The Root Cause of the Supply Chain Challenges in Oil & Gas: A Low-Trust Ecosystem
By Praveen Kalamegham, Chief Technology Officer
In Oil & Gas, something as simple as a cement order must undergo a long and circuitous journey from procurement to installation to payment.
The order will touch multiple sets of hands along the way. It will be checked, verified, and re-verified. If a new vendor is required, the order could easily touch five or six different systems from vendor vetting and procurement to VMS, digital field ticketing to invoicing, approvals, and payments — and take months.
In this same world, it takes an average of six months to get one new vendor onboarded and ready to work on an Oil & Gas project. Multiply that by the hundreds, if not thousands, of vendors needed for a typical project. Then multiply again if instead of standard operations the company is expanding into new categories like carbon capture or hydrogen.
It’s no secret that the way Oil & Gas companies find, evaluate, purchase, and deploy the goods and services they need to operate is time-intensive and multi-layered. And that’s putting it mildly. As anyone who works in this ecosystem knows, the process is complex, bloated, and heavily manual.
For the operators focused on meeting today’s energy needs – while under enormous pressure to deliver more value to shareholders in an increasingly challenging environment – this supply chain quagmire feels like a chronic condition with no cure. It’s so baked into the system that the pain it inflicts is along the lines of a perpetual headache or ingrown toenail. Unpleasant for sure, but not fatal.
Over the years, energy companies have layered on salves and bandages to try to address acute pain. But when you peel back the layers, you’ll find a serious underlying condition that is being ignored. The ballooning supply chain challenges energy companies face today all stem from one root cause: They are operating in a fundamentally low-trust ecosystem.
In this post, I’ll explain why I’ve come to see the industry and its supply chain hurdles this way. You might ask: Why should I care what this software engineer thinks about the Oil & Gas supply chain? My answer: If we spend the time and effort to identify, acknowledge, and unpack the root cause, we can open the door to a new, entirely better way of working for every single stakeholder involved.
An Industry Under Pressure
At Workrise we’ve talked about how big problems require big solutions and made the case for why we believe the Oil & Gas companies of today can and will innovate to deliver a sustainable energy future tomorrow. It can’t be overstated just how big the challenges in front of these companies really are.
The energy transition’s price tag alone, $275 trillion by 2050, is mind-boggling in scale. Combine that with macroeconomic forces including energy shortages, deepening geopolitical challenges, permitting and regulatory uncertainty, and a growing world population which brings rising global demand, and it becomes clear that we’re in a real race against time.
To win that race — and to meaningfully improve how we operate today — we have to look at the things that are slowing us down and eliminate the inefficiencies that hold us back from delivering at speed. For an industry that has innovated so rigorously at the wellhead and thousands of feet underground, one thing has not kept pace: the supply chain, which touches every department in every business unit in every Oil & Gas company.
We’ve identified actionable steps to strengthening industry supply chains, but achieving true long-term innovation in this area will require us to go even further. First we must be ready to receive a broader diagnosis. Only then can we move beyond the status quo — a tangle of processes and procedures that cause low but consistent levels of pain and threaten the long-term health of the entire ecosystem.
Handshakes Don’t Scale
Let’s step back for a minute and look at how we got here. In an industry where accidents can be fatal, production stoppages result in irretrievable losses, and billions of dollars are changing hands month over month, there is good reason for rigorous supply chain scrutiny.
Pressures, costs, risks, safety concerns: they’re all at consistently stratospheric levels for players in the energy industry. There should be checks and balances, careful vetting, and clear approval chains for work at this scale. You simply cannot take chances when the stakes are this high. Operators have a responsibility to ensure safe operations, and the costs of even relatively minor mistakes can be massive.
With the best of intentions, operators have tried everything in their power to do just that over the years. There's actually a good reason why Oil & Gas has a reputation as a handshake industry: You work with the people you trust, because it’s just too risky not to.
Unfortunately, handshakes don’t scale.
So operators have implemented a variety of measures — from manual verification and approval workflows to tech solutions and beyond — to try to scale responsibly. But those would-be solutions and processes have not delivered the accuracy or clarity needed to supplant the trust that’s been built over the years in the form of 1:1 relationships. In fact, as I’ll detail a little later on, they’ve had the opposite effect.
