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"IFS Applications gives suppliers to the
oil & gas industry an integrated standard solution designed for
discrete manufacturers of oil & gas equipment. With the complete
product and project lifecycle in focus, from design and
mixed-mode manufacturing to after-sales support, IFS
Applications helps you manage all the business-critical
processes within your enterprise and global organization."
Selecting ERP for Oil and Gas Industry Contractors and Vendors
Selecting ERP for Oil and Gas Industry
is also known as :
Engineer Procure Construct
Oil and Gas Industry
Engineering Fabrication Construction
Becoming EPC Contractors
Nature of the EPC Contractor
Full EPC Scope,
Elements of EPC,
Selecting an ERP System,
Asset-Intensive Oil and Gas Industry,
TEC ERP Software Vendors,
EPC Best Practices,
Challenging Time to Be in the Industry,
Oil and Gas Industry Whitepaper,
Oil and Gas ERP Solution,
EPC Engineering for Gaz and Oil,
Selecting ERP Software,
Trends Affecting Vendors to the Oil and Gas Industry.
Executives at contracting, engineering, equipment suppliers and professional service
companies serving the asset-intensive oil and gas industry know that this is a challenging
time to be in the industry. Customer organizations are more demanding than
ever, and are asking their vendors to take on more risk, compete more aggressively
on price and toe the line on quality.
Information technology certainly has a role to play in meeting these challenges,
particularly since many companies serving the industry are still running their businesses
on older enterprise applications not really suited for the information-intensive
nature of the industry. Enterprise applications designed to meet these needs are relatively
new to the market, and ought to be considered carefully by industry executives
charged with succeeding in the market today.
In this whitepaper, we'll discuss the market trends affecting vendors to the oil
and gas industry, how these trends are affecting operations and specific ways that
enterprise technology can automate the best practices that will ensure success.
The price of oil
While vendors to the oil and gas industry are affected by the same economic
megatrends as everybody else, they are more directly affected by wild fluctuations
in the price of oil than most other industries. In 2009, the industry finds itself in a
situation where it is coming off of a period of high oil prices that had lasted
between four and five years. During that time, oil companies and their suppliers
have grown tremendously as organizations, and that competition for talent and
resources has driven up salaries and wages by as much as 30 percent in the last two
And then the price of oil dropped back down to earth. This created a situation
where wages and the other costs associated with oil exploration, extraction and
processing has never been higher. This dynamic has created the need for oil companies
to increase capacity and at the same time placed downward pressure on what can
be spent to build new production assets or expand or extend the lifecycle of existing
assets. Because of the stresses this combination has placed on the industry, many of
the project owners in the industry have found that the vendors are more frequently
not meeting their quality expectations. Deadlines are missed, costs over-runs have
become more frequent and specifications are not met or not communicated adequately
between the different disciplines involved in these asset-intensive projects.
Even though the blame for these problems probably lies jointly with the operator and
the contractor, the oil company/operator is the customer, and they are demanding
more accountability and greater control of their contractors and vendors.
This demand for accountability is one reason project owners/operators are
moving over to an "engineer, procure, construct (EPC) business model. With separate
engineering, fabrication and construction, there is a lot of room for finger pointing
and blame throwing when projects go wrong. And in order to ensure that EPC
Contractors and other vendors have the capabilities necessary to meet budgets and
timelines, operators are paying more attention to the IT infrastructure their suppliers
are using. Technology is seen as the key to vendors' ability to collaborate better
internally, as well as with customers and sub-contractors. And this
collaboration is the way to ensure that an EPC contractor, equipment vendor
or other partner can plan, communicate and execute effectively enough to meet
Role of technology
Suppliers to this industry-equipment fabricators, maintenance and operations
service companies and EPC contractors or those on their way to becoming EPC
contractors-have slightly different technology needs. But they have one thing in
common. They are being asked to do more with less, are being asked to take on more
risk and need to collaborate more effectively internally and with trading partners
Moreover, as industry needs and the type of projects available change, suppliers
need to prepare for these new projects-projects that might have more to do with
extending the life of existing assets than building new ones. Economic pressures
may also drive many industry vendors towards new revenue streams, including
aftermarket service and warrantee work.
All of these changes place new demands on an IT infrastructure. In order to
succeed in the industry now, oil and gas industry suppliers need enterprise applications
- Harmonize the working processes across disciplines, including engineering, fabrication,
on-site construction, aftermarket service management and project management.
