Vetco Gray

Source: Energy Digital

Date :27/06/2007 12:47:48

Supply chain management for the sub-sea solution

With almost a century of experience in the oil and gas industry, VetcoGray is a leading supplier of products, systems and services for onshore and offshore drilling and production. Now part of GE’s Oil & Gas business, the company is managing increasing demand for its sub-sea solutions by taking an innovative approach to the management of its supply chain.

Written by James Hurley & Produced by Ben Weaver

Over the last 100 years, VetcoGray has built a reputation for performance, quality, innovation, and customer service levels. This commitment continues today with experienced customer support personnel around the world. Part of GE’s Oil & Gas business since February 2007, which has offices in over 70 locations around the world, VetcoGray has major offices and production facilities throughout the United States, Brazil, Scotland, Singapore and Norway. The company also has key research and development centers located in Houston, Aberdeen and Oslo.

The company specialises in sub-sea infrastructure, a growth area in the oil and gas industry. While oil companies have traditionally relied upon a platform approach, which involves drilling wells and then tying them back to the platforms, this is becoming increasingly economically unsustainable. The platforms are costly to build, the waters where companies are exploring are getting deeper and there are prohibitive decommissioning costs to be considered. In light of these factors, it’s hardly surprising that the industry tends to favour the sub-sea solution. VetcoGray, GE – Oil & Gas Subsea Marketing Director, Adrian Phillips believes that more and more offshore developments will be of the sub-sea variety. “As the market pushes for sub-sea solutions, we tend to be the technology of choice,” he says. “All vendors across the board are seeing their order books looking very solid.”

The single vendor journey

The expectations of VetcoGray’s clients are understandably high. Lost time equates to massive financial implications in the oil and gas industries, so the pressure is on the company to deliver on time and within budget. In turn, this places a lot of pressure on the supply chain. “There’s a lot of investment required across the supply base in order to put the required capacity in place,” says Phillips. “That’s ramping up across the board and everybody needs to take a view to see how much they need to invest to make sure that they are keeping our supply chain full. It’s a cat and mouse game between where we think the market is going and making sure that we have invested at the right time and in the right place to make sure that we have capacity available, whether it be in the supply chain or what we actually produce to satisfy that market demand.” With this in mind, and in light of VetcoGray’s wide product range and advantageous market position in the sub-sea sector, a decision was made for VetcoGray to become a single vendor company. “Our clients want a single point of contact, and a total solution”.

“For us it’s a journey,” says Phillips, “and we’ve been on that journey for a couple of years now. The transition to single vendor has implications across the whole supply chain. That always starts with a joined up approach to our supply base, and right at the other extreme it manifests itself with a joined up message for our clients – they see a system or a solution that’s a turn-key package. In the middle of that there’s a series of things we need to get right. One of those is project management - The guys managing the pieces of the VetcoGray supply chain, from trees to manifolds, controls and connectors. Each one of those involves its own expertise and they are often distinctly located in terms of geography. You might have manifolds in Norway, the controls in Bristol and a tree build in Singapore. The key to getting that right is having a set of project managers working closely enough to make it work in a coordinated fashion.”

Supply chain management

Dean Arnison, VetcoGray, GE – Oil & Gas Supply Chain Director says that high standards of communication are essential to a successfully managed supply chain. “We’re inextricably linked with our supply chain. Increased demand for our products and services worldwide, and even higher customer expectations, places more pressure on VetcoGray and our suppliers. “If our suppliers fail to deliver then even greater pressure is placed on us to make up for this gap and to meet customer requirements. But if we deliver on time and to budget, our suppliers share in our achievement.”

The company’s supply chain strategy involves arranging long term, performance related supply agreements with vendors to lock in price and delivery. “We keep their order book full, so we continue to be a good customer, so there’s a bit of give and take,” says Phillips. “Rather than the big guy beating the small guy with a big stick, there are some very forward thinking operators out there. We aim to have a close working relationship with them and they’re willing to pay well for the kit equipment that we supply them. Sometimes they have to work around our deliveries. But if you can give suppliers sufficient warning and sufficient volume of business, then suppliers can plan effectively and take a calculated risk on the future volume of business they are going to get with us. We do the same thing – we develop reduced lead time programs so we can get a bit of an edge with whatever customer we’re dealing with.”

VetcoGray organises its suppliers into three main groups, ‘Grow’, ‘Maintain’ and ‘Feeder’ suppliers (see diagram). Grow suppliers are those considered willing to invest and grow with VetcoGray and enter into long term agreements with the company, while Maintain suppliers are those considered reliable but unlikely to offer much capacity for growth. Feeder suppliers are the suppliers who continually do not perform to our expectation, and the company generally looks to move work away from them, and towards the Growth suppliers. “By doing this,” Arnison explains “we can go into long term growth strategies with the Grow suppliers. This allows the suppliers to invest in infrastructure, machine tools and further enhance their performance. We look at the entire group of suppliers and determine whether we need to add any new ones for capacity or cost reduction reasons.

“Any new suppliers would also take work from the feeders. They are managed by our supplier development group for the first twelve months to ensure that there are no issues with bringing them on stream and passing them on to the commodity management focus that will prepare them for becoming a ‘Maintain’ or ‘Grow’ supplier.”

VetcoGray looks to lock its Grow suppliers into agreements lasting between three and five years. “Our Grow suppliers secure and reserve our capacity, invest for the long term with a commitment that they are the preffered supplier of choice for our product line This philosophy allows them to invest in new machines and saves us millions of dollars annually,” Arnison says.

A global challenge

While the present and immediate future may be rosy for VetcoGray, any company associated with the oil and gas industries must be aware of potential long term changes. The move towards sub-sea solutions is certainly good news for VetcoGray, but it is merely part of a wider process. “A huge determinant in terms of the growth of the offshore industry is the availability of rigs,” says Phillips. “It’s no secret that an average drilling rig can cost around $250,000 dollars a day to rent, so before operators even start to buy our kit, they have to find a rig. This means that companies may want to spend their money in West Africa or one of the other higher growth areas rather than hiring a rig in the North Sea to go after a one or a two well development. It’s just a matter of economics really. People will spend their dollar where they can get the best return.” This globalisation is reflected in the company’s supply chain strategy – VetcoGray has supplier development groups in Africa, Eastern Europe and the Far East developing supplies for local initiatives and low cost sourcing.

A general, if protracted, move away from the use of fossil fuels poses a more challenging threat to VetcoGray than globalisation. “When the day comes when alternative energy sources are found, we’ll be looking for a new business,” Phillips jokes. “But parts of our core solution involve sub-sea power distribution. This could be part and parcel of renewable energy projects such as offshore wind or wave generation. We keep our eye on the market place and we have a fair amount of intellectual property associated with offshore renewable power generation. All offshore development will be sub-sea eventually. GE is in fact already exploring a number of research programs to promote the development of renewable sources of energy, including wind and renewable power generation, and our portfolio can nicely complement what GE is already doing in this area. .”