SUPPLY CHAIN MANAGEMENT AT A GLOBAL LEVEL A

CHALLENGE AND AN OPPORTUNITY FOR A LEADING

OILFIELD SERVICE COMPANY

Amaar Saeed Khan

EXECUTIVE SUMMARY: Due to the complex nature of the oil and gas industry, it offers a classic model
for control and management implications of utilizing complex oil & gas supply chains (SC). The industry is
spread across the globe in various geographic regions to tap the oil and gas reserves; as a result various oilfield
service companies are increasing their international footprint in order to support these worldwide operations.
The conventional business cycle in the oil and gas industry starts at the exploration phase and passes through
various phases before it reaches the final consumer. The interface between various phases can represent a
different company where the output of one is the input for the other. In this regard the efficiency of a supply chain
can be pivotal to the success of any company therefore it is of essence that these supply chains are very well
managed and controlled. This report looks at the Supply Chain Management (SCM) of one of the leading oilfield
service company by analyzing the challenge of managing supply chain spread over various geographic regions.
The main emphasis of the report is on the need for supply chain management as a well integrated and coordinated
system to support the worldwide supply chain management operations more efficiently. The report recommends a
systematic approach towards the SCM based on the framework of a management system ,which will improve
control and management practices across the SC.

The author is a Student of M.SC in International Oil & Gas Management at CEPMLP. He holds a BE degree in
Civil Engineering from National University of Sciences & Technology, Pakistan and an MSC in Oil & Gas
Technology from Aalborg University Denmark. He works with Schlumberger as a project engineer for BP,
based in Cairo Egypt. amaarkhan@hotmail.com

TERMS OF REFERENCE: Prepare a critical management report for the senior strategy
management of an energy or mining organization of our choice. The aim of the report should
be on the management and control implications in utilizing complex supply chains. The
report should focus its analysis upon the contemporary management and control practices
and related consequences; finally providing some recommendations based on the analysis, to
be considered by the organizations senior strategy management. The report should present a
critical and informed discussion underpinned by appropriate literatures.

ii | P a g e

TABLE OF CONTENTS

1. INTRODUCTION...1

2. SUPPLY CHAIN MANAGEMENT AT SCHLUMBERGER........2

3. SUPPLY CHAIN MANAGEMENT ANALYSIS.............3

4. SCHLUMBERGER SCM SYSTEM SOLUTION APPROACH......5

4.1 ADVANTAGES OF SCM SYSTEM......6

5. RECOMMENDATIONS..7
BIBLIOGRAPHY

iii | P a g e

1. Introduction
Based on the annual energy outlook (IEA 2009), there are still enough oil and gas reserves left
in the world which would be able to meet the world production demand for a considerable
amount of time to come. In this regard one of the main challenges being faced by the oilfield
industry is to tap the existing oil and gas reserves and deliver the products to its users at the
lowest possible cost which cannot be achieved without an efficient and solid SC under an
effective management.
As various organizations in the world experience growth and have established worldwide
supply chain teams very few among these manage to have a culture of productivity, discipline,
efficiency and ultimate satisfaction; Schlumberger is one of them. It is the world's leading
oilfield service company supplying technology, information solutions and integrated project
management for various oilfield operations. As of today the company employs more than
77,000 employees of 140 different nationalities with operations spread over 80 different
countries in the world. Schlumberger manages its business through 33 Geo-Market regions,
which are grouped into four geographic areas: North America, Latin America, Europe & Africa
and Middle East & Asia (Schlumberger global website). The Geo-Market structure offers
customers a single point of contact at the local level for operations and brings together
geographically focused teams to meet local needs and deliver customized solutions. Due to the
rapidly evolving business environment of the oilfield industry and the companys international
footprint spanning over 80 different countries, in order to maintain its leading position,
Schlumberger is faced with certain challenges revolving around management and control of its
supply chain at the global level. These challenges could be divided in two broad categories one
being the issue of cost control which is a very important aspect of any supply chain especially
in the current times of economic uncertainty and the second being the need for a common
structure and implementation across the organization based on a framework which provides a
systematic approach for the management team, enabling them to overcome the contemporary
management challenges like chaos, change and physical control issues regarding supply chain
management (SCM), spread across different geographic regions. Because of the size and
complexity of the global operations and the implications associated with the inappropriate
handling of the complex supply chain, the report would focus on the output driven control
system and its management, to be more specific this report concerns the physical organization
of resources but will not consider the control mechanisms used in managing the knowledge
worker. The main focus will remain the implications of control and management regarding
1

