In some industries like oil and gas, as much as 85% of the cost of a project is performed by third parties: contractor companies that take care of every piece of work needed, sometimes as much as 70 (seventy) contracts of services are set, some of them just to control the other ones.
Not having a proper system to control the most important contracts go beyond “careless management” and getting into the dangerous region of “looking for trouble”.
- Besides, in successive projects O&G Companies end up contracting one of the same 3 or 4 major service contractors to perform similar tasks, without a documented past history. Therefore, building a strong Supplier Quality management System is advisable to measure, manage and monitor the Contractor´s performance and quality of services to drive continuous performance improvements in operations and consequently optimize OPEX and CAPEX.
- Today´s Market leaders are implementing a Supplier Quality Management System (SQM) in their businesses and it has become a source of differentiation from close competitors.
The advantages of having such a system are, among others:
- Early detection of deviations, to implement corrective actions. Periodic meetings to discuss these numbers have a strong effect on performance. When a recognized neutral system is in place, discussions held in these meeting swift from discussing different versions of what happened to discuss what needs to be done to improve, as measurements have already been set.
- Possibility of implementing Bonus/Malus contracts schemes, not viable if there were no reliable KPI measurements. Having the ability of giving a prize to the good performer and a fine to the bad one, has repeatedly shown a deep impact on performance.
- Continuous measurement allows the company to identify contractor´s weak points. If some day something goes really wrong, you have a good idea of causes and responsibilities, instead of a cloud of dust.
- When the contract award comes, you know that not all contractors are created equal. If a much better but slightly more expensive contractor is a better choice, is a tough decision to back an award when there is no record of past performance. And not only internal justification is needed; In the O&G industry most projects are performed by an operator representing 3, 4 or more non-operating partners, that will audit these decisions.
In some activities as oil production there are some software provided by major service companies that follows operational data, but these systems are not designed taking into consideration the abovementioned nor are applicable to different activities as drilling, plant operations, geologic acquisition, etc., even when many times contractors provide services in all these areas.
Setting KPI targets, capturing performance data from SQM, measuring, finding deviations, plan and manage corrective actions, is a very old approach to drive continuous, with no critics, but still not fully implemented in some companies. Of course, quality has a cost. But lack of quality is always more expensive.
With the collaboration of José Franco, Bsc Ind. Eng., Upstream Senior Consultant at Ideas2invoices.
Learn more: https://ideas2invoices.com/en/oil-gas/
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*Ideas2Invoices is not responsible for the opinions of the authors.
