Extracting real value in oil & gas logistics with a 100%-fit solution

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1 Extracting real value in oil & gas logistics with a 100%-fit solution The complexities of the oil & gas supply chain can only be truly mastered with a planning system that precisely fits your needs. Find out how the right solution can give your business the boost it needs in the new oil & gas reality OIL & GAS LOGISTICS

2 01 Why innovate? The oil & gas industry experienced the most severe downturn in recent history with the price of oil declining by 75% from mid-2014 to early 2016, throwing oil & gas companies into a state of survival. Many resorted to cost-cutting measures such as drastic reductions in their workforce, cancellation or postponement of new projects and reduced investments into large-scale capital projects. Today, companies are cautiously optimistic as the industry continues to recover. While prices are still far below the pre-downturn peak of $115 per barrel (March 2011), they are slowly but surely stabilizing. An unprecedented agreement between OPEC and non-opec nations to reduce production and tighten imbalances in supply and demand have contributed to this positive outlook. Additionally, global energy demand is expected to rise by a third over the next two decades, while the shale revolution and advances in oil recovery technology are expected to provide an abundant supply to meet that demand. While the downturn was devastating, it has led to an increased focus on exercising capital and operational cost discipline. Efficiency improvement was emphasized, resulting in projects with breakeven prices as low as $25 per barrel, as claimed by Statoil for its flagship oil project in the North Sea 1. This is a level that would have been unthinkable prior to the downturn and signals the possibility for even lower breakeven prices as planning processes continue to improve. A move towards sustainable profitability is the new norm, with many companies looking to achieve optimal profits while reducing expenditure. Every oil & gas company is unique and each company will have its own complex supply chain. When companies rely on manual or legacy planning systems, they are likely to be missing out on potential savings by not looking deeper at the possibilities. Our research shows that there a number of barriers faced by planners in the oil & gas industry, including: Limited insight into the bigger picture Complex logistics challenges locking value Lack of decision making support Fractured planning systems that hamper optimization As oil & gas companies turn to all areas of the business to deliver efficiency-based savings, logistics planners have an opportunity to contribute significantly. With the right logistics planning solutions in place, oil & gas companies guarantee sustainable operations that will set them up for continued financial success. 1 Statoil makes flagship project profitable at $25 a barrel, Financial Times,

3 02 Getting started: Three core capabilities In this current reality, increased efficiency throughout your supply chain is essential. Companies are now working to find solutions to prepare for a post-downturn future. But where do you begin? For starters, you need three core capabilities in your planning solution: visibility, integration and optimization. Visibility Oil & gas companies operate on a very large scale, often with operations spanning different regions across the globe. Adding complexity to the planning effort is the scale and scope of their operational environments, with diversified business interests being pursued in separate regions. Visibility over the entire supply chain is crucial, but for it to be truly valuable, it has to result in something actionable. A key factor in enabling actionable visibility is the effective use of existing data to plan for the future. This includes taking into account relevant business KPIs that can still be improved upon, rather than belatedly trying to rectify past errors. Integration Integration is the next step in enabling an innovative planning solution. Once visibility has been achieved, oil & gas companies can proceed to planning optimal connections throughout their organizations from production to distribution. Full visibility over operations gives companies a single source of truth that all departments can draw information from. This in turn enables these departments to cohesively and effectively integrate to achieve high level goals. Optimization The final and most elusive capability of innovative planning is optimization. True optimization is the result of visibility and integration it cannot be attained without first achieving success in these capabilities. The biggest challenge in optimization is that it needs to fit precisely, otherwise it will not add value. Every company is unique even companies that look very similar on the outside are in fact largely dissimilar in their operational reality. True optimization goes far beyond forecasting outcomes and providing decision support based on existing knowledge. It examines possible scenarios based on analyzed historical data and uses the best option as a basis for planning. It can be applied across all aspects of planning: Planning horizon Strategic Long term decisions that steer a company s direction Tactical Mid term decisions that affect the coming months Examples Future investments, such as: Replacing aging assets vs. upgrading/maintenance, investments into alternate methods of distribution Production and distribution, with the aim to avoid under/overstock and maintain the company s momentum (how much to produce of all products and where, what stock levels to aim for) Historically speaking, oil & gas companies have been fragmented. They have a tendency to work in silos: one group is responsible for extraction, another for refinery planning and yet another group for primary or secondary distribution. An integrated solution gives oil & gas companies the power to plan optimal connections throughout their supply chains. This in turn allows them to extract the greatest value from their processes. Operational Short term decisions that affect the immediate future Pipeline, logistics and inventory decisions to ensure activities align with the tactical plan 3

4 03 Barriers to optimization Based on survey responses by senior oil & gas logistics planning executives from the USA, Asia and EMEA regions, Quintiq has identified four barriers to true optimization that are common throughout the oil & gas industry. Limited insight into the bigger picture Creating logistics plans take a lot of time, and even the best manually made plans cannot guarantee optimal benefits. Our survey findings suggest that plenty of value is left locked up in outdated processes or legacy systems. In fact, when asked to rate the efficiency of the current logistics planning on a scale of 1 to 10, with 1 being highly efficient, the average response was only 4.2. Complex logistics challenges locking up value More than 40% of respondents agreed that truck logistics are the most difficult to plan. 36% of respondents think it is too difficult to evaluate or estimate costs, 28% find it difficult to predict the impact made on the bottom line, and a further 20% struggle with unpredictable transport providers. Our research also indicates that 27% of logistics planners are not currently taking multiple modes of transport into account when making their plans. This might be the result of organically expanding processes and a lack of communication between local pipeline and rail planning departments who may be unaware that more cost-effective alternatives are viable. Our research also revealed that as many as 38% of planners spend almost their entire day creating a feasible operational plan, but struggle to know what the costs of this plan are, or evaluate potential alternatives. 4

