Supply Chain Management Methods

In the beginning, there was life. It consisted of man, of animal, and of plant, intertwining them in a world which protected their offspring, nourished their habitats, helped them thrive, and sustained their future. Each animal had his place, each plant had its purpose, and each man had his sense of belonging within the system. Everything was in the right place, in the right number, at the right time. Early man lived in a world we would call uncivilized, unkempt, unrefined, even barbaric; yet he fit within this natural balance of life in perfect symphonic harmony. He was suited for the system, and he didn't argue his place within it.

However, as civilizations arose, prospered, and withered away, the foundation of societal structure evolved and was refined from generation to generation. Man was beginning to surpass the animal in psychological ways unparalleled in history; he began to understand not only his existence but also to question his knowledge and his natural surroundings. The Egyptians, the Greeks, and the Romans each surpassed the other in war, power, knowledge, social order, and command over the environment, leading man further and further from a world run by nature and the laws of the animal hierarchy to a world strictly ruled by man alone. In the 19th century, the stirrings of the Industrial Revolution catapulted society into a blossoming era of rapid transition and burgeoning technology, finally severing the last ties between man and nature. Man stopped realizing that he, too, was part of the unique and beautiful system of earth, and found himself in a fabricated industrial world of his own making.

From a simple time when man carted his own dinner to the table to the "machine age" which launched mankind into a world where perfect saran-wrapped steaks appear magically on the shelf at the grocery store, how did we ever survive this transformation in so short a time? And more importantly, why did it happen?

It is a psychologically-based claim that humans imitate their surroundings; they, like other animals, acquire language, understand reality, and grow from a frame of reference built upon sheer imitation. The business world, a world built by man alone, is no exception. The new corporate world, which is essentially a carefully-planned and executed evolution of the basics of our natural ecosystem, has led our world from a slowly changing and expanding structure to that of one now desperately in need of a new world balance - that of organized and administrable supply chain management. As today's specialists in the oil and gas industry, it is imperative that we learn and understand the art of supply chain management, the delicate web of processes from our natural untapped resources to the fuel that ultimately powers our automobiles. In our intertwined global economy, where the United States alone consumes eighteen million barrels of petroleum nearly every day, it is not only imperative, it is crucial to our survival.

According to supply chain architect Bernard Teiling of Nestle SA in Switzerland, supply chain management, which surfaced in the early 1990s, is nothing more than "managing the flow of goods, services and information between suppliers, manufacturers, wholesalers, distributors, stores, consumers, and end users." It was a dramatic break with the traditional approach which had embraced the idea of separate areas functioning independently of each other; realizing that integration led to profit, companies began to foresee increased efficiency and reduced costs. However, one must take into consideration the widespread frenetic activities within the oil and gas industry, including the increasing need for global location of new wells, to the extraction of crude, to use of foreign-based shippers, to the men and women overseeing complex logistics, and to the local tanker crews hauling product to their respective destinations. Our community of interaction is truly a network that extends worldwide. Collaboration, in this sense, is the foundation of communication.

To better understand the skeleton beneath the skin of supply chain, it's necessary to underpin its initial influence within this 'new business environment'. Almost 40 years ago, scientist Garrett Hardin composed an essay for Science magazine, penning the phenomenon "tragedy of the commons" and forever changed the face of resource management. He defined the modern tragedy as the "remorseless working of things," as the "outcome of individual interactions within a complex system." In this vein, he suggested that supply problems stem from a simple misinterpretation of the "commons," or the manner in which expected optimal solutions and logistics undermine the importance of retaining and properly managing our earth's natural resources. He used the common metaphor of overfishing to emphasize: There are only so many fish in our lakes and rivers, he wrote. If we fished the entirety of the fish from their natural habitat, not only would the ecosystem die from imbalance, but the lack of fish would indirectly cause the destruction and eventual extinction of their predators, and an overpopulation of their prey. The earth did not allow for this disproportion.

In this same way, it is this delicate balance, this acute attention to detail and nature at its finest, which is supply chain at its best. Humans rely on unassailable consistency. So how is this not the same as maintaining a service station with an appropriate level of premium unleaded, implementing a logical transit of product network, forecasting a drop in pricing while closely monitoring international relations, or managing our environment and not incidentally pumping out the entire world's stock of fossil fuels with lack of recourse?

We must nurture and insure the continued preservation of our resources while maintaining growth of our companies. Knowing this, the entire chain must evolve as one entity; as one living, breathing creature inside a harmonic ecosystem-because if not, adding, deleting, or altering even the most microscopic element could result in a complete supply chain breakdown.

CIO Magazine's website, a leading source of current business trends for Chief Information Officers, cites the five simple components to effective supply chain for any industry in a clear, direct manner: The first, strategizing and planning, deals with managing the resources and developing a set of matrices to maximize customer demand. The second, which deals with delegating suppliers, pricing goods, and scheduling deliveries, assists in putting together the processes for inventory and elementary logistics. Third, scheduling production activities, includes the testing and packaging of the product and measuring its quality levels efficiently and effectively. Delivering is fourth, and fifth comprises the customer service aspect, coordinating networks, and dealing with defective products and returns. These components, which are simply defined in a linear model, are, in fact, anything but linear: One must take into consideration that outside of this plan comes the critical and most integral part-reality.

