15-Feb-09 Collaborative Logistics

Collaborative Logistics: Exploring new frontiers

Page 1 of 1 Copyrights © 2009 by IBS software services (P) Ltd

15-Feb-09 Collaborative Logistics

Abstract

This article aims to explore how the concept of Collaborative Logistics can be applied to
the Oil & Gas (O&G) industry and attempts to discover the potential value that can thus be
realized. The concept provides a framework which can be leveraged by O&G operating
companies and their service providers to work towards optimizing logistics operational
costs and to implement innovative services.

Further information on this whitepaper please mail to ilogistics@ibsplc.com

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15-Feb-09 Collaborative Logistics

Introduction

Collaborative Logistics supports the processes involved in the movement of people /

material, seamlessly, across all the participants in the supply chain; providing information
to expedite safe, cost effective resource management.

Logistics Challenges faced by O & G companies

Oil and gas companies are responsible for multiple operations, which normally involve
considerable logistics and supply chain activities. Safety in logistics operations and
optimisation of costs are prime considerations in logistics. Some of the major challenges
faced are

• Movement of people and material to multiple remote locations ( 100 nautical

miles or more offshore )
• Adverse/harsh environmental/working conditions
• Tracking of materials and personnel
• Availability of contractor personnel, equipments and materials in line project /
work order schedules
• Multiplicity of stakeholders involved
• Requirement to comply with a host of environmental regulations, management
of waste
• Discontinuous information management across the total supply chain
• Logistics operations are carried out as per safe operations guidelines

The above factors have a direct impact on the costs and efficiency of O & G operations,
since logistics contributes to 15 to 25 % of total operational costs. One would thus be
justified in asking - How can O & G companies manage their critical yet wavering logistic
demands in a more cost effective way? How can a framework be set to coordinate the
effort/resources of the various stakeholders involved in their logistics, to ensure smooth
movement of people and materials?

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15-Feb-09 Collaborative Logistics

Solution: Collaborative Logistics

Fluctuating Demand
Increasing Operational Costs
Sustaining operations

Collaborative Logistics

• Sharing Resources
• Alliances
• Community based solutions

• Attracts lesser investments

• Optimised utilisation
• Increasing ROI
• Benefit from synergies
• Sustainable in long run
• Benefits in mid to long term

Fig.1. Context of Collaborative logistics

Collaborative Logistics is an innovative working model between logistics service

providers, O&G companies, suppliers and vendors. This involves sharing of resources,
partnerships, alliances aimed at improving the process efficiency and reducing cost (Fig.
1).

An example of a collaborative logistics framework involves sharing and pooling of

resources and services using an integrated common portal to manage logistics
requests/work orders, publish, consume and track services, and generate reports to gain
visibility into logistics operations. This will optimise the high costs incurred due to logistics,
by better management of supply and demand, improved resource utilisation and enable
smooth communication between participating entities. Collaboration also requires having a
common communication framework between other O&G companies operating in the same
area, and extending it to involve suppliers / vendors / contractors (Fig. 2).

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15-Feb-09 Collaborative Logistics

Collaborative logistics efforts can also

benefit business operations indirectly by
lowering inventory holdings, detentions
and demurrages causing operational
delays, and stock-outs that impact
customer service.

Fig 2: Collaboration at Work

Collaboration in practice
In the O & G industry, collaboration already exists in areas identified below. The
operations in these areas can be made more efficient, safe and cost effective when the
information that supports them is managed collaboratively / uniformly along the entire
chain.

Rig Sharing
Collaborating companies participate to align their drilling programs and plan an overall
common discontinuous drilling plan to allow sharing of rig services. This approach is
proving beneficial by improving efficiencies, improved environmental management and
increased safety assurance. With rig rentals crossing 1 million USD per day the relevance
of sharing rigs is undisputed.

Flight Sharing
Sharing flights servicing offshore locations is proving to be a great strategy in reducing
logistics costs. Gulfshare, a consortium which jointly operates over 4000 offshore rigs in
the Mexican gulf operates its flights optimally using collaborative logistics.

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15-Feb-09 Collaborative Logistics

High Cost Rental Tracking

Equipment with high rental costs can be tracked effectively so that it can be used
efficiently during work schedules.

Warehouse Sharing
Collaboration can be extended to sharing warehouse resources to make efficient utilisation
of contracted space.

International People Tracking

Tracking the movement of people arriving in country to work at work locations can ensure
smooth movement of people and improve operational efficiency.

Voyage Sharing
The principles which are applied to flight sharing can be extended to sharing other
transportation means to further reduce operating costs. Collaboration with vessel service
providers and other O&G companies ensures optimal utilisation during times of surplus
capacity and mobilization of extra deck space during periods of high demand.

