Introduction
No matter which area of Oil & Gas you work in, we can all agree it’s a complex and collaborative industry. Projects take time and involve a lot of disparate vendors to get the job done.
Even finding and onboarding those vendors can take months. A typical process might include sourcing the right vendor, securing a bid, negotiating the price, onboarding the vendor, calling out the work, and verifying completed work. And then there’s the thorny issue of invoice approvals, processing, and payment.
It’s time-consuming and it’s costly to manage the vendors that deliver against projects in the field. Pair that with the millions of dollars deployed to deliver a single rig or frac spread, and you can see why tracking vendor spend is crucial. But it’s not just about the impact to your bottom line; gaining visibility of vendor spend improves vendor management operations when it comes to transparency and efficiency.
Let’s start with increased transparency. We know any Oil & Gas project takes time. But waiting until a project is complete to discover whether or not it came in on budget is outdated at best. Operators who invest in real-time spend visibility can proactively manage vendor spend at any stage in the project lifespan.
Evaluating spend by vendor also allows for better decision making; helping identify which vendors are most efficient and cost-effective at delivering against common project needs.
When it comes to vendor spend, there are a few best practices to be aware of. Let’s dig into them.
Choosing Quality Vendors Upfront
Finding vendors who match your specific needs can be a real challenge, especially if you’re expanding into a new region where you may not have existing relationships. Before you can select a vendor to begin onboarding, you need to consider compliance, whether they adhere to your standards, and meet your billing requirements. Then there’s negotiating pricing. How can you keep control of costs if you don’t know if you’re paying a fair price?
The hurdles continue even after you’ve come to an agreement. It can take up to 25 hours to find a specific vendor, then over $10,000 in time and effort to onboard them, to say nothing of the costs associated with training, managing, and paying vendors.
Outsourcing the complex work of finding and onboarding vendors might be the answer. Having the right vendor management software takes the complexity out of finding vendors. With your team freed up from manual onboarding and tedious processes, they can turn their attention to higher impact activities, like optimizing strategic spend. The same software that sources and onboards new vendors can surface real-time vendor data to help supply chain and operations teams to better understand where important resources are being spent, and support daily decision making with data.
Increased Transparency with Vendor Spend
Pricing data can vary significantly across vendors and regions. This lack of transparency only adds to the complexity of managing vendor spend. Access to aggregate vendor data, such as your company’s average spend across vendors, helps drive better decision-making resulting in more efficient operations.
Managing Tail Spend
Tail spend refers to any spend that isn’t core to your operations. It’s easy to overlook and notoriously difficult to manage efficiently. Also referred to as “unmanageable spend”, Tail Spend can soak up a disproportionate amount of effort: 20% of your spend on a project can take up to 80% of your time and coordination cost.
Tail spend is a particular issue in Oil & Gas given the significant number of small vendors needed to fill the gaps between big, strategic partners. While the invoicing volume is high, the dollar amount for each invoice is low. And because tail spend is considered lower risk compared to spend that is core to your operations, managing it is rarely a priority. That’s especially the case in companies without a large department in place to wrangle invoices, oversee vendor relations, and look for efficiencies. But, no matter what size of company, those small invoices quickly add up to considerable spend and, often, outright waste.
Vendor management solutions can increase transparency and help make tail spend manageable. At their best, vendor management software can take important but time-consuming tasks like onboarding, invoicing, and payments off of your plate. But it isn’t just about outsourcing tedious paperwork, vendor management can prove valuable in the long-term as well. It can streamline your operations, optimize your current vendors, and help you extract time and money from inefficiencies and allocate them to more strategic spend.
The Impact of Inefficient Vendor Spend Management
Knowing how long it can take to onboard new vendors can make it tempting to act quickly when sourcing them. But it’s a risky strategy. That’s how companies end up with unsuitable, unvetted vendors, higher incident rates, and expensive long-term contracts.
It’s also wrong to think of sourcing vendors as a one-off. Oil & Gas need continuous, real-time access to their vendor data — as well as a broad pool of vendors — to make the right decisions at the right time.
Instead of needing to make a last minute decision, take a step back. Does that just in time really require a new vendor? Or can you quickly see if there’s another vendor on your AVL that can deliver that service where you need it?
Alternatively, you could leave it to the experts. The best vendor management solutions pair software with service, and have a few things in common. For one, they understand the industry and can help you find the best possible vendors, with transparency about what the true cost will be. They can handle field and office operation needs as they emerge. And even help you reverse bad sourcing decisions.
How Vendor Management Solutions Help
- Reach a network of reliable vendors - With a vendor management solution like Workrise, you can connect to a nationwide network of Oil & Gas vendors and find transparent spend data to evaluate new solution providers for your next project.
- A single source of truth for your vendors - Make informed decisions with access to everything across your vendor management workstreams, including vendor spend. AVL governance, compliance management, contracts, insurance, and even diversity documentation is all housed on Workrise.
- Real-time vendor data - Access vendor spend reports when you need them. That’s a reason why Workrise helped save one supermajor $1.5 million in upfront costs.
Conclusion
Oil & Gas is a dynamic industry. That means vendor spend can fluctuate across markets, regions, and even seasons. Having accurate spend data is your secret weapon for reducing downtime, eliminating waste, and improving profitability. See for yourself why the Workrise vendor management solution is relied on by companies to make the decisions that matter.
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