Defining Operational Excellence in Energy
by Alan Quintero
Many energy companies respond to the low price of oil by cutting costs and focusing on operational excellence. While this sounds good, the term “operational excellence” is translated many different ways.
One source (BusinessDictionary.com) defines operational excellence as “a philosophy of the workplace where problem-solving, teamwork, and leadership results in the ongoing improvement in an organization. The process involves focusing on the customers’ needs, keeping the employees positive and empowered, and continually improving the current activities in the workplace.”
There is confusion over the true meaning of attaining operational excellence in the energy industry. A quick look at the top five energy companies’ websites reveals significant inconsistencies in the definition.
Trenegy defines operational excellence as aligning critical business processes, systems, and organizational capabilities to focus the company on its core mission and outpace the competition.
This simple definition has a lot of hidden complexity. Executives typically have differing views on what outpacing the competition means. Most companies do not have processes in place to ensure continuous improvement. Worse, there is little data collected to measure and benchmark performance.
Attaining operational excellence is important for energy companies. A correctly implemented program will allow a company to efficiently and effectively serve and retain customers with the desired margins. In other words, continuously improving what makes an energy company money until the organization is considered consistently the best.
What to Focus On
Energy companies can focus on continuous improvement in the following areas to achieve operational excellence:
- Safety – Focus on injury and incident-free operations to ensure the welfare of employees and those involved in daily operations. By involving these people in our business, we agree to send them home in as good or better shape than they arrived. Incident-free operations ensure that the infrequent yet catastrophic events never happen.
- Reliability – Operations must run as required. Companies that focus on built-in quality and maintenance will ensure reliability. Reliability is measured in uptime—the time business is operating toward what makes money.
- Major project execution – It’s important to retool or build upon the business through major projects, but only if properly managed to drive financial returns. Successful project execution is includes selecting the right projects and and planning to ensure a company’s growth.
- Efficiency – Do what makes you money better, faster, and at a lower cost than your competition.
While it sounds easy to focus on these things, creating a successful operational excellence program is like building a house. Start with safety as the foundation and end with efficiency as the roof. In the end, the house becomes an operational excellence management system which should keep a company safe and out of the storms of financial pain.
Simplifying Oilfield Services Bid-to-bill Process
by Justin Gibson
Oilfield services companies can improve work order processes and lower receivables by focusing on the basics.
A few months ago, we made a quick visit to an exploration and production company’s regional office in the Barnett Shale. The topic of our discussion was operating efficiency. During the visit, I noticed a three-inch stack of paper on the regional manager’s desk. Out of curiosity I asked him about the stack of paper thinking it was a series of reports corporate asked the field to complete. He said the papers were saltwater hauling vendor invoices that needed review. After lamenting the vendor invoicing process, he moved on to the purpose of our visit.
As I drove home, the image of the stacked invoices stuck in my head. I couldn’t help feeling sorry for the services companies who were probably wondering why payment had not been received. Many services companies continue to struggle with invoicing and need to improve the billing process. The solution is simple: Address how price books are used, how data is captured on site, and how invoices are processed.
Mention price books in an operations meeting and everyone in the room will begin to shift uncomfortably in their seats. Price books are perceived to be a hassle to maintain and they make it difficult for discount services to win work. These perceptions are common, yet unfounded. Price books can be a powerful tool for preventing customer price disputes.
An oilfield services client was suffering from a significant increase in days sales outstanding (DSO). After assessing the entire bid-to-bill process, we determined that inconsistent pricing was the primary cause of invoicing issues. Customers were receiving invoices with various rates depending on who was dispatching and working at the well site. After surveying more than 100 customers, the client quickly determined that rolling out regional price books would help eliminate confusion around pricing and invoice disputes. Customers were asking for consistent pricing!
The client developed new regional price books and posted them on a secure internal web portal. Dispatchers accessed the price books at the time of order to confirm pricing with customers and internal service staff. Office administrators used the information to validate pricing when completing work orders at the end of jobs.
Price book and customer contract maintenance was assigned to Accounts Receivable. Accounts Receivable found they could easily handle maintenance with the bandwidth gained from reduced disputes. Ultimately, the field managers saw the value in utilizing price books and eventually became price book champions in the regions.
Tool pushers often fail to capture essential information, including customer name, bill to address, lease/well number, AFE/PO number, contact number, county/parish, and company man’s name. Missing billing information leads to a large number of disputed invoices.
An oilfield services client was having trouble getting pushers to complete work orders in a timely manner. Completed work orders contained a large number of errors and company men signatures were delayed, often for weeks. The dispatch process was also inconsistent—call sheets and work orders were different for each dispatcher.
We developed a consistent set of call sheets for dispatchers to fill out when orders were placed. Pushers used the standard forms to capture information at the well site. After a short time, the customers’ company men became accustomed to the forms and were more comfortable signing upon completion of the job.
Once the standard forms were filled out and signed, the office administrator could enter the information into the system for invoicing. The amount of time researching pricing and the number of errors dropped significantly.
One of the major causes of delays in processing invoices includes the activities required for obtaining the (customer) company man’s signature. Most customers require the service provider to obtain their internal company man’s signature on the field ticket each time a work order is completed. Unfortunately, if the company man is not on site at the time the work order is complete, the salesman could spend countless hours chasing him down for the field ticket signature. This delays the receipt of the work order in the office for billing, which leads to delays in invoicing.
An easy way to solve this issue is by addressing the company man approval process during contract negotiation. A number of global services companies have negotiated email approvals for the majority of the services provided at the wellhead. Email receipt isn’t a difficult request since most company men have email accounts.
Disputes are quickly managed through email. Once email approvals are in place, electronic field tickets are not far behind.
Strategy for Success
The lowest average DSO that service companies generally achieve is 45 days. Achieving 45 is possible for any service company. Honoring pricing contracts, maintaining consistency with pricing, capturing correct information at the time of order, and delivering invoices in a timely manner are all crucial.
