, operation and maintenance costs which are derived before choosing the supplier at the competitive price. On the other hand, the application of more advanced technologies can help gas and oil companies to find and extract more oil. According to Ahmad et al. (2016), there is a serious need of system of procurement that provide additional value in real times. Modern managers of the oil and gas companies identified that ERP systems are helpful to address several concerns in this industry such as “oil demand forecasting”, management of inventory, contractor management, master data management and e-procurement.
The oil and gas industry has focussed ERP systems in a completely revolutionized way which is being carried out differently from other industry. This has also being considered as the best practice process of the supply chain and systems. Like other industries, the oil and gas industry is also struggled with shortage of supply chain and procurement talent due to ageing workforce and increasing shortages of skill. There are other companies find difficulties in terms of adoption of training and grooming of talent in critical supply chain functions, development of the supply chain centre of excellence and corporate collaboration for nurturing talents of supply chain. By improving the supply chain configuration and the system of coordination with the ERP are being considered a new way for resolving issues related to the supply chain management of the oil and gas companies.
Theme 3: Strategies to Revolutionize downstream supply chain in the oil and gas industry
There are several risks raised due to inadequate operations, instable customer relationships and collaboration deficiencies with the partners in the oil and gas industry (Ahmad et al. 2016). Several business leaders in this industry recognize that the appropriate technologies can help them to get better outcomes by reducing the complexities of transportation of product in the downstream sector. There is a high cost operation and complex downstream activities, which make the entire supply, chain a big challenge. Despite the fact, that oil companies and their hailers seek the most effective strategies for the transportation incurred between supply depot and customer locations, challenges that include imprecise planning and forecasting, unanticipated demands of customers, complex scheduling programs and low fleet utilization and invoice inaccuracies thwart comprehensive realization of this goal. According to Ahmad et al. (2016), one of the most significant challenges is implementation of technology-based strategies to streamline operations and save costs. However, this has been observed that adding agility while using technology-driven strategies and providing scopes for operational and costs breakthroughs to the gas and oil enterprise, the hauler and the vender is the most effective and profitable method to get product into the market.
During the earlier period, the oil and gas industry accomplished their requirements significantly by put in place of the organisation platforms along with an organisation for managing, supporting and maintaining them (Wipro.com. 2016). However, the downstream enterprise faced problems in maintaining a wide logistics operation for controlling the scheduling the operations and the activity of hauler. Thus, it becomes gradually gaining complexities. Today, most of the companies find unusual for a downstream enterprise to include large organisations for managing the scheduling processes and hauler relationships. This presents a product/profit challenge. According to Jabbarzadeh, Pishvaee and Papi (2016), “the organisation can be a cost centre with large fixed costs that must be recovered through effective pricing while generating profit”. On the other hand, an effective pricing offers another “product/price challenge”. It has been observed that the operating standard procedures of the organisation can negatively impact pricing effectiveness; for instance, while the cost of the delivery is high relative to price of negotiation, the scheduling could cut into profits. In this context, solutions provided by the technology-based approach can make a difference to the operation of the logistics. By this approach, the oil and gas companies can easily facilitate effective streamline operations along with the optimization of price. Therefore, the best –fit leveraging technology would be:
Schedule optimization along and integrated processes
Accelerate operational efficiency
Reduce costs of operations
Unfortunately, the finding and using the right technology solution, is also raising concern and product/profit challenge. Thus, it has been observed that a particular domain expertise is required to produce the results within the enterprise. The “product-to-market revolution”, thus, needed a suitable technology-driven solution that incurs the appropriate results for associated authorities – Oil Company, hauler and vendor. In this case, product and trucks are kept moving in the economic fashion and manage the level of inventory optimally (Demirbas 2016). This provides integrated solution for aligning the disparate aspects of product scheduling, pricing and distribution into a single process. In that case, the oil and gas industry has shown interest to provide a right system for integrating the large portions of scheduling, pricing and delivery more effectively (Ak and Demirbas 2016). “Vendor-Managed Inventory” helps to manage the operational costs more effectively and ensure a fast pick-up product within the workplace of the company. By presenting a strong control over scheduling and pricing with the help of powerful analytics and real-time databases, the oil and gas company can forecasts their demands more effectively. There are four components are associated with an innovative “product-to-market system” which includes
“Outsourced Distribution Operation”
“Shared Fleet Model”
“Dynamic Scheduling and Routing”
“Dynamic Slot Booking and Pricing”
The operation of the outsourced distribution helps to eliminate the initial product/pricing challenge i.e., problematic in-house distribution operation. Generally, the oil and gas major companies are outsourcing non-core activities to generate higher margin aspects of the supply chain. An outsourced distribution operation relives organisations from the slow moving schedule process and the relationship with the hauler, which often involved with low value work. By following this distribution operation, the gas and oil companies can manage their operation more effectively along with putting more focus on their customer care.
“Shared Fleet Model”, another component of “product-to-market system” allows movement that is more effective during the process of upstream activities of oil and gas (Badiru and Osisanya 2016). Many practitioners of the industry have observed this that most of the companies run delivery operations through a significant in-house fleet, through a service provided by single or multiple haulers, or through a combination of these two. By this conventional process, the fleet is restricted to movement between depots and different sites of the customers of a single company and this, does not permit to optimize the fleet utilization. Thus, it results a high cost of product delivery system per product miles. By using a “Shared Fleet Model”, the organisations can consider several numbers of depots and customer sites during the scheduling process. This provides the better routing opportunities between different locations, which leads lower costs per mile (Elía et al. 2016). Thus the model contributes greatly in generation of higher volume per mile and better customer service by eliminating the risks of stock outs. Moreover this helps to mitigate negative impacts from insight inaccuracies.
