Inventory management optimization at Westa Petroleum Services
Question
Task: How can Westa Petroleum Services optimize its Inventory management optimization to reduce Non-Productive Time (NPT) and improve operational efficiency?
Answer
Executive Summary:
The main objective of this research is to reduce Non-Productive Time (NPT) at Westa Petroleum Services (WPS) by addressing major Inventory management optimization challenges. Based on our investigation, we found that WPS had a significant NPT expense of $2,254,593.75 in 2018. In order to reduce the cost burden and maximise operational effectiveness, we looked at the connections between Inventory management optimization, customer feedback, and NPT. Our analysis's main conclusions are that the inventory process has to be streamlined, inventory levels need to be appropriately sized, and vendor performance needs to be assessed. Moreover, customer feedback indicates that drilling performance, HSE performance, and general operational effectiveness may all be positively impacted by better Inventory management optimization. We suggest streamlining the inventory process, improving inventory monitoring tools, and setting performance standards for vendors. We offer a plan of execution to resolve these problems and realise the possible cost reductions. WPS must move quickly to improve Inventory management optimization as doing so would lower NPT expenses while also improving overall operational effectiveness and customer happiness.
Introduction:
Serving clients all over the world, Westa Petroleum Services (WPS) is a well-known participant in the oil and gas sector with a focus on rig operations and services. WPS is dedicated to offering its clients effective drilling and field services while maintaining operational excellence and safety in the demanding oil and gas industry.
Nonetheless, WPS has a difficult time continuing to run efficiently. Most notably, there have been concerns expressed about the rising Non-Productive Time (NPT) levels. NPT of 2,041.25 hours was experienced by WPS in 2018, accounting for 8.403% of operating time and resulting in a significant expense of $2,254,593.75. Given that NPT has a detrimental effect on both operational productivity and financial performance, these issues are quite concerning.
This report's main goal is to solve these problems by outlining all-inclusive methods that will maximise WPS's Inventory management optimization procedures. Maintaining the highest standards of Health, Safety, and Environment (HSE), avoiding NPT, and improving drilling performance all depend on an effective Inventory management optimization system (Rubel, 2021). This research aims at helping WPS ease NPT, cut costs, and improve overall performance in the highly competitive oil and gas industry. On this report practical techniques and suggestions for better Inventory management optimization will be discussed after in-depth analysis.
Company & Industry Overview
Value of the oil and gas sector to Pakistan:
Pakistan's oil and gas sector makes a major contribution towards its economy, meeting high energy demands and acting as a promotor of industrial sector growth. Oil and Gas are major contributor to the countries export-based foreign exchange income, making it a crucial component of Pakistan’s economic stability and energy security. The industry also supports multiple other industries which results in generating a lot of lot of job and employment opportunities.
Westa Petroleum Services
Westa Petroleum Services (WPS) is a well-known brand having a strong track record for high quality products and services delivery in Pakistan's oil and gas industry. Founded over thirty years ago, WPS continues developing steadily despite of fluctuating conditions within the sector. This has resulted in building customer confidence as the firm is dependable and trustworthy partner for investors. This reputation for excellence in rig operations, drilling services, and field support is a major factor driving the firms continues growth.
WPS maintains strict operating and safety standards, which allows it to efficiently compete in Pakistan's highly competitive oil and gas sector. Its dedication to excellence in people management, HSE procedures, and drilling performance has cemented its standing as the go-to service provider, guaranteeing that customers receive first-rate services while upholding the highest standards in the sector. Operators looking for smooth and effective oil and gas solutions choose WPS because of its reputation for quality and dependability.
The NPT Issues:
Rise in Non-Productive Time (NPT) and Its Impact:
Non-Productive Time (NPT) has become a major issue for Westa Petroleum Services (WPS), creating difficulties for both the business and its customers. WPS incurred 2,041.25 hours of NPT in total in 2018, which accounted for 8.403% of operating time and resulted in a $2,254,593.75 significant cost impact. The company's financial line is directly impacted by this increase in NPT, which raises severe concerns about how this may impact the operations and general pleasure of its clients (Teplická & ?ulková, 2020).
Reasons Behind the NPT Increase:
There are several reasons for the rise in NPT. First, the data shows that NPT percentages of 9% were recorded by WPS's Rig 2 and Rig 3, which is much higher than industry averages. This highlights inefficiencies in people performance, equipment management, HSE performance, and the drilling process. Additionally, it highlights possible problems with material management, equipment upkeep, and local DPS management assistance.
Customer feedback suggests that there is a need for improvement in training participation, HSE culture development, and people development due to the fall in many performance characteristics. These elements may affect overall operating efficiency, which may have an indirect effect on NPT. In order to lessen the effects of NPT and improve its value offer to clients, WPS must address these issues and streamline internal procedures (Magzoub, Salehi, Hussein, & Nasser, 2020).
