12 Dec Improve Business Performance in Oil and Gas Operations Through Standards Compliance
Digital technologies in Oil and Gas Operations play an important role in ensuring compliance to government regulations and laws, industry standards, and internal company policies. But how does compliance contribute to improving the effectiveness of Oil and Gas Operations?
In the last two years, the price of crude oil has fallen by over 50%, costs have also fallen but not to the same degree, and Oil and Gas companies today are operating on very thin margins. In this backdrop, are there any compliance-related actions that Oil and Gas companies can take to leverage industry standards and improve their operating margins?
Before we go any further on compliance to Oil and Gas industry standards, how do standards in general contribute to the bottom line of a business? At the core, industry standards can provide a technology agnostic, scalable, flexible, interoperable, feature rich solution to drive innovation, increase productivity, and reduce costs.
Numerous studies have shown that standards boost business performance and economy of the country. In the UK, for example, standards account for an $8.2illion annual growth in GDP, while in Canada, the use of standards have contributed over $91 billion into the economy since 1981. A study by ISO, showed that companies involved in standardization of processes, products, and services saw an extra 20% growth in annual revenue.
While there are many Oil and Gas standards such as PPDM, PODS, PIDX, OPC, SEG, and OGC which can help Oil and Gas businesses become efficient and effective, we are mostly interested in two important data standards namely PIDX (Petroleum Industry Data Exchange) and UNSPSC (United Nations Standard Products and Services Code) which can be used to improve productivity, enhance collaboration, cut waste, and reduce costs in Oil and Gas companies. But how? Continue reading...
PIDX for Efficiencies in the Supply Chain
The Oil and Gas supply chain business processes from well to the gas pump have historically been less dependent on digital technologies. However, data standards with digital technologies bring in consistency, repeatability, scalability, security, and transparency in the business processes. PIDX which is the American Petroleum Institute’s electronic business standards for the Oil and Gas industry facilitates seamless electronic business communication in the supply chain, whether for products or services, in XML format.
Basically digital business documents exchanged by trading partners in PIDX format bring a single standard to be used between companies thereby improving business process efficiencies. The information exchange mechanism between the trading partners using PIDX is as shown in the image below.
Figure 1: Information Exchange in PIDX
UNSPSC for Efficient Products and Service Classification
The UNSPSC on the other hand is a taxonomy of products and services commodities for use in electronic business. Basically UNSPSC is a hierarchical classification system available today for achieving company-wide visibility of spend analysis and allowing full exploitation of electronic business capabilities. When the UNSPSC is used in various electronic trade, documents such as product catalogs, contracts, purchase orders, and invoices in the supply chain, are consistent. This is because every business partner in the value chain refers to the goods and services in the same manner.
So what does the UNSPSC taxonomy look like? In essence, the UNSPSC hierarchical classification has four levels:
- Segment – The logical aggregation of families
- Family – A commonly recognized group of inter-related commodity categories
- Class – A group of commodities sharing common characteristics
- Commodity – A group of substitutable products or services
All UNSPSC entities are identified with a unique 8-digit numeric code. For example one of the common items used by MRO operations in Oil ad Gas is the Ball Bearing. The UNSPSC structure and the commodity code for ball bearing is as shown in the figure below.
Figure 2: UNSPSC Example
Integrating PIDX and UNSPSC for Oil and Gas Productivity
So how exactly do PIDX and UNSPSC work together for Oil and Gas operations? When UNSPSC and PIDX standards work together, they enable better data exchange, clear product classification, improved searching of products and services while create requisitions, contracts, and orders, and reduce duplicate products and services master data codes. While UNSPSC specifically brings an industry compliant data structure for products and services commodities with taxonomy, PIDX provides the data formatting templates from the library of 4000 templates approved by the PIDX consortium. Below is an actual example where UNSPSC and PIDX standards can be used for managing the master data item “Gasoline” in the item master database in an ERP system.
Figure 3: The UNSPSC and PIDX for Item Masters
While we have listed the advantages of implementing PIDX and UNSPSC in Oil and Gas companies, what would companies lose by not implementing PIDX and UNSPSC? Standards in Oil and Gas companies are strategictools and guidelines to ensure that business operations are efficient as possible, increase productivity and access new markets. Indeed, the rapidly advancing world of digital solutions for oil and gas may depend on a much cleaner and simpler data environment. Specifically PIDX and UNSPSC help to:
- Cut costs, through improved systems and processes. As every product or service code is referenced consistently in the value chain, there is efficiency in data capture, processing, integration, ETL, and reporting.
- Increase customer satisfaction, through better safety, quality and processes as the data standards are compliant at the industry level thereby facilitating portability and interoperability.
- Accommodate growth, especially during mergers, acquisitions, and divestures (MAD), through ensuring the compatibility of products and services. When companies use the same data standard, system integration becomes much easier. For example, Canadian oil and gas companies that are involved in mergers may plan to integrate their systems, a task that would be much easier if they follow similar data standards in their commodities, products and services.
Clearly there are significant benefits to be gained by implementing PIDX and UNSPSCstandards in Oil and gas business operations, but how can an organization go about implementing these PIDX and UNSPSC standards? Below is our advice.
Think big; but start small.
Even though, PIDX has 14 business documents spanning the full Procure to Pay (P2P) and Order to Cash (O2C) processes, start by leveraging the 4,000 PIDX product and service structure for enterprise master data management.Also use UNSPSC taxonomy as the baseline for category management and free-text requisitioning. Newer text analytics solutions may make it much easier to adopt the UNSPSC standard across the range of databases that probably are in use.
Start with a pilot project
Identify key master data elements and conduct a pilot project tailoredspecifically for a line of business (LoB) or business function (say reliability, category management etc.). The purpose is to evaluate the feasibility, time, cost, quality, and change management impacts on a smaller scale before rolling out the program to the entire organization.
Baseline the current data quality levels
In the pilot project, establish the baseline of the current levels of master data quality, critical failure points, KPIs, and determine improvement thresholds and targets that are tied to business goals.
Roll out on a larger scale
If the pilot project shows promising results, roll out the project on a larger scale to the entire enterpriseon the specific master data elements leveraging the learnings from the pilot project.
Expand the scope
If the master data projects are encouraging, expand the scope to the 14 transactional documents in the PIDX spanning the entire Procure to Pay (P2P) and Order to Cash (O2C) processes.