Since its origins, the oil and gas industry has outsourced various aspects of its business. Whether the "outsource" is a spin-off from the oil company itself or an independent company that fits the bill, it is a tried and true model for success. That is not to say that risks are not involved. However, this industry has an exceptional understanding of risk assessment vs. reward potential and has done a good job in producing more successful outsourcing initiatives than failures.

One of the largest initiatives in the industry right now is around improvements and efficiencies in Supply Chain Management. The industry will expend more that $100 billion on capital investments in 2005. Proper management of the procurement, utilization, warehousing and disposition of that capital invested is crucial. Now more than ever, management teams are looking to best practices to ensure adherence to the demands of Sarbanes-Oxley and stakeholders.

Further, as oil companies focus on their core business, new independent businesses will continually be formed to meet the critical needs that oil companies have, but either they:

  1. Do not have the requisite resources internally,

  2. Are unwilling to dedicate internal resources,

  3. Recognize that the service is best derived from an independent source that is based upon industry best practices that can be tailored to individual companies as required, or

  4. Recognize that the resources required in developing the product or service are best borne by an independent entity that can leverage the cost of those resources across an entire industry.

Too many outsourcing initiatives exist to cover effectively in one paper, so this paper will focus on one specific function where tangible results are being seen - asset disposition. This example is used only to convey that outsourcing, when managed properly, is proving to create great value to the industry.


The industry's surplus inventory is estimated to approach $10 billion in value, so it is clearly a material component of the supply chain. The rewards for best-in-class management, redeployment and disposition of inventory are substantial. Materials management and investment recovery, as disciplines, are core to the oil company's operations. However, parts of those functions can and should be outsourced. When it comes to decisions regarding an asset's redeployment or sale, the company generally needs to make that decision. However, when it comes to the actual sale of an asset, the company must carefully evaluate whether or not that function is core and whether or not a best-in-class process exists outside of the company as a potential outsource initiative.

Five summary examples of the value-add from a disciplined, best-in-class approach to inventory disposition are:

  • Reduced operating expenses

  • Increased return on assets and capital employed

  • Realization of an asset's true market value (tapping into the powers of electronic marketplaces)

  • Consistent application of terms and conditions (safety and liability)

  • Compliance

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