Purchasing And Supply Management Among Drilling Contractors Commerce Essay


Purchasing and supply management within the oil industry has become an important component of businesses worldwide. Take inside purchasing and supply management for example; with all of the components like project supply, service, and material budgeting. Businesses are able to select the most qualified suppliers and develop sound strategies for optimizing the supply process by building internal consensus around opportunities of adding value to the organization. "For example, while crude oil prices remain substantially high, oil exploration companies are going farther offshore to obtain new supply sources, supporting the demand for deepwater drilling. At the same time, the cost of purchasing ultra- deepwater drillships remains low, as shipbuilders clamor for any sort of construction orders (Goh, Kapitall, & The Motley Fool, 2012)." Therefore making the process of procurement where supplies, tools, equipment and services are selected based on the amount of sustainability they provide within the offshore drilling industry. "For most service companies, specifically retailers the real question is: "where, when, and how can supply personnel contribute to short and long-term goals and strategies of the organization (Flynn, Johnson, & Leenders, 2011)?" Thus, making purchasing and supply management one of the most important job descriptions in observing customer behaviors and keeping up with new technologies to ensure top of the line equipment is available for the completion of drilling activities.

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"Although the global fleet of ultra-deepwater oil rigs was increasing steadily until April 2010, when regulatory aftershocks from BP's Macondo disaster slowed its overall growth rate. Now, just two years after the Gulf spill, there are indications that drilling in the ultra-deep water could be poised for a long-term surge (Zahodiakin, 2012)." While the purchasing department is often limited to just buying for a specific drilling rig, the real task begins with the selection of suppliers and the products, equipment and services they have to offer. So prior to joining an organizations approved list of vendors/suppliers there will be price negotiations and a standard term of agreement which includes a payment plan and schedule for delivery of goods and or services.

Therefore, given this upward trend in utra-deepwater drilling and considering how purchasing, supply management, and procurement are all used to provide effective products and efficient materials and services within the ever changing drilling industry. The first course of action purchasing and supply managers must take is the recognition of need, which is where they determine what, how much and most importantly when these products or services are needed because drilling operations are normally a time sensitive process. This leads to supply managers acquiring an accurate description of specific needs, articles, commodities, or services being requested. After all, it cannot be expected for a buyer to purchase supplies if they do not know exactly what the internal customers actually want or need. "Thus, it is essential to have an accurate description of the need, whether it is a tangible good, a service, or goods and services bundled together (Flynn, Johnson, & Leenders, 2011)." The translation of that need into a commercially equivalent description becomes an important aspect due to the fact that 100% of the tools, equipment and supplies have to be purchased and shipped sometimes on a daily basis by smaller supply vessels.

In an industry that requires a large variety of suppliers; many geographical locations become the hub so to speak, for potential suppliers, all wanting a contract with one of the Super Majors. "This makes the requisition process a gatekeeping tool to manage the flow of information through three gates: (1) authority, (2) internal clarity, and (3) internal clearance (Flynn, Johnson, & Leenders, 2011)." Basically, the selection of a suitable source hinges on a number of scenarios such as legal and ethical issues surrounding the terms of agreement involving order quantities, cost management, delivery and finally the payment process where suppliers receive monetary value for products and services received. Therefore, many firms conduct a follow-up analysis on all orders placed within the purchasing department to record the receipt and inspection process of the merchandise. Considering that receiving is so closely related to purchasing, many organizations within the oil industry have receiving departments that are directly or indirectly responsible to the purchasing department. For example, before payments can be made for services or supplies, invoice clearing must be conducted as to eliminate possible issues found during the receipt and inspection process. While an invoice is what really sets up a claim against the buyer, it's not uncommon for them to be requested with multiple copies which display order numbers and itemized prices for each article that is invoiced.

