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Is Risk in Supply Chains Important for Leaders in Oil & Gas?

Within the oil and gas sector the majority of the risk is out of the users control but in the hands of the suppliers and their supply chains. This is because the majority of operations act independently of their supply chains for the day-to-day running of their business. If the supply chains are not monitored and manager they can have disastrous and highly costly consequences for the user. It is clear that insufficient recognition is given to the risk that supply chain poses. This is arguably due to the fact that management of supply chains tends to fall under the remit of procurement and purchasing managers whose foremost objective is to secure the best possible contract terms at the lowest cost. Hence performance and risk can be overlooked

Consequently reporting systems, data management and risk systems can be implemented however unless senior management prioritise risk issues it is likely they can go overlooked. There is a general trend that senior management in large oil and gas companies see the profits rolling in and hence turn a blind eye to small risk issues that could affect profitability in the long run. However this should be unacceptable to everyone as unmanaged risk is patently toxic.

One cause of the problem is a lack of understanding of risk issues in supply chain operations. Many companies have now adopted supply chain software to monitor risk and supplier processes. However any technology in place is there to enable you to develop ant-risk measures and monitor the supply chain. However many companies are simply becoming reliant on the software, furthermore the software can become a drain on resources and even close barriers to entry. If this is the case then the software is not doing its job.

In fact, software, while vital, is only one part of the mix. Proper supply chain risk management is much more wide ranging, collaborative and vocal. The users must work closely with their suppliers to ensure that they are sharing goals and working out how value can be added to the business over the long term, and hence manage risk in all areas and improve profitability. The key way to manage risk across the supply chain is to create visibility and therefore communication between the user and the supplier is paramount.

Subsequently the supplier of supply chain software should also be driving the same goals as the user and be adopting an ideology of best practices and continuous improvement, with the ultimate goal of becoming the customer of choice, therefore separating themselves from their competition.

The world has moved on and it’s time to rethink the relationship between oil and gas operators and their supply chains. When the profits are pouring in, as they are now all over this industry, nobody wants to address small risk issues that could pose a threat in the long run. However management of supply chain risk and the development of suppliers as key partners is essential to ensuring that the companies’ objectives and stabilised growth is achieved.

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