Increasing Efficiency Through Optimized Vendor Management

Summary

There is huge pressure on Oil & Gas operators to deliver efficiently given the pressure they face in today’s economic climate. Any opportunity to streamline is vital. This report explores how improving how companies manage the non-core vendors in their vendor list drives significant contributions to the industry’s efficiency goals. This paper discusses: 

• The impact of inefficient vendor management
• The benefits of outsourcing pieces of supply chain and procurement to a third-party that specializes in vendor management 
• How one supermajor outsourced the management of smaller vendors on their AVL & significantly increased savings

Vendor Management Is an Enormous Drain on an Operator's Supply Chain Organization

Tail spend is generally defined as the non-core purchases made by an organization – specifically, those purchases that represent 80% of transactions but only 20% of spend volume.

This spend on non-core vendors is often unclassified, and therefore ‘invisible’, because the purchases are very small and infrequent - it could constitute expenditure on pest control and janitorial services, etc. Although these seem insignificant from a balance sheet perspective, when aggregated comprise a meaningful amount of transaction volume for an operations team. It’s often very difficult to manage and can be a drain on resources. 

The fact that tail spend is often overlooked can have a significant negative impact:

Lack of Access to Vendor Pricing Can Result in Overpaying for Goods and Services
There is a lack of visibility in the industry into what a service costs, especially in less strategic spend categories. The result of more effective management of non-core vendors can be cost reductions of up to 20%^[2]

‍The Number of Vendors That Make Up a Small Amount of Spend are a Drain on Procurement Resources
Procurement and supply chain teams have to spend a disproportionate amount of time dealing with invoices and payments that are completely insignificant to their strategic goals. Proactively managing and committing to small improvements in these tail spends can improve a procurement efficiency by 10% or more, resulting in huge savings^[3]

‍It's More Difficult to Maintain Safety and Compliance with Numerous Non-Core Vendors
Because of the sheer number of vendors, it’s difficult to ensure that each vendor has the compliance requirements to operate on a job site and maintain a high level of confidence that safety standards will be adhered to for every single vendor. 

Outsourcing Elements of Vendor Management and Leveraging Vendor Management Solutions Gives Operators Space to Focus

Partnering with a Vendor management solution puts tail spend management in the hands of experts who are able to help companies optimize. These partners put their entire focus on creating a better experience for both the vendor and the energy company they serve.

A vendor management partner organization with extensive experience managing tail spend will be able to use tried and trusted methods for reducing costs. They can support consolidating non-core vendors together in order to reduce the number of vendor items a company has to manage. This consolidation not only makes onboarding, payments and contract management less cumbersome, it also creates greater visibility into expenditure and allows certain areas of unnecessary spend to be eliminated altogether.^[8] 

Oil and gas operators are increasingly deciding to outsource tail spend and vendor management in order to focus time and resources on their core activities. These partnerships enable: 

Lower vendor management costs
Not only are companies seeing the result of more efficient processes getting the benefit of visibility into what the market rates are for some of these less strategic spend categories. Studies have shown that companies who focus their efforts on effective tail spend management can realize 10-20% savings^[9]. Strategically managed tail spend lessens the cost of onboarding and getting the initial MSAs in place that can save companies up to 15% of the total initial costs. There are also ongoing impacts on things like invoice processing and other administrative activities that can reduce vendor management costs by up to 5% annually as companies start to see economies of scale in their procurement processes.^[10]

Procurement team focus on more strategic relationships
When the vendor base is consolidated, it reduces the number of suppliers the procurement team has to deal with and allows them to focus on the largest and most strategic projects. These are the contracts that add the most value to the business and are, ultimately, the best use of internal resources. This focus has impacted other organizations heavily and in some cases has increased procurement team productivity by up to 20%.^[11]

Safer job sites and more compliant vendor lists
Energy job site is a high risk environment with many opportunities for safety incidents. Because of the high stakes, it is imperative that vendors take safety seriously and have the credentials required. Managing these credentials and compliance requirements takes a ton of energy especially for those vendors that provide what might be considered a non-dangerous service. Partnership with a vendor management solution can help ensure that every service provider, regardless of how exposed they are to job site risk, has the credentials they need. Meaning the job site stays safe. 

‍Visibility into spending trends and behaviors 
When a partner with a comprehensive vendor management solution, spend analytics become much easier to see. “Tail spend” is sometimes a black box because it consists of so many vendors in non-strategic spend categories. These smaller price points add up and create a meaningful impact on a P&L. With a partner solution, companies can implement spend controls. They can monitor and track transactions as they occur, making it even easier to stay on budget.

A US-Based Supermajor Optimized Their Vendor Management Using Workrise

One Houston based supermajor had internal supply chain managers handling up to 50 contracts at any given time. This meant they spent just as much time managing low spend and low risk vendors – like pest control and janitorial services – as they did managing more strategic vendors supporting core oil and gas operations. 

This meant a significant burden was being placed on the internal procurement and supply chain teams. The company was in need of a third-party vendor aggregator to take over contracts and management of low spend vendors. Thats where Workrise came in. Immediately the internal teams felt relief. By giving control of contracts, onboarding, and invoicing to Workrise, the supermajor was able to focus its efforts on the most impactful and strategic vendor relationships. 

Because of the immediate impact, the company has continued to transition more vendors to Workrise across multiple business units and categories, while also leveraging Workrise’s network to source new vendors. Through Workrise, the supermajor gained visibility into spend in totality and can count on all invoices being submitted correctly with accurate data. To date, Workrise has onboarded and managed more than 140 vendors for this company and saved them millions 

Efficient Oil & Gas Operations Are Imperative in Today’s Climate

With the state of energy and the pressure energy companies are under, being able to provide the energy the world needs is getting harder and harder. Investments in vendor management can create efficiencies that lessen the burden on supermajors as they navigate the ever changing economic and political environment. Not only is the cost of doing business going up but ever increasing energy regulations are making it even more difficult to do business. 

Supply chain and procurement leaders are in a strong position to lead their companies through the immense challenges of today's financial landscape and to ensure that they remain in a position of financial strength. Companies can find the savings on their P&L through strong vendor management solutions that can ultimately enable capital to be reinvested in the strategic programs that will change the face of energy as we know it today. 

Learn More 

A number of oil supermajors are outsourcing vendor management and tail spend management to Workrise. Contact us to find out how we can relieve your burden so you can get back to focusing on what you do best.

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