Rationalize Maintenance Inventories with Analytics
Smarter Onshore and Offshore Warehouse Management
for Upstream Oil & Gas Operations
An Oniqua Executive Brief
EXECUTIVE SUMMARY
Rationalize Maintenance Inventories with Analytics
Smarter Onshore and Offshore Warehouse Management
for Upstream Oil & Gas Operations
SITUATION: For upstream oil and gas companies, success depends on timely and error free delivery of
materials through a very complex and high value supply chain. A failure or even the shortest
delay anywhere along this chain can immediately ripple into a significant loss. Material
management and spare parts provisioning present unique challenges. Onshore and offshore
maintenance spares inventory storage facilities each deal with specific location and space
constraints that define their different operating environments. The problem is, these warehouse
facilities exist in silos: Each individual site operates as a unique purchasing and inventory
management entity. Along with the tendency toward outdated methods to determine
re-order levels, this situation encourages overstocking, unnecessary inventory holding costs,
and inefficiencies like wasted time searching for parts
CHALLENGE: The lack of proper coordination between the different inventory warehousing and distribution
facilities encourages excess and obsolete inventory. Warehouse overcrowding is not only
inefficient and unnecessarily expensive, but also potentially u safe. Oil and gas companies need
to operate their functions in a more efficient and cost-effecti e manner in order to optimize
operations and maximize production.
SOLUTION:
Rationalizing maintenance inventory with analytics optimizes warehouse space and resource
time, and eliminates the compulsion to overstock. Inventory rationalization means stocking
warehouses by business unit, instead of managing each facility as a unique entity. This keeps
both onshore and offshore warehouses working optimally. Doing the math manually is humanly
impossible – that’s why you need sophisticated analytics technology. Fortunately, cloud based
maintenance, repair and operations (MRO) analytics solutions like Oniqua’s make powerful MRO
intelligence easily accessible and simple to use, with fast and measurable bottom-line benefits
RESULTS:
By leveraging analytics to automate processes and optimize outcomes, inventory rationalization
boosts warehouse efficienc , eliminates waste, improves worker productivity and safety, and
ensures high service levels. Work smarter and return value to your organization. Rationalizing
inventory can also reduce the working capital tied up in inventory and spare parts – and those
cost savings directly impact profitabilit .
Introduction A key defining characteristic of upstream oil and gas production and processing is the nature of the product:
Upstream focuses on unrefined product, or the initial explorati n and seeking out of such. Exploratory drilling and
operating wells to extract crude oil or liquefied natural gas ( NG) are central components of the upstream energy
business model.
An operating well may produce continuously for long periods of time; typically between 10 and 20 years. Keeping that
well operating productively and safely requires a significant i vestment of maintenance and spares inventory over its
life cycle.
Technology advancements are constantly improving the efficiency f extraction equipment and processes. This means
companies have to manage and maintain diverse and shifting fleets of new and aging productive assets, along with
the evolving, complex inventories of spare parts needed to keep assets and equipment operating productively
and safely.
That’s why leading oil and gas companies around the world are adopting technologies and processes that make the
work that supports production – like global material strategy and work management – work smarter.
These companies are taking advantage of business opportunities like inventory rationalization, an analytics supported
process that increases the effectiveness of onshore and offshore warehouse facilities through more efficient an
effective use of resources.
Rationalization applies to both materials management and warehouse management processes and best practices. The
rationalization process can include inventory redistribution, reassignment of priorities, improved interoperability and
greater collaboration between onshore and offshore facilities.
Today’s analytics technologies make it possible to manage onshore and
offshore maintenance spares inventories more intelligently and cost
effectively. Cloud-based options for application and service delivery put
powerful statistical optimization capabilities in the hands of materials
managers. With the right analytics tool, you can rationalize inventory
between and across onshore and offshore warehouses.
Rationalizing with analytics improves resource efficienc , operational
uptime and focus, with significant impact on productivity an
inventory performance:
• Improve service levels
• Reduce total inventory value
• Reduce inventory carrying costs
• Improve warehouse productivity and efficienc
• Reduce offshore resource costs.
