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Supply risks in consolidated oil industry?

With the low oil barrel prices, the oil industry is under pressure to keep up profit levels.

Several oil & energy companies are launching cost cutting initiatives to act on the current market situation. This could become a big risk. As uptime is a crucial KPI in the oil industry, supply initiatives has to be handled with care. According to experts, a disruption in uptime at an oil platform does roughly cost 0,5-1,5 MUSD per day, so this has to be avoided at all costs.

Follow the crowd?

In several industries crowd effect within supply chains are being used, which means industries tend to all use the same suppliers. This makes the supply chains more vulnerable. The suppliers tend to be of “bottle neck” character and therefore hard to replace.

The risk lies in that oil companies individually try to press and cut costs in their supply base for their own companies optimization. But what happens if the same critical suppliers get pushed from all corners? There is a significant risk that they reach their limit and go bankrupt, which will cause severe negative effects for the whole industry.

Will a supplier tell you that they have financial problems? Probably not. This is even harder to detect if the critical suppliers is hidden in the down-stream supply chain below a Tier 1 outsourcing partner.

Example

Some years ago when a fire in a supplier factory in China caused that neither Nokia, Ericsson or Siemens could deliver Mobile Switch Centers, as they all had concentrated their downstream of a critical component at the same supplier. This caused a service disruption of mobile services in the Stockholm area for a week.

Costs related to this were brand effect and loss of income.

we recommend

We recommend you to take the industry consolidation view into calculation when launching cost cutting initiatives. Do You have total control of the bottleneck suppliers in your supply chain?

Kontakter

Bernt-Olof Hellgren
Bernt-Olof Hellgren

Contact
+4670 947 10 88
bernt-olof.hellgren@bisnode.com

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