Download Malcolm Wilson is Director of Achilles FPAL

NEWS
June 4 2015
ARE OIL AND GAS COMPANIES ACROSS THE WORLD
'COMPLACENT' ON FINANCIAL RISK OF SUPPLIERS?
By Malcolm Wilson
It’s no secret that the oil and gas industry is suffering from financial pressure, with firms
racing to make efficiencies and achieve ‘quick win’ cost savings.
The fall-out from the tumbling oil price has been punishing, painful for those losing jobs, and
highly public. But the risks behind the scenes could be just as damaging.
A recent survey* of oil and gas professionals across the world revealed that despite suffering
from the financial failure of suppliers, many companies are not taking basic steps to collect
financial information from suppliers.
One quarter of oil and gas firms said that during the last year, they had experienced
disruption to their supply chain from financial problems associated with suppliers. Senior
executives from oil and gas companies across the UK, USA, Spain, Brazil and The Nordics
said these failures had also caused reputational and operational damage across their
businesses.
Yet one in four (27%) large firms admitted they do not protect themselves from this risk – by
gathering financial reports from their main contractors before issuing a tender or contract.
Almost half (47%) don’t obtain financial information for suppliers lower down the supply
chain before considering them for work.
As a result, almost one in five (19%) oil and gas companies across the globe said they are
not confident they are adequately managing the risks associated with their suppliers.
Prevention is better than cure
Increasingly, businesses are expected to reveal potential risks in their supply chain, out of a
duty to consumers and shareholders – such as the Sarbanes-Oxley legislation for public
companies in the US.
In the wake of a series of high profile supply chain disruptions, industry does have a clear
motivation to get to grips with financial risks. So, why wouldn’t buying organisations protect
themselves?
In our experience, there are three main problems – lack of people, processes and tools.
People – With staff numbers falling, it is quite right that C-level executives should be
focusing on long term strategic development, not spending time contacting suppliers for
financial reports and certificates. This work should be outsourced leaving others to focus on
strategy.
Process – The survey also revealed that around one in five oil and gas firms don’t have a
proper process for pre-qualifying suppliers. In our experience, we also find oil and gas
companies that choose to run their own internal supplier databases often suffer from having
very messy supplier data – they overestimate the number of active suppliers and data is
often out of date or unvalidated.
Tools – To really stay on top of risks oil and gas firms need a proper system with automated
processes to gather information, as well as people on the end of a phone to help suppliers.
Need for change
There are clear, practical steps businesses can take to address this issue. But some oil and
gas professionals must also look to change the culture of the industry – and adopt a more
collaborative approach.
There is no competitive advantage in holding mandatory information about suppliers, so
firms should work together to tackle the significant administrative burden of collecting,
managing and updating information about suppliers.
The oil and gas sector spends around 80% of revenue with suppliers but no supplier should
be allowed to get off the starting blocks until it has proven its credentials in business critical
areas such as financial status.
In our experience, oil and gas firms can most effectively tackle risks associated with
suppliers when they agree common standards required of all contractors. Oil and gas firms
are often reliant on the same suppliers – but in a network they can divide the time and cost
of collecting, managing and updating business critical information about suppliers. With
accurate data, buying organisations can protect themselves by proactively managing and
mitigating risk.
Further, strengthening the supply chain also offers oil and gas companies a long-term
sustainable way in which to grow and develop over the long term. The smartest companies
don’t see risk and compliance as a burden – it’s an opportunity to set standards, protect from
risks and drive innovation through the supply chain.
Recent news stories have shown the impact of supplier failure can be astronomical. The oil
and gas sector cannot afford to ignore it and a sensible collaborative approach can reduce
both cost and risk.
Malcolm Wilson is Director of Achilles FPAL – the community used by major buying
organisations within the European Oil & Gas sector. It enables the oil & gas sector to use
Achilles' proven supplier pre-qualification system to identify, pre-qualify and assess suppliers for
tender opportunities and minimise risk within their supply chains.
Achilles manages a network of online portals used by the global oil and gas sector to
manage supplier information and mitigate risks. More than 20,000 suppliers have completed
online profiles of their business critical information such as compliance, which are then
visible to the community of over 300 oil and gas buying organisations.
-Ends*- The market survey was commissioned by Achilles, which Research was carried out by
independent research consultancy IFF, which conducted telephone interviews with 64 supply
chain professionals working at large oil and gas firms across the UK, USA and Canada,
Spain, Brazil, and The Nordics.
Contact - Susie Carter, Global PR Manager for Achilles, +447788385330; Email
[email protected]