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When it comes to purchasing and supply management, there is much more involved in regards to the term of only purchasing. For example, there are also responsibilities of purchasing that include receiving, storage, inspection, scheduling, materials handling, inbound/outbound traffic and disposal. Furthermore, as part of the supply chain, these responsibilities often include suppliers, customers, clients, and a large portion of the general public that rely on the products and services the oil industry provides. This is "where the attention is on lessening costs and times across the supply chain to the benefit of the final customer in the chain. The idea that competition may change from the firm level to the supply chain level has been progressive as the next stage of competitive evolution (Flynn, Johnson, & Leenders, 2011, pp. 5-6)." The first thing that comes to mind when organizations attempt to reduce the cost and times associated with purchasing and supply chain management is the benefits and costs of outsourcing, which includes the growth of outsourcing. "Companies that wanted to build offshore oil rigs or now competing against companies that wanted to build tankers, but now that tankers or on the decline because of the recession , shipyard slots are opening up and the shipbuilders are incentivizing rig construction with lower pricing and attractive financing terms (Zahodiakin, 2012)." For this reason, organizations are evaluated on being able to meet their targets in purchasing and supply management.

"Large projects are notorious for erosion of value during execution. Decisions made by project managers have a significant impact on the strategic value of the asset delivered, and those decisions depend on the information feed on which they are based (Eweje, Turner, & Muller, 2012)." Therefore, to show market leadership, it is essential for project managers to develop and maintain a maintenance record and supplier relationship data base filled with the best practices in the purchasing and supply process. This process involves more than just filing copies of the documents relating to the order and moving to appropriate records. With this step in the process there is a large amount of records that need to be maintained which range from labor contracts, inventory records, supplies purchased, and bid-award history files. Therefore, due to the mass amounts of documents many organizations rely on computer software to maintain a state of the art database capable of providing accurate information for future projects. "Many companies are adopting object-oriented technology operating in a UNIX-based NEXT environment as the corporate platform. The purpose is to to define, build, and implement a system to capture project information for reporting, tracking, benchmarking, cost estimating, performance measurement, and project documentation. The capability of this project management tool is that the major components of the system and the process involved in capturing project information throughout the life cycle of a project (Yuen & Dodds, 1995)."

"Materials management is important in the planning and execution of large scale construction projects. Materials management encompasses the procurement of equipment and material, follow-up, delivery to the job site, inventory control at the job site, and disposal of surplus material at the end of the project (Silver, 1989)." In fact, there are many tactics used for choosing the most competent suppliers as well as tactics for negotiating the prices. For example, when choosing suppliers, organizations refer to one's ability to produce quality products, sufficient quantities at a reasonable price, delivery and service processes in order to make an accurate decision. All too often, there is a need for organizations within the oil industry to turn to outsourcing, which is a common practice in purchasing and supply management. Companies choose to outsource supplies and services that they would not typically do in their own facilities. For example, within the oil industry there is a growing trend for the manufacturing of ultra- deepwater drilling rigs. "As senior research consultant at Quest Offshore suggest that while the oil industry's focus on ultra-deepwater rigs was intensifying before the Macondo blowout. The only thing Macondo did was delay the entry or delivery of some ultra-deepwater rigs, because research shows a greater demand for higher-spec deepwater rigs than before the spill (Zahodiakin, 2012)." While this task, as with any, requires the services from outside sources. Many drilling contractors within the United States are currently outsourcing the entire construction project to the overseas marketplace.

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"Although, there is moderating influence of a project manager's experience on decision-making, the extent to which project managers feel in control should influence the scope and quality of information. For instance, four risk areas were observed as significant to long-term value creation from megaprojects: government relations; host community relations; contract management and procurement; and the influence of multi-location execution (Eweje, Turner, & Muller, 2012)." Might explain why purchasing and supply management among drilling contractors is of utmost importance for obtaining quality services and quality products used in the construction process. Not to mention, the process of procurement where supplies, tools, equipment and services are selected based on the amount of sustainability they provide within the offshore drilling industry. For most service companies, specifically retailers, purchasing and supply management is one of the most important job descriptions in observing customer behaviors and keeping up with new technologies to ensure top of the line equipment is available for the completion of drilling activities.