Oil and gas (O&G) companies work in a volatile ecosystem and are susceptible to fluctuations in international rates and changes in regulatory requirements. These companies ride on unpredictable waves of demand and supply and an ERP system can offer them a bird’s eye view of all operations and real-time data on resource availability.
What is an ERP?
ERP is an acronym for Enterprise Resource Planning, but even its full name doesn’t shed much light on what ERP is or what it does. For that, you need to take a step back and think about all of the various processes that are essential to running a business, including inventory and order management, accounting, human resources, customer relationship management (CRM), and beyond.
At its most basic level, ERP software integrates these various functions into one complete system to streamline processes and information across the entire organisation.
Why Oil and Gas Companies need an ERP Solution?
ERP software is an excellent tool for helping businesses gain visibility into their daily operations, enabling them to make better decisions and become more efficient.
ERP solutions are in demand in every industry because they integrate data from various functional areas, and can be used to track stock availability, manage inventory and orders, optimize efficiency, and reduce cost.
ERP solutions for Oil and Gas companies
What does an ERP solution for O&G companies need to do? These companies often need to track equipment, supplies, and resources that have to be moved often and in remote places.
A modular ERP system helps them plan the movement and location of all their resources, which are often in remote locations.
Businesses in the oil and gas industry often operate in several places throughout the world, fostering supply chains that extend beyond the corporate offices. In fact, the oil and gas sector spent $34 billion on deliveries around the world in 2013, according to data from Deloitte Touche Tohmatsu Limited. With an ERP solution, they can stay on top of their entire supply chain, providing end-to-end management of orders and the physical movement of production.
What can an ERP Solution do for Oil and Gas Companies?
The oil and gas industry is unforgiving and customers even more so. The constant drive to reduce cost-per-cumulative-production, for example, brings an increasing pressure on O&G companies to reduce their hardware costs. Since one of the fastest ways of saving on hardware costs is by reusing components, an ERP solution for the Oil and Gas Industry should have the necessary resources, processes and controls in place to prevent shortages of critical components and materials.
The hardware component of oil and gas operations is sometimes referred to as CAPEX (capital expenditure). Suppliers often ask for higher prices under CAPEX contracts, and this may lead to an internal split across the O&G companies’ departments. For example, the Hardware Support Operations Team may initiate cap-ex projects using an ERP system and distribute the funds. The ERP system should have a check mechanism to ensure that no individual or department could spend more than their sanctioned budget.
ERP systems were designed to function as networks. This is especially true of the Oil and Gas Industry, which operates on many support networks, from technological to administrative. For example, in order to function, O&G companies need networked sources of data, physical infrastructure, as well as physical infrastructure, staff, and budgets.
Oil and gas companies often need cross-functional data exchange and approvals for ERP records at different stages of the business cycle. For example, a marketing campaign will require data from the IT and Engineering departments, and approval for the budget will be needed from the administration department.
- Notification and Approval
The ‘pipeline’ from the IT department to the field operations unit is often viewed as a one-way road, like the pipeline itself. Although it is very often ‘live’, there is no easy way for sending updates, notifications, or requests back to the IT team in the field. It is often more convenient to send data back via courier, and the lack of a feedback mechanism often gives rise to erroneous data.
- Problem Detection and Resolution
ERP systems in the Oil and Gas Industry often enable users to spot problems and resolve issues as and when they happen. Software alerts can be configured to intercept messages from the field systems that may indicate a problem and escalate them to the appropriate team for resolution. For example, since drilling operations may take significant time, it may be possible to set up automated alerts for any field activities that are delayed.
- Process Collaboration
Interdepartmental collaboration is one of the most important aspects of ERP systems for the Oil and Gas Industry because it helps bring cohesiveness to a wide spectrum of processes. Instances of process collaboration in this sector might include changes in processes, developing upgrades, testing teams, and more. These processes require approvals from both the top management and the operational team. An ERP system should have full support for these, including the workflow required for automating the approvals.
