January 05, 2024 | Procurement Strategy
With opaque supply chains, massive capital projects and market volatility, few sectors face more contract management challenges than the oil and gas industry.
Poor contract lifecycle management bears consequences — from needless costs undermining competitiveness to severe business continuity threats that can shut sites down when suppliers fail to deliver.
As the key orchestrators governing third-party relationships, procurement teams must have a handle on contract management to drive resilience and profitability.
Below, we detail four must-haves that will help oil and gas procurement teams to manage contracts efficiently:
Far too often, individual functions and business units make their own agreements with suppliers – obscuring holistic visibility and accountability. By serving as the owner of all supplier relationships, procurement maintains enterprise-wide transparency into agreement expiration timelines, performance levels and risk profiles.
Consolidating contracts into a unified repository allows the development of mature procedures applied consistently rather than one-off fixes each time an issue emerges.
Intelligent contract lifecycle management (CLM) platforms provide the systematization to standardize documents, establish clause libraries centering compliance requirements and route agreements for approvals.
Removing manual touchpoints gives procurement teams more bandwidth to devote toward value-add activities like ongoing performance improvement versus administrative upkeep.
Leveraging CLM tools to deliver AI-powered analytics on agreement metrics gives procurement an invaluable vantage point to optimize partnerships.
Rather than reacting to sustainability, continuity or financial issues, advanced planning to get ahead of risks is mandatory. Procurement should track agreement expiration timelines and rate supplier criticality to align renewal prioritization to operational risk levels.
CLM systems allow procurement to assess options and implications of “what-if” scenarios – such as a sole-source provider exiting a region abruptly due to geopolitical tensions.
Developing playbooks outlining the cross-functional contingency response makes crisis response more orderly. Proactive frameworks help procurement professionals to anticipate challenges and activate alternate suppliers to minimize disruptions.
Top-tier suppliers make substantial investments in dedicated capabilities supporting oil and gas customers through unique demands like short-cycle project flexibility.
Procurement should nurture these strategic relationships through governance models that promote mutual transparency and commitment to joint success.
Regular business reviews ensure technical specifications evolve to incorporate the latest innovations while sustaining security and uptime expectations.
Progress on joint productivity and sustainability initiatives helps oil & gas firms maintain alignment with strategic suppliers.
In addition, procurement can provide visibility into future capital investment plans that suppliers can proactively align production and services capacity against.
Formalizing win-win partnerships pays dividends by lowering enterprise risk and total cost of ownership in such a vital sector.
Service level agreements (SLAs) codify expected deliverables, quality thresholds, lead times and pricing mechanisms while detailing recourse for any failures.
Procurement should analyze problems like delayed equipment deliveries that triggered outages to inform SLA development, cover exact SKUs and integrate right-to-audit clauses allowing verification of adherence.
SLAs make aspirations accountable.
In volatile, uncertain markets, business continuity and resilience are essential. Well-constructed SLAs provide procurement teams with a mechanism to translate shared goals into reliable partnerships. By aligning interests with key suppliers, procurement can be ahead of the game when disruptions or challenges arise.
While the oil and gas industry will continue to be complex and dynamic, mastering the above keys to contract management will enable procurement teams to drive performance from vital supplier relationships.
As orchestrators managing third-party engagements, procurement teams now have technologies to systematically unlock value through the contracting process if empowered to maximize their potential. What’s at stake makes getting contractual complexity under control mission critical for oil and gas companies.
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