Guest Commentary: Reducing Risk with Automated Asset Visibility in the Oil and Gas Supply Chain

Global oil and gas supply chains – upstream, midstream and downstream – are large, complex, and asset-intensive and require a number of interdependent logistics partnerships. Except for perhaps the military in times of conflict, few if any other sectors must rely so heavily on their supply chains to ensure that operations are flowing smoothly.

Increasingly, those involved in the oil and gas supply chain realize the importance of having real-time visibility of critical supplies – end-to-end, on-site and most anywhere and anytime. Knowing where things are, their condition, and when they’re arriving must be known not only by the oil and gas owner/operators, but also among their entire ecosystem of service providers, suppliers and third-party logistics partners.

Without real-time visibility and management of critical assets, three major risks confront those working together to ensure the safest and most efficient exploration, production and distribution operations. These are:

  1. Environmental and Safety Risks. Ever-growing government oversight, whether it’s from the U.S. Department of Health, Safety and Environment, or from other international agencies, require oil and gas companies to ensure that their people are safe, materials secure and operational equipment accountable and in working condition. Accidents can be costly – both in terms of expenses and reputations. The potential for disastrous consequences rises when information is not available around the integrity of assets when they are deployed, or in certifying and identifying personnel working around high-risk operations.
  2. Operational Risk. Upstream supply chains in particular involve production facilities that are often in remote and austere locations. As a result, delayed visibility of critical supplies means facilities don’t get drill bits, pipeline, or generators when they need them, resulting in either high-cost expedited shipments or suspension of operations or projects, which can translate into many millions of wasted dollars. Buffer inventory throughout the supply chain never seems to be enough. Reactive, rather than proactive, requisition processes with outdated and incomplete service records are not uncommon. Not always knowing the condition, maintenance and usage history of assets and parts also adds significant risk to operations.
  3. Economic and Compliance Risk. Many regions of the world are increasingly imposing regulatory compliance on asset visibility, verification and accountability; high penalties can result if companies cannot report the whereabouts and status of assets at any time throughout the supply chain. While compliance has always been essential, proving compliance – whether it’s demonstrating chain of custody or fiscal accountability – has now become a fundamental part of doing business. 

The missing link in today’ oil and gas supply chains is the ability to have automated, real-time visibility of assets that extends to partners, locations, processes, conditions and the status of working parts. This challenge has become exacerbated in recent years as general oil demand has risen while assets and equipment have been constrained, causing greater reliance on existing and limited supplies.

Technology can certainly play a role in addressing this challenge. Specifically, companies in the oil and gas industries should consider the following:

  • Software solutions capable of providing nested visibility of assets and shipments from requisition to production facilities (for example, oil rigs) for the ecosystem of the oil and gas owner/operator, service providers, suppliers and third-party logistics partners. The solution should leverage a Service Oriented Architecture Web Service Framework that allows users to exchange data with other systems and assess the big picture. This framework enables integration with partner information systems, or alternatively, could be deployed in a hosted environment that allows all participants in the supply chain to share or view the big picture and detailed information on an as-needed basis.
  • The use of low-power Radio Frequency Identification (RFID) technologies and other Automatic Identification and Data Collection (AIDC) wireless technologies such as GPS, SatCom, cellular or advanced sensor devices that detect corrosion, humidity, shock, flow rates, and more. The AIDC technologies, when affixed to supplies, turn the assets into smart ones in the new era of Smart Asset Management. By knowing the location, condition and history of assets such as parts, tools, Cargo Carrying Units, rail cars and consumables, companies can optimize operational readiness, improve asset utilization and minimize unplanned events.
  • A solution that can connect information from multiple operations and regions for a complete perspective and sharing of resources. As a result, an oil and gas company and its ecosystem partners can further automate its supply chains to improve asset integrity and utilization, safety, inventory management and equipment tracking, as well as reduce risks, operational cost and compliance cost

It’s also important that the solution links information “at the edge” of operations to decision-makers, which can augment traditional ERP systems in providing real-time status and condition of assets across the extended supply chain. 

The value of implementing these technologies can vary depending on the user. For example, owner/operators can improve operational performance by addressing safety and compliance, lost or delayed assets, delayed production or projects, and security; service providers can enhance fulfillment processes, and manufacturers can increase customer service levels and ensure asset integrity, to name just a few benefits.

In summary, in this era of the unpredictable, unexpected and unplanned, it’s mission critical to have complete, real-time visibility of critical equipment and to monitor operations across the entire supply chain – for example, from requisition to the rig. Having “ground truth” information from AIDC technologies enables users to make better and faster decisions and to take proactive rather than reactive actions.

We will address further the business case in our next Guest Commentary.

Terence Leung is the Director, Industry Solution Management for Commercial Industries at Savi Technology, a Lockheed Martin company. His keen interest is to bring ground-breaking and practical solutions to asset-intensive companies. Previously, he was responsible for solutions and marketing at NRX, an SAP solution partner serving asset-intensive industries in the area of asset information management. Terence was also with the High Tech business unit of i2 Technologies and supply chain and manufacturing practice of Deloitte Consulting.

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