In my blog post Why do Oil and Gas Cost Engineers Hate SAP? I pointed out that many of the SAP implementations I see in the Oil and Gas industry are focused on the needs of back office functions, and seldom help those at the front-end of operations.
In a world where other industries are embracing the digital agenda to transform the core of their business and bridge the gap between themselves and their customers and employees, the oil and gas industry sometimes feels like it’s lagging behind.
So how can oil and gas companies squeeze more value out of their SAP investment in order to benefit the front office of the organisation?
Empowering project managers
The International Energy Agency estimates a cumulative investment of $22.4 trillion in the global oil and gas sector between 2014 and 2035 – over $1 trillion per year – with that investment focusing more and more on unconventional reserves, leading to more complex (both technically and operationally) projects and hence larger more expensive projects. A recent survey of a sample of so-called ‘mega projects’ by EY showed that 64% of those were facing cost over-runs and 73% of those projects were facing schedule delays. Of the root causes identified, inadequate planning and ineffective project management struck me as highly significant given that most Oil and Gas companies use SAP as their backbone ERP solution.
It is possible to implement SAP in such a way as to support those tasked with planning and executing large and small capital projects, as well as maintenance operations. We have recently delivered an innovative solution using SAP BPC that facilitates the cost management and reporting processes for a large project in the North Sea. The tight integration with SAP and Primavera ensures that the project managers and cost engineers on that project have full visibility of progress on budget and schedule, can manage multiple versions of their plan as well as the accruals process, and quickly produce management reporting packs.
At the other end of the value chain, sales organisations in downstream companies face pressure to achieve greater margins with a smaller sales force. Key to achieving this is to focus limited resource efforts on more profitable customers, products and channels. Yet understanding true net profitability at this level is a challenge to most companies, with the complexity lying within the large volumes of data and complex calculations required to accurately ascribe indirect costs to individual products, customers and channels. Many SAP implementations enable companies to understand contribution at this level using standard tools like CO-PA, and can crudely allocate out indirect costs, but the process is slow and static and the net margin results unreliable.
It is possible to use more cutting edge tools like SAP Profitability and Cost Management (PCM) or SAP Cloud for Planning (C4P) to model more accurate profitability models using proper Activity Based Costing principles. Being based on In-memory technology, such as SAP HANA, these tools enable the sales function to model the profitability drivers and see results in seconds, rather than waiting for a month-end process to run. This level of accurate business insight is enabling customers implementing these technologies to understand which customers, products and channels are most profitable and where to focus their limited sales and marketing resources.
Helping engineers keep the lights on
The cost of unplanned shutdowns can cause severe problems for oil and gas companies, as the Indonesian regulator BPMigas found in 2011, and the ability to predict asset failures before they occur has the potential to have a large beneficial impact on overall profitability. So how can an ERP like SAP help with something like that?
At SAPPHIRE in March this year, SAP announced its new Internet of Things (IoT) platform, based on SAP HANA. Marrying the ability to gather instrumentation data and the ability to perform complex predictive calculations on the large volumes of data produced by instrumentation, gives SAP HANA the power to predict when components might fail.
The benefits of the Internet of Things in the field in oil and gas go beyond predictive maintenance. In my blog post Mobility trends for Oil and Gas SAP users in 2015 I talked about how the IoT, mobility and wearable technology go hand-in-hand and could revolutionise field work by freeing up engineers’ hands, improving safety and greatly increasing the quality and volume of data available to engineers in the field. Of course all this is underpinned by SAP technology, in particular the SAP Mobile Platform.