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Aggregating procurement of consumables

Thursday, July 25, 2013

Oil and gas companies spend an enormous amount of time and money buying consumables - could it all be done more efficiently? Buylogic of Norway thinks it can

It is not unusual for companies to spend the same amount of person hours on consumables purchases as they do for any other purchases, says Tone Bengtson, General Manager of Buylogic, a new company based in Sandnes, Norway, which aims to help oil and gas companies with consumables purchasing.

The amount of company time spent on individual transactions proceeding one order can be as much as 4 hours, when you take into consideration time to make a requisition, time to have an approval, send out invitation to tender, acknowledge the orders, manage goods received, and make payments.

Based on average staff costs in Norway, this can mean a single PO costing NOK 2500 (USD 430), she said. This can often be much more than the actual cost of the item being purchased.

Around 80 per cent of the items oil and gas companies buy can be categorised as ''consumables'' - including, amongst other, tools, protective equipment, filters and hoses, Ms Bengtson says.

These items are low cost (relative to most items oil and gas companies buy) - so the 80 per cent of items can account for 20 per cent of the purchasing budget. But the large number of purchases means that they can be very time consuming.

''It is therefore important to focus on the transaction costs for these purchases in order to succeed with a cost effective procurement method.'' Ms Bengtson says.

Ways to improve procurement

One way to reduce transactions costs is increasing the amount of automation during the process. It is essential with an effective ERP system and effective approval matrixes.

If requisitions can go directly from the end user (maybe offshore) to the supplier, with purchase order numbers issued automatically, then transaction costs are reduced.

It is also important to ensure a proper start (requisition) to avoid problems further down the chain such as; no PO reference, no goods receiving, claim/non-conformity, overspent etc.

Generic frame agreements that consist of good conditions that give flexibility and different guarantees should be implemented to reduce the amount of time taken with consumable purchasing.

Supplier Management should be performed for continuous measurement and follow up (KPI''s). Also if you avoid free text orders, and try to maximise the use of standardized products, it takes less labour intensive manual processing, she said.

''Processing the supplier invoices is the single most paper intensive manual work activity remaining today,'' she said. ''Focus should be to streamline the invoice matching and approval process to increase performance and reduce error and cost.''

You can also reduce the number of suppliers.

''Many businesses today experience that their supplier database has grown too much and has become like the ''Yellow Pages'' over the years."

''As different people have bought different things from different suppliers, many of these suppliers have only delivered goods once or twice. This might result in irrelevant or duplicate records.''

About Buylogic

Buylogic is based in Sandnes, Norway. It was spun-off from ADP Systemer in early 2006, and Buylogic have specialised specifically on non-strategic material and consumables. It has 21 employees, all supply chain management specialists.

''We think there are a lot of issues out there that we could help the customer with,'' she said.

''Buylogic suggests that it could entirely take over an oil and gas company''s procurement need of non-critical items. ''We can negotiate and implement agreements on behalf of the customer,'' she said. ''This will allow the purchaser to focus on strategic purchases, representing 80 per cent of the value, and the possibility to obtain significant savings for the customer.''

''Buylogic can advise, streamline and optimise the purchase to pay process with the customer. We can also train the customers'' procurement to pay personnel.''

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