By Michael Olszewski, Executive Vice President, Maine Pointe LLC Maine Pointe LLC, an operations management and implementation firm, has identified seven mega-issues that are expected to impose significant change for the industry going forward. The issues are: • Remaining operationally effective while maintaining margins within an environment of fluctuating crude prices; • Leveraging sales and operations planning as an effective tool in strategic crude supply and refined product forecasting; • Reinventing a more integrated strategic supply chain that can dramatically enhance cost savings (such as in the extraction of previously economically stranded and remote oil reserves) in the supply base – and reduce risk; • Responding to new levels of public scrutiny and regulatory compliance in the post-BP-Deepwater Horizon environment; • Paying greater attention to HSE issues within broader operations concerns that are premised upon sustainability; • Responding to a rapidly retiring sales force along with developing and retaining a more technologically skilled labor force – including training a new generation of energy industry employees in operational and financial efficiencies; and • Capitalizing on the new interdependencies between senior management information, operational effectiveness, and decision-making (including situations where post-enterprise resource planning has produced “big data” filtering challenges that require better data integration in operational decisions and processes) and the understanding of their impact on profitability. A Pivotal Time This is a pivotal time for the oil and gas industry globally, especially in North America. New crude E&P growth in very remote areas as well as unique crude movement are combining with logistics issues and refining margin challenges to force new supply chain solutions that can better control costs across an increasingly unconventional oil and gas value chain. Supply Chain Challenges Are supply chain challenges related to the recent volatility, or are they inherent in the industry? Supply chain issues are genetically embedded in the companies themselves. Through both up and down economies, the supply chain has not been viewed as a capability that has warranted significant investment. Part of that view comes from the industry’s engineering mindset. If you’re looking at a new production site, there are tremendous amounts of engineering, specifications, and design work required for a startup. Oil and gas companies are 100% sophisticated about all of those issues. However, executing on other types of strategic procurement tasks – buying the right materials; strategic sourcing of capital requirements; and the support and maintenance, repair, and operations materials needed for a production operation – is something oil and gas companies haven’t focused on. A similar argument can be made for logistics: Oil and gas companies have never considered themselves to be in the business of logistics, which has typically been an afterthought for them in good and bad economies. What is new – and it’s tied to the economy going up and down – is the concept that the higher the price of oil, the more competitive alternative sources of energy become. Logistics planning can impact cost of production in a way that is very hard to replicate in any other part of the business. It’s difficult to take those kinds of costs out of the production operation itself or the engineering piece. Of course, economic factors will always drive prices up and down, but this type of planning can really impact the cost of putting together and executing a large project. How Globalization Will Influence The Industry The industry has always been influenced by global forces such as geopolitical pressures in the Middle East. Best-in-class supply chain performance will need to anticipate and react effectively to changes on the global landscape. It’s no secret that a lot of the oil production work, products, and projects are tied very closely to some very volatile areas. It’s the nature of the industry. What supply chain management companies offer their clients facing pressures from geopolitical insecurity is the knowledge, contacts, and skills to adapt – sometimes by a shift in regional presence. Michael Olszewski is executive vice president of Maine Pointe LLC and has more than 25 years of leadership experience, spanning business and operational strategy, performance and process improvement, and complex technology solutions.