3 Cost-effective Ways to Improve Field Customer Service
by Nicole Higle
Oilfield services companies that survived the downturn did so by cutting costs and lowering the price of services to retain customers. With oil prices on the rise and stability returning to the industry, oilfield services companies must remain competitive to regain the lost revenue during the downturn.
Producers are demanding more from service providers. The increased producer demands include improved information, consistency, and responsiveness.
Capturing and measuring customer feedback is key to continuing to provide the highest level of service. The following steps can be taken to collect and measure customer reviews:
- Define key satisfaction metrics, such as overall service experience and likelihood of returning for repeat business.
- Determine how to consistently capture the established metrics. Consider presenting measures to the customer upon service completion.
- Drive home the notion that feedback should be captured by field personnel for every customer, every time.
Once quality metrics are established, service organizations should set clear guidelines and assign responsibility for documenting customer feedback. Any deviation from standard processes will cause the data collected to be unclear. Perform regular analysis on customer feedback. Analyzing the data is arguably the most important step to identifying trends, areas for improvement, and new service opportunities.
The final step is to set expectations for acting on the feedback received. Regional and niche service providers have the clear advantage here. They tend to be more flexible and work harder to improve service provided to compete with industry giants. Allowing the business to see how customers view the services they were provided encourages all levels within the business, from management to field hands, to take ownership in remediating negative feedback.
Service organizations should have a single point of contact as the face of the company throughout the customer experience. Lacking a single source of contact leads to heightened customer frustration. Multiple rounds of relaying the same information before connecting with the appropriate individual does not earn a positive customer service rating. Providing a designated account manager helps to create a hassle-free customer experience.
Many field service companies experience customer dissatisfaction after receiving an invoice with surprise or incorrect charges. A field services organization found the clear majority of disputed invoices were attributed to pricing inaccuracies. The company underwent a standardization initiative to set contract terms, pricing agreements, and customer guarantees up front, before work is performed. This initiative resulted in a significant decrease in the number of disputed invoices received and improved collections. This standardization also improved the SOX controls environment and reduced external auditor fees.
Another method to boost customer ratings is striving to deliver the highest quality service. Producers who have a negative service experience are likely to spread the word resulting in a bad reputation in the market. Incentivize employees with direct customer interaction to maintain service quality. Include these employees in feedback review sessions to help enforce accountability for service delivery.
Producer complaints often point to inadequate or late communications. Get ahead of the curve and train your organization to communicate all updates—big and small—to the customer. Updates may include service delays, crew and equipment changes, or additional service needs. In this arena, over-communicating is always the best solution.
Consider employing a platform business model to keep producers connected to critical data, such as contact information, quotes, field tickets, and invoices. A west Texas drilling company utilizes a platform of this nature, which serves as a customer self-service portal enabling both parties access to shared data. With a self-service option, customers can log in to retrieve real-time job and billing information, which limits the time service providers spend addressing basic customer inquiries. Being transparent and sharing information improves producer confidence in the service provider.
Don’t settle for the status quo. Differentiate as an oilfield services provider. Act on customer feedback, reduce the number of dissatisfied customers, and maintain connectivity with existing customers.
Crew Pushers and Technology: It’s Not like Oil and Water
by Peter Purcell
Why do most oilfield services (OFS) companies hesitate to deploy technology to streamline the field ticket process and live with the inherent billing errors and delays associated with paper forms? It boils down to three things: access, ease of use, and rewards.
My father is a retired pipefitter who spent 45 years working in a variety of inhospitable environments installing and repairing pipelines, compressors, valves, and pumps. The family joke is that Grandpa Del, a union-card carrying, gruff, teddy bear of a man, can weld the perfect bead while manipulating the controls of a pipe bending machine in a blizzard with his eyes closed standing on one leg. He probably could.
The family secret is that my dad spends hours a day on his laptop. He sends and receives e-mail, banks online, co-hosts a Vietnam veteran’s blog, and loves to Skype his grandkids.
Recently, his dog knocked the laptop off the kitchen table. It took an act of congress to get my 72-year-old father to hold off buying a new laptop and let me send him one of my spares. He was pretty perturbed at waiting three days to get back online. I received phone calls just about every hour asking me to track the shipment until he received the replacement.
How did this man with plate-sized hands become so attached to a technological tool that most OFS companies are hesitant to give to their pushers or project managers? It was easy. We bought him the laptop.
At his retirement dinner six years ago, my dad expressed interest in emailing his friends. We went out and got him a new laptop that evening. My son made the laptop simple to use by removing all applications except email and internet access, which made it hard for my dad to get lost. Finally, we gave him the ability to Skype with his grandkids. I am not sure why he wanted to Skype my kids, but communicating with his friends and family rewarded his efforts to use the laptop. The rest he figured out on his own.
A number of our OFS clients have followed the same simple formula to deploy tools that streamline the field ticket process and reduce contract leakage, billing errors, and cash collection times.
There is still a general perception that people who work in the field do not have the interest or capability to care for and use technology on the job. This perception is wrong. One of our clients was required to implement a safety and tool certification program in order to win a large contract. QHS&E determined that the existing paper-based process would not support the contract requirements. We helped the client select a laptop-based solution that would provide work crews with the latest policies, procedures, and equipment certification. With great trepidation, 300 new laptops were loaded with software and sent to all crew pushers. Senior management was convinced that the laptops wouldn’t last more than a few weeks in the field before they were destroyed. In meeting after meeting, IT described how the laptops were going to be dropped in the mud or slide off pick-up hoods as the pushers drove from site to site.
Their predictions could not have been more wrong.
Six weeks after the laptops were deployed, our client found that only four laptops had failed. The failures were due to bad hard drives installed by the manufacturer, not as a result of rough handling by the pushers.