handling such complex supply chains by addressing the challenges mentioned above and also
includes some recommendations for consideration by the organizations senior management.
2. Supply Chain Management at Schlumberger
Exploration Phase Production Refining Marketing Consumer
In the oil and gas industry the typical business cycle starts at the exploration phase and then
moves on through various phases shown above until the final product reaches the consumer.
These different phases also represent the interface between various companies and the
materials that flow through these links, based on the nature of various operations ranging from
seismic and geophysical surveys, drilling and reservoir production, refining processes and
marketing of the final products. Each stage of the link can represent a separate company but the
common objective throughout the link is to provide the final product to the customers at the
least possible cost. Besides this long term planning is at the core of the industry because of the
cost implications associated with time dependant nature of the oilfield business.
The profile of Schlumberger revolves around exploration and production operations where
most of the activities are repetitive. Hence it is very important to ensure that each component in
the supply chain responds quickly in terms of material needs and should have reliable suppliers
because the variability and uncertainty related to demand and supply within SCM is one of the
major problems (Ho, 2002). In order to overcome these issues Schlumberger is vertically
integrated backwards to the extent that it produces some of its materials used for equipment for
various exploration and production operations, through in-house production in various
manufacturing centers in different geographic areas. As a result Schlumberger has both internal
and external customers. This vertical integration results in reduced inventories, less quality
checks and other non-productive activities. As all these resources like materials, equipment,
technology, labor and certain other assets flow through various geographic boundaries
spanning from North America to the Far East it requires an effective management and control
across the supply chain which requires the SCM to be a well integrated and coordinated system
as defined by (Forrester 1958,1961) because timely delivery of these resources is of the
essence because the output of one activity is the input for the second phase of activity and the
cost implications associated with the nature of the business in terms of rig downtimes could be
enormous. Besides this the supply chain at Schlumbeger gains more complexity because of the
involvement of various cultural backgrounds and work ethics across various geographic
regions but we would not go into the details of the cultural aspects of the supply chain
2|Page

management but would keep it at a generalized level for the purpose of this report. The
complexities associated with such a SC cannot be handled through contemporary management
and control practices. There are certain issues shown below, which needs to be addressed
properly in order to have an efficient SC which produces profitable results, these are:
Need for a single management in order to improve the physical promoting
harmonization within SC across areas and functions reducing the complications based
on different operating cultures.
Need for SCM as a well integrated and coordinated system as defined by (Forrester
1958, 1961), to handle the worldwide operations.
Need for the management to have a better control across the SC which would help in
reducing the overall cost.
In order to address these issues we need to look at the theory of SCM in the light of some meta
analysis, in the following chapter.
3. Supply Chain Management Analysis

There seems to be little consensus on the definition of SCM. Kathawala and Abdou (2003)
conclude that SCM has been poorly defined and there is some degree of variability in peoples
mind about what is meant by SCM. However Mentzer et al (2001) attempted to overcome this
issue by defining SCM broadly which is not confined to any single area or discipline. We
would use this definition for the purpose of this report because it closely represents the concept
of SC in Schlumberger:
Supply chain management is defined as the systemic, strategic coordination of the traditional
business functions and the tactics across these business functions within a particular company
and across businesses within the supply chain, for the purposes of improving the long-term
performance of the individual companies and the supply chain as a whole.
From this definition we can observe that the emphasis is not on simply minimizing cost or
reducing inventories but rather on taking a systems approach to supply chain management as
explained by Simchi-Levi. et al (2003). They argue that efficient integration between various
components of a supply chain i.e. suppliers, manufacturers, warehouses and stores is very
important. The main challenge being the coordination of activities across the supply chain so
that the organization can improve performance: reduce cost, increase service level, reduce the