Inside the Low-Trust Ecosystem
First, it’s important to clarify something about the problem space I’m about to describe. I don’t believe the ecosystem is low-trust because the players are low-trust. To the contrary, the clients and vendors we work with operate with integrity and want to work with others who share that same priority. This is why the handshake industry flourished in the first place.
To visualize the low-trust ecosystem, let’s go back to that order of cement — which could just as easily be water hauling, inspections, or any good or service needed for an energy project — and the current process required to purchase it. On the journey from an emerging need at a planned well site through to invoicing and payment, an operator must:
- Find and connect with the right vendor
- Negotiate the right price
- Build a work order to capture the scope of work
- Enable managers in the field to leverage the new vendor
- Track the work done by the vendor as it progresses
- Verify and approve the work once completed
- Receive accurate invoicing from the vendor
- Approve invoicing from the vendor
- Return payment in a timely manner
Each of these tasks requires multiple sets of hands across multiple departments. And for most of the steps outlined above, there are a number of tech solutions working to solve that particular acute need, right then and there.
These solutions aren’t bad in and of themselves; most often they gainfully address one or two steps in the process. But because these systems don’t talk to each other, even more human hands are required to act as intermediaries between systems to move the purchasing process forward. This drives up costs and adds time, friction, and more opportunities for error.
All just to order cement for a job site.
What I see when I look at the process I just described, multiplied by the hundreds of vendors needed for a standard drilling operation, is a series of stranded links in a vast and broken chain. And for each stranded link, each step in the process from procurement to payment, there are hard-working and often highly skilled people completing basic manual tasks.
Why? Because when systems don't talk to each other, people are the ones who do the work. People take something out of this system, write something down, and put it in that system. This is the same as if there was no system at all.
Ballooning Complexity
If that didn’t make your head spin, consider that each operator requires the hundreds (if not thousands) of vendors they purchase from to leverage the operator’s own mix of tech solutions addressing individual links in the chain from evaluating new vendors for a job to paying for completed services.
Ask any vendor and they will tell you they are working with at least 20 or 30 different systems to perform the basic back office tasks that are required to enable them to provide the goods and services their clients need, and get paid for it on the tail end.
If so much as the date on an invoice is wrong, that invoice will be flagged for dispute and manually triaged, resulting in further verification and delays. Entering invoices 30 different ways makes this exponentially more likely. If you zoom out to the industry as a whole — tens of thousands of vendors around the world — the complexity increases to a dizzying degree.
So what we see is that each operator, in solving for its own needs with point solutions, is actually creating more opportunities for error, and making it more difficult to manage the vendors on their AVL.
Smaller operators may not have the ability to add layers of personnel or technology to handle the ballooning complexity of supply chain operations, and will stick to the vendors they know even if that causes delays.
Larger energy companies, which have supply chain departments, end up inadvertently sucking up resources by locking in long-term contracts to fortify their benches. This feels like a solution to the companies themselves. But they haven’t solved the problem. They've actually weakened the entire ecosystem, because now we're suffering from low utilization, high switching costs, and high costs of transaction for every single one of these vendors.
The truth is, many of the things larger operators do to try and solve these problems actually cause more of the challenge that vendors face. This weight is then carried by the entire provider pool. While it’s impossible to quantify what the overhead cost is, we estimate that easily 10-20% of most operators’ outsourced spend can be attributed to this supply chain morass. And that’s just for procurement.
From there, operators will ask: “How am I enabling my field to consume from that vendor pool and the services that they provide? How do I make sure they stay in line?” There are so many rules and regulations that they want to enforce, but it’s not easy. The field is always out of line. And so operators add more systems and more controls in an attempt to solve for that. And these don't necessarily help — they often exacerbate the problem, slow everything down, and create more inefficiencies.
When the Solution Makes the Problem Worse: A Vicious Cycle
There's a joke tech folk like to tell: There's all these systems that are doing it wrong — and so the solution is for me to come up with yet another system for you to use.
Even before there were software solutions to support this work, operators implemented verification and approval processes to ensure accuracy and avoid mistakes. But despite the many tools and processes Oil & Gas producers and suppliers have implemented to solve for accuracy over decades (if not generations), dispute rates have continued to rise.
In a benchmark study by leading research firm NewtonX, 40% of Supply Chain leaders reported that they dispute 50%-60% of the invoices they receive. And if you look at Operations, 64% of ops leaders dispute 20%-40% invoices from their suppliers.