5 Lack of decision-making support When planners expend all of their energy on creating a feasible plan, they may be leaving money on the table in the form of optimization. Nearly 60% of planners are not able to feed important information on the consequences of their plans into their decision making process. To make the most effective decisions, planners need a system that can help them evaluate different possible scenarios. Unfortunately, 40% of our respondents report not being able to do so. Not having the option to view and assess the results of multiple scenarios inhibits planners ability to identify and unlock value in the supply chain. Fractured planning systems that hamper optimization From our data, only 5% of businesses are currently using a single integrated planning system. Without an integrated system, optimization efforts are less effective leaving potential cost and time savings untapped. An integrated system can take into account all relevant information including KPI priorities, constraints, and laws and enter them into the system to create an optimized plan. It does not stop there. Automated plans enable a planner to use their experience and knowledge to tweak plans to ensure the final plan is the optimal one for the business. Optimization software enables planners to focus on adding value rather than just spending time to find a feasible plan. Many organizations have yet to fully unlock the potential of optimized supply chain planning. Making sense of all of the data you have and finding a solution that provides a 100%-fit to any individual company can be a real challenge. The rewards for those who optimize are significant, and the greater the complexity of the puzzle, the greater the potential reward. 5

6 A 100%-fit solution: An aspirational 04 myth or a real necessity? As attractive as the benefits of optimization are, the question remains: is a 100%-fit solution truly attainable? The answer is yes a 100%-fit is not just attainable, but necessary. Oil & gas companies can no longer afford to be hampered by simple and fractured systems. An intelligent system is needed to take in data from multiple departments and multiple sources. Planners must then be able to manage, measure and track all this data streaming in from various sources and they must be able to do this easily and quickly. With additional KPI support, planners can also quickly course-correct if and when needed. An intelligent system must also be able to analyze the data and formulate insights that are relevant to company goals. It must provide the support needed to make the best, most profitable decision possible, maximizing the return on investments. A fully integrated system that s 100%-fit to a company s business rules, requirements and constraints enhances visibility for everyone in the decision-making process. This ensures that any plans made generate are accurate, optimized and can work in a real, dynamic environment. The ability to make adjustments in real time means that day-to-day realities will not compromise the quality of the plan. Few solutions truly offer a 100%-fit for supply chains as complex, multi-layered and interconnected as those in the oil & gas industry. The supply chain has a significant impact on multiple aspects of the balance sheet and profit and loss statements. It is vital that a planning solution respects all of an organization s rules and constraints and is 100% configurable to its business reality. A planning system that does not fit 100% cannot deliver 100% value. If a solution is not fully configured to solve the unique challenges that you face, you cannot derive the best possible benefits from it. In the oil & gas industry, complex puzzles are the norm rather than the exception. To add to the complexity, every single company has a unique operational reality. A one-size-fits-all solution won t deliver optimal value. A 100%-fit solution will. Dennis Ostendorf, Business Unit Director Oil & Gas, Quintiq In the oil & gas industry, complexity is the norm rather than the exception. Regulatory requirements, costbalancing demands and ever-shorter response times create a critical need for a planning solution that can help a company cut through these complexities to meet their goals and work within the ever-shorter response times required in today s highly competitive marketplace. Quintiq offers a single, powerful software that can be fully configured to suit any situation a critical feature for a planning solution in the diverse oil & gas industry. Its flexibility and configurability allow for easy modification to the system to reflect changes in the business model and support future growth. Quintiq has helped some of the world s top oil & gas companies to improve their operational efficiency, navigate complex constraints, decrease transportation costs and increase production without increasing capital expenditure. Fully integrated with optimization and advanced analytics technology, the Quintiq solution offers businesses the flexibility and power to handle all stages of the supply chain. With a successful track record of providing customers with the solutions and support they need as they continue to evolve, Quintiq strikes the balance just right providing reliability and stability while supporting constant innovation. 6

7 05 About Quintiq Every business has its supply chain planning challenges. Some of those challenges are large, some are complex and some seem impossible to solve. Since 1997, Quintiq has been solving each of those challenges using a single supply chain planning and optimization software. Quintiq is part of Dassault Systèmes (Euronext Paris: #13065, DSY.PA) and has headquarters in the Netherlands and the USA, and offices around the world. Quintiq is fully integrated with Dassault Systèmes 3DEXPERIENCE platform to provide customers with a comprehensive environment to model, simulate and optimize their business operations end to end, from setting strategic goals to achieving new levels of innovation, operational efficiency and performance. Consistently rated as market leader by the world s most influential industry analysts, Quintiq capabilities go beyond supply chain to encompass full operations planning and optimization. Its solutions are used to plan and schedule complex production supply chains; optimize intricate logistics operations, and plan and schedule large, geographically diverse workforces. For more information, visit quintiq.com. 7

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