- Standardized Field Data
Oil and gas companies often have to send inputs from their field units to the central units through complex pipelines. This is where the need to standardize field data recognition arises. You need to ensure that data is recognizable during integration processes. If you cannot ensure this, then you will have to invest in separate systems that will convert the proprietary data into a more standardized format that can be shared across the enterprise.
- Active Scheduling
An ERP system should work in synchronization with the operational schedules in the oil and gas industry. The level of integration of the ERP system and the operational schedules will depend on the maturity level of the ERP. Newer ERP systems tend to better support these integrations, as ERP systems mature, these integrations tend to be narrower, more specific, and fully enabled.
- Capacity Planning
There is a lot of work involved in capacity planning for the oil and gas industry. It is a complex process that requires a lot of trial and error to achieve a reasonable forecast. Therefore, ERP systems specifically designed for the industry should focus on better automation, support for such processes and more sophisticated analysis of historical data.
- Collaborative Planning
The pipelines of the oil and gas industry are very long since they are linked from the CDP to the end-user, passing through suppliers, booking agents, and so on. This long supply chain helps to ensure smooth operation of the entire industry. Due to its length, it is possible that many contractual issues will arise. For example, in pipeline management and operations planning, it is necessary to take into consideration the rapidly changing supply and demand of the products. Therefore, you need to have clear processes and a strong interface with other sectors of the industry.
- Data Cyber Security
Pipelines can easily become targets for hackers. Any attacks will lead to delays that will have a negative impact of the entire industry. An ERP system for the oil and gas industry should have a strong security system and should also use the latest encryption technologies.
- Player to Player Collaboration
Since so many processes are automated, it is very important to have seamless process integration, especially between the ERP system and the operational processes.
- Exception Management
As the oil and gas industry is so complex and it is difficult to define the levels of processes automation, there are bound to be exceptions. An ERP system for this industry should have fail-safe exception management capabilities.
- Performance Analytics
ERP systems for the oil and gas industry should have a clear interface with performance analytics. Such ERP systems are likely to be used by top-management, and so it is important to set up clear performance metrics for the entire organization.
- Enabling of Smart Transportation
As processes in the oil and gas industry become more intelligent and sophisticated, for example, through the use of smart technologies, it is necessary to integrate these changes in the ERP system. The integration of Smart Transportation (and other smart devices) will be further discussed in the following section.
Although there are many ERP systems available, only a few have been designed specifically for this industry. This becomes even more evident when you take into account the vast number products and services that are involved in the business cycle. Most ERP systems are designed for specific operational processes. Only a few ERP systems provide direct support for the business processes across the entire spectrum of the industry. For example, it is often difficult to integrate a Supply Chain Management (SCM) ERP system with a Facilities Management (FM) ERP System.
There are many ERP models available, and it is beyond the scope of this article to delve into their differences. However, in order to understand these differences, it is important to take into account the characteristics of each sector. At the most basic level, consultancy firms have identified the following as the leading ERP models:
• Enterprise Resource Planning (ERP)
• Customer Relationship Management (CRM)
• Supply Chain Management (SCM)
• Business Process Management (BPM)
• Business Process Re-engineering (BPR)
• Engineering Asset Management (EAM)
• Manufacturing Resource Planning (MRP II)
• Just-in-time (JIT)
• Business Intelligence (BI)
All ERP systems follow the same principle. They usually combine business processes, information, and trends in order to provide decision-making and automation capabilities to the enterprise. However, the similarities end here. The above-mentioned ERP systems differ in their capabilities. For example:
• Some are designed for single departments. Others are designed for a consortium of departments.
• Some only have well-defined and overarching processes. Others have very specific processes.
• The service-level agreements may vary from one ERP system to another.
• Some are more mature than others, and they require less re-work when being integrated with other systems.