Well-managed spares inventories
help oil and gas companies meet
key objectives:
Maximize operational performance
and return on assets.
Avoid unplanned work rescheduling.
Maintain aging fleets at top
performance.
Integrate new equipment and
technologies.
Comply with demanding regulatory
requirements.
Provide a safe and reliable operation.
RATIONALIZE MAINTENANCE INVENTORIES WITH ANALYTICS
1
Right part, right place, right time — it takes more than MIN/MAX
Some ingrained habits of inventory managers stem from another time, and probably began for good reasons – but
have become detrimental to the business. Two common misperceptions get in the way of adopting a more rational
approach: the ingrained fear of stockouts that lead to chronic overstocking, and ignoring the true costs of holding
offshore inventory.
“Right part, right place, right time” is the commitment to deliver on a company’s productivity and safety goals and
objectives. And that makes it easy to fall into the habit of overstocking to avoid stockouts. But the consequences are
disorganization and waste: wasted onshore warehouse space and resource time; offshore warehouse overcrowding;
disorganized material because there’s no space or not enough room to move; and poor or nonexistent obsolete
parts management. The vicious cycle continues as onshore facilities habitually overstock on behalf of their
offshore customers.
In most cases, offshore holding costs are perceived as zero cost while the onshore holding cost is high. With such easy
access to unlimited “free” inventory, the temptation is high for offshore inventory managers to behave like pack-rats.
It’s understandable, but it’s not really free. And it’s not ideal: Think of a tiny closet you just keep stuffing more stuf
into until you can’t get anything in or out – even if you could find it. Offshore facilities were not designed to hol
inventory, but to operate lean.
The lack of proper coordination between the different inventory warehousing and distribution facilities contributes
to this endless cycle of excess and obsolete inventory, unnecessary inventory holding costs, and inefficiencie
like wasted time searching for parts. Onshore and offshore warehouse facilities typically exist in information and
operational silos. Even at the business unit level, individual sites operate as unique purchasing and inventory
management entities. Along with the tendency toward using outdated, manual methods to determine reorder levels,
this situation encourages overstocking.
Businesses can’t afford to ignore the practical, operational impact of chaos and disorganization. Warehouse
overcrowding is not only inefficient and unnecessarily expensiv , but also potentially unsafe. Onshore facilities
are hampered to deliver offshore the right parts at the right time. Excessively overstocked offshore facilities are
inefficient, disorganized, overcrowded, and incapable of meetin service levels.
RATIONALIZE MAINTENANCE INVENTORIES WITH ANALYTICS
2
The classical MIN/MAX method is inadequate to the needs of oil and gas companies to effectively rationalize spare
parts inventories at the business unit level, across onshore and offshore warehouse facilities. These days, getting the
right parts to the right place at the right time requires the ability to rationalize inventory.
The process of rationalization using MRO analytics supports offshore inventory facilities to be more focused and
selective, and manage materials in a more intelligent way. Offshore warehouses can break the overstocking habit to
operate more efficientl , cost effectively and safely, and improve service levels.
Three typical onshore/offshore inventory setup situations:
On-Shore
Off-Shore
Off-Shore
On-Shore
Off-Shore
Off-Shore
On-Shore
•Onshore warehouse and offshore warehouse operate as a plant (onshore facility supplies a single
offshore platform)
•A single onshore warehouse supplies to one or multiple offshore platforms
•A standalone onshore warehouse serves maintenance & operations directly
RATIONALIZE MAINTENANCE INVENTORIES WITH ANALYTICS
3
Operationally sustainable inventory rationalization
To rationalize at the business unit level, a single “central” onshore warehouse that supports multiple offshore
warehouses acts as a distribution hub. Supplier relationships pass through the central warehouse. This improves
efficiency and productivity in key areas, like maximizing space and resources, and improving response times and
service levels.
