Video
Reducing costs is a priority for oil and gas companies in the current low-price environment. Olya Linde, a partner with Bain's Oil & Gas practice, discusses how companies carefully manage service suppliers to win greater cost savings.
Read the Bain Brief: Beyond Price—Managing Service Suppliers for Value at the Front Line
Read the transcript below.
OLYA LINDE: Reducing cost is a priority for the entire oil and gas industry across the value chain in the current low-price environment. Initially, companies cut the headcount, but then the focus quickly turns to external spending, which comprises 60% of the total cost. At the time of the negotiations, it is possible to reduce the cost by 10% to 15%. Once the contract is awarded, through careful supply management, you can reduce the cost by a further 5% to 15%.
There are several factors that need to happen for supply chain management to be effective. First, you need to have a very clear delineation of responsibilities between the frontline operations and supply chain. Second, you need to have a fit-for-purpose contract that maximizes the value for the company. Third, you need to have clear internal alignment on what creates value, and therefore, what metrics you need to use to manage volume and overtime.
You also need to have clear performance tools for the front line to use so they can manage the volume and overtime. And finally, it is very important to have ongoing, regular performance management conversations with the service suppliers to create value jointly for the companies, as well as to address any performance gaps. Companies that do it well can really create a lot of value for the business in the long term.
Read the Bain Brief: Beyond Price—Managing Service Suppliers for Value at the Front Line