Oil & Gas companies today don’t have more accuracy, better efficiency, or improved supply chain utilization compared to where they were 10 years ago. In fact, as the industry has layered on solution after solution, it’s gotten further and further from where it wants to be.
So what we see is a vicious cycle — where the very things we put in place to solve for mistakes, both in terms of processes and tools — only increase the complexity and friction involved in each step from procurement to payment, and thereby increase the opportunity for error.
The Root Cause: The Low-Trust Ecosystem
When we put Band-Aids on the pain points of each individual system in the ecosystem, we are able to function. But when we look in the mirror we see a stitched-up, chronically wounded version of who we could be; a patchwork of systems, held together by human glue, where the opportunities for error increase with each drop of glue applied along the way.
With stakes this high, every error — an overcharge here, a missed detail there — is a crack in the foundation of trust. This results in a world where that foundation of trust, the handshake I referred to earlier, has been systematically pulled apart by countless rotations within this vicious cycle.
This is why I believe that the root cause of the operational supply chain challenges the industry faces — the added friction, bloated processes, and ballooning complexity that have increased the cost of doing business and created drag on operators’ ability to move easier, faster, and safer towards their goals — is the low-trust ecosystem in which we do business.
Treating the Symptoms
In medicine, solving an acute problem without taking the patient’s overall condition into account is colloquially called “treating the symptoms.”
Medicines for acute problems are important, to be sure. But the best physicians make decisions through the wider lens of the patient’s overall health and underlying issues. Otherwise you risk introducing unwanted side effects..
When you solve an acute problem without understanding the chronic underlying condition, your solution very well may exacerbate the challenge, without removing it.
If you’ve ever had a moment when you’ve asked yourself, “Can just one project just go off without a hitch?” or “Can we go two weeks without having to dispute an invoice?” then you feel this acute pain. You feel the symptoms.
And if you’re nodding your head, if you see evidence of this chronic low-trust ecosystem in your daily work, the question becomes: What next?
Replacing the Handshake, Restoring Trust
In future pieces we will detail our vision for how technology can revolutionize the way Oil & Gas companies and their suppliers work together to provide the energy the world needs.
It won’t happen overnight.
But for now I’ll leave you with another visual. Imagine a single unbroken digital chain from procurement through to fulfillment, verification, and payment. This chain, delivered seamlessly end-to-end, doesn’t miss a beat or skip a step. Ever.
Every link captures every step in the entire purchasing and deployment motion of the biggest players in Oil & Gas. There is an objective set of checks and balances, with inputs by human hands along the way, but with singular governance, absolute transparency, and clear accountability.
This is the only way to build back the trust that has been lost over the years, under a pile of individual point solutions. As we see it, the unbroken digital chain is an ironclad alternative to the old-fashioned handshake. But, unlike that handshake, it scales.
What becomes possible when all of these steps are brought together in an unbroken digital chain?
An ecosystem...
…where clients can find and engage with the suppliers they need in hours, not months.
…where there is transparency of supplier providers, their background, their services, their performance, their safety, and their compliance.
…where all needs – whether just-in-time or pre-planned – find the best suppliers for the lowest prices.
…where all jobs are fulfilled at agreed-upon rates.
…where every dollar invoiced is connected back to the procurement step, visible instantly after services are rendered.
…where disputes are the exception – not the rule – and accuracy is taken for granted.
When accuracy is taken for granted, trust is earned.
And in the high-trust ecosystem I believe Oil & Gas operators and suppliers fundamentally deserve, the industry will be free to move at the speed all shareholders, and the wider world, require.
__
Praveen Kalamegham is a 25-year technology veteran who has driven innovation at all layers of the software stack, from embedded systems to web-scale SaaS platforms. As Chief Technology Officer, he has led the development of the Workrise platform, enabling the company to become the No. 1 Oil & Gas labor provider in the country. Praveen is as much a tinkerer at home as he is at work, spending his free time coding, gardening, and wood working at his home in Austin, Texas.
About Workrise
We are laser focused on delivering holistic supply chain solutions that help energy companies deliver against the strategic goals outlined above. Click here to learn more about how we unlock greater access, more efficient processes, and rich data to improve how the biggest players in energy find, evaluate, and purchase the goods and services they rely on to operate.
Related Stories