3|Page

bullwhip effect which is based on demand amplification (Forrester 1961), better use of its
resources, and respond effectively to changes in the market.
The complex nature of the oilfield supply chain and the contemporary business environments
consists of high levels of uncertainty and complexity in terms of what methods and balance of
practices should be considered in controlling and managing such international supply chains.
Whether it is inventory management or reduction in lead times across the various functions of
supply chain, control plays a very important role when it comes to implementing the plan or a
system because planning and operational controls remain significant responsibilities of
management but for SCM, it is fundamental and is considered as a key activity of management
Boddy (2008). Now lets look at the type of control which will be suitable for this application as
Rollinson (2005) makes the distinction between choice of control mechanisms through output
and input controls where output controls revolve around traditional models of management
based on performance, specifying desired results, allocating individual worker responsibility
for achieving specified tasks and monitoring worker achievements on the other hand input
controls are about using organizational culture based on common beliefs and values such as
innovation in the case of Schlumberger. But the control mechanism being used also depends
upon the subjects i.e. highly skilled knowledge workers or day to day operators. However it
will be very difficult to apply a specific type of control mechanism when it comes to managing
international value chains similar to Schlumbergers because in some cases input controls
would be better suited because it will help in achieving the common goal by improving the
overall efficiency of the supply chain whereas output controls would be more effective in case
of physical management of resources like inventories and allocation of various financial assets,
as output controls will restrict the abuse of these resources flowing within the value chains. In
knowledge-intensive industries output controls are problematic but desirable which requires a
sophisticated balance of formal output controls and input controls keeping in view the worker
requirements of knowledge intensive worker (Alvesson, 2004). As expressed earlier this report
focuses on the physical related to the control of organizational resources, in which case the
solution lies in developing an integrated SCM system based on the systems approach where
control, planning and management is fundamental dimension of achieving organisational goals
through better coordination of resources within the integrated supply chain. The supply chain
management system which can satisfy the solution above would require a high degree of
innovation, which makes traditional management practices such as standardization,
routinization and supervision difficult to apply, they are used more flexibly (Alvesson, 2004),

4|Page

especially in case of handling knowledge intensive workers playing individual roles in such a
complex supply chain .
4. Schlumberger SCM System Solution Approach
As stated earlier the solution to the challenges faced by Schlumberger today in managing its
global supply chain exists in integrating all the SC functions in one system under the umbrella
of management and control. The success of this management system would be based on the
role of management, processes and people. So what is this management system? In simple
words, it is a well organized, integrated and adequately documented process, in the form of
standards and procedures that describes how a company or function will achieve its objectives.
But it is not a completely IT based system based on inputs but will have room for the
management through increased interaction with the people involved down the supply chain.
This management system did not come out of the blues but it will be derived from the
Schlumberger quality, health, safety & environment (QHSE) management system as shown in
Fig-1. Despite its name this management system will not be purely an IT application, it will be
the framework of processes and procedures used to ensure that the SC organization can fulfill
all tasks required to achieve the goal by equipping the users with updated resources which will
facilitate the day to day work and at the same time will have the appropriate controls for
effective management.

5|Page

Figure 1- Schlumberger QHSE Management System

This figure represents the eight inter related components of the management system. All of the
supply chain management system processes, documents and practices fall into one of the eight
interrelated components of this system. The organized framework of the management system
will allow all existing SC guidelines, procedures, standards and practices to be structured in a
single coherent structure. It will promote harmonization across the different areas and
functions. This will be improving the use of knowledge by building upon existing knowledge
and giving critical considerations for operational control, level of risk and uncertainty in the
international supply chain. This system will ensure involvement and participation from the
lower level people in the SC organization as well, which will promote accountability in terms
of inventory management leading to effective cost control.

