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January 26, 2016
Bargain hunting in oil and gas: Where can the best savings be found?
By: Pierre Mawet

Reducing supply-chain costs has been a major focus for more than a year. During the boom years, companies spent great sums for capacity: more equipment, people, materials, chemicals and minerals.

After prices started falling in late 2014, companies took quick action with suppliers to obtain discounts of up to 20 percent on materials and services. But, with oil and gas prices remaining low, and some fearing the market has not hit bottom, many are at a loss of where to look for additional savings. Most do not want to “beat down” suppliers further on price because they hope to maintain good working relationships, which are essential once oil and gas prices recover.

To date, cost reductions have been confined in big-ticket areas. That work, while commendable, still leaves thousands of items to manage. Most companies, however, lack sufficient resources in-house to manage the high volume of categories.

A category manager might have responsibility, for example, for a handful of subcategories and responsibility over literally thousands of vendors of materials and services. In such cases, it is hard to know where to begin.

Many companies also lack analytic capabilities to provide insight into areas likely to yield additional cost savings. Data on quantity and price typically exists, either in accounts payable or purchase order files, but the sheer magnitude of information can be overwhelming.

Procurement managers also may have trouble accessing and decoding data for statistical analysis. A company may have, for example, data on multiple trucking vendors. The tendency would be to consolidate suppliers and then negotiate a better price. But if one company transports chemicals and another sand, it’s not a workable solution.

To pursue greater savings, companies could add procurement staff, but that is unlikely given major staff reductions in the past 12 months. So one option companies consider is outsourcing some of the procurement functions.

Procurement as a Service provides the flexibility to scale service levels up or down depending on price volatility. In addition, specialists in this area have technology and processes in place to manage expenditures in hundreds of categories and have experience managing and sourcing these categories across many companies. As an example, Accenture manages over $140B in category spend for our clients across a wide range of categories. This category experience is invaluable in driving improved pricing and terms and should be considered as a key step in driving further performance. Consequently, a “service based” model is likely to be part of a new model to reduce supply-chain costs going forward, whether oil and gas prices are low, moderate, or high.

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