Does Parts Forecasting in Oil & Gas Industry Need a Paradigm Shift?

Written By: Tracy Hartwell

Volatile crude oil prices are setting a tone of uncertainty throughout the Oil & Gas industry, and there is an intense competitive pressure to extract and grow revenue and operating income from current projects. The drop in oil prices in the last 18 months, coupled with a limited new projects due to financial constraints has led to significant bloodletting in the industry. Organizations are quickly realizing that reductions in headcount alone will not be sufficient in protecting slimmer-than-usual margins.

Oil & Gas players big and small are turning to operational processes, from how they service large capital equipment, to how they manage their parts procurement and deployment, to become nimbler, more cost-effective, and more profitable.

Uptime of high-capital equipment is paramount to remaining competitive in a down market. Downtime of essential equipment is costly in both opportunity costs due to lost productivity, but also in repair costs. With a focus on uptime as the most critical requirement, oil & gas organizations need a paradigm shift -- Availability Planning vs. Fill Rate Planning.

What are the challenges with current approaches to parts availability in the oil & gas industry?

  1. Focus on parts fill rates, without the weighting of the critical nature of individual parts, or the lead time required to procure and deploy these parts leads to overbuying inventory. 

  2. Service leaders, responsible for parts needed and deployed globally, are typically not measured on equipment uptime and downtime but rather on part availability.

  3. Parts planning is done retroactively, based on historical data, without accounting for factors that uniquely affect oil & gas organizations, such as downturns in the economy or even unfavorable weather patterns.

Oil & Gas organizations should invest in improving parts forecasting, planning, and buying for two reasons. First, it’s not possible or advisable to purchase all parts for every asset, especially in a volatile market. Investing in a robust parts planning program is an additional expense but, with ever-tightening margins, oil & gas organizations literally cannot afford the status quo. Second, historical parts data cannot account for upticks in the economy that lead to increased demand, which, in turn, affects site and asset usage and wear and tear. Simply, looking at the previous 12 months, especially in an outlier year, will leave oil & gas organizations woefully underprepared for future demands on parts and equipment.

Far from an intuitive process or a process that can reliably rely solely on historical data, accurate forecasting must account for appropriate part mix, which involves a complete understanding of asset structure, and an incorporation of causal-based forecasting. In industries which involve multiple data sets, including economic, geographic, and meteorological indices, a parts planning platform that allows for causal-based forecasting is an essential business tool.

Industries facing similar pressures to Oil & Gas, such as aerospace and defense contractors, have embraced advanced parts forecasting platforms to maximize uptime for critical assets because they were able to draw direct lines from uptime to revenue dollars lost and gained. Oil & Gas organizations who act now to shift parts planning to the “asset availability” model will not only shore up current operations, but also be ready for what the future of the industry holds.

PTC’s Vice President of Sales, Business Transformation, Sanjay Jagdale, PhD, will be presenting this approach to parts planning at the 2nd Annual Oil and Gas Supply Chain and Procurement Summit in Houston, TX on December 6th, 2016.

Learn more about PTC’s solutions for parts management here.    

  • Service & Parts

About the Author

Tracy Hartwell

A service parts optimization expert with more than 20 years of experience, Tracy Hartwell has held positions in production scheduling, service parts planning, and parts pricing analysis in both manufacturing and service organizations. After her extensive career as a service parts manager, she moved into a sales consulting role that enabled her to develop service parts strategies for hundreds of companies across the globe.

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