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Digitization in the Oil and Gas Industry: Challenges and Opportunities for Supply Chain Partners

Authors:
Arda Gezdur at The University of Sydney
Arda Gezdur
Jyoti Bhattacharjya at The University of Sydney
Jyoti Bhattacharjya
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Declining oil prices have made it necessary for oil and gas companies to scrutinize their operations and associated costs. The increase in data richness from the digitization of supply chain processes could help these companies manage risks, and increase collaboration and profitability. This paper explores the challenges and opportunities for oil and gas industry in this context.
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Digitization in the Oil and Gas Industry:
Challenges and Opportunities for Supply Chain Partners
Arda Gezdur
1
, Jyotirmoyee Bhattacharjya1,
arda.gezdur@sydney.edu.au; jyotirmoyee.bhattacharjya@sydney.edu.au
1 Institute of Transportation and Logistics Studies, The University of Sydney Business
School. 378 Abercrombie Street, 2006 NSW, Australia
Abstract. Declining oil prices have made it necessary for oil and gas
companies to scrutinize their operations and associated costs. The increase in
data richness from the digitization of supply chain processes could help these
companies manage risks, and increase collaboration and profitability. This
paper explores the challenges and opportunities for oil and gas industry in this
context.
Keywords: Supply chain digitization, supply visibility, supply chain
integration, oil and gas
1 Introduction
Oil and gas are key sources of energy that provide a foundation for global economic
growth. Firms in the oil and gas industry require complex machinery and a large
amount of capital investment. Thus, there are huge barriers for other companies
wishing to enter the industry. Over the years, the industry has experienced high
profitability so digitization has largely been a “nice-to-have”. However, the recent fall
in oil prices due to increasing supply alternatives and slower growth in demand
provides motivation for companies to focus on leaner operations and cost reduction.
Oil and gas supply chains are composed of segmented and discrete data hubs. There
is little transparency across entities in the supply chain. Even within companies, data
is stored and managed separately by different divisions and there is discontinuity in
process flows [15]. Decisions are taken based on disparate spreadsheets without
consideration of the full picture. Appropriate digitization strategies could help with
supply chain integration and information sharing between suppliers, transporters,
storage facilities and customers.
1
Please note that the LNCS Editorial assumes that all authors have used the western
naming convention, with given names preceding surnames. This determines the
structure of the names in the running heads and the author index.
2 <Authors>
2 Supply Chain Digitization in the Oil and Gas Industry
Current trends in the digitization of supply chains include 3D printing, Uberization,
internet of technologies, cloud computing, advanced robotics and drones [7]. The oil
and gas industry can be regarded as a ‘latecomer industry’ [1] in this context. To
explore the extent of digitization in oil and gas supply chains, we first need to
consider the definitions of a few terms associated with the concept of digitization.
These definitions are listed in Table 1.
Table 1. Concepts and definitions related to digitization
Concepts
Definition
Digitization
“The economic and social transformation triggered by the
massive adoption of digital technologies to generate, process,
share and transact information”[12]
Digital supply
chain management
Digital supply chain management is a process of the
delivering the products from origin to destination by
electronic means. Key dimensions for digital supply chain
management are digital planning, digital supply, digital
manufacturing and digital logistics; and key ingredients are
supply chain integration, automation, reconfiguration and
analytics [19]
Supply chain
visibility
“The identity, location and status of entities transiting the
supply chain, captured in timely messages about events, along
with the planned and actual dates/times for these events.” [14]
Interorganizational
systems
“Interorganizational systems are information and
communication technology-based systems that transcend
legal enterprise boundaries” [19]
Supply chain
agility
“The ability of an organization to thrive in a continuously
changing, unpredictable business environment, with speed
and flexibility” [17]
Supply chain
responsiveness
“A network of firms that is capable of creating wealth to its
stakeholders in a competitive environment by reacting
quickly and cost effectively to changing market
requirements” [18]
Digital ecosystem
“A digital ecosystem is an interdependent group of
enterprises, people and/or things that share standardized
digital platforms for a mutually beneficial purpose (such as
commercial gain, innovation or common interest). Digital
ecosystems enable you to interact with customers, partners,
and adjacent industries even your competition.” [20]
The literature on digitization and supply chain visibility for the oil and gas sector is
scarce and diverse. A clear pathway is needed for evolution towards a highly efficient
Digitization in the Oil and Gas Industry 3
digital ecosystem in the oil and gas industry. Studies on the digitization of supply
chains focus on integrating operational technology systems with information
technology systems using big data [5]. Use of big data and integration of operational
and information technologies are crucial for digitization of supply chains [6].