Offshore facilities can manage their primary constraint: space. The onshore facility can focus on improving
responsiveness. No more relying on an all or nothing approach – trying to stock everything for every conceivable
circumstance all the time – or an inefficient order-stock-ship ethod to respond to offshore stocking requests.
Eliminating the vicious cycle of overbuying and overstocking improves warehouse efficienc , cycle time and safety –
and cuts out unnecessary inventory holding costs.
Rationalize at the business unit level –
Reap benefits across materials management operations
Offshore facilities maximize space constraints:
•Maximize offshore storage space to maximize service levels
–Stock only operational critical spares and regular demand items
–Redeploy surplus and seldom used, non-critical materials
Onshore facilities improve onshore responsiveness:
•Improve onshore responsiveness to offshore demand
–Stocking strategy aligned with offshore demand and vendor responsiveness
Sustainable inventory rationalization across the business unit:
•Pooled redistribution and redistribution stocking across onshore and offshore facilities
– Stocking levels optimized at business unit level and redistributed across onshore and
offshore warehouses based on true operational need
RATIONALIZE MAINTENANCE INVENTORIES WITH ANALYTICS
4
Operationally sustainable inventory rationalization optimizes stocking across the business unit. The illustration on
page 5 shows how onshore and offshore facilities within a business unit or pooled region represented by the gray
square can procure and distribute spares as a unified entity.
The solid gray box represents how analytics software tools can work to rationalize inventory using pooled stock
redistribution and inventory optimization. The software can analyze and evaluate combined usage, highest movement
items, and total lead times based on supplier lead times.
Instead of each warehouse setting its own individual MIN/MAX reorder points, the analytics tool automatically
sets a pooled, optimal MIN/MAX for the business unit. A stock redistribution rule – see details in illustrations 2 and
3 – is used to evaluate item criticality and movement, and determine which items to hold, how many and where.
Illustration 2 shows the detail and workflow step decision matr x for the redistribution rule shown in Illustration 1.
Illustration 3 shows a sample outcome of applying a stock redistribution rule.
business unit or pooled region
Pooled Optimization and Redistribution Stocking
Pooled Region=Onshore, OffshoreA, OffShoreB
Combined Usage Only (No Transfers)
Highest Movement
Total Lead Time (Based on Supplier Lead Time)
Pooled Min/Max
Stock Redistribution Rule
OFFSHORE A
Min/Max
MRP Type
ONSHORE
Min/Max
MRP Type
Supplier/
Vendor
Transfers
Operation
where analytics
make an impact:
calculations,
methodology
Issues
Lead Time
Movement
Usage History
Forecast Usage
Transfers
Lead Time
Movement
Usage History
Forecast Usage
Issues
OFFSHORE B
Min/Max
MRP Type
Lead Time
Movement
Usage History
Forecast Usage
Issues
Operation A
Operation B
Illustration 1. A model for operationally sustainable inventory rationalization.
BEST PRACTICE: Pool stocking; determine parameters at the business unit level; redistribute between
onshore and offshore warehouses based on operational need; manage slow moving items, address MIN/MAX.
Individual facilities benefit with more accurate inventory movement data – lead times, item movement,
usage history and usage forecasting.
RATIONALIZE MAINTENANCE INVENTORIES WITH ANALYTICS
5
Stock Redistribution Rule
Pooled Min/Max=
X/Y
Pooled Min/Max=
0/0
ONSHORE MRP=ND
ONSHORE Min/Max=0/0
Operational
Critical?
OFFSHORE MRP=ND
OFFSHORE Min/Max=0/0
Yes
OFFSHORE
Movement=
Slow/Inactive?
Yes
ONSHORE MRP=V8
ONSHORE Min/Max=X/Y-Sum
(Avg Issue Size)
OFFSHORE MRP=PD
OFFSHORE Min/Max=0/
(Avg Issue Size)
No
ONSHORE MRP=V8
ONSHORE Min/Max=
X-Sum(OFFSHORE Min)
/ Y-Sum(OFFSHORE Max)
No
OFFSHORE MRP=V8
OFFSHORE Min/Max=1 Week Usage/
4 Week Usage (Orbin Max)
OFFSHORE
Movement=
Slow/Inactive?