Effective process of the routing is one of the vital aspects of the supply chain management in the oil and gas. However, single person who manage in-day changes and at the same time made some plan for future shifts is handling the entire process. This means that the entire operation is heavily dependent on the special skills and knowledge of an individual. In this scenario, “dynamic scheduling and routing” is, in that case, considered as one of the suitable recommended strategy to new innovating downstream supply chain in the oil and gas industry (Jabbarzadeh, Pishvaee and Papi 2016). Prior to the implementation of the “dynamic scheduling”, this has been identified that companies are mainly struggled to maximize quantities of delivered product along with maximizing shift utilization of drivers. All the supply chain management problems, thus, can be resolved by the use of the revolutionized “product-to-market system” in an efficient manner.
Theme 4: Health and Environmental issues of “unconventional” oil and gas:
The emissions of methane occur across the supply chain of natural gas. To reduce the health and environmental issues, several gas companies are often replace of coal-fired power plant with a gas-fired plant and reduced the methane emission during the transformation of fossil fuel to natural gas. This has been observed that supplier of natural gas can get immediate climate benefits of supply chain methane emissions are less than 2.7 percent of produced natural gas (Miedema, Moll and Benders 2016). Furthermore this has also found that switching from more “carbon-intensive fossil fuels to gas” at the percentage of higher gas leak will be an adverse effect during the phase of short term climate analysis of methane. In other words, the short term climate impacts of the supply chain of natural gas methane emission can delay the benefits of climate while the extraction of natural gas. The below figure shows that the net climate benefits are achieved for three conversions of technologies i e., “coals to gas for electricity”, “gasoline to gas for light duty vehicles” and “diesel to gas for heavy duty vehicles”. The figure clearly indicates that the rate of leak or below the intercept make sure immediate climate benefits. In this way, companies can reduce the pollution impacts in the upstream sectors of supply chain management in oil and gas industry.
Figure 4: Relationship between the rate of leak and immediate climate benefits
(Source: Kaden and Rose 2015)
Conclusion
The above discussed research study is based on a thematic research approach which shows about the different types different aspects of the research. The research further seen on the various types of the approaches of the identification of the present risk modules and states the various types the solution to tackle the different types of the risk identified in the supply chain of the oil and natural gas of a company. The different findings of the research findings show that the main problem in the upstream upstream sector is related to the existence of the different types of the geopolitical issues and the availability of the information. It is also seen that in the recent due to the scare availability of the crude oil the sourcing of the supply chain is becoming more difficult with each passing day. The alternate sources are available for the extraction of the crude oil and the natural gas shows that the supply chain process is becoming more difficult in nature and several types of the issues are becoming prominent for the operational inefficiencies in the supply chain process. Companies are facing lot of issues in the supply chain from upstream sector. This has led to the increased problem of the maintaining the economic constraint of reaching the oil supplies in the proper time. The fluctuating process due to the demand and supply of the oil further sees the problem in the upstream sector, this has a direct impact on the supply chain companies as the various type of the oil and natural gas transportation companies are not able to supply the different containers at a lower price. The issues in the supply chain of the upstream problem are also observed due to the inefficient operations of the management team. Some of the common supply chain risk are also identified in the oil spills in the ocean while the transportation. This is directly related to cause the environmental pollution. The environmental pollution and the hazards are known to cause problems in the pipeline transportation of the oil supplies. In several cases, the shortage in the man power has been identified as the growing issue in the management the risk is related to the maintenance of the risk in the oil supplies.
The main issue discussed in the case of the downstream supply chain of the oil companies is seen with the absence of the joint venture. This has led to the problems related to the various types of the problems related to the supply chain in the downstream sector. The global refining capacity needs further expansion of the accommodation of the containers in the port area in order to make sure that the containers of the oil supplies with more amount of efficiency. The corporate communication process is also lagging in the orchestrating and the managing the different types of the problems identified in the both internal and external communication process. The different types of the issues in the downstream supply chain risk is also identified the Distribution Activities for Oil Products. The midstream sector risk are further identified in the form of the maintenance of the proper equipment of the cargo this will lead to the increased amount of risk in the supply chain process of the downstream sector. In several cases it has been seen that the midstream risk are as a result of the short-term issue seen in the in the loosened capacity and the truck capacity which is generally observed to be tighter. The various type of the mid stream risk in the companies are observed with the delay in the continuously searching for the new carriers for the most suitable oil carriage.
In several cases, it has been seen that the third party carries of the oil are seen to be very costly for the companies assigning the projects. The mid stream risk are moreover identified un nth different types of the analysis of the risk on the basis of the CSA scores along with the vets driver. It has been further observed that the 3PL service provider not only actively tracks the movement of the cargo but also request for the historically high performing of the carriers to take more loads.
The contingency risk, analysis is done based on the Mapping of the problem related to the supply chain. The most appropriate model to tackle the risk has been done by the implementation of the techniques such as the Minimizing Petroleum Supply Chain Risk with the implementation of tht techniques such as the Exploration /Production Risk, Environmental and Regulatory Compliance Risk, Transportation Risk, Availability of Oil Resource Risk, Reputational Risk and Geopolitical Risk. The research analysis also provides the different type of the alternatives based on the three activities namely Accept and Control Risk, Terminate and Forgo Activity and Transfer or Share Risk.
For the purpose of the analysis of the case study it has to be identified in application of the inductive approach. The different types of the risk analysis included in the discussion has been in the basis of the Strategic Supply Chain and Procurement Best Practices in Gas and Oil, the Critical Uncertainties to the future of Oil and Gas Industries and Strategies to Revolutionize downstream supply chain in the oil and gas industry.
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