An ERP system is a strategic tool for the oil and gas industry. These tools and applications have a great effect on the performance of the entire enterprise. Whether you decide to use an off-the-shelf ERP system or to build your own in-house system, you should consider adding the intelligence, the control, and the sophistication to the core of your platform. This will allow you to capitalize on many operational aspects in the industry.
The inclusion of an ERP system in a business requires a thorough analysis of the currently used business processes in order to identify any shortfalls in the current system. This will provide a basis to see where the ERP system can be integrated into the business processes to improve the company’s operational efficiency.
Implementing an ERP Solution in the Oil and Gas Industry
The area of Oil and Gas, the lifeblood of this civilization, is in many ways similar to that of a Military Operation. Both Oil and Gas (and war) have throngs of suppliers, intermediates, contractors, equipment service providers, and consumers. Furthermore, both need to be physically transported – but the pipelines, pipes, wire, and cord for oil and gas cannot be easily seen and protected as the troops or the ships for the military.
Now, since Oil and Gas are so essential to the entire civilization, a Virtual Plan (like that which is used in military) should be created for an ERP solution in the Oil/Gas industries. This plan should be used in order to facilitate quicker and more appropriate implementations of ERP solutions. This will shorten the amount of time that is taken to implement an ERP solution.
In order to achieve these ends, however, an understanding of the culture, practices, and business should be understood. In a larger industry, there will always be companies that are large and companies that are small. The bigger, more established companies are often happy with the current practices and are not interested in the ERP solution, but the new companies are interested in a solution that saves time, resources, and money, and has a rapid ROI. In order to further this cause, marketing and sales must go out to the small and up-and-coming companies, and they must explain to them the benefits of having a successful ERP implementation.
In marketing and sales, there must be a focus on leadership, vision, and strategy. This means that a direct contact with the decision-makers of these companies must be made (and this is often not that simple), and then a plan of action (including vision and strategy) must be created and explained to the company so that they know how to implement the ERP solution in the Oil and Gas Industry.
Another important factor in the Oil and Gas Industry is that high-performance execution is often needed due to the fact that the industry is global. Even in one country, there are usually many different companies that need to share the same platform, so in order to successfully complete a project, the process must be complete.
Up until this point, Oil and Gas has not employed the use of ERP systems. It has been resistant to ERP systems due to the volatile nature of its industry. This was due to the fact that the industry is so different from the way IT is typically employed, and the need for ERP systems has not been as great as in other industries.
However, the world is changing, and Oil and Gas is, too. Many of the big Oil and Gas companies are willing to make the leap towards improved performance, and some of the small companies will be shamed into valuing their processes and their accounting requirements before it’s too late and they are no longer able to compete in the marketplace.
How to pick an ERP Management Solution for the Oil and Gas industry?
Oil and Gas is one of the most complex industries in the world. It is composed of a multitude of expert trades – ranging from Geologists to Riggers to Accountants to Chemical Engineers and so on. The complexity of Oil and Gas can therefore be categorized into three key areas of complexity:
• Business complexity: Organizational involvements, supply chain branches and locations as well as numbers of people involved.
• Technical complexity: Involvements of complex machines, workflow processes and technology.
• Regulatory complexity: Legal and regulatory requirements, political environment, socio-economic environment and more.
Now, it is almost impossible to pick the best ERP system for the Oil and Gas industry. Every company is different and has a different business requirement. It is therefore necessary for an ERP system to be very flexible – it should be able to be adjusted as per the needs of the industry. An ideal ERP system for Oil and Gas should be able to integrate with existing as well as new structures to ensure cost effectiveness of the ERP implementation.
Before selecting an ERP system, one has to take into account the current IT status of the company and figure out the amount of resources that it has. This will help prioritize the target companies for the ERP system. ERP systems also have a long life span, in some case, the ERP systems will live longer than the companies they support. It is therefore necessary to choose an ERP system that will be flexible enough to live with the company for an extended period of time and remain relevant and useful for the business.