Two months after the laptops were sent to the field, an even more interesting phenomenon occurred. The crew pushers had figured out how to use the laptops to make it easier for them to process field tickets. During a follow-up audit, the QHS&E group found more than 60% of the pushers had created digital field tickets in Excel or Word. When asked, the pushers stated they had worked with everyone from their kids to office administrators to figure out how to duplicate the field tickets electronically.
Pushers said paperwork was cut by more than 70%. Peer pressure drove other crew pushers to figure out how to use the laptops. As a result, billing disputes and contract leakage dropped dramatically for these crews and their offices as a whole. These positive changes occurred because the crews had access to the one tool that they supposedly could not handle.
Ease of Use
One of my clients spent a significant amount of money deploying sophisticated electronic work order processing on laptops to their project managers. Within four months, the business case for reducing the number of administrative personnel, contract leakage, and billing errors was not being achieved. In fact, the number of administrative personnel and DSO had increased dramatically.
We were asked to determine the cause and found that the new system was too hard to use. The system was developed without participation by the project managers, which resulted in an excessive number of screens to navigate and fields to populate. Company men lost patience while waiting to sign the work orders and left before project managers were done. Days, and sometimes weeks, were added to the work order completion approval process. Project managers started creating their own paper forms and stacked their laptops in field offices. Customers complained and our client lost business to the competition.
We asked the project managers what could be done differently. Should the company move back to a paper-based system? They said no.
In less than a week of facilitated sessions, the project managers helped redesign the system to reduce the number of screens and data entry fields, as well as make the system more graphical. The simplified design more accurately reflected what they did day-to-day. Special projects or odd jobs would be tracked outside the system.
The new system was piloted at two locations where previous acceptance was the lowest among 42 offices. The project managers on the pilot were hesitant at first, but quickly adapted to the new system. They made a few suggestions for changes and universally stated this should have been rolled out the first time. The system was rolled out to all locations within three months. A field audit seven months later has shown that the original business case has been exceeded and more than 99% of project managers use the tool daily.
Ensuring the tool is easy to use and supports common work ticket activities is critical to success.
Reducing the amount of time it takes to fill out paperwork should encourage the use of new tools, right? Not always. Some of our clients find their crews work in hostile environments where unshielded electronics are not allowed. This means the pushers or project managers have to capture critical information on paper and rekey into their laptops later.
Paper ends up piled on dashboards and often does not get transcribed into the system until days later. Billable time or equipment usage is forgotten and is not invoiced. Company men cannot remember exactly what was done and are hesitant to sign documentation for payment.
We helped one of our clients determine how to encourage their pushers and project managers to enter information into their work orders and field tickets more quickly. We randomly visited 15 projects and determined the project managers were under-invoicing by more than 20%, and that was when the project managers knew they were under scrutiny! It is likely that the actual number was more than 30%.
We led a series of workshops with a number of operations and project managers to determine what would encourage better compliance for using the work order system and increasing the accuracy of billing. The team determined that a bonus structure of 3-5% based on timeliness and accuracy was the best solution. Timeliness would be measured between project completion and company man signature. Accuracy would be measured based on the results of random audits. Simply stating that it’s part of the job and one would be fired if they did not comply was not an option. Project managers are in great demand and they could easily leave to work for the competition.
Within six months, the average revenue for these projects increased by more than 26%, DSO dropped by more than 15 days, and billing errors were all eliminated.
This improvement was the direct result of rewarding the appropriate behaviors.
Deploying technology to the field should be simple. Many software companies and consulting firms will try to over-engineer solutions that are expensive and difficult to use. OFS companies can take advantage of tools to support field-level operations if there is a focus on ease of use and rewards.
Your Field Mobility Tool Isn’t Broken: 3 Steps to Ensure Its Success
by Katy Wyrick
Many oil and gas services companies still opt to use a manual process for scheduling service delivery, gathering field data, and translating that data into various systems. But in this day and age, there are abundant options to perform the same activities in a more accurate and efficient way.
A field mobility tool is an application installed on handheld devices, such as a tablet or smartphone, that enables field technicians to capture, send, and receive data to be used by several departments across the company. Yes, the tool is geared toward and primarily used by field technicians going to customer sites, performing a job, and finalizing invoice information. But the process doesn’t end there. Once the job is done, how does the captured data impact the rest of the organization?
There are consistent pain points we see across the services industry that can be addressed and resolved when introducing the right, fit-for-purpose mobility tool. The tool will introduce vast benefits that impact all aspects of the company, if selected and implemented the right way.
3 Common Pain Points and Benefits of a Mobility Tool
1. Internet connectivity
Issue: Most commonly, oil and gas services companies and their personnel travel to desolate or off-shore field locations where internet connectivity is sparse or nonexistent. This disconnect is the most disruptive issue and impacts real-time, daily activities. Without communication between field personnel, back office coordinators, and integrated systems, the process takes much longer to complete. As a result, field users find their own creative ways to get the job done.
Benefits: By implementing a field mobility solution, the dispatcher has the ability to view a technician’s availability and schedule jobs accordingly—a completely automated process. When technicians receive job notifications electronically, they can review details including job specifications, location, pricing, and parts needed to complete the service. A standard scheduling system also allows for quicker scheduling time and reduced mis-bookings.
But what if internet isn’t available once the technician arrives on site? No problem! The mobility tool will store the job information offline, which can be reviewed with the customer prior to beginning work. Once the work is complete, the technician can update the electronic field ticket to reflect actual time and materials used capture the customer signature and submit the ticket for invoicing. A copy of the field ticket can even be sent to the customers email straight from the handheld. Data can be collected offline and will immediately sync with integrated systems the next time the device is connected to the internet.
Of course, many customers in the industry do still require paper field tickets with job details. Even without internet connectivity, the mobility tool can directly connect to printers on site or in the technician’s vehicle and print the updated information and signatures.
