Collaboration, innovation leads to improved supplier relations

Major oil and gas industry companies are embracing innovative thinking as a way to reduce costs without increasing risk.

By John Drury, Trelleborg Offshore March 31, 2016

A recent survey conducted by Trelleborg Offshore found that while 87% of respondents found relationships have improved between suppliers and operators, suppliers still can play a broader role in helping operators manage costs. Courtesy: Trelleborg OffshorTo say there’s significant pressure on oil companies to take costs out of projects is a vast understatement. Trelleborg Offshore surveyed oil and gas experts to produce a report, which shows a whopping 78% of respondents admitted to changing the specification of a project to save costs.

At the same time, though, oil and gas industry suppliers are seeing major companies embrace innovative thinking as a way to reduce costs without increasing risk. Trelleborg, 3M Oil and Gas, ABB Oil & Gas UK, and consultant Philip Cooper participated in a recent roundtable to discuss the survey findings.

The panelists agreed that 2015 events have resulted in a larger appetite for collaboration up and down the supply chain. In the past, specifications were final by the time suppliers were brought in. Today, there’s some flexibility in the schedule, giving suppliers an opportunity to offer ideas such as increasing the meantime between failures as a way to lower costs.

This idea is supported by the survey, with 87% of respondents saying that the relationship between customers and suppliers has improved in the last decade. What’s important, say the panelists, is to seize on the open atmosphere to drive home the idea that suppliers can play a broader role.

The panelists likened this period to a similar one in the auto industry. During the Great Recession, sales were so dismal that many industry players were forced to share best practices in order to survive. Today, the industry excels at finding outcomes that work for all parties, and if that can happen in the offshore industry, the results could be extremely positive.

Many times, noted the panel, saving money is simply a matter of moving away from doing things a certain way because that’s the way they’ve always been done. Additionally, companies must change the way they think about savings, since cutting 25% or more out of a project is no longer realistic. Instead, companies should seek ways to save smaller amounts (on the order of 1 or 2%) over a number of years.

Moving away from adversarial approaches

Perhaps the biggest obstacle to permanently changing the supplier/customer relationship is the adversarial approach adopted by many in purchasing, agreed the panelists. For the most part, engineers and technology experts understand the value of close relationships with vendors. They have seen the benefits that can come from collaboration and are on board with this new approach. But many in purchasing have not changed their overall philosophy. The panelists said that, left unchecked, this could stifle the type of innovation that can benefit everyone in the supply chain.

Just as concerning is the idea that as oil prices lift, the major players will move back into more traditional relationships with suppliers. The fear is not only that interesting, beneficial ideas won’t see the light of day, but also that inefficiencies will flood back into critical processes.

The panelists hope that this difficult period will result in more permanent change, the type that ensures leanness and efficiency remain top of mind.

Cost still matters

Finally, panelists discussed their skepticism over one of the report findings: only 4% cited cost as the primary factor in selecting a maintenance supplier.

Panelists said that number seemed low, based on the fact that purchasing decisions are never made without a discussion about price. However, there are signs that rather than simply cutting 10% across the board, many companies are committed to making cuts in places that won’t affect safety or performance. The tone is set at the top, they said—responsible operators wring out costs but don’t squeeze as hard in places where it might compromise the project’s viability.

They also agreed that this is a unique time in the industry, especially for value-oriented suppliers. One key is to keep expanding the conversation to make sure those in purchasing understand the need for change to the same degree as those on the engineering side.

Another key is to find a way to improve trust between customers and suppliers. It’s up to us to share with our customers why we are trustworthy—why we are different, they said. Those types of internal changes are critical to success, turning a difficult period into one that can not only drive short-term innovation, but also create a more sustainable industry for the future.

John Drury is managing director of Trelleborg Offshore.