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Six mindset shifts that could cut supply chain costs by 15%

procurement mindset shift

Implementing process changes to focus on managing risk and inflation would allow oil and gas companies to operate with more predictability and produce savings of around 15%, according to a report.

Organisations that take measures to secure their supply chain and avoid market volatility are seeing “significantly less” inflationary pressure, the report by McKinsey found.

To achieve a 15% reduction in costs, oil and gas companies should conduct a comprehensive risk assessment and undergo a “mindset shift” on six key processes.

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The fallout of sustained supply chain risk, global inflation, geopolitics, and increasing economic headwinds has hit oil and gas companies, causing project efficiency to drop while expenditure has risen.

The report, which collected information from 26 oil and gas companies, said the two major risks for the sector were currently volatile costs and labour and material supply uncertainty.

The report emphasised: “As the supply chain environment grows increasingly volatile, oil and gas companies may need to better manage the associated risks to ensure their resilience. Applying these six management mindset shifts could help mitigate risks and ensure long-term financial sustainability. These mindset shifts could be accompanied by new working methods focused on agility and speed that can react quickly to external changes.”

The six shifts are:

1. From buying to planning. Partnering with suppliers to make decisions around insourcing, critical specifications for chemical use, equipment capacity and design will enable more strategic purchases.

2. From cost-reducing to value-adding. Companies should adopt the total cost of ownership and use targeted KPIs to measure value, such as on-time delivery.

3. From functional to strategic. Oil and gas firms should get involved in the decision-making process earlier, while strategic direction is being set. Procurement teams should embed their buyers in operations and maintenance teams to get closer to its assets.

4. From ‘nice-to-have’ to core options. AI tools and advanced analytics should go from additional benefits to being deployed directly alongside other digital levers, to retrieve real-time market data and supplier intelligence.

5. From ad-hoc to sustainable. A robust performance management mechanism for suppliers will help to constructively drive performance discussions. Double down on these discussions with contractors.

6. From gatekeeping to integrated-view. Companies should move from being a traditional, compliance-focused gatekeeper of procurement activities to a fully-integrated supply chain setup, involving aspects including streamlined materials management and optimised timing of essential purchases.

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