Inventory management optimization at WPS:
Currently, Westa Petroleum Services (WPS) uses the multi-step procedure described below to maintain its inventory (Muchaendepi, Mbohwa, Hamandishe, & Kanyepe, 2019):
1. SMO Request: By submitting a Service Materials Order (SMO) for the necessary materials, the warehouse manager starts the procedure.
2. Approval Workflow: After then, the Tool Pusher and Rig Superintendent are involved in an approval procedure that the SMO goes through. The Chief Operating Officer (COO) must give further clearance if the order value exceeds USD 5000.
3. Purchase Order (PO) Generation: The Supply Chain Coordinator creates a Purchase Order (PO) for items under $5,000 USD, and the Supply Chain Manager and COO must approve it.
4. Quotation and Procurement: The Supply Chain Coordinator gets quotes from Original Equipment Manufacturers (OEMs) if necessary.
5. Inventory Receipt: After obtaining the inventory goods from the manufacturer, the warehouse manager makes sure the supplies are available and in stock.
Issues with the Current Inventory management optimization System:
Although this procedure reflects the procedural aspect of Inventory management optimization, it has built-in problems that make it inefficient and expensive. The absence of real-time inventory tracking in the system causes overstocking, understocking, and needless procurement delays (Saha & Ray, 2019). Furthermore, the multi-tier approval process for acquisitions that are comparatively modest in value may cause bottlenecks in the procurement procedure. In light of these issues, it is clear that a comprehensive review and reorganisation of WPS's Inventory management optimization procedure are necessary to improve efficiency and lower operating expenses.
The Analysis:
A thorough research was carried out to have a better understanding of the Inventory management optimization difficulties faced by Westa Petroleum Services. Data analysis, interviews, and evaluations of past inventory item usage were all used in this process (Nya & Abouaïssa, 2023).
Interviews and Data Analysis:
Interviews were conducted with key persons engaged in procurement and Inventory management optimization, such as the Warehouse Manager, Tool Pusher, Rig Superintendent, and Supply Chain team members. The Inventory management optimization system's present procedures, problems, and bottlenecks were clarified by these interviews.
Inventory Consumption in the Last Two Years:
Two years' worth of consumption data were thoroughly examined, and the results provided important new information on inventory patterns. This research emphasised the products with irregular consumption rates and gave a picture of the usage patterns for different commodities.
Inconsistency in Inventory Levels and Demand Patterns:
The information revealed notable anomalies in demand trends and inventory levels. Certain goods showed signs of overstocking, which resulted in unnecessary capital being held up, while other things showed signs of understocking, which caused delays and raised NPT. The necessity to optimise the Inventory management optimization system in order to bring it into line with real operating demands is highlighted by these disparities in demand patterns and inventory levels. By ensuring that inventory levels are in line with demand, the suggested changes hope to cut down on wasteful spending as well as production delays brought on by stockouts (Van der Auweraer & Boute, 2019).
Key Challenges:
Westa Petroleum Services (WPS) faces a number of noteworthy obstacles in its Inventory management optimization procedures, including:
Lack of Minimum and Maximum Inventory Level Targets:
The lack of minimum and maximum inventory level objectives for different goods is a basic problem. Ad hoc Inventory management optimization as a result of this carelessness leads to problems with both understocking and overstocking (Abbaspour, Jahan, & Rezaiee, 2021). Lack of these goals prevents proactive decision-making, which results in inefficient use of funds.
Improper Work Handover and Communication Issues:
Bottlenecks are caused by ineffective job handover processes and poor communication amongst stakeholders in Inventory management optimization. There is a complicated and non-smooth transition between the raising of Service Materials Orders (SMOs) and the generation of Purchase Orders (POs). This fragmented procedure impedes the timely acquisition of essential supplies and adds to delays (Herlambang & Parung, 2021).
The issues that they provide have an effect on overall operating efficiency and result in avoidable expenses, as seen by the increase in Non-Productive Time (NPT). It is important to tackle these obstacles in order to improve Inventory management optimization and synchronise it with operational demands. WPS will operate better overall and save money by reducing NPT and increasing efficiency in work handover and communication procedures as well as setting explicit inventory level objectives.
Proposed Solutions:
We suggest the following remedies to Westa Petroleum Services (WPS) in order to address their Inventory management optimization issues:
Development of Clear Inventory Level Targets:
For every inventory item, WPS should set clear minimum and maximum inventory level objectives that take into account lead times, operational needs, and past consumption trends. These goals will work as the cornerstone of proactive inventory control, guaranteeing that the appropriate supplies are accessible when needed without going beyond (Kourentzes, Trapero, & Barrow, 2020). With this strategy, the risk of NPT resulting from material shortages will be reduced and inventory investment will be optimised.
Digitalization of the Inventory management optimization Process:
Putting in place a digital system for Inventory management optimization may greatly improve transparency and efficiency. From the start of the SMO to the reception of inventory, WPS may optimise the whole Inventory management optimization workflow by switching from manual procedures to a digital platform. This technology can produce Purchase Orders (POs) more quickly, streamline the approval process, and give real-time visibility into inventory levels. Additionally, it may support trend analysis and data-driven decision-making, which helps WPS precisely predict inventory demands.
