Supply Chain in Oil and Gas Industry Production
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Supply Chain in the Oil and Gas Industry
According to Bahree (2006), the oil and gas industry is a type of industry that is responsible for the production of fuels that are necessary for generation power, manufacturing, and transportation. The industry has been involved in worldwide supply-chain activities that include material handling, domestic and international transportation, import and export facilitation, ordering and inventory visibility and control. The industry is one of the highly globalized with a possibility of every supply chain process-taking place within different countries yet the product still reaches the consumer.
Bento (2003) argues that at the macro-level, the supply chain begins with the allocation of resources, positioning of brands and implementation of key strategies for a successful supply chain. The oil processors have to identify the strategic places to establish plants either close to the source or close to the market or both to minimize the transportation costs and other related costs.
Fahimnia, Sarkis, Soosay & Varsei (2014) argue that establishment of the supply chain process requires higher collaborations and coordination of different activities and operation spread over supply chain partners from raw material to the product. The process is complex with entities that have responsibility in part or in whole with the potential of creating problems during the interaction that, the supply chain must have a model of decomposing and solving. The industry has an integration of input regarding shared information within different levels of decision-making across the globe. It has integration of all its processes within collective functioning.
At micro-level, the distinct entities perform best to ensure that there is proper coordinated functioning to support the success of the process (Esper, Stank, & Thomas, 2010). Within the current capabilities and advancements, the micro-level supply chain of the supply chain performs with ease since every unit has its role to play in the success of the other. Oil production begins at identifying the raw material that is crude oil for distillation into its sub-components: petroleum, diesel, tar, gas and paraffin. The distillers are therefore keen to obtain every single component at their specific degree of specification to suit the markets (Bahree, 2006).
According to Bahree, (2006) the key strengths of oil and gas supply chain are that its strategies align with the competitive objectives. The industry has expanded to become a significant segment of global business supported with technological advancements. The industry’s supply chain strategy is designed to be responsive to highly changing market and demands consistent to the collaborating partners in the process. The industry has plans in place to ensure that it influences its markets with the provision of ready oil and gas products and to enhance reliability and trust by its markets (Salam, 2011).
According to Jacobs & Chase (2014) as much as the industry enables information sharing supported by technology in place, the industry still experiences weaknesses in its supply chain due to disintegrated supply chain systems. The improvement of supply chain demands a non-stop evaluation, integration, and coordination from the top most level of industry management to the lowest managers to enhance performance of the supply chain. Another weakness is that in a global supply chain, demand variability is very common bearing the fact that different societies have varied demands to these products but the industry can only supply a common product throughout their chain. However, it is costly to coordinate and evaluate the activities of every supply chain and live up to the expectation of every consumer (Bahree, 2006).
It is possible to sustain supply chain in the long term given the growing validity and demand of oil and gas throughout the markets. However, the supply chain is faced by numerous threats like the advancement of global technology whereby it has led to the discovery of other sources of energy in some communities. Complex transportation means leading to prolonged lead-times as another threat to the industry’s supply chain (Bahree, 2006).
The oil and gas supply chain is a key player in the growth and development of global economy. However, the industry should not only focus to producing enough fuel for the markets but also producing that which is suitable for market consumption. The industry should effectively coordinate its supply chains by adopting the latest technology for its operations leading to maximizing its output.