2. Information gathering
Issue: In the world of hand-written field tickets, a dispatcher will quickly jot down job details on paper field tickets, but complete and accurate customer information is rarely collected. And is that a coffee stain? When the dispatcher is in a hurry or half-heartedly filling in the paper form, information is sloppy, incomplete, and often illegible. Additionally, many services companies do not have standardized templates for pricing from a price book and collecting customer requirements.
Benefits: By implementing a field mobility solution, end users are required to provide all necessary information up front. Price books can drive job pricing based on area of operation, and required job details will always be provided. This will ensure all information required for customer billing is captured and sent to the invoicing group upon job completion and the data is actually legible! Accounts Receivable clerks spend much of their time reviewing field tickets and reaching out the field technician for guidance, but most of all, they are coordinating invoice details with the customer. When all information is available and the customer signature is provided, there is not much a client can dispute. Ultimately, this leads to decreased Days Sales Outstanding (DSO) and personnel overhead expenses.
3. Integration with ERP
Issue: A field mobility tool is a standalone solution that incorporates the scheduling, pricing, and field information gathering processes. When a field ticket is sent to the back office, the accounting staff must re-input the information from the mobility tool to the accounting system. This is a dual effort and an unnecessary use of time. Maintaining a dual effort input process is feasible, but it’s not ideal as it increases the risk of human error and overall process timeline.
Benefits: Building an interface between the field mobility and accounting system doesn’t happen overnight, but with the correct ERP system and third-party integrator, the long-term benefits are well worth it. Such integration helps further reduce DSO by removing the need to enter data in multiple databases and reduces customer disputes, which are often due to human error. Overall, an automated and streamlined order-to-cash process reduces the company’s DSO and SG&A and increases process efficiency and customer satisfaction/retention.
How to Ensure Success
1. Select a fit-for-purpose tool. Many companies will select a tool that is demonstrated as a fully-functional and robust solution. We often find the company is over-promised and under-prepared to take on the implementation on their own. Conducting a full field mobility system selection is critical to ensure a successful implementation. Reviewing several options, comparing functionality to company requirements, and performing a Total Cost of Ownership (TCO) comparative analysis gives the company the information needed to make the most fitting long-term decision.
2. Identify the right resources. Along with engaging the right consulting company to perform a system selection, a company should asses the appropriate project managers to guide the implementation. The worst approach a company can take is not planning the implementation steps, resources, budget, and timeline. Internal resources and third-party integrators should be discussed and determined early in the planning stage to delegate responsibilities and expectations and to reduce unknown factors and downstream issues.
3. Engage end users. Focus on change management and get all users involved to buy into the project before it begins. Choose key resources who are hardworking and respected by their colleagues. Interview and understand what makes their jobs more difficult (see above for their answers), and determine how the implementation would benefit their job. If stakeholders are engaged from the beginning and included throughout the duration of the project, their coworkers will understand the reasoning and have the ability to see the benefit. Although not all end users will buy in quickly, introducing the idea early and reiterating the long-term benefits will increase user buy-in.
Many companies are living in the stone age of manual field processes. There are plenty of failure anecdotes to deter companies from making the plunge into digitization. However, the reality of the benefits of digitization are easily realized when a tool is selected and implemented correctly. When the current manual process is compared against the long-term benefits of the right field mobility tool, the answer is simple.
Three P’s of Effective Field Service Automation
by Peter Purcell
A version of this article first appeared on CIO.com.
The economy is driving companies to mine value from key revenue-generating functions. The most value typically comes from reorganizing the sales and service functions while implementing new, efficient processes. Another way to find value is by focusing on operational excellence, which can reduce costs as a result of improved safety and reliability programs. As new processes and programs are introduced, many companies quickly realize the need to implement field service systems accordingly.
Field service solutions can eliminate paper-based systems and support processes while providing timely information to field employees.
However, selecting the right field service solution is a bit like hugging a porcupine. It must be done carefully given the impact on field employees. After all, field employees are the ones performing critical, customer-facing processes that generate revenue.
How can a company confidently determine which solution will support field employees efficiently and effectively? Consider the following:
Which processes should be automated? This question is often given little thought. Many companies assume that all activities performed by field employees can be supported by field service automation no matter how non-standard the activity. As a result, companies often select and start implementing field service solutions only to stop mid-project as budgets are significantly exceeded.
Field service solutions work best with standardized processes. Given the broad range of activities performed by field employees, determining which processes should be supported by a solution can be difficult. The most obvious processes to be considered include those that are checklist or form-based, including safety incident reporting, inspection, maintenance, and work tickets.
Standardizing these forms and processes across divisions and geographies is challenging. Create an inventory of forms reports and work flow supporting each process. Work with the divisions and geographies to determine if existing forms and processes can be standardized. Expect resistance! A lot of resistance! The business case for standardization should easily trump the “we don’t do it that way here” syndrome. A field service solution can be considered once agreement on the proposed future state is obtained.
Many field service solutions are sold as SaaS (Software as a Service) cloud-based software. The SaaS model is designed to help ensure reliable service without additional IT hardware or support personnel. The functionality of many SaaS solutions is based on the assumption that field employees have internet connectivity 100% of the time.
Unfortunately, expecting internet connectivity 100% of the time is unrealistic in many industries. Crew pushers, field mechanics, and field service technicians often work in environments that are out of range. Only consider solutions that provide robust functionality in disconnected mode.
The optimal solution will download all the necessary information to support field employees as they perform day-to-day tasks. At a minimum, this should include work tickets, price lists, engineering drawings, and checklists. The solution should also allow field employees to enter changes to work tickets (including pricing) and capture key checklist items. Once the employee gets back into range, the solution should sync with the cloud. Local databases and software should be updated at the end of the sync process.
“This new solution will not work for me!” Put a new technology solution in front of field employees and the reaction will be almost unanimous. Why this reaction from the same people who have no problems navigating smart phones when not at work? Perceived difficulty in navigating and using a new technology tool leads to resistance.