By lowering costs, enhancing NPT management, and improving overall operational effectiveness, these suggested solutions will put WPS in a more competitive position within the oil and gas sector. Modern Inventory management optimization techniques will help WPS better satisfy customer needs and maintain its standing as a provider of top-notch services.
Implementation Plan:
In order to optimise Inventory management optimization at Westa Petroleum Services (WPS), we have developed a comprehensive strategy that delineates the essential actions, roles, schedules, and significant benchmarks (Bandaly & Hassan, 2020).
Development of Clear Inventory Level Targets:
• Responsibility: The Inventory Manager is in charge of the Inventory management optimization Team.
• Timeline: Commence right away and make continual modifications and observations.
• Key Milestones:
a Determine and classify inventory items.
b Examine past consumption information.
c Establish objectives for the minimum and maximum inventory levels.
d Keep track of inventory policies and make system updates.
e Create a target adjustment review procedure.
Digitalization of the Inventory management optimization Process:
• Responsibility: Teams responsible for Inventory management optimization and IT, assisted by a third-party software vendor.
• Timeline: Execute for the ensuing 12 months.
• Key Milestones:
a Determine the best Inventory management optimization software solution by evaluating the options.
b Tailor the system to meet the unique requirements of WPS.
c Provide staff with training on the new system.
d Make the switch from manual to digital operations.
e Constant upgrades and system maintenance.
Continuous Monitoring and Improvement:
• Responsibility: Senior Management, the IT team, and the Inventory management optimization team.
• Timeline: constant and incorporated into day-to-day activities.
• Key Milestones:
a Check inventory levels versus objectives on a regular basis.
b Evaluate the NPT and financial effects of inventory control enhancements.
c As necessary, modify the goals and settings of the digital system.
d Regular evaluations and data examination for streamlining procedures.
Through the implementation of these measures, WPS will progressively improve its Inventory management optimization procedures, resulting in lower expenses, better NPT management, and increased operational effectiveness (Kachergis, et al., 2022). The continuous evaluation procedure will guarantee that the Inventory management optimization system stays in line with the business's changing requirements and best practises in the sector.
Conclusion:
The important issues that Westa Petroleum Services (WPS) experienced with managing non-productive time (NPT) and using ineffective inventory practises have been covered in this paper. The corporation faces a significant financial burden as a result of the increase in NPT, as shown in Exhibit 1. This problem has been made worse by the insufficient Inventory management optimization procedure and the lack of precise inventory level objectives. This study offers complete ways to improve inventory control and lessen the impact of NPT. The creation of precise inventory level goals and the digitization of the Inventory management optimization procedure are included in these solutions.
Better inventory allocation and procurement will be made possible by these modifications, which will promote a simplified and data-driven strategy. In Pakistan's essential oil and gas business, WPS is known for providing high-quality services, thus it is imperative that these issues get resolved quickly. By lowering NPT, effective Inventory management optimization would not only save expenses but also improve customer satisfaction. By implementing these suggestions, WPS will establish itself as a market leader and guarantee long-term viability and profitability in a cutthroat sector. By implementing these suggested fixes, WPS may open the door to a more responsive, economical, and efficient operation in the ever-changing oil and gas industry.
Recommendations:
Define Minimum and Maximum Inventory Levels for All key products:
WPS should establish minimum and maximum inventory levels for all key products based on past lead times and consumption trends. Better demand forecasting will be possible as a result, and stockouts and overstocking will be avoided. By putting this advice into practise, operational efficiency will increase and wasteful expenses will be decreased.
Implement Digital Inventory management optimization:
Invest in a digital Inventory management optimization system that is interconnected to simplify distribution, purchasing, and tracking. Real-time inventory tracking should be possible with this system, and when stock hits preset levels, reordering should be automatically initiated. Benefits include fewer human mistakes, optimal stock levels, and quicker reaction to demand fluctuations.
Standardize Work Handover Procedures:
Establishing standard operating procedures (SOPs) for job handover is necessary to guarantee smooth transitions between shifts. Smoother operations and a lower NPT may be achieved by preventing difficulties that arise from shift workers not knowing the inventory status through effective communication.
Regular Training and Workshops:
Organise seminars and training sessions for the Inventory management optimization staff to improve their knowledge of digital technologies, demand forecasting, and meeting inventory level objectives. A skilled workforce will optimise the digital system and guarantee that it complies with operational requirements.
Continuous Data Analysis:
To modify inventory parameters, WPS should constantly assess market circumstances, supplier performance, and consumer trends. Frequent data analysis will enable dynamic adjustments that respond to changing market conditions and, in the end, save costs and improve customer service.
WPS may anticipate a number of advantages from putting these suggestions into practise, such as lower costs, less NPT, more customer happiness, and more competitiveness. Sustaining success in a fiercely competitive market and upholding its reputation for providing high-quality services in Pakistan's oil and gas sector depend heavily on effective Inventory management optimization.
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