Navigating the Crude Cycle: 10 Strategic Actions for oilfield service and equipment companies

Navigating the Crude Cycle10 strategic actions for oilfield service and equipment companies

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IntroductionCapital spending cuts and cost reductions among upstream energy companies result in a drop in revenues for oilfield service and oilfield service and equipment (OFS&E) companies. In response, many have cut capital spending and others have announced, or are considering, across-the-board layoffs. To emerge stronger from oil price volatility, however, Accenture suggests 10 practical actions to consider now.


Turn core suppliers into business partners.Meaningful change in the cost base requires rethinking relationships with a focus on mutual value creation. Start by identifying strategic suppliers in key categories. Renegotiate revised agreements that go beyond cost to include risk sharing, innovation and investment, and joint-performance targets and incentives.


Obtain more favorable terms with non-core suppliers.Consider short-term tactics to help reduce costs and search for more favorable terms: increasing spot buying, extending payment terms, reducing safety stocks, moving maintenance, repair and operations inventories off the balance sheet (i.e., to vendors), and simplifying supply-chain processes and channels.


Upgrade pricing capabilities to mitigate customer demands for double-digit price concessions.Upscaling these capabilities can lead to competitive differentiation, defensive revenue capability during downturns, and profitable growth in the interim and eventual rebound. Leading practices include yield management, and new techniques and tools with enterprise pricing optimization. These approaches reveal opportunities not visible with traditional pricing approaches.


Crosslink continuous improvement efforts for greater impact. Efforts focused on single functions (e.g., plant-oriented) need to be extended across the supply chain and also to linked support functions. This approach can lead to sustainable improvements by sharing incremental gains and best practices. Drive sustainable efficiencies throughout the cross-functional critical path of complex transactions.


Equip the field with digital technology to boost productivity.

It is tempting during downturns to decrease investment in innovative tools. Instead, take the opportunity to accelerate the uptake of digital technology. Examples include a mobile-enhanced workforce, digital materials and equipment tracking, and remote operating centers. These technologies can transform the ways people work.


Shrink the corporate center.

As oil prices soften, it is time to bring new focus to efficiency at the corporate center. Work that clearly contributes to achievement of corporate goals of safety, profitability, and asset integrity and reliability is justified; activity that does not should be curtailed and the roles shed.


Restructure functional operating models for long-term advantage. For lower cost profiles, restructure operating models for finance, HR, supply chain and IT:• Decouple transactional activities from strategic work and structure as a service unit.• Relocate consolidated functions to cost-advantaged locations. • Transfer management of back- and middle-office activities to a third party to run as a service.


Modify headcount with a scalpel, not an axe. As word of layoffs and unconditional hiring freezes spreads, Accenture recommends a targeted approach: make cuts to the bottom-performing 10 percent of the workforce. Some stellar talent may be open to a change, so allow room to backfill a portion of these cuts with top talent.


Upgrade your planning processes.

• Consider multiple scenarios at several price points. Build in leading indicators that enable identification of emerging scenarios to prompt decision-making and action.

• Move to a rolling, eight-quarter outlook. Simplify the arduous annual planning process and refresh quarterly. Up-to-date planning can lead to better decisions for the short, medium and long term.


Adopt a more leveraged “smart” model for manufacturing.Consider and quantify:• Development of core suppliers to manufacture key

components and retain the most difficult machining.• Turn-key manufacturing and assembly of mature,

stable product lines and sub-assemblies. • Reduction of mature machining capabilities and

consolidation of facilities. • A rebalancing of plant location, sustaining

engineering and product development locational profiles to be more cost- and market-centric.


ConclusionNo one knows where oil prices are headed. The winners, however, are likely to be those who respond with measured and focused investments, and plan with a multiyear horizon. Use the time, in other words, to make changes that otherwise would take years to achieve amid organizational inertia when times are flush.


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Navigating the Crude Cycle: 10 Strategic Actions for oilfield service and equipment companies

Environment

equipment companies

oilfield service

strategic suppliers

favorable terms

corporate center

equipment ofse companies

cost reductions

cost base