No
Yes
ONSHORE MRP=V8
ONSHORE Min/Max=X/Y
OFFSHORE MRP=ND
OFFSHORE Min/Max=0/0
ONSHORE MRP=V8
ONSHORE Min/Max=
X-Sum(OFFSHORE Min)
/ Y-Sum(OFFSHORE Max)
OFFSHORE MRP=V8
OFFSHORE Min/Max=1 Week Usage/
4 Week Usage (Orbin Max)
Illustration 2. Stock redistribution rule: detail and workflow step decision matrix
RATIONALIZE MAINTENANCE INVENTORIES WITH ANALYTICS
6
Onshore
stock type
Offshore
stock type
Item Characteristics
Material Type
Supplier Attributes
V
V
regularly used, high
demand
consumable, PM spares
long lead time, foreign
supplier, difficult to obtai
V
P
moderately used
critical
long lead time, foreign
supplier, difficult to obtai
V
N
seldom used
non-critical
long lead time, foreign
supplier, difficult to obtai
P
V
moderately used
repairable
moderate lead time, hard
to obtain
P
P
seldom used
critical, manufactured/
OEM
moderate lead time, hard
to obtain
P
N
rarely used, high price
drilling spares
moderate lead time, hard
to obtain
N
V
regularly used, high
demand
common goods
short lead time, local
supplier, easy to obtain
N
P
moderately used
MRO spares
short lead time, local
supplier, easy to obtain
N
N
rarely used
MRO spares
short lead time, local
supplier, easy to obtain
Illustration 3. Sample outcome of applying a stock redistribution rule:
V = stock in location at min/max stocking levels
P = non stock – order on demand but maintain minimum safety stock quantity on hand
N = non stock – order on demand
RATIONALIZE MAINTENANCE INVENTORIES WITH ANALYTICS
7
ONSHORE
Uniform item Criticality Assignment
1. Onshore Criticality to match Offshore
Stocking Strategy
1.Stock all active materials
2.Non stock with safety units for drilling
spares, repairable, OEM, & seldom used
critical spares
3.Non stock seldom used non critical materials
4. Potential obsolete displacement &
redeployment
V-Stock: Min/Max
OFFSHORE
Uniform item Criticality Assignment
1.Related to BOM
2.Related to where used equipment
3.Special assignment
Stocking Strategy
1.Consideration for space limitation
2.Safety stocking for rarely used critical spares
3.Maximum inventory carry<=4 weeks
4.No surplus or no seldom used non critical
materials
V– Stock (consumable, PM active spares)
P– Planned demand (seldom used critical
spares)
N– Non stock (rarely used critical spares)
P-Non Stock with safety units (planned
demand): 0/Max
•repairable, OEM, drilling spares, seldom used
critical spares
V– Stock (repairable)
P– Planned Demand (drillling spares)
N– Non stock (seldom used non critical
materials)
N-Non Stock (Order on Demand): 0/0
•non repairable, non OEM, non critical
materials
•short lead time, local suppliers
V– Stock 0
P– Planned Demand 0
N– Non stock (catalogued items)
Illustration 4. Align offshore and onshore inventory warehousing and distribution operations.
Measure all business unit inventory within all individual facilities, and ensure balanced inventory across the
pooled region or business unit.
RATIONALIZE MAINTENANCE INVENTORIES WITH ANALYTICS
8
Conclusion
Inventory rationalization helps oil and gas enterprises keep assets running more productively and safely.