Digital transformation projects can take considerable effort and time. For instance, a
supervisory control and data acquisition (SCADA) project undertaken by Encana in
the United States was undertaken over a 12-year period [1]. As an upstream company,
Encana senior managers had sought different alternatives for responding to price
volatility and reducing production costs by seeking unconventional sources of natural
gas. This project helped Encana improve supply chain visibility by embedding digital
technologies to integrate its data and establish new information systems policies.
Although the upstream oil companies are not new to big data analytics, most of
them are in preliminary stages of implementing relevant technologies [8]. Companies
are benefitting from the sensors embedded in their drilling operations and are working
on integrating this data with their supply chain information systems. Oil and gas
companies need to carry out a gap analysis before investing on digitization.
Furthermore, these companies need to create new strategies to utilize the big data for
their decision making processes.
The extent of digitization within individual companies influences the digitization
within the overall supply chain. Furthermore, supply chain collaboration between the
companies also influences and improves companies’ performances [21]. Supply
chain collaboration is also directly linked with interorganizational dependencies, as
past collaboration activities can be used as a basis for defining the dependencies.
Among the different types of interorganizational dependencies, sequential and
reciprocal dependencies matter for oil and gas companies. If companies in a supplier-
customer relation agree to use a specific resource and if the product of one is a raw
material for the other company, the arrangement is described as sequential
dependency. In such a dependency, the technologies of the supplier and customer
companies need to be linked. In reciprocal dependency, the resources are shared in no
particular sequential order and in a many-to-many type of dependency to increase
collaborative advantage [16]. Oil and gas companies can share onshore and offshore
facilities and logistics infrastructure. The extent of dependency can vary across
different countries and practices are not consistent throughout the globe. Furthermore,
these companies are familiar with linked and complex technologies for information
sharing. Thus the interorganizational dependency of the oil and gas companies is
sequential or reciprocal varying across different continents throughout the world.
When discussing the levels of digitization in companies in the oil and gas industry as
a whole, we need to consider upstream and downstream operations separately. Due to
narrower profit margins and direct relation with end customers, downstream oil and
gas companies have started using digitization strategies earlier than the upstream
companies. The past, present and potential future of digitization in oil and gas are
summarized in Table 2.
4 <Authors>
Table2. Developments in digitization for upstream and downstream companies (Based on [2])
Upstream
Downstream
Past
Information technology has
traditionally not been seen as an
essential element of operations.
Sensors available but information
stored in discrete units
Present
Developing powerful new
capabilities to benefit from smarter
exploration, easier capture, safer
operations and much better utilized
labour
Embedded smart sensors in
vessels, tanks, compressors, and
turbines send real-time data to
control rooms in which a handful
of experts can monitor processes
and provide diagnostics
Future
Dealing with fluid conditions.
Tracking the operations to increase
operator safety
Connecting biometric data to
improve operator safety and in
enabling intelligent materials
movement within facilities
3 Supply Chain Visibility in the Oil and Gas Industry
The aim of digitization projects is ultimately to improve supply chain visibility. Oil
and gas companies need to set the goal as virtualization of a supply chain with the
following attributes [15]:
• Complete horizontal integration in which data from feedstock to product trading
are integrated
• Achieving strategic fit through convergence in strategy, planning and scheduling
• Modularity to enable flexibility in implementation stage
• Scalability so that the applications are suitable for the most simple or complex
supply chains
• Interactivity for collecting effective customer feedback
• Real time optimization speed with direct links to online plant optimization
Supply chain visibility increases if the company has more control on its supply
chain. Fully integrated companies have better control over their supply chains and
access to customer feedback [11]. This feedback in turn can influence the quality of
their upstream processes. The major Norwegian oil company, Statoil, considered
outsourcing five processes: routing of supply vessels, daily coordination of the flow
of supplies, performance evaluation of suppliers and logistics providers, problem
solving and conflict negotiation and influencing and improving the supply chain [4].
They used transactional cost analysis to understand the effects of outsourcing each of
these processes and found that only outsourcing the routing of supply vessels generate
a substantial advantage. Although by outsourcing the company can concentrate on its
core competencies, it stood to lose visibility into transaction-specific data as well as
control over its supply chain.
Digitization in the Oil and Gas Industry 5
Supply chain visibility is closely linked with the agility and competitiveness of
companies. Lean processes create agility and companies need to reduce waste in their
operations to be lean [3]. Agile companies outperform others and thus gain
competitive advantage.