Watch these employees in the lunch room on smart phones and you’ll see a lot of poking at the screen. Smart phones are “pokeable.” Menu layouts are intuitive and activities require few screens to navigate. Unfortunately, many field service solutions are quite the opposite—very hard to navigate with many screens capturing small amounts of information.
Field service solutions that support menu and screen simplification through configuration will be easier for field employees to accept and use. Getting to screens that support key processes should use no more than two menu drop downs. Each process should be supported by no more than two or three screens. Workflow should support approval processes with a minimal number of steps.
Additionally, one of the biggest mistakes companies make is selecting a solution that supports both tablets and laptops. Choose one platform or the other and optimize features and functions for touch or keyboard. It is difficult and costly to choose both. Think Microsoft’s Windows 8 release.
Choosing the right field service solution to improve customer service must be done carefully. The biggest challenge will be process standardization, but don’t let that be a barrier. Expect initial resistance, but don’t let that porcupine scare you. Implementing a field service solution in the right technical environment can reduce costs and increase efficiencies, all with the greatest ease of use.
You Never Bring Me Donuts Anymore: Changing the Sales Model in Oilfield Services
by Peter Purcell
How do oilfield services (OFS) companies change the habits of a stagnant sales force that follows the timeworn model of delivering donuts and running up big expense tabs as their primary sales technique? It may be easier than the pundits would believe. The sales force should think less about selling individual products and transaction services and more about how to work with their customers to design and support critical exploration and production projects.
Several years ago, I had the privilege of meeting with a seasoned OFS executive from Baton Rouge who had successfully started, grown, and sold three services companies over a 40-year period. The conversation quickly focused on what he did to beat the competition in the oil patch. “In the early days, it was easy,” he said. His sales teams found out which bars company men frequented after a hard day at the rig. They would run up a large bar tab, buying round after round for their thirsty companions. By the end of the night, sales team members were best friends with the company men and left with a contract for services (aka a hand shake).
I asked the executive how he felt things have changed over the years. He lamented that centralized purchasing and the use of supplier analysis for selecting services has trumped watering hole relationships. As a result, the old ways of selling OFS no longer apply. His sales force needs to spend less time on the golf course and more time understanding prospects’ procurement processes and determining creative ways to win work. If he were starting a company today, he would have his sales force do things differently. He would have his sales force prioritize customers, provide a little lagniappe along with the sale, and understand their real problems a little better.
He reiterated that service companies who cannot figure out how to partner with customers will never be market leaders and grow.
Since then, we have watched numerous OFS companies over the years successfully adapt to their customers and partner with them to solve their most difficult challenges. These service companies followed my old friend’s suggestions of prioritizing customers, differentiating services (lagniappe), and earning the right to partner with their customers.
First, focusing on the right customers is all about setting the right strategy. There is a general feeling that all good OFS sales people are self-motivated, aggressive, freelance mavericks who chase and close every opportunity. Any imposition of structure around the sales process will result in a mass exodus of these valuable and irreplaceable individuals. Most OFS companies would consider the scenario of losing key sales people frightening and paralyzing. The fears may be unfounded.
One of our clients was losing market share and could not understand why. They had a very aggressive sales force that delivered a lot of donuts and seemed to close a lot of deals. However, margins were not meeting forecast, cash collection was low and major customers were moving to the competition. We performed a quick analysis and determined that the sales people were pursuing small companies that were eager to sign contracts for services. Larger prospects were ignored. Meanwhile, the competition had stopped doing business with these smaller companies because they were cash-strapped and not paying bills. Larger prospects required hard work to close the business.
We worked with the SVP of Marketing and Sales to develop an account management strategy for the company. The team visited with the top customers to understand why our client was losing business. We quickly found that the sales force was focused on selling to project managers and not spending time with people managing the sourcing selection process.
The sourcing programs were doing business with OFS companies that:
- bundled services across geographies and service offerings
- scored well within the customer evaluation process
- had sales teams who were willing provide the focus and resources to determine how to leverage new technologies and services to solve critical problems
Our client quickly created ten account teams that consisted of sales people, engineers, and operations personnel. These teams were assigned to the top ten customers and given a clear mandate. The sales people would spend their days at assigned accounts and not call on anyone else. The sales people would work hard to understand the procurement process and be ready to respond quickly to requests for services. The team would work together to identify cost effective solutions for customers. Senior management was nervous because the account focus was a different model and there was concern the sales people would leave because they were no longer involved in maverick sales activities. The selected sales reps were now responsible for a more thorough approach as part of a team.
Within six months, it became clear that the account team approach was working. Sales within the top ten customer base rose more than the decline in the transaction sales loss. Margins on services were high and post-project audits revealed excellent customer satisfaction. Over the next year, billing disputes and contract leakage dropped dramatically. Our client decided to revisit the rest of the customer base to determine which should be treated with the same level of focus and which should be treated as transactions. Although there was some voluntary turnover, our client found this to be a blessing in disguise.
Differentiate Services (Lagniappe)
Providing a little more service with the sale can make the products OFS companies offer less of a commodity. Drilling mud is drilling mud, right? Not always. Mud mixes change based on the porosity, salinity, bottom-hole pressure, and a variety of other formation characteristics. Branded additives are often included in the mud mix to address drilling lubrication needs. However, these branded additives are not what drives the customer’s decision—price and availability usually do.
A drilling fluids company developed a laptop-based application to help their mud engineers more quickly determine the appropriate mud mix. The application was integrated with the order entry system to ensure availability of the appropriate components when a mix was approved by their customer. Substitutions would be suggested when certain components were out of stock. Used correctly, the system would help prevent rig downtime if the mud components were missing or the mix was wrong.
The drilling fluids deployed the system along with new laptops to all mud engineers. During the deployment process, a number of customers heard about the system and their company men requested the software and training. The initial group of trained customer company men used the software to double check the competition’s mud mixes. When errors were found, the company men told their peers and recommended using the application to other customers. The drilling fluids company’s customers started sole-sourcing to them. We asked the company men why.
