With capital spending cuts in the oil and gas industry, how can oilfield service and equipment companies minimize the impact to their bottom line?

1. Navigating the
Crude Cycle
10 strategic actions for oilfield
service and equipment companies
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2. Introduction
Capital spending cuts and cost reductions among upstream energy
companies result in a drop in revenues for oilfield service and oilfield
service and equipment (OFS&E) companies. In response, many have
cut capital spending and others have announced, or are considering,
across-the-board layoffs. To emerge stronger from oil price volatility,
however, Accenture suggests 10 practical actions to consider now.
Copyright © 2015 Accenture All rights reserved.

3. Turn core suppliers into business partners.
Meaningful change in the cost base requires rethinking relationships with a focus
on mutual value creation. Start by identifying strategic suppliers in key categories.
Renegotiate revised agreements that go beyond cost to include risk sharing,
innovation and investment, and joint-performance targets and incentives.
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4. Obtain more favorable terms with non-core suppliers.
Consider short-term tactics to help reduce costs and search for more favorable terms:
increasing spot buying, extending payment terms, reducing safety stocks, moving
maintenance, repair and operations inventories off the balance sheet (i.e., to vendors),
and simplifying supply-chain processes and channels.
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5. Upgrade pricing capabilities to mitigate customer
demands for double-digit price concessions.
Upscaling these capabilities can lead to competitive differentiation, defensive revenue capability
during downturns, and profitable growth in the interim and eventual rebound. Leading practices
include yield management, and new techniques and tools with enterprise pricing optimization.
These approaches reveal opportunities not visible with traditional pricing approaches.
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6. Crosslink continuous improvement efforts for greater impact.
Efforts focused on single functions (e.g., plant-oriented) need to be extended across the supply chain
and also to linked support functions. This approach can lead to sustainable improvements by sharing
incremental gains and best practices. Drive sustainable efficiencies throughout the cross-functional
critical path of complex transactions.
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7. Equip the field with
digital technology
to boost productivity.
It is tempting during downturns to decrease
investment in innovative tools. Instead, take
the opportunity to accelerate the uptake of
digital technology. Examples include a mobile-
enhanced workforce, digital materials and
equipment tracking, and remote operating
centers. These technologies can transform the
ways people work.
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8. Shrink the
corporate
center.
As oil prices soften, it is time to bring
new focus to efficiency at the corporate
center. Work that clearly contributes to
achievement of corporate goals of
safety, profitability, and asset integrity
and reliability is justified; activity that
does not should be curtailed and the
roles shed.
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9. Restructure functional operating models for long-term advantage.
For lower cost profiles, restructure operating models for finance, HR, supply chain and IT:
• Decouple transactional activities from strategic work and structure as a service unit.
• Relocate consolidated functions to cost-advantaged locations.
• Transfer management of back- and middle-office activities to a third party to run as a service.
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10. Modify headcount with a scalpel, not an axe.
As word of layoffs and unconditional hiring freezes spreads, Accenture
recommends a targeted approach: make cuts to the bottom-performing 10
percent of the workforce. Some stellar talent may be open to a change, so
allow room to backfill a portion of these cuts with top talent.
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11. Upgrade your
planning processes.
• Consider multiple scenarios at several price
points. Build in leading indicators that enable
identification of emerging scenarios to
prompt decision-making and action.
• Move to a rolling, eight-quarter outlook.
Simplify the arduous annual planning
process and refresh quarterly. Up-to-date
planning can lead to better decisions for the
short, medium and long term.
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12. Adopt a more leveraged “smart”
model for manufacturing.
Consider and quantify:
• Development of core suppliers to manufacture key
components and retain the most difficult machining.
• Turn-key manufacturing and assembly of mature,
stable product lines and sub-assemblies.
• Reduction of mature machining capabilities and
consolidation of facilities.
• A rebalancing of plant location, sustaining
engineering and product development locational
profiles to be more cost- and market-centric.
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13. Conclusion
No one knows where oil prices are headed. The
winners, however, are likely to be those who
respond with measured and focused investments,
and plan with a multiyear horizon. Use the time,
in other words, to make changes that otherwise
would take years to achieve amid organizational
inertia when times are flush.
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14. Get the full report:
http://www.accenture.com/navigating-crude-cycle-OFSE
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