Companies in the oil and gas industry employ various software packages for
managing their supply chain. However, many of the companies that can provide these
supply chain management programs focuses only on supply chain management
(SCM), and thus, substantial effort is needed by the oil and gas companies to integrate
these SCM programs with their ERPs. Furthermore, only a few of the SCM software
companies can accommodate real-time dynamic information such as in Vehicle
Routing and Scheduling (VRS) programs. Hence for an end to end, holistic and real-
time digital ecosystem oil and gas companies need to integrate all of their software
packages. It becomes an imperative issue for an oil and gas company to choose the
best software that is suitable for its supply chain. As per Modern Materials
Handling[22] and Compare Business Products[23], the current capabilities of the
major software companies are shown in Fig1. SAP and Oracle are the two companies
that can provide all the services; however choices could differ for different cost,
performance or timing requirements for oil and gas companies
Fig1. Capabilities of major software companies in terms of SCM, ERP and VRS
4 Discussions
Digitization forms the backbone for supply chain visibility improvement efforts. As a
company invests more in digitization, it starts to get greater insight from its
SAP
Oracle
SCM
ERP VRS
Manhattan
HighJump
JDA
Epicor
Infor
Microsoft
Lawson
QAD
SAGE
IFS
Consona
Descartes
Fleetmatics
Geonconcept
Leanlogistics
MercuryGate
Ortec
IBM
Basware
PTC
SciQuest
Kewill
GTNexus
6 <Authors>
operations. When the company extends its visibility through all operations and
removes wasteful information, it starts to become more agile and thus it gains greater
ability to respond to the variations in its operations. Supply chain agility and
responsiveness are affected by the achievable extent of visibility. In latecomer
industries such as oil and gas these changes have been gradual. However, the
evolution towards digital ecosystems requires greater intensiveness in digitization
efforts among all key players in the supply chain. Fig 2 summarizes these stages in
digital evolution. Stage 1 involves digitization efforts and resultant visibility. Stage 2
involves the achievement of agility and responsiveness. Stage 1 and Stage 2 do not
represent single instances in time as digitization efforts continue over the period of
years and have changing influence on Stage 2. Stage 3 involves a final stage of
evolution into a digital ecosystem through the contributions of all relevant players in
the supply chain.
Fig2. Supply chain evolution toward digital ecosystem for oil and gas industry
The first author’s industry experience and the previous business and academic
literature suggest that the oil and gas industry has begun major digitization initiatives.
These efforts are far more advanced in the downstream context.
5 Conclusions
Oil and gas companies have understood the importance of digitization and are
improving their supply chains by employing digital strategies, using smart
manufacturing, designing digital business models and using data analytics as core
competencies. A majority of these companies are only at the first stage of the
evolution toward a digital ecosystem and are working on their visibility improvement
efforts. These companies need to augment their efficiency in exchanging information,
increase transparency and remove the friction in their information flow. The
Digitization in the Oil and Gas Industry 7
development of flexible digital ecosystems involves companies which employ
virtualized processes, virtualized customer interfaces, and collaborate with other firms
in the industry. However, there is no one-size-fits-all solution for oil and gas supply
chains across the world with the increasing speed of digitization and the nature of
technologies adopted. Academic researchers have a role to play here in observing and
analyzing current efforts, participating in the development of innovative solutions and
informing industry of successes, failures and contextual drivers.
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Today's systems, approaches, and technologies leveraged for managing oil and gas supply chain operations fall short in providing operational transparency, traceability, audit, security, and trusted data provenance features. Also, a large portion of the existing systems is centralized, manual, and highly disintegrated which make them vulnerable to manipulation and the single point of failure problem. In this survey, we explore the potential opportunities and applications of blockchain technology in managing the exploration, production, and supply chain and logistics operations in the oil and gas industry as it can offer traceability, immutability, transparency, and audit features in a decentralized, trusted, and secure manner. We discuss state-of-the-art blockchain-based schemes, research projects, business initiatives, and case studies to highlight the practicability of blockchain in the oil and gas industry. We present the potential opportunities brought about by blockchain technology in various use cases and application scenarios. We introduce several systems that leverage blockchain-based smart contracts to automate the important services in terms of tracking and tracing of petroleum products, protection of international trade documents, and coordination of purchasing and bidding activities for granting oil exploration rights to petroleum exploration and development companies. Finally, we present open challenges acting as future research directions.
