Imperial Oil will save more than $80 million this year using a system where suppliers share upside

Imperial Oil will save more than $80 million this year using a system where suppliers share upside

By Pat Roche

Nov. 29, 2016, 7:22 a.m.

http://www.jwnenergy.com/article/2016/11/imperial-oil-will-save-more-80-million-year-using-system-where-suppliers-share-upside/

 

Imperial Oil has saved more than $80 million this year through productivity gains from a supplier relationship called norms-based contracting, says Bart Cahir, the company’s senior vice-president of upstream operations.

Traditionally, contracting was based on time and materials, but the company has started using a system that Cahir says turns Imperial’s supplier relationship on its head to a degree.

“We leverage our procurement team’s experience, the ExxonMobil experience, and look around the world and look at the discrete building blocks of a service—how much labour is needed, how much time it takes to execute work, what materials cost, how long equipment should run and last in your operations. Those set the norms for a service,” Cahir says.

“We then work with the contractors to normalize that for local market conditions and agree to what the norms are for the services that they’re going to provide and make our contracts based upon those norms.”

This ensures the company and supplier are aligned on productivity.

So if contractors and service providers can beat the norms—work faster, get it done cheaper, have equipment last longer—they share in the upside, Cahir says.

Imperial has used norms-based contracting for services such as scaffolding, insulation repair, painting and coatings.

A year ago the company reported big savings through “reverse auction,” in which suppliers try to outbid each other for the lowest price. This was also part of the company’s continuing response to low commodity prices and is designed to ensure it’s getting the best rates from its suppliers.

Imperial has now expanded its use of the practice. So far this year, 34 reverse auctions have been held across the company, up from 22 last year.

“We continue to see savings through our reverse auctions. The average saving on them is about 20 per cent,” Cahir says. “We saved, year to date, about $25 million through these reverse auctions.

“An important aspect of these auctions is that they inform our discussions [with] suppliers…. We see what the market can bear, how labour rates are moving, how material rates are moving and that helps inform those discussions to make sure that we’re confident we’re getting fair market rates.”

Cahir describes reverse auctions as “a great way to get a well-defined scope of work out and have the marketplace compete for that.”

Imperial is focusing on changes it believes will save money regardless of market conditions or where the industry is in the business cycle. Cahir cites the use of automated rigs at Cold Lake and improvements at Kearl.

“These are examples of things that we know will deliver sustainable efficiency no matter what the operating environment,” he notes.

All of this translates to the bottom line, enabling the company to cut its upstream unit costs by 35 per cent since 2014, Cahir says. Imperial believes about 60 per cent of the non-energy components of these gains are sustainable.

 

 

 

About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on November 29, 2016, in economic impact, oil. Bookmark the permalink. Leave a comment.

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