The answer was simple. There is a high level of value in the tool, which translates to a high level of confidence in our client’s ability to deliver. Heavy discounting is no longer necessary and margins are well above prior years’ margins. In the future, there are plans to allow the company man to order mud directly through the application.
The drilling fluids company would not have achieved the sole-source status by pursuing a traditional sales strategy. Other OFS companies can use a comparable differentiation approach to get similar benefits.
Finally, fully understanding the customer’s real problems can only be achieved by partnering with them. Most of our OFS clients never question the content of the requests for proposal (RFP). At times, cost is the primary focus and responses are developed without questioning critical technical components.
A cost-focus approach can lead to a variety of challenges at the drill site if well construction design is not adequate or specified equipment was undersized. Improper scoping inevitably adds unnecessary costs and may create other safety and environmental issues. In some cases, RFPs are drafted by new engineers and procurement personnel who have never been in the field. The more seasoned personnel with field experience reviewing the RFPs are often overworked and may miss critical items.
We were engaged by a mid-sized drilling company to review their bid-to-bill process because they had recently lost several significant opportunities. Their equipment was relatively new and their day rates were reasonably competitive. We analyzed the RFP responses and interviewed project managers and engineers from the prospects. The responses were eye opening. The competition had reviewed the RFPs and had suggested ideas for the well construction design and other equipment. This was provided in addition to the RFP response. Our client typically provided a few recommended changes to the project, but not at the level provided by the competition.
We led a series of workshops with a number of account teams to identify ways to combat the competition. The teams suggested assigning engineers to each project, from RFP response through well completion. The engineers took ownership for the entire project and were available for the customer during the sales, deployment, and drilling processes. There was initial pushback from customer prospects but now the engineers are welcomed as partners in the process.
Two years later, these engineers are in high demand by repeat customers. Marketing and sales costs have dropped and margins are increasing. These engineers are considered as partners by customers and are often invited to review well construction designs before RFPs are issued.
Selling services to oil and gas companies is no longer a simple task, and the methods of the past are no longer effective. Success in the market is based on the ability to understand who should be customers, providing more service with the sale, and becoming a partner.
4 Keys to Automating the S&OP Processes
by Julie Baird
Manufacturing companies’ ability to compete often hinges on meeting customers’ delivery expectations. Customers want the product when they want it, and delivery failures result in customer attrition. With the introduction of platforms connecting producers to consumers, moving from one supplier to another can happen overnight. Unfortunately, customer product demands are difficult to predict. Customer unpredictability requires manufacturing companies to closely manage the balancing act between material requirements, production capacity, and inventory levels.
To address the predictability challenges, manufacturing companies must have a robust integrated business planning process aligning sales, operations, and finance. In many organizations, the Sales and Operations Planning (S&OP) process is disjointed and cobbled together with various spreadsheets and emails. Companies can leverage technology to innovate and streamline the S&OP process. An S&OP platform can automate processes across sales forecasts, demand planning, materials planning, network optimization, and financial planning.
Keep in mind, processes must first be standardized and organizations aligned before investing in a technology solution in order to realize any real benefits. Before starting an implementation, consider the following:
Know where you stand today. Business functions operate in silos and have unique processes, systems, success metrics, and terminologies. Understanding the current state and identifying pain points within the process is key. For example, the sales organization speaks in “dollars” and the plants speak in “units.” This means the pricing process must be well-defined to interpret what sales is saying versus what the plant must produce. Assess current processes across the supply chain, then determine actionable steps for improvement. Automating an ineffective process will not yield greater effectiveness. Be realistic about the current state and develop a plan to implement the desired future state.
Roles within the organization will change. To effectively implement and utilize a S&OP tool, everyone involved in the S&OP process should understand their individual role and accountability. Undefined roles and responsibilities lead to duplication of effort and multiple versions of the truth. The plant receiving one forecast from sales and yet another version from the demand planners will experience confusion and second guessing. Developing a RACI (Responsible, Accountable, Consulted, Informed) model for each step in the S&OP process is a great tool to align roles. Clarifying how each individual contributes to the S&OP process and fostering collaboration across teams is essential to success.
Data is everywhere. Identify authoritative data sources and clearly define data inputs, calculations, and outputs. Most companies with a manual S&OP process have data stored in multiple systems, spreadsheets, servers, and hard drives. With data coming from multiple sources, companies spend the majority of the time validating the data, leaving little time for analysis. Demand Planners plan production at a product SKU level, and finance forecasts production at a product line level. The two versions are rarely reconciled or shared between operations and finance. This creates a tedious and time consuming task, leaving little time for analysis. Before implementing an S&OP tool, the team should design a data model that aligns the company’s sales, financial, supply, and operations planning process and requirements.
Build consensus among key stakeholders. It is difficult to argue the benefits for implementing a platform for S&OP process automation. Sales, finance, operations, supply, pricing, marketing, and product management teams must be aligned, given the cross-functional nature of S&OP. Establishing who will be accountable for the S&OP implementation isn’t always easy. Organizations need top management from commercial, finance, and operations commitment to be aligned. This includes aligning project objectives. A good exercise to start the S&OP implementation, includes developing S&OP guiding principles. The guiding principles set the tone for the implementation and give all functions a clear understanding of the path forward. Any disagreements will be resolved by the guiding principles for the project. With executive leadership and buy-in from key stakeholders and the rest of the team in place, the S&OP process can succeed.
While technology can automate and simplify the S&OP process, the processes, data, organization roles, and expectations must be aligned across the business.
The Blind Men and the Elephant: Why Major Spares Should be Managed Centrally
by Gracilynn Miller
In the old anecdote of the Blind Men and the Elephant, six blind men each describe an elephant based on the part they touch. One man describes the elephant as a snake while holding the wiggling trunk. Another describes the elephant as a tree while feeling the knee. Not one of the men has a complete picture of the elephant since each only knows a small portion of the truth.
