Cost Management & Optimization for Midstream Companies: Supply Chain Management
By James Greey
In a previous article, we discussed ways for Midstream Companies to increase margins by focusing on reducing operating expenses related to inefficient maintenance programs. This article discusses another key contributor to margin erosion, ineffective Supply Chain Management. For midstream oil and gas companies, Supply Chain Management can be broken down into two main areas: Hydrocarbon management and non-hydrocarbon management.
Hydrocarbon management involves the planning, scheduling, stock control, and custody transfer of hydrocarbon products. With hydrocarbon management, hydrocarbon loss is one of the main causes of margin decrease and can cost midstream companies millions of dollars in lost value each year. There are a number of causes for hydrocarbon loss sediment and water intrusions, inaccurate measurements, retains, and theft to name a few. Best-in-class hydrocarbon loss is under 0.25% loss, while under 0.5% loss is considered achievable for the average company.
To prevent this loss, companies can employ Hydrocarbon Loss Control Programs that focus on Mass Balance. Our team of Hydrocarbon Loss Consultants is experienced in implementing these types of engagements in a cost-effective manner using customizable tools and training material to empower your employees to sustain the results.
Non-Hydrocarbon management is another contributor to margin erosion and there are many causes of inefficiencies. Two of the most common root causes are poor planning and poor inventory tracking.
- Poor Planning: Not having the proper tools, equipment, and parts available when there is an outage can be costly if it results in a slowdown or stoppage of product throughput. Understanding the cost of this downtime, the holding cost of the inventory and the lead time to receive additional inventory is key in making risk-based decisions. Improved planning practices especially as it relates to supply chain management and work management planning can be used to optimize and reduce the direct and indirect costs of inventory management.
- Poor Inventory Tracking: The cost of consumables and parts is often not tracked well; however, a Pareto analysis on the usage of various consumables can often identify opportunities to reduce waste and unnecessary costs. Increased visibility allows for accountability and risk-based decision making. Furthermore, improved inventory tracking can prevent costs associated with stockouts, overstock, and obsolete stock.
By focusing on Supply Chain Management Optimization, midstream companies can achieve more throughput with reduced costs and improved margins. Learn more about how Trindent can Make it Happen in your company
The author of this article – James Greey is a Senior Consultant at Trindent.