4.1. Advantages of Supply Chain Management System:

We can expect several benefits to flow from this management system:
Meets the need for a common structure within Schlumberger SC.
Improved efficiency of SC by documenting how processes, procedures, practices must
be completed, and all employees will become more proficient and efficient.
Will improve control and effective management throughout the supply chain ultimately
leading to improved performance.
With the help of this system the performance of the supply chain can be measured which
will provide incentives for improving the supply chain, thus removing dependency on
individual decision makers and ensuring participation from all levels within the supply
chain.
In this way situational expertise in SCM will develop carrying more authority than formal
position as Lowendahl (1997) argues that expertise is multidimensional and not linked to
seniority and administration experience, in this way operational authority may be
unrelated to hierarchical position, as opposite to the traditional management practices.

6|Page

5. Recommendations
The following recommendations are made on the basis of the analysis above:
1. The various supply chain components like suppliers, manufacturers, warehouses and
stores should be integrated in a single system, which makes supply chain management
more effective.
2. The supply chain business in Schlumberger should be approached in a more systematic
manner based on integrated and documented processes.
3. The team involved in the operational side on handling the supply chain should be
highly skilled in supply chain management function based on situational experience as
opposite to the companys hierarchy positions.
4. The managers handling the supply chain operations should be committed and
accountable and should not rely purely on procedures and standards, which can be
achieved by closely interacting with the supply chain operational team.
5. The proposed management system should attempt to not only manage the issues
associated with the physical management of the products and resources but also address
the contribution of knowledge management of highly skilled professions in the supply
chain function.

7|Page

BIBLIOGRAPHY
BOOKS:
Alvesson, M., Knowledge Work and Knowledge-Intensive Firms (Oxford, United
Kingdon: Oxford University Press, 2004).
Boddy, D., Management: An Introduction (Harlow, United Kingdom: FT Prentice
Hall, 2008).
Forrester, J.W., Industrial Dynamics (Cambridge, United Kingdom: MIT Press,
1961).
Lowendahl, B., Strategic Management in Professional Service Firms (Copenhagen,
Denmark: Copenhagen Business School Press, 1997).
Rollinson, D., Organisational Behaviour and Analysis: An integrated Approach
(Harlow, United Kingdom: Pearson, 2005).
Simchi-Levi, David.,Kaminsky, Philip., Managing the Supply Chain (USA: McGrawHill Professional, 2004).
ARTICLES:
Christopher M. Chima (2007), Supply Chain Management Issues in the Oil & Gas
industry. Journal of Business & Economic Research, Vol. 05 No. 6, pp. 27-36.
Forrester, J.W. (1958), Industrial Dynamics: A Major Breakthrough for Decision
Makers. Harvard Business Review, 26(4), pp. 37-66.
Ho, D.C.K. (2002), Empirical research on supply chain management: a critical
review and recommendations, International Journal of Production Research, Vol. 40
No. 17, pp. 4415-31.
Kathawala, Y.K. and Abdou, K. (2003), Supply chain evaluation in the service
industry: a framework development compared to manufacturing, Managerial Auditing
Journal, Vol. 18 No. 2, pp. 140-9.
Mentzer, J.T., DeWitt, W., Keebler, J.S., Min, S., Nix, N.W., Smith, C.D. and
Zacharia, Z.G. (2001), Defining supply chain management, Journal of Business
Logistics, Vol. 22 No. 2, pp. 1-25.
INTERNET:
Schlumberger global website: http://www.slb.com/content/about/index.asp?
(Last Visited 19-Jan-2010)
International Energy Agency (IEA Outlook 2009)
Website:http://www.eia.doe.gov/emeu/steo/pub/contents.html
(Last Visited 25-Jan-2010)
8|Page