Logistics Management in Offshore Oil Fields - Essay Example

? Logistics Management in Offshore Oil Fields Introduction “Extracting the black gold buried beneath the South Atlantic will be hard. Spending the profits wisely will be harder” (Reis, 2011) Escalation in the cost of operations in offshore drilling on contract basis or with own equipments by employing chartered ships is a cause for concern on account of uncertainties involved in the business. Efficiency in the operations calls for online location of shipments in logistics management by real-time information about the status of shipments across multiple modes of transportation. This will increase efficiency in documentation for security and effectiveness in clearance in ports and airports. In the management of erection logistics suitability and adaptability of the carriers are very important. Some of the functions relating to logistics, such as chartering arrangement for barges, supply vessels, helicopters, etc., are outsourced through the external agencies for customized sea freight and air freight services. Other important factors that need to be considered include waste disposal, material handling equipments, inventory management and clearance of goods in airports and seaport. Human resources management involves recruitment of qualified, experienced and certified professionals for employment in various levels of the management structure. Strategic planning and coordination is essential for storage and movement of the materials in cost effective management. Based on the risk parameters established for storage and handling of various types of materials and machineries, special arrangements for movement of materials with care should be made. The procedures for this purpose should be incorporated into the system for effective management. Planning and Coordination Field logistics vary from project to project, consequently, so does the planning process. Somuyiwa, and Adewoye (2010) stated: IT in supply chain has enabled the gathering, storing and analysis of unprecedented amounts of data. It equally facilitates planning at all levels through data analysis and sharing, which enable planning to occur at the strategic, tactical, and operational levels. Similarly, IT gathers, integrates, and analyzes logistical data to streamline local and global supply chain. (p.43) The distance between the project to the sea and airports and the traffic level are the important factors which govern the planning process. Storage and transshipment of the materials at the port or airport depends upon the frequency in schedules for arrival and departure of the careers. Online location of the careers is important for monitoring status of the shipments in relation to the schedule of operations. This will enable timely clearance of the goods, making arrangements for storing in offshore supply bases or moving them to the respective offshore platforms. Offshore mooring or establishing floating warehouses near the offshore oilfields should be considered based on the cost factors involved. This should be balanced with the increased efficiency achievable in logistics management in terms of time or deadlines. Cost-benefit analysis will enable the management to firm up the plans in line with the overall strategic logistics management decisions. Advance checking of the documents related to the goods such as pro forma invoice, packing list, inspection certificate, insurance and test certificate is essential to avoid problems in the last minute. Also, the transport documents such as Shipping Order, Bill of Lading and Sea/Air Waybill, other financial documents like letters of credit or insurance documents and the government documents such as licenses and declarations should be checked in advance. This will be useful in identifying the inconsistencies. Rectification of the defects on time will avoid delays in clearance. Documentation is very important, especially in the case of port or airport with heavy traffic. Here, officers at various levels may have to be coordinated in case there is any discrepancy in documentation. Improper documentation will result into delays in clearances and demurrages. Management of shore base operations involves employment of people with experience in tracking documentation, customs formalities, inventory management and coordinating with flight or helicopter itineraries. Outsourcing and sub-contracting Rose (2009) stated, “[s]upplying offshore oil production installations is a complex logistics problem that hinges on many factors with significant uncertainties” (p.19). The activities involved in offshore oilfield are multifarious right from catering to supply of drilling or other equipments, accessories and spare parts, equipment inspection services, maintenance services, moving rigs to different locations and drilling support services. It is important to note that the services such as inspection and maintenance are closely linked to logistics management in offshore oilfield operations. Outsourcing also involves chartering of careers such as vessels and helicopters for transporting men and materials to the offshore platforms. It also includes warehousing and inland trucking and rail transport services for the movement of the goods procured to the ports or airports. Movement of materials larger in size through trucks or railways may involve obtaining special permits from the government bodies due to risks to public properties such as bridges and buildings. It is very important to integrate the activities of the sub-contractors with the activities of the organization in a seamless manner for efficiency in the operations. Selection of an appropriate mode of transport is an important determinant of cost of moving the materials. This will depend