Common Communication Channel

Logistics requires the coordination between various stakeholders such as end user
departments (consumer), service providers, material suppliers which involves the
exchange of essential information between the participating stakeholders. Lack or delay in
the availability of information can result in huge losses due to delays in mobilisation of
resources, tracking of work orders etc which do not adequately meet demand. Using
effective integrated communications, the participating entities can utilize logistics services
optimally.

This common communication channel can also be leveraged to provide unique services
which are a product of synergies established between participating companies in this
collaborative environment.

Why Collaborate?

Some of the factors that should drive enterprises to collaborative logistics are

• Economical management of supply and demand gaps

• Increasing pressure on timely delivery to demand
• Responsible information communication on material safe handling
• Smoothing people transportation between transition points
• Clear location of equipment / personnel at points along the movement chain
• More efficient relationship management between supply chain stakeholders
• Increasing costs of transportation
• Governmental regulations on transportation
• Turning non-utilised cost into shared opportunity

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15-Feb-09 Collaborative Logistics

Achieving Collaboration in business processes

The path towards collaborative logistics involves three basic steps – Analyze, Agree and
Implement

Analyze
This phase involves the analysis of the operating logistics environment to identify potential
areas of collaboration. The potential areas are identified and justified by evaluating the
benefits that are expected. The potential collaborative areas are analysed in detail on the
following

- Processes and existing agreements in operation between the parties involved

- Analysis on the expected savings in costs
- Potential new services that can benefit participants
- Quantitative analysis on the benefits (savings) that might be achieved

Agree
The next step is to invite all parties identified in the analysis phase and communicating the
possible synergy and associated benefits that could be derived out of collaborating in the
identified areas. The parties discuss and agree on the proposed plan and work on the
agreements and contracts that need to be in place to support the initiative. The processes
that will support the agreement is defined and agreed.

Implement
The implementation of a collaborative framework involves analysis of potential systems
and solutions that need to be in place to support the agreed processes. Before embarking
on the implementation of the collaborative framework the existence of the following are to
be verified

• Agreement / Memorandum of Understanding (MoU) between participating entities

outlined in the collaborative framework
• Contracts to support the agreements
• Systems to support the collaborative framework
• Project implementation team who will carry out the implementation of the proposed
collaborative framework

The above phases are to be carried out iteratively on new areas to move the enterprise to
operate in a truly collaborative environment.

iLogistics: Collaboration ready logistics solution

Collaborative logistics models can be achieved by advanced integrated enterprise systems

that allow companies to expand collaborative logistic networks within the stake-holders on
a large scale. Analysis proves that this model will be adopted by more companies over
time because of the increasing costs of transportation and the evolution of the supply
chain from the conventional system, to react to the marketplace demands.

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15-Feb-09 Collaborative Logistics

Among the very few companies that currently offer software products that support the
concept of collaborative logistics in the O & G industry is IBS Software Services Group
(IBS),( visit www.ibsplc.com). IBS has over 4500 person years of experience in developing
new-generation business solutions for Travel, Transportation and Logistics industries.
Having worked closely with industry experts, IBS has not only kept up-to-date with
changes in business processes, but also shown the way forward by providing customers
innovative solutions that redefine business processes..

Leveraging on its domain competence in Oil and Gas Logistics, IBS has developed
iLogistics, an integrated, end-to-end multi-modal Logistics Management System, for the
upstream oil and gas industry. It supports logistics planning and operations for the
movement of people and material, personnel on board (POB) tracking & management,
catering to exploration, drilling, production and construction projects in onshore, deep
water and shelf locations.

iLogistics completely supports a collaborative environment which enables companies to

share their logistics resources, using a communication channel between logistics service
providers, O&G companies and material suppliers. This product is currently being
successfully used by a number of O & G majors at diverse locations around the world

Constraints to Logistics Collaboration

Logistics collaboration promises significant benefits in increased operational efficiency and

saved costs. However, to achieve logistics collaboration, companies have to address the
following constraints

• Unwillingness to share critical information relating to operations

• Challenges of multiple disparate systems already in use
• Agreement on standardization of processes
• Conflicts of interests
• Agreement on risk sharing

Summary

For O&G operations today, logistics is a mission-critical function. Exploration and

Production (E&P) operations cannot be effective without disconnected, inefficient logistics
support. Unfortunately, for many companies, lagging logistics capabilities hamstring
operational execution. To tide over these bottlenecks, companies are investing in more
resources, cutting edge technology without investigating the leverage that can be achieved
by collaborative logistics. Investments in resources are a huge drain on the logistics
budget. Managing depreciating assets might provide a temporary respite, but this is
not sustainable in the long run.

Collaborative Logistics is a shift in the fundamental way that the O & G industry
traditionally operates. This can result in huge savings and formation of new synergies
which will enable the existing Oil and Gas customers to get a better deal from the totally
integrated services of a collaborating logistics community.

Page 8 of 8 Copyrights © 2009 by IBS software services (P) Ltd