- Standardize processes to better secure quality, including work performed internally
as well as work performed by outside contractors and subcontractors.
- Provide a complete overview of project risk, along with tools to manage risk
proactively and in real time.
Given the multi-disciplined nature of the EPC contractor and their need to manage
often large and far-flung teams of contractors and subcontractors in a deadline-sensitive
environment, the needs of the EPC contractor are perhaps the most extreme.
But as more and more engineering, fabrication and contracting outfits are pressed
into EPC contracts, they ought to consider the full EPC scope when selecting an
enterprise application to ensure that all of these areas are supported.
Following is a breakdown of the specific needs of the various oil and gas industry
suppliers, starting with the EPC contractors whose needs are, perhaps, the most
EPC contractors need to pay attention to four essential elements:
- Project Driven Materials Management. Instead of letting a product structure and
traditional manufacturing resources planning (MRP) system drive functions like
demand, fabrication and testing, an EPC contractor needs to ensure that their
enterprise application provides them with robust project resources planning
tools. This allows you to better schedule tasks in parallel rather than in sequence.
In an EPC environment, for instance, you start fabrication long before drawings
and product structures are completed.
- Multidiscipline Engineering Register. Integration between engineering and
purchasing/fabrication and other disciplines is beneficial for any industry, but is
absolutely essential for an EPC contractor. Engineering functionality and a
centralized engineering register deliver what is in essence a combined ERP and
PLM solution. For companies that are involved in both engineering/design and
purchasing/material management -- and maybe even fabrication/installation-
this central repository for engineering data that is shared throughout the enterprise
allows for efficient and error-free handover of data between functions. It
facilitates handover from engineering to purchasing, between fabrication and
installation and maybe even, in the case of last-minute changes to the design,
between engineering and installation. This level of integration delivers detailed
tracking of those difficult and unexpected project changes. These changes are
often difficult to manage because when there are design changes, it is not the
part numbers that change, but rather the attributes of those part numbers, the
documents attached to the part number and the tagged information. These details
are lost if communication from engineering consists of a simple list of part numbers,
as this hinders the ability to handle changes and increasing project risk.
- Re-Contracting and Subcontracting. Traditional purchase orders are fine for
acquiring materials and receiving them into inventory. But are they as good for
specifying the amount and qualities of concrete to be put into place or outlining
a scope of services for a subsea cabling contract? Contracts and subcontracts are
not items received into inventory, but rather, represent complex agreements that
involve careful development of the scope of services and then require careful
performance management culminating in the application for payment process.
Technology designed to handle the typical customer order-as is found in a
traditional ERP application-will not adequately deal with the complexities of
the subcontract, once again exposing an EPC contractor to risk due to the
inability to proactively manage contractors and subs.
- Forecasting and project accounting. This allows project controllers to look at
project data and make future projections of project performance rather than just
seeing-after the fact-how they wound up over budget, behind schedule or off
of the specification. This allows better project forecasting than many generic MRP
driven enterprise tools that are the equivalent of reading a newspaper-you can
see what happened, but only when it is much too late to do anything about it,
and it is impossible to look into the future. This real-time view of the project,
which provides visibility of how project milestones are on-track or off-track and
the implications for the project going forward, also enables cut-offs, reporting
and forecasting independent of traditional transaction periods. It also presents
automated features for fetching cost data that need to be reported into the general
ledger each period. It will also allow for automation of routines for revenue
recognition, an important task to ensure timely payment by the customer.
Services companies working in the oil and gas industry are a diverse lot. Companies
that undertake project-driven services will need to ensure that their enterprise environment
addresses the critical process of mobilization-ensuring that you have people
and equipment available to do your job at the right place and at the right time.
An enterprise application will also need to allow for the charging of equipment that
you have for hire, and tracking of revenue generated by each piece of equipment.
Services can encompass a broad spectrum of business models ranging from well
servicing to cutting and abandonment, and it is hard to make generalizations of how
enterprise needs will change over time. But many of these companies are also
expanding their offering into elements of EPC, taking on more risk and managing
the work of more outside entities, so they should plan to move onto a technology
platform flexible enough to handle these potential future needs with minimal
Equipment fabricators and manufacturers serving the industry are often operating
in an engineer to order (ETO) mode. ETO manufacturers have some of the same
needs as EPC contractors in that they require the ability to handle material management
through project-driven structures, using Project ERP to automate the demand
and supply processes. These companies also, early in many projects, need to buy
long lead-time materials well before engineering has been completed. This means
that they need a system that allows fluid movement of data back and forth between
engineering, purchasing and fabrication. At later stages, they need to be able to
record what long lead-time items they used as the project progresses. They also need
to be able to match what parts and materials they have in inventory with what they
need at a certain point in the project. You will not be able to do this with traditional
MRP. Traditional MRP does not allow parallel processes, and also relies on product
structures, and as an ETO company, you do not have any static product structures.
