Moving Beyond The Low-Bid Culture: Report Finds Collaboration A Better Path Forward

In the topsy-turvy state of today’s oil and gas industry — dealing with shifting market dynamics and geopolitical uncertainties, rapid technological change and the lower-for-longer crude oil price environment — a return to the pre-recession years of reliably growing markets and healthy oil prices seems unlikely any time soon.

But while there may be little the industry can do about the future uncertainty and challenging oil and gas prices, there are ways to deal with the other side of the equation: costs. There are many opportunities available to create efficiencies and trim expenses, not least through the procurement process.

The Canadian oilpatch is characterized by a proliferation of service and supply companies that are an essential component of the sector. These companies feed into long and complex supply chains operated by increasingly outmoded procurement processes, according to a new report, Inspired Conversation: Uncovering real approaches to industry-wide collaboration. Click here to download the full report.

As its name suggests, collaboration is one avenue by which many efficiencies can be found. Based on a JWN Energy and Grant Thornton hosted Inspired Conversation workshop — attended by executives from all sectors of the industry — the report surfaces a number of strategies by which procurement throughout the supply chain can be modernized and improved to the mutual benefit of all sides.

Two of the biggest barriers to successful collaboration to emerge from the discussion were: the low-bid mentality that is a product of a business culture that excessively rewards price over value; and a procurement process that tends to focus on the price of each component of a project to the exclusion of an overarching procurement program focused on risk management and total value.

“I have seen the low-bid culture throughout my career and that whole approach doesn’t work,” said one workshop attendee. “How can you be collaborative when every job has to be rebid?”

Also cited was the lack of institutional knowledge and difficulty in transferring the knowledge. And attendees pointed to a lack of industry-wide standardization, best practices and government involvement in standards and compliance. A failure to bring suppliers in early in the project planning process, resulting in added costs later, was raised, as was a failure to enable collaboration at the appropriate levels within organizations.

There is a need to encourage a greater level of technology adoption, recognizing that the service sector provides many of the industry’s technological enabling solutions, by ensuring risk and reward are appropriately balanced, conversation participants said.

The report speaks to many of the simple steps companies can take to optimize performance with their collective project partners — be it those in procurement, engineering, construction, maintenance, asset integrity or logistics. It concludes with a number of recommendations that provide a pathway forward for companies seeking to increase efficiency through a greater level of collaboration across the industry.