Oil and Gas Industry Council X-Sector Efficiency Study Findings and conclusions www.pwc.com
Oil and Gas Industry Council
X-Sector Efficiency Study
Findings and conclusions
www.pwc.com
PwC
Agenda
1. Introduction and Approach
2. High level findings
3. Conclusions
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We studied high performing operations in ‘adjacent’ industries in an attempt to identify lessons for the UK O&G sector
Aerospace, Automotive, Chemical, Railwere selected for the common characteristics they share with O&G and their relative maturity
We found that :
• Other sectors have been strategic in their response to economic cycles and changes in market conditions
• The UK O&G sector on the other hand has largely displayed short term, reactive behaviours to changing industry dynamics
• There are useful lessons that the UK O&G industry can learn from these mature sectors to shift the performance paradigm
Degree of commonality in the dimensions of comparison across chosen sectors
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As part of the study we spoke to over 30 experts and operational leaders from various organisations
4 Industry councils
5Cross-sector
bodies
>20Companies
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Our study has shown that company specific improvements reinforced by industry collaboration and an effective regulatory environment are needed to achieve a step change in sector performance
1.Company specific
improvements
3. Regulatory environment
2.Sector wide Collaboration
Maximum impact
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Leading companies focus on Seven Fundamentals to drive Operations Excellence
Leadership
Operations as a strategic
asset
Process and IT
architecture
Knowing and building your
core
Organisationand People
Performance Management
Innovation and Change
Treating Operations as a strategic asset and not a cost of doing business
Visionary leadership that builds trust inside and outside the
organisation
Focusing on end to end business
processes and an enabling IT architecture
Building an organizational structure
and skills to manage Operations of the future
Measuring what’s important and using it to drive improvement
I
II
III
IVV
The Seven Operations Excellence
Fundamentals
Understanding and building core
competencies and collaborating for the
others
Constantly looking for better ways of doing things and managing
change effectively
VII
VI
1. Company Specific Findings
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At a sector level, several recurrent themes emerged through the study which can be adapted for the UK O&G sector
Aerospace RailAutomotive Chemical
• Industry wide programmes to improve supplier maturity and consolidate supply base
• Increased collaboration among operators and train manufacturers to optimise whole life costs
• Advanced supplier management based on a robust understanding of core/non-core
• Innovative performance/ availability based contracting models of the supply base
• Large maintenance contracts awarded to a consortium of suppliers based on geography to achieve scale efficiencies
• Standardised processes and interfaces through strong operator and tier 1 OEM collaboration
• Modularisation of the product which has streamlined supplier topography
• Focus on manufacturing and production line efficiencies (lean, six sigma, TPM)
• Lean/ Frugal Engineering to optimises whole life maintenance of assets
Supply Chain Collaboration
Sophisticated Contracting
Standardisation
Process Efficiency
2. Sector Wide Findings
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A strong regulator and active relationships with industry councils and trade bodies have brought benefit in the sectors studied
CAA (Civil Aviation Authority) takes a lead role in driving the sharing and use of reliability data
The FAA, EASA sets goal oriented standards as opposed to prescriptive standards
Trade organisation ADS works with the regulator CAA and primes to improve supply chain collaboration
The ORR’s (Office of Rail Regulation) set up Network Rail to manage rail infrastructure.
The automotive trade body SMMT worked with the auto regulator in the 1980s to bring together Toyota, Nissan and Honda
Improvement in operational safety and efficiency among operators. Increased trust.
Reduction of design and testing overheads
Improvement in on-time delivery and reduction in supplier interface overheads
Scale efficiencies through expanded scope, multi-year maintenance contracts awarded to a consortium of suppliers
A step change in the UK’s automotive supply chain competitiveness
What we found in other sectors The Benefits
Aer
oR
ail
Au
to
3. Regulator/Industry Council Findings
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Specific case studies provide further evidence of what is possible
Alliance Model for large scale Capital
Projects (ACA)
Operator-OEM dynamic in
Aerospace vs O&G (GE)
Accelerating the competitiveness of
UK’s aerospace supply chains (ADS)
Availability based maintenance contracting
(Rolls Royce)
Operational transformation of a
tier 2 chemicals distributor
Achieving Standardisation through Product
Platforms (Bombardier)
Significant operational
improvement in tough market
conditions (Bombardier)
Multifaceted approach to
operations excellence (IOC)
Competitive advantage through
manufacturing excellence (SMMT IF)
Aerospace
Rail
Chemicals
O&G
Automotive
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Case Study #1 Significant operational improvement in tough market conditions – Bombardier Transportation
Context
• UK’s only train-building site - facing shutdown
• Quality issues damaging relationship with London Underground (LU) - the only client
• Siemens awarded Thameslink contract
Changes
• New leadership / RACI
• Re-designed assembly line
• Multi skilled workers
• Improved reporting
Relevance to Oil and Gas industry• In a similar situation to the UKCS, the UK rail industry was
facing significant cost pressures as well as declining productivity.
• Bombardier showed that by significantly improving operational performance, that it is possible to compete on a global scale
Results
• Direct working hrs/unit cut by 40%
• Build quality improved by 4x
• Derby – moved from bottom to top 5 among 40 manufacturing sites
• Won £1bn x-rail contract
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Case Study#2 Manufacturing Efficiency in Aerospace vs O&G
Context
GE’s comparison of mechanical drives for aerospace applications vs O&G application highlights the benefits of standardisation and a greater role of regulatory bodies in reducing design overheads through goal oriented standards
Relevance to Oil and Gas industry• Retrospective standardisation of legacy North Sea
infrastructure is not possible and we must recognise the unique operating conditions for equipment offshore
• Still, this case study suggests a significant opportunity for greater collaboration among operators to address inefficiencies around design and testing standards in conjunction with sub-sea equipment manufacturers and other OEMs.
Comparison
Area O&G multiple
Reason
• Design EnggHours
7xNon-homogenous specs across operators
• Material costs 2-4 xOver specified material integrity requirements
• Testing hours 4xMultiple 3rd party inspections and the contracting structure
GE mechanical gas turbine for O&G application*
GE gas turbine for aerospace engines*
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Conclusions
Studying Operations Excellence in ‘adjacent’ industry sectors provides potential learnings for the UK Oil & Gas Sector
Seven factors feature consistently in high performing operations
All seven factors appear to be applicable to Oil and Gas companies operating in the UKCS
However, company specific improvements alone will not maximise the improvement potential
Significant opportunities lie in more effective collaboration between organisations to eliminate duplication and reduce cost
An effective regulatory environment will further promote and encourage the awareness and adoption of best practice
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