The nature of reality is chaos-both unorganized and organized chaos. If a man-made supply chain could be implemented without reality affecting its outcome, the results would be predicable and controllable; however, life is not linear and neither is business. The oil and gas industry faces problematic outcomes such as overcoming catastrophic disruptions due to such things as oilfield fires, shipping delays and transport miscues and warehousing accidents let alone situations as demanding and ever-pressing as monitoring the depletion of our fossil fuels. Now, as an international reality, oil and gas companies we are faced with the added pressures of developing long term relationships with suppliers abroad, involving these suppliers in key decisions and proposals for improvement, and collaborating with them to achieve mutual respect and a positive industry image. It is well-known that the American economy would surely suffer without the steady stream of crude oil being delivered to its ports on a daily basis, and that an increasing reliance on imports has led to an increasing reliance on foreign companies and their governments.

Utterances like on-time maintenance, continual efficiency upgrades, new federal standards and refinery mandates, changing health codes, fuel transportation down-time, diminishing supply and rising demand are commonplace within the industry, yet the nagging question still remains: despite all the publicity about supply chain management, how do we optimize its inherent benefits and understand its position within the world's order while simultaneously dealing with its incalculable number of setbacks?

As a business from whose hands transform the world's precious raw materials into marketable products, we must learn that a set of morals and a code of conduct are vital in order to prevent chaos or breakdown. Andy Anderson, Business Support Manager for Subsurface Systems, puts this theory into practice in his case study entitled "Supply Chain Management: the Future of Procurement or the Latest Passing Trend." He states that "despite all the hype, not everybody within the industry is completely aware of what SCM [Supply Chain Management] involves and what it means to them. " He expresses this idea by citing Expro Group's oil service product line overhaul as an example-as they found themselves flailing within the system, the first step to re-evaluating their SCM program was to determine their position within the system. They discovered that without an efficient internal supply chain system, an external one would have no chance for survival.

They analyzed their management, mix of providers, long-term commitments to their suppliers, service delivery time, client satisfaction, and eventually formatted a strategic plan. Throughout their research, they discovered that although the logistics and planning were important, it was a lack of communication and understanding between all parts of the system that were truly the primary problems: "everybody involved needed to understand the entire process that was taking place, from procurement of raw materials to its installation offshore." One year later, after extensive measures were taken to ensure better communication between both employees and partners, the results were extraordinary. Expro Group has seen real cost savings, set against rising raw material costs, reduced stock levels, a reduced vendor base, and an unsurpassed relationship with their suppliers and collaborators. Is supply chain management just a fashionable business trend? According to Anderson, it looks like SCM is not only a permanent style, but also a staple outfit for any business wardrobe.
Supply Chain Management Review conducted a comprehensive survey during the summer of 2003 in order to determine whether the new management techniques were truly beneficial or simply just a novel idea to cover an old problem. Although they knew the widespread importance of implementing a revised system, they wanted to know how much progress companies have actually made in advancing their supply chain capabilities. Using oil and gas as one of the industries, they analyzed the responses of 142 companies and their position within a five-tier evolutionary system to a perfect corporation. These five tiers are:

1. Integrating a plan,
2. Outsourcing tasks better suited to other providers,
3. Collaborating spending decisions,
4. Enhancing global communication between partners, and
5. Establishing a position of dominance within the industry .

It appeared to SCMR that although only a very small number of leading corporations have actually reached step five (most reside comfortably near steps two and three), it is not impossible, nor detrimental, to aim for perfection. The major cost components-logistics and warehousing, purchasing and sourcing, and inventory and material management-represent only a fraction of revenue costs, and therefore, the success is truly from within. Compared to the evolutionary hierarchy, the similarities are endless: establishing a plan for survival, finding food and companionship, enhancing communication, and creating a position of dominance within the species-it is cutthroat, yet strategically organized animal competition in a business atmosphere.

It is obvious that we no longer live in a time where man can survive without understanding and harnessing his environment for the long-term. We live in an uncertain, unstable, and unpredictable world. We exist on an ever-shrinking planet connected by a delicate string of uncontrollable and controllable processes. From supplier to customer, from tanker of crude to our unquenchable thirst for Sport Utility Vehicles, we have evolved into a community where everything depends on everything, yet we stay frighteningly close to our ancient origins.

In a world where communication breakdown can and does lead to chaos, where one mistake can result in dire consequences, it is crucial to master the complexity of supply chain management. Any business, however small, that can demonstrate improvement in their supply chain will be stronger, more competitive, and more profitable, and as we know from the origins of man and the nature of species, it is the strong who survive.