Oil and gas service companies adapting procurement and sourcing to the volatile oil and gas market

Abstract

The purpose of this paper is to address the increasing importance of supply chain agility for oil and gas service companies. In a highly volatile and complex oil and gas industry, service companies are increasingly competing on supply chain effectiveness to reduce costs and improve operational efficiency to sustain growth in a changing business environment. The oil price fluctuation is a key indicator for oil and gas service companiesin terms of activity and profitability. It generates significant challenges with suppliers and risks harming the company’s ability to cope with the market volatility. The business performance in a fluctuating market is linked to the capability of the supply chain to cope with changes in volumes, secure supplies, and manage risks. Hence, there is a need to understand the business environment and come up with proactive solutions to gain a comparative advantage over the competition. The paper presents the environment in which oil and gas service companies operate by looking at the historical fluctuations of the oil price and market perspectives. Then, an empirical study on a major oil and gas service company highlightsthe impact of oil price fluctuations on revenue, activity, and cost and demonstrates the main challenges and risks encountered during an oil crisis. It includes real examples to demonstrate the importance of addressing and anticipating the supplier challenges and corresponding risks looming the company’s business performance. The paper also presents a general literature review on how supply chain agility can accommodate to cyclic businesses, including academic discussions and practices implemented by other industries. This study gathers knowledge on the oil and gas service industry and an overview of the existing literature on supply chain agility to explore empirically the application of greater agility for oil and gas service companies. It provides evidence that within the procurement and sourcing function there are ways for oil and gas service companies to overcome the looming risks and successfully operate in an increasingly volatile and complex market. The analysis and literature review permit to come up with case-by-case recommendations for supplier managers to contribute to greater supply chain agility.