It’s no secret that this is an interesting time for the energy industry – one marked by contrasts that simultaneously test resolve and promise new opportunities. This is an endeavor where success today demands a delicate balancing act. It has never been more important to employ proven best practices and embrace new, better ways of working.

In no area is this more apparent than in the maintenance, repair, and operations (MRO) supply chain, where longstanding approaches break down in light of the changes shaping global exploration, drilling, and production. Where MRO was long appreciated as a necessary but all too often overlooked internal business function, it is now a source of significant competitive advantage for companies that have come to a singular conclusion: Today’s global MRO supply chain is too complex to manage alone.

Faced with the need for end-to-end visibility over the supply chain and the increasingly distinct skills and resources required to manage it, these companies are increasingly turning to integrated suppliers to augment their MRO operations or outsource them entirely. Recently, DHL interviewed numerous energy customers to get their views on what must be kept in mind when considering the suppliers of such supply chain services.

The information revealed by the interviews is pertinent to all companies as they review their approach to MRO. Customers highlighted the importance of four key themes when looking at supply chain companies and providers of MRO services.

Global coverage, local knowledge

While there are notable exceptions – such as significant activity to accelerate output from the Bakken formation – production globally continues to shift to emerging markets. The resulting MRO supply chain extends across borders and is increasingly fragmented. Even in areas of developed countries – the Bakken hotspots of Montana, the Dakotas, and Canada’s Saskatchewan are good examples – sites are increasingly remote and lend credence to the notion that “the days of easy oil” are over.

For sourcing and supply chain managers the challenges are numerous and significant. The number of local suppliers in emerging markets and remote areas is often limited, supplies are frequently priced at a premium, and cross-border shipping expertise is lacking in many cases, all too often resulting in significant and costly importation delays. As one supply chain leader told DHL, “We’ve waited up to five months to get clearance for these materials.”

Why such a scenario is unacceptable is obvious. Operations can grind to a standstill while necessary materials are either unavailable locally or held up as a result of cross-border difficulties that often reflect a lack of experience and familiarity with participating countries’ trade rules and regulations.

For this reason it’s imperative that sourcing experts look closely not only at integrated supply chain providers’ local presence but also their ability to execute effectively throughout the world. The importance of global capabilities and a commitment to simultaneously demonstrate familiarity with local markets and governments cannot be overstated.

Supply management has changed

There is greater pressure to achieve higher levels of efficiency. The supply chain is no exception. Management scrutiny of MRO-related spending is driven to a great degree by the increased cost of operations across the board.

As a result, there is a greater need for visibility over the entire supply chain, including evidence of where costs originate and where waste is being eliminated. This visibility is likewise used to enable more strategic and effective inventory management with “just in time” processes that eliminate duplication and redundancies (a 15% to 20% reduction in inventory costs is often achieved through this step alone), real-time visibility over integrated transportation systems and networks (including warehouses) that enable suppliers to consolidate shipments, and other techniques and competencies that characterize a lean integrated supply chain. This lean approach also eliminates unnecessary costs and builds on economies of scale.

Customers also noted that there is more demand for key performance indicators (KPIs) that demonstrate not only where savings are being achieved in the supply chain but where opportunities for improvement lie. None of these steps to address the prevailing business view of the supply chain, including accurate KPI data, can occur unless there is a standardization of systems and processes. This is something that increasingly only can be achieved when working with an integrated supplier that has the ability to provide supply chain services on a global scale.

Commitment to safety, compliance

Safety and compliance are paramount in the energy sector, with liability extending far beyond the industry standard that existed even a few years ago. Many companies are rightfully concerned that contractors will not maintain the same high standards for safety and compliance they expect of their own staff or adhere to established health, safety, security, and environment (HSSE) policies and procedures.

These concerns, of course, are particularly relevant to the supply chain, where everything from accident rates to counterfeit parts exerts an immediate impact on HSSE efforts. Indeed, customers stressed that an integrated supplier of MRO supply chain services must maintain the same highly visible commitment to these standards as the energy companies they serve and like them be able to audit, track, and prove compliance on a continual basis.

Notably, the provider must not only apply this commitment to existing regulations but also demonstrate the ability to track and address changing legislation, including the ever-evolving rules associated with international trade.

Partners, not just providers

As the supply chain becomes lengthier, more energy companies are pondering a singular question: Do we want to invest in and train the staff now required for a successful global supply chain or engage an integrated supplier that possesses those skills as core competencies?

For many, outsourcing the MRO supply chain is the obvious answer, but there are issues to consider. Chief among these is the need for MRO companies able to serve as a trusted partner, not merely another supplier. Whereas a partner will provide end-to-end visibility over the supply chain and competitive advantage – such as the reconciling of vendor relationships, the delivery of KPIs, and the pursuit of strategic sourcing opportunities on behalf of the company – those that merely act as a vendor often work in the shadows as an independent entity. In this way, energy companies can lose control and visibility over their supply chains, a danger that needs no explanation.

As the exploration and production of energy becomes more complex and calls for equally sophisticated supply chains to curtail costs and deliver efficiencies, the outsourcing of MRO activities and the need for integrated suppliers to provide these services will increase. New challenges will require new ways of working, even as success demands attention to the one supply chain best practice that must never be forgotten – knowing and choosing suppliers as if one’s business depends on it. In almost all cases, it does.

To learn more about the insights DHL gained from its customers in the white paper “Your Supply Chain: Simple, Transparent and Controlled,” visit dhl.com/energywhitepaper.

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