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A Review of Digital Transformation on Supply Chain Process Management Using Text Mining
Article
Full-text available
  • Apr 2022
Industry 4.0 technologies are causing a paradigm shift in supply chain process management. The digital transformation of the supply chains provides enormous benefits to organizations by empowering collaboration among multiple internal and external organizations and systems. This study presents a narrative review explaining the existing knowledge on digital transformation in supply chain process management using text mining. It summarizes the existing literature to explain the current state of the art in supply chain digitalization. This comprehensive review identifies the most important topics and technologies and determines the future trends in this emerging field. We investigate the articles published in Web of Science and Scopus databases and use text mining techniques (clustering and topic modeling) on the article contents. Using VOS viewer, a bibliometric analysis of 395 articles with 12,700 references is analyzed. The contents of the articles are explored using text mining approaches. The synthesized results reveal that the most important topics in digital transformation are “sustainable supply chain management” and “circular economy and industry 4.0 technologies”. The study further discovers big data, data analytics, blockchain, artificial intelligence, machine learning, and the Internet of Things as the most critical technologies for facilitating supply chain digital transformation. Finally, an overlay heatmap analysis of the research articles found that digital transformation, supply chain management, industry 4.0, decision-making, and sustainability are emerging trends in supply chain digitalization.
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Using a digitization index to measure the economic and social impact of digital agendas
Article
Full-text available
  • Jan 2014
Purpose – The purpose of this paper is to measure the cumulative, holistic impact of discrete information and communication technologies. It also provides a glimpse of applications and service adoption, which complements more traditional perspectives such as technology penetration. This approach is utilized to measure achievements in implementing a policy such as Europe's Digital Agenda. Design/methodology/approach – Measuring digitization should cover the transition to digitally intensive societies across multiple sets of metrics, capturing not only technology penetration, but also its use in order to understand the full impact of digitization. For this purpose, a composite index was developed based on six overarching components: affordability, infrastructure investment, network access, capacity, usage, and human capital. Findings – These concepts were utilized to assess Europe's performance in terms of its digitization. Significant gaps were highlighted both in terms of its uneven development, but also in terms of lags in the areas of infrastructure investment and digital technology usage. The economic payback to be generated by pro-actively addressing these gaps promises to be significant. Practical implications – From a policy standpoint, the paper raises an interesting hypothesis to be explored in the European context: while the implementation of the Digital Agenda could be tackled in an overarching continental manner, particularities in each member country digitalization might raise the need for a more differentiated approach. In particular, European countries at the transitional stage should emphasize the creation of necessary incentives to accelerate investment in telecommunications networks. Additionally, demand promotion strategies focused on digital literacy and content development appear to be a critical lever to enhancing digitization. On the other hand, the policy challenges for the advanced countries appear to cluster around investment in infrastructure and the development of human capital. Originality/value – Previous attempts to measure the impact of ICT have focused primarily on measuring and assessing the economic effects of widespread access to either wireless or broadband technology. This approach puts additional emphasis on two dimensions: cumulative impact of information and communication technologies and usage.
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How to use Big Data technologies to optimize operations in Upstream Petroleum Industry
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Full-text available
  • Dec 2014
"Big Data is the oil of the new economy" is the most famous citation during the three last years. It has even been adopted by the World Economic Forum in 2011. In fact, Big Data is like crude! It's valuable, but if unrefined it cannot be used. It must be broken down, analyzed for it to have value. But what about Big Data generated by the Petroleum Industry and particularly its upstream segment? Upstream is no stranger to Big Data. Understanding and leveraging data in the upstream segment enables firms to remain competitive throughout planning, exploration, delineation, and field development. Oil & Gas Companies conduct advanced geophysics modeling and simulation to support operations where 2D, 3D & 4D Seismic generate significant data during exploration phases. They closely monitor the performance of their operational assets. To do this, they use thousands sensors in subsurface wells and surface facilities to provide continuous and real-time monitoring of assets and environmental conditions. Unfortunately, this information comes in various and increasingly complex forms, making it a challenge to collect, interpret, and leverage the disparate data. Big Data technologies integrate common and disparate data sets to deliver the right information at the appropriate time to the correct decision-maker. These capabilities help firms act on large volumes of data, transforming decision-making from reactive to proactive and optimizing all phases of exploration, development and production. Furthermore, Big Data offers multiple opportunities to ensure safer, more responsible operations. Another invaluable effect of that would be shared learning. The aim of this paper is to explain how to use Big Data technologies to optimize operations. How can Big Data help experts to decision-making leading the desired outcomes?
