End-to-end value chain optimisation enables you to reduce value leaks, sustain productivity and ultimately make better decisions quicker. By Joseph McMullen, senior portfolio marketing manager, Erika Fernandez, global marketing manager – Unified Supply Chain Management, Aveva.
There is no doubt that the oil & gas industry is being disrupted by Covid-19. Oil prices are volatile, demand is down, supply is up, and storage capacity is limited. In these turbulent times, we need to swiftly act to keep the business viable to come back strong when conditions improve.
Digitalisation of the value chain, also known as value chain optimisation, is an essential part of staying competitive. However, it is also an undeniably complex task, whether we are talking about a single refinery/ petrochemical or a major company with multiple plants, or even an integrated refining and petrochemical operation.
Part of the complexity comes from the number of plants and interconnected units, but the other part of the complexity comes from the industry itself, and the diversity of challenges that occurs in different areas of the value chain within each operation.
Optimising the value chain, and deploying a real digital transformation to the business, requires acknowledging this complexity and creating a thoughtful plan with actionable and measurable goals.
It is crucial that all departments and different teams across the enterprise are taken into consideration, so their challenges are addressed in the digital transformation strategy, and they are motivated to onboard on a journey that will significantly impact the overall business.
Oil & Gas Downstream Market And Digitalisation
The oil and gas downstream industry, which includes refineries and petrochemical plants, is currently experiencing a period of tremendous risk and uncertainty. Oil prices are volatile, demand is down, supply is up, and storage capacity is running out.
Refineries are cutting production or stopping altogether. In these tumultuous times, we need to swiftly act to keep the business viable to come back strong when conditions improve. Amid all the tactical decisions to keep your company afloat, it is crucial to take a step back and think about your long-term strategy.
The Oil & Gas industry has faced similar downturns in the past, and the current one is unlikely to be the last. Therefore, refineries should take this opportunity during the slow-down to future-proof their operations so that they are in a better position to survive the next downturn.
It is important for businesses to keep pace with the digital wave. Refining and petrochemical companies that are investing in new technology today will be ahead of competition in about two years. The following diagram illustrates the main investment areas for today and for the next three to five years.
Overview Of Oil & Gas Downstream Value Chain
The value chain workflow of a refinery or petrochemical business is complex and requires multiple specialised teams to work in collaboration to maximise overall economic value.
The above business workflow may appear as an organised sequence of activities, but in reality, decisions as made simultaneously across the value chain.
Each activity, or set of activities, is performed by a different team inside the organisation that usually have their own systems, methodology and processes, driven by distinct goals and objectives.
It is quite common that organisations operate in silos, with limited visibility and communication problems across different teams, resulting in reduced efficiency and value leaks for the enterprise.
This is true even for smaller companies with a single site. It is in this regard that digitalising business processes can lead to better collaboration, more agility and an optimised value chain.
Challenges Of Achieving Value Chain Optimisation
Every organisation seeks streamlined processes that can optimise their value chain and increase profit. Technology is driving a series of innovations, bringing concepts such as big data, cloud, analytics and digital twins that promise a transformation to the way companies run their business.
Several oil and gas companies are leading this fourth industrial revolution, and many are acknowledging its importance by setting up teams to define a digital transformation strategy. But why are there still many companies that fail to obtain economic return from their investment in digitalisation?
There are three main aspects that are often underestimated when oil and gas companies decide to adopt new technologies for refinery or petrochemical value chain optimisation, which result in low adoption rate and minimal return of investment. When this happens, skeptical resistance is created across different levels of the organisation for any future digital initiative.
- Diversity Of Goals And Objectives Across The Value Chain
Teams in an organisation work towards specific objectives that can be different or even conflicting from other areas. From one perspective, this can motivate the achievement of local results that do not maximise the overall business value.
On the other hand, if individual objectives are not considered, there is a risk that important constraints or requirements are missed out, which could cause loss of production, logistic problems, or unsafe operations, to name a few.
With such a diversity of goals, an important challenge is to strike the right balance between achieving these individual team goals, while maintaining the overall vision and goals of the business.
- Disconnection Of Processes Create Silos Of Information
Companies create departments to address different objectives and functions of the organisation, but a common side effect is the disconnection between teams, resulting in silos that operate with limited visibility of the rest of the organisation.
This often causes misalignment of information and delay in decision-making that requires multiple departmental inputs, leading to loss of value that could be used to increase the company profitability.
A significant contribution to this disconnection is the segregation of systems and technology used by each department.
Even though the flow of information between departments is heavy, often it relies on people that manually take data from one system and send it to the next department. This is very time consuming, has a high risk of error, and creates a tendency of working with outdated information.
A typical plant can have more than 15 systems and applications to update and maintain. Even when companies are investing in new digital technologies, each department in the organisation is focused on their own digital transformation and the best technology for their own use.
While this is an important aspect of improvement, integration between systems and improvement of work processes through the complete value chain is all too easily left as a low priority item.
This results in many custom codes and complex data file transfers that increase maintenance cost and dependency on tool expertise held only by a small group of people. To illustrate these challenges, we can analyse the information flow to execute the plant scheduling.
There are clear benefits of cross-team collaboration, including additional business value and performance speed. Questions such as:
- Where is the most up-to-date information that my team needs?
- Can they easily access it, or do they need to contact a different team?
- Is the available information easy to understand?
- How easily can teams send feedback and collaborate?
- If someone has more up-to-date information, how this person makes everyone else aware of?
- Business Changes Are Tough, Costly And Disruptive, With A High Chance Of Failure
Digital transformation is a big trend and it brings limitless possibilities for process improvements through exciting leading technologies.
It is easy to be amazed by software capabilities and how they have the power to transform the value chain.
Some companies’ executives decide to invest millions of dollars to deploy systems in the belief that it will be enough to achieve a new operation model of increased production, better business agility and optimised profitability.
But the fact is: technology is only one piece of the puzzle. You may have the right technology, but if your people and teams are not willing to change the way they work, you will not be able to realise the expected benefits.
It is generally quite difficult to make people do things differently – human beings tend to prefer to do things the way they already know and feel comfortable with.
In a business perspective, there is the additional fact that changes may be perceived as threats. A new system that brings traceability and enhanced visibility for management can be seen by users as an invasive supervision of their work.
Systems that automate workflows and reduce time to execute an activity can concern professionals on whether they will no longer be needed. Such aspects can cause resistance to adopt new technologies and can amplify disruption during its deployment.
It is important to see the digitalisation process of the value chain as a business transformation, taking into consideration the existing culture, business workflows and perceptions of the individuals inside an organisation.
There is no shortcut – any change will be challenging and will demand a lot of employee engagement. Organisations must properly set the journey steps, so the chances of failure are reduced.
Check these articles out:
CLICK HERE FOR LATEST NEWS.
READ CURRENT AND PAST ISSUES OF IAA.
KEEP YOURSELF UPDATED, SUBSCRIBE TO IAA NOW!