Rationalization refers to aggregating inventory management at the business unit level. The analytics assisted process
helps companies:
• Boost warehouse efficiency and safet
• Maximize offshore storage space
• Achieve high service levels while avoiding inventory build up
Inventory rationalization is an efficient, productive, and safe global stocking strategy for onshore and offshore
warehousing to ensure the right parts are in the right place at the right time. The practice eliminates excess
inventory, decreases costs, improves inventory turnover and reduces obsolescence. Companies improve productivity,
operational uptime, resource efficiency and focus. In addition, offshore resources costs are significantly reduced
Warehouse managers love inventory rationalization because it makes their jobs easier, safer and more efficient
maintenance managers love it because they always have exactly what they need, where they need it, when they
need it.
And finance managers and executives love it because it delivers a positive impact on the P&L statement (lower
inventory carrying costs and reduced spend) and balance sheet (less inventory and increased cash).
Oniqua’s analytics-based Intelligent MRO analytics technology and services make powerful analytics capabilities
accessible and simple. That’s why oil and gas companies around the world rely on Oniqua Intelligent MRO to help
them achieve productivity and safety goals, drive stakeholder value and lead business transformation.
RATIONALIZE MAINTENANCE INVENTORIES WITH ANALYTICS
9
About the Author
Steve Pak has more than 20 years of supply chain, plant maintenance and
operations management experience with Fortune 500 companies. In his
role with Oniqua, Pak applies his background and experience with business
process optimization and re-engineering to help Oniqua’s clients leverage
analysis, insights and best practices to optimize MRO operations and
achieve greater efficiency and profitability.
Try Oniqua with your own data.
oniqua.com
Contact Oniqua
Australia
Brisbane, Australia
Level 5, 16 Marie Street
P.O. Box 1119 Milton
Brisbane Queensland 4064
Australia
Phone: +61 7 3369 5506
Perth
Level 4
673 Murray Street
West Perth
Western Australia 6005
Americas
Denver, USA
7900 E. Union Avenue, Suite 920
Denver, Colorado 80237
USA
Phone: +1 303 222 1100
Santiago, Chile
Av. Pedro de Vlavidia 555 Of. 1101
Providencia - Santiago - Chile
Phone: +1 303 952 6877
Oniqua Europe
Regent Centre, Regent Road
Aberdeen, AB115 NS
United Kingdom
Phone: +44 (0)788 747 4564
Africa
Johannesburg, South Africa
P.O. Box 81051 Parkhurst
Johannesburg, 2120
South Africa
Phone: +27 (0) 82 333 8069
________________________________________________________________________________________________________________________________
________
Oniqua provides Intelligent MRO (maintenance, repair and operations) capabilities that are transforming the way Oil & Gas, Mining and Utilities companies
manage their capital-intensive assets. Our unique cloud-based offering combines the world’s most advanced MRO analytics technology with analyst services,
consulting, master data cleansing and industry expertise to optimize the performance of materials management and operations & maintenance activities.
Oniqua does the “heavy lifting” on behalf of customers so they can achieve rapid benefits in the form of reduced waste and costs, minimized risks, greater
efficiencies and smarter decisions across their MRO operations. Oniqua is proud to serve many of the world s largest energy and resources companies,
including BHP Billiton, ConocoPhillips, Dow, BP, Newmont Mining, Rio Tinto, Freeport McMoRan, Tennessee Valley Authority, Nebraska Public Power District and
many others.
Oniqua is owned by international oilfield support services company ASCO. The company employs over 2,500 people in four key regions, namely the Americas,
Europe, Middle East & Africa and Australasia. The company currently has sales in excess of $1bn. Through Oniqua and its other businesses, ASCO offers a
wide range of services including inventory and materials management, offshore supply base management, onshore oilfield support, environmental services,
personnel and training, advisory and technical services as well as fuel services. ASCO’s global headquarters is based in Aberdeen.
OWNERSHIP AND COPYRIGHT
The ownership and intellectual property contained within this document belongs to Oniqua Pty Ltd and cannot be replicated, copied or used without
the written consent of Oniqua Pty Ltd. Product names mentioned within this document may be trademarks of their respective companies and are hereby
acknowledged.
Copyright © 2016, Oniqua Pty Ltd. All rights reserved.
RATIONALIZE MAINTENANCE INVENTORIES WITH ANALYTICS