upon the weight, size and the type of packing required based on value and nature of the goods. Therefore, classification of all the materials in terms of weight, size and value is very important from the cost of transportation point of view. This will enable adoption of established procedure for engaging transports. Classification of goods is also important for ABC analysis and fixing reorder levels and reorder quantity on a scientific basis. This is essential for achieving efficiency and cost reduction in inventory management. Cooperation of the subcontractors is essential for integrating their activities with the overall logistics management of the organization. This could be achieved through proper coordination with them for efficiency in the operations. Supply chain management Chima (2007) stated that One of the most important considerations in supply-chain management for the oil and gas industry is that in the reality of everyday life in this industry, there is no just-in-time (JIT) in exploration and production. In particular, supplying an offshore platform is close to supplying a small city. Thus, there is a need for continually forecasting what will be needed beyond daily routine and reoccurring supplies. (p.34) The complexity of the supply chain management increases with the multiplicity of goods and services required in the offshore oilfields and disposal of waste. The goods and services include engineering goods as well catering and medical supplies. Supply chain management involves interaction and coordination with people at various levels. The forecasting of demand for various goods and services need to be fairly accurate to ensure uninterrupted supplies. Estimates based on previous usage or consumption of goods and services should be adjusted for the planned level of the operations. Thess estimates will form the basis for fresh orders and control over the movement of materials. Several companies have developed software for supply chain management. For example, The Logistics Management System (LMS) is a software system designed to manage all of the logistics operations for offshore drilling and production. LMS is an operations, planning and organization tool. The LMS system makes all of the forward-planning and logistics information available online to everyone on the team. (Logistics Management System, 2012) Sea and airfreight are the commonly used mode for transportation in the case of offshore oil fields. These modes of transportation cannot be used frequently due to cost considerations. Therefore, optimum order quantity needs to be fixed for all the goods and services to keep control over the transportation and storage cost. Air-freight should be limited for the transport of personnel, critical components required for the operations or maintenance of the drilling and other equipments and medical supplies. Advance planning facilitates regulation of the movement of materials effectively at reduced cost. Long-term supply agreements with the contractors ensure competitive prices for the goods and services. This will also avoid delays in supplies due to established delivery schedules and improve the efficiency level of the logistics management. “Signing long-term agreements with suppliers and launching an aggressive invitation for bidding program are also strategies Petrobras has been using to face the upcoming supply challenges” (Wertheim, 2008). Establishment of standards, introduction of budgeting and external audit programs relating to health and safety system in the drilling project help avoid uncertainties in the logistics management and make evaluation of performance with reference to the plans easier. Conclusion Online location of shipments and real-time information will enhance efficiency in logistics management. Verification of documents in advance is essential to identify the bottlenecks in the logistics system. Planning facilitates use of suitable transport for movement of materials and speedy clearance from port/airport. This will result in cost savings significantly. Taking special care in the movement of particular goods is necessary depending upon their nature, importance, and risk considerations. Classification of goods based on weight, size, value and risk parameters is also important from this angle. Classification of goods facilitates prioritization in storage and space allocation based on parameters such as operational requirements, risks in storage and value of the goods. It will give priority for availability of critical components. Application of appropriate software increases efficiency in inventory and logistics management and keeps the costs under control. Floating storage facilities in vessels near the platform will ensure swift transfer of materials to the drilling platforms. Proper storage and use of appropriate material handling equipments ensure safety, health and security of the personnel. References Chima, C.M., 2007. Supply-Chain Management Issues In The Oil And Gas Industry. Journal of Business & Economics Research. June 2007 Volume 5, Number 6. Pp. 27-36. Logistics Management System, 2012. Logistics Just Got Easier. [online] Available at: [Accessed 6 June 2013]. Reis, C.D.A.D., 2011. In deep waters. The Economist. February, 3, 2011. Rose, R.S.K., 2011. Future Characteristics of Offshore Support Vessels. Massachusetts Institute of Technology. [pdf] Available at: [Accessed 6 June 2013]. Somuyiwa, A. O. & Adewoye, J. O., 2010. Managing Logistics Information System: Theoretical Underpinning, Asian Journal of Business Management. Volume 2 Issue 2. [online] Available at: [Accessed 6 June 2013]. Wertheim, P. H., 2008. Brazil’s pre-salt discoveries a magnet for oil companies. Offshore. [online] Available at : [Accessed 6 June 2013]. Read More