While these equipment manufacturers or fabricators are not technically in the
contracting business, they will do well to implement strong contracting/subcontracting
functionality, because often they are purchasing assemblies or subassemblies
from other companies. They can operate more, oftentimes, like systems integrators
than companies that own all of their own technology. That means their needs in the
area of product data management are much more complex, since they need to maintain
specifications and information not only for what they fabricate but for the
technology and components they purchase from others. They also need technology
that facilitates innovation so that, working with their extended supply chain and
subcontractors, they can develop new products as the market requires.
Like services companies, equipment companies will want to be prepared
Like services companies, equipment companies will want to be prepared for an
eventual, opportunistic, move into at least some aspects of EPC or aftermarket service.
One valuable asset the equipment manufacturer has, particularly if they have powerful
PDM capabilities, is in-depth knowledge of the equipment asset installed on the
customer site. More and more of these equipment manufacturers are expanding
their business model beyond simple fabrication and into aftermarket service by selling
maintenance contracts, parts or other services for installed systems, turning that
product data into an ongoing revenue stream. But this paradigm shift requires supporting
technology that goes beyond what the equipment company may currently
need, so it will be very smart for executives of these firms to ensure that their
technology platforms can easily be expanded to allow for service management and
Many suppliers to the oil and gas industry went through a software selection prior
to the turn of the century in an effort to avoid problems associated with Y2K.
Unfortunately, in 1998 or 1999, application suites designed to meet the specific needs
of the industry did not exist. Many companies chose and implemented traditional
manufacturing solutions that were a poor fit for their complex project business
processes, or opted for an assortment of point solutions that result in a fragmented
IT infrastructure and disjointed business processes. Others developed their own
homegrown solutions that lack the reliability, 24-7 support and flexibility of modern,
SOA-driven technology. The lack of industry-appropriate enterprise project software
has reduced the efficiency of these companies over the years, it is hurting them
now as they try to adapt to a more competitive market and it will prevent them
from pursuing new revenue streams in the future. Fortunately, today, there are
project-enabled offerings available that cater to the specific needs of the industry.
The above points should help executives in these companies understand how these
offerings can help them adjust to current market demands and identify the best
enterprise application for their business.
Magne Halvorsen is Senior Business Analyst with IFS AB, the global enterprise
software company. In this capacity, Halvorsen helps companies involved in engineer,
procure construct (EPC) and other complex business models meet their enterprise
software needs with IFS Applications. He has deep experience in the Shipbuilding and
Oil & Gas industries. He has held multiple advisory positions with IFS' global and
Scandinavian operations. Halvorsen holds a Master's of Science Degree in Production
Engineering from Narvik University College, Norway. He has previously worked as
Manager of IT Planning for Kongsberg Maritime, a supplier of electronics to the
shipping, offshore, oil & gas, subsea, navy, coastal marine and fisheries, maritime
training, port and harbor surveillance industries.
IFS, the global enterprise applications company, provides solutions that
enable organizations to respond quickly to market changes, allowing
resources to be used in a more agile way to achieve better business
performance and competitive advantage.
IFS was founded in 1983 and now has 2,600 employees worldwide.
IFS has pioneered component-based enterprise resources planning (ERP)
software with IFS ApplicationsTM, now in its seventh generation. IFS'
component architecture provides solutions that are easier to implement,
run, and upgrade. IFS Applications is available in 54 countries, in more
than 20 languages.
IFS Applications provides extended ERP functionality, including
supply chain management (SCM); enterprise asset management (EAM);
maintenance, repair, and overhaul (MRO); product lifecycle management
(PLM); customer relationship management (CRM); and corporate
performance management (CPM) capabilities.
IFS has over 500,000 users across seven key vertical sectors: aerospace &
defense, automotive, high-tech, industrial manufacturing, process
industries, construction & facilities management, and utilities & telecom.
IFS also provides a cross-industry solution for Retail & Wholesale
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