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Outsourcing of logistics activities in a complex supply chain: A case study from the Norwegian oil and gas industry
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Full-text available
  • Jan 2008
This paper argues that the evolution of gradually more complex supply chains makes the logistics outsourcing decision more difficult and that a main reason for this is the increased number of interorganisational links that appear in complex supply chains. A wider Supply Chain Management (SCM) consideration seems to be warranted and the dyadic approach frequently taken in the outsourcing literature is not sufficient to provide adequate decision support in outsourcing decisions. The paper reviews the current literature on how interorganisational links should be regarded in an outsourcing decision process. A business case from the Norwegian oil and gas business is used to illustrate and analyse the broad problem scope and the complexity associated with the decision of possible outsourcing of the Supply Terminal Management (STM) within the framework of Transaction Cost Analysis (TCA) and SCM theory. The outcome of the empirical analysis shows that it is not beneficial to outsource the function when both economic and organisational factors are brought into consideration.
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Supply Chain Collaboration: Impact on Collaborative Advantage and Firm Performance
Article
Full-text available
  • Mar 2011
Facing uncertain environments, firms have strived to achieve greater supply chain collaboration to leverage the resources and knowledge of their suppliers and customers. The objective of the study is to uncover the nature of supply chain collaboration and explore its impact on firm performance based on a paradigm of collaborative advantage. Reliable and valid instruments of these constructs were developed through rigorous empirical analysis. Data were collected through a Web survey of U.S. manufacturing firms in various industries. The statistical methods used include confirmatory factor analysis and structural equation modeling (i.e., LISREL). The results indicate that supply chain collaboration improves collaborative advantage and indeed has a bottom-line influence on firm performance, and collaborative advantage is an intermediate variable that enables supply chain partners to achieve synergies and create superior performance. A further analysis of the moderation effect of firm size reveals that collaborative advantage completely mediates the relationship between supply chain collaboration and firm performance for small firms while it partially mediates the relationship for medium and large firms.
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Risk Mitigation in Supply Chain Digitization: System Modularity and Information Technology Governance
Article
  • Jul 2013
Firms face significant risk when they adopt digital supply chain systems to transact and coordinate with their partners. Drawn upon modular systems theory, this study proposes that system modularity mitigates the risk of adopting digital supply chain systems and therefore motivates firms to digitize more of their supply chain operations. The study theorizes how the risk-mitigating effect of system modularity can be enhanced by the allocation of decision rights to the IT (information technology) unit. The main logic is that IT managers with more domain IT knowledge can better utilize their knowledge in decision making to achieve effective system modularity. We tested these theoretical propositions using a survey study of Chinese companies and found empirical support. We also found that the allocation of decision rights to the IT unit does not directly mitigate the perceived risk of digital supply chain systems, which highlights the role of decision allocation to the IT unit as a key moderator in risk mitigation. The study generates theoretical and practical implications on how IT governance and system modularity may jointly mitigate risk and foster supply chain digitization.
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Supply-Chain Management Issues In The Oil And Gas Industry
Article
  • Feb 2011
The oil and gas industry is involved in a global supply-chain that includes domestic and international transportation, ordering and inventory visibility and control, materials handling, import/export facilitation and information technology. Thus, the industry offers a classic model for implementing supply-chain management techniques. In a supply-chain, a company is linked to its upstream suppliers and downstream distributors as materials, information, and capital flow through the supply-chain. The purpose of this paper is to investigate the role of supply-chain management in the oil and gas industry. This paper also discusses the application of the Uniform Commercial Code (UCC) to supply-chain management issues. Then, several strategies are examined for improving supply-chains in the oil and gas industry. Finally, two case studies are introduced to show how improving supply-chain logistics in the oil and gas industry can improve efficiency and the bottom line.
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Supply chain visibility: Lost in translation?
Article
  • May 2008
  • SUPPLY CHAIN MANAG
Purpose The purpose of this paper is to describe miscommunication about the ubiquitous term “supply chain visibility” (SCV), to propose a precise definition for it and identify its salient characteristics. Design/methodology/approach A literature search was conducted to describe the widespread use of the term SCV and the miscommunication that occurs surrounding its use. The proposed definition and the salient characteristics of SCV are original conceptual contributions. Findings The study finds that the term SCV is widely used in the supply chain management and logistics communities Many vendors, third party logistics providers, transportation and other companies profess to have or provide it, yet SCV remains one of the top issues consistently mentioned in surveys of supply chain management professionals. This occurs in part because of the confusion surrounding its meaning. Research limitations/implications Usage of the term SCV is ubiquitous and a complete review of all sources is not possible, revealing over 348,000 sources from internet and academic database searches. Only selected, key results are from these sources are reported. The proposed definition for and characterization of SCV are the author's conceptual contributions, open to discussion and debate. Practical implications A precise definition of SCV along with its important attributes helps to promote consistent understanding, interpretation and to clarify communications, especially between vendors and logistics service providers. Originality/value The proposed definition is new, as well as the discussion of its important attributes and implications.
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