Cost Insights
by PowerAdvocate

Intelligence for energy companies seeking a data-driven approach to cost management

[Insights Beyond Oil & Gas] Baseball, Data, and E&P Supply Chain Performance

February 14, 2017 at 3:00 PM / by PowerAdvocate

In our latest installment of the Beyond Oil & Gas series, we turn to America’s favorite pastime and a man by the name of Billy Beane, who helped transform the world of baseball by popularizing a robust new form of empirical data analysis. Then, we’ll share how E&P firms might use similar new data approaches to elevate Supply Chain performance.

In his popular book, Moneyball, Michael Lewis tells the story of the Oakland A’s general manager Billy Beane and how he challenged the baseball industry status quo. Before Beane, the industry relied heavily on highly paid scouts to recruit new players based on ‘gut feelings’ and traditional statistics like stolen bases and batting average, which had low accuracy rates at predicting which players would actually perform best.

This meant it was difficult for low-budget teams like the Oakland A’s to compete with teams like the New York Yankees, who had mammoth salary budgets more than twice as large. With only a fraction of the salary, Beane knew that he had to leverage better data and statistical analyses to recruit quality, yet undervalued and low-budget, players to form a team that could hope to compete.  

So, Beane pivoted from the longstanding approach of relying on traditional stats and ‘gut feelings’ to a new approach by bringing different data analysis techniques to the game. Instead of using numbers based on stolen bases, runs batted in, and batting average, Beane began incorporating new methods around on-base percentage and slugging percentage, to name a few.

The result? Beane cultivated a team that made it to the 2002 and 2003 playoffs with less than half the budget of the biggest MLB teams.

What It Means for E&P Supply Chains

Beane challenged the way the baseball industry approached recruitment by using novel insights inspired by new ways of looking at data. How might E&P Supply Chain teams leverage new ways of looking at data to cut costs and improve efficiency? We have a couple of recommendations below:

Total Cost

  • Traditional Approach: Comparing hourly or daily rates can be a helpful indicator of OFS vendor prices. However, rates don’t provide as much visibility into how many D&C feet / stage are actually being finished in any given time frame.
  • Data-Driven Approach: Rather than focusing on rates, looking at supplier efficiency metrics like $/foot or $/stage can be a much more valuable and accurate metric for evaluating which vendors actually charge more. For more information about supplier efficiency analysis, check out our post that dives into the topic here.

Spend Prioritization

  • Traditional Approach: Many category managers focus on high-spend categories like OCTG, drilling fluids, and well stim, but there are often valuable savings opportunities in the long-tail categories that are less visible.
  • Data-Driven Approach: Hidden opportunities to save can abound in long-tail categories like plungers, pipe fittings, or valves, to name a few. While they may be easy to overlook at first, these categories often yield significant cumulative savings. The only requirement to capture long-tail savings effectively is fully accurate category spend data. Even so, most E&P firms have low visibility and granularity when it comes to their spend. If you have this problem, we can help – just ask us how.

Negotiation Outcomes

  • Traditional Approach: Historically, suppliers have had more leverage in negotiations because they have full data about their cost structures.
  • Data-Driven Approach: Index-based contracting is a Supply Chain team’s MVP of leveraging market data in supplier negotiations. By tying each component of a supplier’s contract to a specific index, Supply Chain teams can track how price escalation should move in line with the market and ensure that the pricing is fair. For a real-life example, see how Statoil accomplished hundreds of thousands in savings through index-based contracting in negotiations, and be sure to sign up for a free copy of our eBook on holding down costs with index-based contracting in the box to the right. 

Interested in learning more about what kind of market data O&G Supply Chain teams could be leveraging to execute on the above recommendations, and more?  Contact us here.

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