Decentralized management of major spares inventory by drillers often leads to the same result—a disjointed approach based on limited viewpoints.
In a decentralized model, local operations exercise greater autonomy while held accountable for their P&L. This structure is often necessary to meet the differing complexities presented by each geography, but it poses a challenge for managing major spares at the local level. A local operation often lacks the time, incentive, and visibility to make decisions that are in the best interest of global operations and rather does what is best for its own bottom line. The result of decentralized major spares management is often suboptimal sourcing decisions and excess or poorly maintained inventory that sits in the shipyard.
How can offshore drillers effectively manage the most critical, expensive, and highly technical inventory across a worldwide fleet? Major spares should be managed by a group who understands the technical, operational, and financial components of managing such specialized equipment. Then, it is important to do the following:
1. Determine scope of major spares
Develop and prioritize criteria for what constitutes a major spare. Criteria may include the potential for safety incidents in case of spare failure, cost of spare part, and lead time for fixing or replacing the spare. The major spares group manages equipment that meets the set criteria while all other inventory is managed by supply chain. The group also oversees major spare processes including sourcing, inventory planning, certifications, technical specifications, and retirement decisions. The group needs full visibility of inventory within its scope across shipyards, warehouses, and assets worldwide. When disputes arise regarding needs for major spares across geographies, the major spares group has the final say. Centralized management supports improved longevity of assets and financial decisions regarding inventory levels and allocations of spares on a global scale.
2. Centralize decision making, decentralize execution
The central group manages major spares, but coordinates with other parties (and geographies) affected by major spare activity. This includes consulting with the projects group regarding impact on newbuilds and overhauls, operations regarding their needs and concerns, and supply chain regarding the procurement and warehousing of major spares. While decisions are managed centrally, this does not mean all spares should be stored in one central location. In fact, spares should be located close to local operations at strategic hubs that serve particular regions. The goal is to find the right balance between enabling a quick response to operations and achieving economic cost efficiencies through pooling resources.
3. Align processes to support the new major spares program
Decide and communicate how decisions will be made going forward and the action steps required for activities involving major spares. This entails eliminating, modifying, and adding policies and procedures to reflect the new major spares process. Part of this process is data input, as the output is only as good as the data entered into the system. If end users lack uniformity and transparency of maintenance tracking or inventory levels, the major spares group will lack visibility into the information it needs to make informed decisions at a global level.
4. Ensure the right systems and tools are in place
In order to have global visibility into the major spares inventory, the company needs a tool that captures inventory levels and tracks maintenance across geographic locations. A user-friendly system will increase likelihood of effective data entry. A critical step often missed is the initial configuration of the system to meet the information and reporting needs of the business. Once in place, end user training and acceptance testing will allow the users to learn the system and catch any issues that need fixing for a smooth go-live.
While there are unique complexities faced by each company, Trenegy has the industry experience to help companies tailor solutions to meet their needs.
Creating a Disciplined Construction Process: 4 Practices for Midstream Companies
by William Aimone
Although acquisitions are a quick way to expand midstream operations, midstream companies are also presented with opportunities to grow organically. Organic growth requires disciplined engineering, construction project management, commercial operations, and processes. The glue that ties the process together is a disciplined Authorization for Expenditure (AFE) process. The commercial modeling of projected revenue from producers, engineering estimates for construction, and project management must be linked throughout the AFE process.
The ultimate goal of the AFE process is to minimize the variation between the budget and actual value-add curve. Create a disciplined and streamlined AFE process to minimize value-add variation:
1. Make the AFE central
The AFE should not be viewed as merely the document used to obtain approval for beginning the planning and construction process. The AFE should extend across the budget, forecast, commitments, and spend. The AFE should be connected to the GIS, land, accounting, procurement, and forecasting systems. For example, we helped a client build an AFE process linked to each of these systems. Any recorded changes to the land right-of-way (ROW) and GIS data are connected to the AFE. Purchase commitments, forecasts, and actual spend is recorded against the appropriate AFE line items. The AFE system is part of a hub that provides one place for reporting and analysis of midstream value-add projects.
2. Capture initial assumptions
The initial assumptions used to budget the construction project should be captured and recorded as a part of the AFE. Key considerations such as ROW costs, pipe cost per foot, and compression requirements should be documented. Inevitably, a variation will occur. The ability to look back at engineering assumptions to improve projections over time is key to continuous process improvement. When the project is complete, you will have information to perform a thorough analysis of budget versus actual assumptions.
3. Measure accountability
Project managers leading a construction process are accountable for completing the project on time and within budget, and managing cash flow requirements is vital to maintaining investor confidence. Therefore, project managers should be accountable for accurately projecting cash flow requirements. The projection of cash commitment timing and estimated cost to complete should be tied into the AFE forecast and possibly an updated budget. One of our midstream clients monitored their project managers’ forecasting accuracy on a sliding scale. Forecasting accuracy expectations were set at certain thresholds based upon time horizons.
4. Involve the project manager early
The project manager should be assigned as soon as a commercial opportunity is identified. Often, commercial terms are set based upon expectations of the project manager’s ability to meet cost, quality, and time commitments. The project manager should be a part of these discussions and provide input to the terms of the agreements with producers. For example, the project managers have intimate knowledge of availability of materials, labor, and equipment. A labor shortage in a particular basin will impact delivery and cut overtime.
Trenegy encourages our clients to use the AFE process as a mechanism for ensuring cost, quality and time targets are met for all construction projects. Trenegy specializes in helping companies design and implement AFE solutions to manage the entire construction lifecycle.
Drilling Through a Downturn
by Michael Critelli
This article was originally published in 2015, and data/statistics in this article reflect that.
Offshore drilling companies are the first to feel the blow of dropping oil prices. No matter the size of the organization, a downturn hits stock prices across the board: Transocean, Ensco, Seadrill, Atwood Oceanics, and more. However, an immediate change in stock price is not always a true representation of performance.