Because of the various complex reasons mentioned above, ERP systems are often implemented in pilot stages by the oil and gas industry, in order to not jeopardize production, while getting a feel for the process. These pilots are run for a set period of time, to see how the ERP system will function in the Oil and Gas Industry. The oil and gas industry, due to the fact that it is so technologically-relevant, uses some of the most advanced equipment and technology, and therefore an ERP system in this industry needs to be able to work effectively with any kind of equipment which is currently available and with any kind of technology is present in the day-to-day business.
A Production software in Oil and Gas typically handles the following:
• Production Planning
• Field Development
• Drilling Operations
• Well Testing
• Production Operations
• Production Accounting
• Production Management
Before starting with a pilot project, one should develop an outline understanding of the company that the pilot is being implemented for. This will help in determining the needs of the company, and will help tailoring the pilot project. Instead of a standard project, it will be an individual project. This is much more effective, in that it provides the project with exact data that relates to the unique requirements of the company. It also saves time due to the fact that the software is already know and it does not have to be configured.
It is important to be aware of the fact that there are current practices in Oil and Gas, which might not be compatible with the ERP system. First, it is important to identify the existing practices, so that they can be taken into account in the ERP system. Second, there must also be an attempt to change the existing practices as per the need, so that they are in line with the ERP system.
Some of the regulatory requirements in the industry include financial reporting, safety protocols, environmental protocols, tax reporting and accounting requirements, licensing, manufacturing controls, information security and more. A centralized database for Oil and Gas offers the industry a centralized and organized place for these requirements.
Executing an ERP Implementation in the Oil and Gas industry Checklist
Step 1: Planning
• Play the role of objective evaluator
• Define the objectives
• List the resources
• Assess the risks
• Initiate solutions and set up technology platform
• Review current performance and create org chart.
Step 2: Preparing for Integration
• Business Review: Organizational involvements, supply chain branches and locations as well as numbers of people involved.
• Technical Review: Involvements of complex machines, workflow processes and technology.
• Regulatory Review: Legal and regulatory requirements, political environment, socio-economic environment and more.
Step 3: Mapping the Processes
• Replace Your Simplistic List of Functions with Detailed Process Flow Charts
• Process Flow Maps
Horizontal Flow Maps: Document the type of data that flows between the operational business units
• Document the type of data that flows between the operational business units Vertical Flow Maps: Map the flow of information between the functional units
• Active Flow Diagrams: Illustrate processes and the activities that take place within those processes
• Data Flow Diagrams
• Document the type of data that flows between operational business units
• Map the flow of information between functional units
Step 4: Planning for the Implementation
• Establish a Benchmark Process Model
• Define the Baseline Process Model
• Compare the Benchmark and Baseline Process Model
• Identify Possible Improvements
• Create the Interface Strategy
Step 5: Implementing the New System
• Create a System Activation Team
• Develop a detailed deployment plans
• Deployment Plan
• Pilot Plan
Step 6: Testing Phase
• Develop a Test Strategy
• Create a Testing Program
• Plan the Test
• Execute the Plan
• Complete the Testing Program
Step 7: Managing the System
• Execute Ongoing Maintenance
• Performance Management
Step 8: Preparation for System Redeployment
• Prepare for Re-implementation
• Implement a Quality Assurance Program
• Implement a Change Management Program
Step 9: Planning for the Redeployments
• Plan for the Redeployment
• Re-analyze the Original Objectives
• Determine the Impact of Redeployment
• Determine the New Objectives
• Establish a Redeployment Plan
ERP systems need to be customized for the unique requirements of each company, and therefore cannot be considered a flat, one-size-fits all solution. A pilot project needs to be conducted in order to gauge the company structure and its processes. The process can then be mapped in detail and can identified with the ERP.
The new software can then be integrated seamlessly into the company operations. In order to be able to accommodate any kind of change that might happen in the future, the ERP system in the oil and gas industry needs to be flexible and customizable.