Electronic procurement (e-procurement) will continue to play a leading role in gaining cost efficiencies and saving time within the oil and gas industry's exploration and production sector.
One recent testament to the power that commerce in general holds over businesses of all types is Wal-Mart's move into first place among the Fortune 500's list of the largest US corporations, noted Veritas DGC Inc.'s Jim Honefenger, who served as moderator for a panel on e-procurement in the E&P sector earlier this month in Houston. The panel discussion was part of a day-long conference on electronic business in the E&P industry hosted jointly by the Gulf Coast Section of the Society of Petroleum Engineers and the International Association of Geophysical Contractors.
So far, industry has made great strides toward customizing, designing, and implementing e-procurement solutions in its various business practices, Honefenger said, but further efficiencies are yet to be gained.
Operators progress
Catering an e-procurement solution to an operating company such as Unocal Corp. is a challenge that hinges on the overall make-up of the firm, said Tim Pownell, Unocal's general manager, e-procurement project. Unocal's areas of operation lie in the US Gulf of Mexico and off Thailand and Indonesia, Pownell noted. "Unocal is mostly gas, mostly offshore, and largely international," he said, making addressing e-procurement issues that much more challenging.
Pownell said that e-procurement via the internet has provided great value to operating companies. "The internet gives us better and improved processes and has reduced errors," he said. The internet has also made for better, faster buying decisions, he noted. Pownell added that, in order to gain the optimum efficiencies using e-procurement, however, operators need to get the right information to staffers' personal computers, give them the proper tools to procure products and services, and provide real-time data and knowledge through collaborative efforts.
Unocal's e-procurement project system, called iBuy.Unocal, was developed as a toolkit that could be used company-wide to make various e-procurement transactions. Through the system, Unocal's workforce can perform tasks ranging from simple credit card transactions for smaller, business-related chores to larger jobs, such as buying needed materials and tools from catalogs, matching invoices, and mining through company data.
Pownell noted that some of the lessons learned while honing the system for use within the company include trusting first instincts, believing that anything is possible-since the technology already exists to support a company's needs-embracing a "do-learn-adjust" approach for the strategy, and not waiting for industry standards to be developed before getting started.
"Standards are important and are rapidly being developed, but they shouldn't become a barrier," to addressing a company's e-procurement issues, Pownell said.
E-procurement has evolved within Marathon Oil Co., according to Mike Rowles, the company's manager, e-procurement and business process. Procurement of goods and services is changing, Rowles noted. "Buying is moving closer to the end-user, he said, "And sourcing is generally in advance of the need."
The relationship between buyers and suppliers is becoming more important, Rowles added. And there is increasingly less and less manual interaction between parties, he said.
Marathon's e-procurement strategy includes an added provision: the use of "round-trips," or the procurement directly from a suppliers' website to purchase items such as electronic components, Rowles said.
"The new processes will continue to be engrained into the corporate culture," Rowles predicted. Also, the selection of goods and services will widen, he stated, along with delivery times becoming shorter. "The cost of doing business will continue to be driven down," he concluded.
Vendors, service firms
William LeSage, CEO of OFS Portal LLC, said that when electronic business underwent a downturn during 2001, the company gave e-commerce a kick-start, modifying and adapting its own content offerings within its portal framework.
"Content is still king," LeSage said. The industry as a whole, LeSage added, has discovered that managing business-to-business transactions was more difficult than previously expected. "The oil field is not like buying books [over the internet]," LeSage noted.
Over the last 3 years, Schlumberger Ltd. has noted a decline in its transactional costs by using various e-procurement methods tied into its Schlumberger Web Procurement System, or SWPS.
Transaction costs are now averaging less than $20, ordering time has been reduced by 80%, and cost savings have averaged 5-10%, noted Alain-Michel Diamant-Berger, SWPS development and deployment manager. In addition, clerical errors on orders have been reduced to less than 0.1%, Diamant-Berger stated.
The use of a "phased-in" strategy has been most useful, Diamant-Berger said. "Web procurement is part of a larger initiative to improve procurement and logistics," he said.
Closing remarks
Progress toward developing and sustaining an efficient e-procurement strategy has been an upward climb for most companies since the dot-com fallout, the panelists acknowledged.
"At the end of the day, it's a business decision that has to be made," Pownell said. The industry has shifted from the e-business "magical marketplace" to somewhere in the middle, Pownell said.
Overall, the panelists also agreed that the marketplace will only have room for a few business models with regard to e-procurement. "Fewer connections are better than many," Pownell said. "The decision needs to be made by the parties involved," he said.