Stock market valuations give us a sense of analysts’ speculations regarding a company’s future value. In reality, falling oil prices won’t impact drilling company operations for six to eight months.
Much of this lag is due to the long-term nature of drilling contracts. Large contracts are developed six to twelve months before a job begins. Offshore contracts usually last between one and six months. Consequently, drilling companies only recently feel the results of lower demand. Likewise, old contracts are paid out at rates set a year ago.
Oil Price Politics
According to Scotia Bank Research, Saudi oil costs about $17/b and U.S. oil costs about $55/b, on average. Saudi Arabia’s refusal to cut production has created a 1.7 million barrel/day oversupply, forcing oil prices to unforeseen lows. In previous years, the Saudis have cut production with the intention of raising prices and margins.
Analysts and economists are proposing various motives and alternative causes for the refusal:
- The Saudis want to hurt the Russian and Syrian economies.
- The Saudis are intentionally preventing U.S. oil production from surpassing their own.
- The Saudis intend to level off the market in order to lower costs.
- The U.S. caused the oversupply, not Saudi Arabia.
- China’s decline in demand growth caused the oversupply.
However, while low oil prices are a predominant factor impacting offshore drilling operations, the market is also saturated with a glut of new builds raised in the midst of the $100/b frenzy.
Below is a historical look at rig count fluctuations during other downturns:
Expect to see companies react to the downturn by stacking old rigs, implementing cost cutting measures, and making strategic investments.
Rig Stacking – Based on historical rig counts (Table 1), it’s safe to say there will be fewer rigs utilized in the coming year. Old rigs and jackups are dangerous assets to own in excess when large producers move away from the shallows and into the deep, higher-producing basins to counteract bad oil economics. Companies with a high concentration of old rigs and/or jackups will suffer the most in this downturn.
Cost Cutting – Oil and gas industry veterans know that downturns are inevitable. Widespread cost cuts through layoffs and divestiture are standard early measures. This month, BP announced it will cut 300 jobs in the North Sea, Baker Hughes will lay off 7,000 employees, and Schlumberger will cut 9,000 jobs. If oil prices don’t rebound, expect more cuts across the industry.
Strategic Investing – In conjunction with divestitures and spinoffs, acquisitions are forthcoming. The fat cats (large companies with lots of cash) love the buyer’s market created by downturns. In the year ahead, smaller companies will shed excess assets to improve balance sheets. Bigger companies with liquidity will buy up assets or organizations to invest in their own futures.
Preparing for an Upturn
The most important question is: How long will this downturn last?
Historically, oil price drops and corresponding downturns last between six and eighteen months. This is generally enough time for demand to catch up with supply and for oil producers with high debt to exit the market. In other words, one year is the average amount of time the market takes to correct itself. We will likely see a price correction (toward $70-80/b) in the next 12 to 18 months, but expect a more volatile market going forward.
Despite the downturn, according to Business Wire and Rig Data, demand for drill ships and semi-submersibles is growing. Drilling companies who commissioned new drill ships and semi-submersibles in the past 15 years will have an easier time weathering the storm. Expect these companies to maintain stable revenue and make strategic acquisitions.
Offshore drilling companies who have prepared through investing in new rigs, cutting overhead costs, and selling off old assets will have fewer problems weathering the storm. Companies with excess overhead, debt, or old rigs will stack rigs, divest assets, and take other serious cost-cutting measures to survive.
Fundamentals of a Successful Project Manager
by Adam Smith
When it comes to planning for a major initiative, such as a merger integration or ERP implementation, a lot of time and effort goes in to determining the proper project management methodology, defining team roles and responsibilities, creating and maintaining project plans, and providing status updates to executives. And rightfully so. All of these tools are necessary to see the initiative through to completion.
The project manager (PM), while often involved in planning, is ultimately responsible for a successful execution. No matter how carefully frameworks and plans are put together, when the starting gun goes off, a certain level of chaos is inevitable.
So how does a PM maintain control, ensure project success, and maybe even retain their sanity? Focusing on the basics and establishing core fundamentals is a good place to start. Below are some suggestions, in no particular order, that have worked well for successful project managers.
(Author’s note: Some of the fundamentals listed have been proven to work. Others made the list assuming that the inverse of what did not work most certainly should work. You get the point. Enjoy.)
Manage Your Time First
- Be selfish about reserving time for performing your tasks. If you aren’t, you’ll find your team members will be more than happy to consume your calendar.
- Learn the signs of stress and figure out a couple of ways you best relieve it. Then do it. Is it running? Go for a run. You think you don’t have time, but you’ll actually get more accomplished if you manage stress and stay healthy.
- Tackle the day’s most arduous task first. It will consume your thoughts all day if you don’t.
Maximize Your Day
- Mornings can be the most useful. Take advantage of the calm before the day’s storm to catch up, organize your thoughts, and plan for the day.
- Prepare to miss lunch. Keep a stash of granola bars, yogurt, or other snacks around to get you through a long day.
- Come to terms with unread emails in your inbox. You know the priorities at any given time, so prioritize reading and replying to emails accordingly. Get the rest from your team meetings, even if you have to endure hearing, “I sent you an email…”
Practice Good Managerial Skills
- Get to know your team members. Understand their differences and what motivates them as individuals.
- Give your team the necessary autonomy to take ownership of their roles and work streams. If a team member doesn’t step up to the plate, have a conversation about why. Likewise, if a team member is taking on too much work or overstepping boundaries, have a conversation.
- Solicit frequent feedback from key team members. Ask what’s working well and what isn’t, and listen. Make changes based on their responses.
Understand that the end of a project will be the most hectic. Remind your team of each project milestone that has been met. Keep a list of preferred food delivery vendors and your corporate Amex nearby at all times. Good luck.
Connect with Trenegy for more non-traditional insights.