Oil & Gas companies work around the clock to keep our world running amid an ever-growing demand for energy. Many of their biggest expenditures are directly related to large suppliers and associated expenses incurred duringexploration, extraction, and production, and these costs understandably get the most attention when operators look at their balance sheets.
But non-core spend — those costs for related services and activities, from IT infrastructure and invoice dispute teams at the HQ to fluid hauling and equipment rentals on a job site — plays a largely overlooked role in the financial health of an Oil & Gas company. A significant role, too: Non-core spend adds up to around $30B annually in the US, and accounts for approximately 20-30% of a company's operational budget.
Non-core spend is often dispersed across many departments and locations; invoicing volume is high, while the dollar amount per invoice is low. This is a particular issue in Oil & Gas, given the significant number of small vendors needed to fill the gaps between large strategic partners. With all this complexity, it's easy to see why non-core spend is often perceived as unmanageable.
Core spend is typically seen as the primary lever to increase efficiency through supplier optimization, while tackling non-core spend is an oblique proposition that can feel like a one step forward, two steps back exercise — like trying to go up the ‘down’ escalator. Add in the relatively low-risk nature of non-core spend activities, and it’s easy to see why Oil & Gas companies haven’t traditionally prioritized managing non-core spend.
But today’s operators are under unprecedented pressure to do more with less, as shareholders expect increasing returns in the face of shifting geopolitical headwinds and regulatory uncertainty. In such a capital-intensive industry, effective management of all expenditures is crucial to maintaining profitability and operational efficiency.
Non-core spend can and should be a focus point for cost optimization among today’s energy operators because, while big-ticket items often get the bulk of the attention, non-core spend can still significantly affect the bottom line if not managed efficiently.
Reducing non-core spend is one of the few remaining opportunities for Oil & Gas companies — independents, supermajors, and everyone in between — to meaningfully improve how they operate. Read on to learn about specific challenges of non-core spend in Oil & Gas and how Workrise Vendor Management, the solution purpose-built for the industry and its uniquely complex ecosystem, can help.
Challenges in Managing Non-Core Spend
Non-core spend on services like water disposal and roustabout crews may seem like small potatoes compared to the costs related to Oil & Gas exploration, drilling, and distribution. But when you’re talking about these costs adding up in an industry with a trillion dollars of capex annually, the numbers are not trivial.
Industry leaders report that a jaw-dropping 50% or fewer of projects are completed on or under budget. This isn’t surprising, given that non-core spend is often less visible and less controlled than direct project costs. This lack of visibility can lead to overspending as procurement teams lack full insight into where money is going, leading to inefficiencies and waste. Put another way: It creeps in, and adds up.
Non-core spend can easily spiral out of control if not properly managed, contributing to those budget overruns reported by decision-makers in the industry. All of this underscores the importance of effectively managing non-core spend to optimize overall financial performance.
But there are good reasons why non-core spend has gone largely unchecked in an industry renowned for innovation at the wellhead and beyond. Some of the biggest challenges energy operators face in managing non-core spend are:
Fragmented Processes and Multiple Tools
The journey from sourcing and evaluating new vendors to verifying and paying for completed work — crucial for the execution of any and every energy project — is filled with obstacles. Most Oil & Gas companies rely on eight or more separate tools to manage the source-to-pay process, which helps explain how it has evolved into a fractured and overly complicated process.
This source-to-pay journey, rife with manual inputs and opportunities for error, is also full of outright waste. Especially when it comes to activities like sourcing new vendors, managing work orders, tracking compliance, and processing payments — the list goes on. On their own none of these low-spend, high-volume categories seem particularly alarming. But taken together, they become significant.
This fragmentation and lack of a single source of truth can result in duplicated efforts, increased errors, and difficulty in consolidating data for comprehensive analysis — which means it takes longer for non-core spend to be tracked and paid out.
Lack of Centralized Data and Visibility
Decision-makers at today’s energy companies face huge challenges when it comes to access to quality data. Just 20% of leaders at Oil & Gas companies, across all departments, say they feel confident they have the data they need to make decisions in their daily work.
This includes difficulty in auditing and tracking spend, and challenges in identifying spending patterns and outliers. Without the appropriate data, they are unable to see how non-core spend grows and eats away at the bottom line.
Compliance and Risk Management
Ensuring vendors meet compliance thresholds and monitoring vendor performance and adherence to standards is a big challenge for Oil & Gas companies. In this area, complexity and volume go hand-in-hand.
As the volume of non-core spend increases, so does the number of vendors that a company must manage. Each additional vendor introduces new compliance requirements and potential risks, complicating the overall management process. Managing a large volume of vendors also makes it harder to monitor each one closely. This can lead to gaps in oversight, with non-compliance or performance issues going unnoticed until they result in significant problems.
From a resourcing standpoint, higher volumes require more resources — more people, more teams — to effectively manage compliance and risk. This is a very expensive way to solve for a category of spend that is inherently smaller than the work being done by strategic partners. Without devoting more headcount to managing these issues, operators may struggle to maintain the same level of oversight as they scale up their non-core spend.
Administrative Burden on Departments
“20-30% of our category managers’ time is spent not in managing spend, but in chasing down invoice problems and resolving them on behalf of suppliers,” one Supply Chain Service Center Manager at an Oil & Gas supermajor reported in a recent benchmark study on the energy supply chain.
That’s typical in the industry, where managing non-core vendors requires outsized amounts of time and resources. The actual cost of having highly qualified team members focus on issues like invoice disputes is tough to quantify — but imagine how valuable it would be to give them back that 20-30% of their time to focus on higher-impact work.
Workrise Vendor Management: A Solution for Managing Non-Core Spend
Managing non-core vendors is a drag on every department at an Oil & Gas company. All those smaller costs feel like a trickle, while adding up to significant spend. So how can operators manage the “unmanageable” — and take it off the plates of team members who need to focus on more important matters?
In our unique position as both the industry’s leading supplier of contingent workforce solutions and the creators of the first end-to-end source-to-pay solution, which we purpose-built for the energy industry, Workrise has deep firsthand experience with managing non-core spend, M&A integrations, regional expansions, and many other supply chain challenges impacting both operators and suppliers.
That’s why we created Workrise Vendor Management: to replace those eight or more tools operators use to manage the source-to-pay process with one single solution that integrates sourcing, managing, and paying vendors into a user-friendly platform.
Workrise Vendor Management: Product Overview
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With a novel blend of purpose-built software and services, Workrise Vendor Management makes managing non-core spend not only possible, but effortless:
Centralized Data: With clean, centralized, auditable vendor data in one place, everything changes. Operators can view spend by service category anytime, anywhere, and also easily identify outliers for followup.
Automated Invoice Verification and Payment: Invoices matching the work order are verified and paid automatically, with oversight by the O&G team and complete visibility into the process.
Compliance Monitoring and Verification: If a vendor falls below compliance thresholds, both the operator and the vendor are notified instantly, allowing effortless maintenance of the highest levels of compliance.
The Real-World Impact of Workrise Vendor Management
Workrise has helped to improve efficiency, increase cost savings, and enhance compliance and risk management for many of the country’s Oil & Gas companies — both small independent operators who do not have a supply chain team and bigger operators, including supermajors, who do.
The Workrise Vendor Management platform has shown measurable results for the companies who put it to work:
onboarding vendors 6x faster than the industry average
Ready to transform the way you manage your source-to-pay lifecycle and take control of non-core spend? Book a free consultation to see how our unique blend of software and services — the first S2P solution purpose-built for energy — makes it easier, faster, and safer to get projects done.
