Supply Base Optimization

 

THE PROJECT:

BENEFITS REALIZED FROM SUPPLY BASE OPTIMIZATION AND SPEND MANAGEMENT

The Carnrite Group was engaged by a large North American independent MLP to transform the company to a traditional E&P and understand the organization capability of its supply chain function.

The initial spend analysis revealed SKU fragmentation across the client’s core assets and a deficiency when it came to supply base optimization. In most areas, lease operators and foremen were responsible for procuring goods/services, which often resulted in different suppliers providing the same or similar products to support LOE activities.

Executive management believed that LOE cost reductions could be achieved through effective supply base optimization and spend management by employing a strategic sourcing process with greater focus at the corporate level.

 

THE PROCESS:

ESTABLISH A BASELINE

The project began by establishing a baseline and performing a comprehensive spend analysis for the major categories. Once complete, the results suggested the following:

  1. Maverick spend was standard operating procedure
  2. Corporate sourcing events were uncommon
  3. Supplier relationship management did not exist
  4. No organizational structure to manage spend categories or supplier relationships

The company needed to transform to a more strategic sourcing focus with the necessary processes, tools and controls to drive the desired financial results.

Supply Base Optimization - Chart of Supplier Consolidation & Spend Management

# of Vendors by Spend Category and Basin:

INSTALL A PROCESS TO DRIVE FINANCIAL RESULTS

Carnrite and the field leadership team conducted a pilot using a robust, disciplined strategic sourcing methodology and process to demonstrate its effectiveness and ability to drive financial results. The team significantly increased competition by inviting incumbent suppliers to bid on asset-wide or corporate-wide spend categories. Once the bids were received and evaluated, we invited the finalists to present a best and final proposal.

The final proposals were re-evaluated and scored by the client field leadership team using both quantitative and qualitative measures, and the work was awarded to the supplier with the highest value proposition. We worked with our client to identify critical implementation risks and reduce such risks during term sheet negotiations.

Throughout the process, Carnrite transferred knowledge and experience through developed methods, tools, training and processes to support the sourcing events.  All materials were handed over to the client to ensure the sustainability of the strategic sourcing process.

 

THE RESULTS:

The pilot resulted in a significant reduction to several of our client’s LOE spend categories. For example, we reduced production chemicals spend by 30-55% across several basins and reduced the number of well failures attributable to corrosion, scale and paraffin. Overall, we reduced our client’s LOE by 15% in just six months.

Additionally, the development of the organization’s supply chain capability and a communication plan resulted in consistent internal and external messaging and organization-wide buy-in for the new roles and structure.

The benefits of the project were more than just the immediate cost savings; we transformed siloed business units to a more collaborative, metric-driven organization to sustain improvements and help instill a continuous-improvement

 

 

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