Abstract

Supply chain in upstream oil & gas is complex and riddled with unique challenges. An E&P company transports a variety of materials ranging from an oil rig to a fastener. Large volume of import material is transported across international waters and then hauled to work sites deploying multi-modal transportation. All supply chain operations have to follow strict compliance to various regulatory provisions, law of the land and high HSE standards. In addition the industry demands flexibility and assurance. - a rig standby as a result of material unavailability can cost upto a million dollars per day. Cyclical nature of the oil business requires an efficient supply chain. During the crests the focus is on extracting oil as much and as fast as possible whereas during the troughs cost effectiveness is key.

In mature and developed Oil & Gas upstream markets such as USA, North Sea, Middle East the scale of activity has spawned consolidation in supply chains. Local material suppliers have developed significant infrastructure that is shared across different operators in a region. Thus operators partner with material suppliers to maximize efficiency and cost effectiveness across their supply chain. Unlike mature markets, developing oil & gas markets like India reel through fragmented supply chain operations. In general, companies internalize supply chain activities and deploy logistics companies tactically leading to disjointed processes and lack of material visibility.

Cairn India (Company) operates the largest onshore producing block in India. Like other E&P companies in the region Cairn handles its supply chain in-house. Due to several challenges in the existing model a strong need to revamp the system was felt. Cairn has taken the initiative to develop a vendor base in India to emulate the structured and integrated supply chain prevalent in mature markets. The contract structure is innovative to enable scale, performance linked compensation and aligns the goal of the service provider with that of the operator. This strategic partnership is expected to fetch multi-fold benefits for the operator including:

  • Efficient supply chain management that is scalable as per business requirements

  • Improved inventory planning and optimization through material visibility and tracking

  • Enhanced business performance through robust Service Level Agreements

  • Reduced transactional effort and enhanced focus on core business activities

During the development of the model, prospective partners were engaged at multiple levels to validate the practicality of implementation. The paper discusses the model in more detail along with key risks in terms of its implementation, partner performance and execution.

This contracting approach is a significant leap towards increasing the efficiency and effectiveness of inbound supply chain in the undeveloped geographies. The success of this model can be easily replicated and the benefits could be reaped by industry at large.

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