"Hey, Where Are The 5 O-rings I ordered?" | Part 3 of 9: Warehouse and Materials Management
It’s common knowledge that most large O&G producers have their own warehouse(s), along with vendors carrying materials on their behalf in their own facilities.
As such, efficient, data driven warehouse and materials management and decision making has always been a challenge in the purchasing process.
The nature of the industry is to operate with decentralized locations and fragmented personnel structure. Most organizations operate without integrated technologies across all locations and personnel. As a result, this part of the purchasing process is riddled with inefficiencies.
In this edition, we’re going to cover 5 urgent and very costly challenges in the warehouse and materials management function in regards to purchasing.
1) Organization as a Competitive Differentiator?
If you have $33M worth of materials, across multiple warehouses, connexes, aisles, and bins, simple questions like “where are those 5 O-rings I ordered” aren’t so straightforward after all.
Are they all on the same shelf?
What if they aren’t?
If not carefully managed in real time, across all assets, it’s easy to see how ill timed purchases or unnecessary expenditures become inevitable.
Yet, they are entirely avoidable.
In the past, the underlying profitability of O&G as a result of high prices and escalating demand, along with no viable, competing, alternative energy sources, relegated warehouse organization low on the list of organizational objectives.
Today, strict financial discipline within the purchasing function are now table stakes.
Securing an organized warehouse and materials management function begins and ends by leveraging centralized, organizationally integrated technologies that ensure operational and financial integrity.
If performed improperly, the following items become nearly meaningless, despite the negative financial implications that accompany them.
2) The Modern Care and Handling of Reservations/Allotments
After being asked, “hey, where are my 5 O-rings?” the warehouse manager sees there’s 5 on the shelf, but what happens if they’ve already been reserved for someone else by their shift replacement?
What’s stopping them from just giving all 5 away?
It requires careful documentation and planning, regardless of the producer size.
Unfortunately, in most producers, we’ve observed a lack of functionally centered technologies that account for this complexity and find that spreadsheet use typically rules the day.
In a warehouse management role, this lack of unity and visibility across allotments, demand variations, requesters and warehouse management staff is typically problematic – despite it being an everyday occurrence.
It comes down to a very simple premise –
How is one supposed to confidently and effectively keep track of these variables while making fully informed purchasing decisions based on accurate, real time data? Decisions that need to be made to support the lean and mean cost containment mandates being handed down across all producers in O&G.
Wouldn’t it be easier if everything was part of a singular materials and inventory catalog?
Regardless of warehouse management staff, or location, all management is working with one system and one set of data. Reservations or allotment data is captured once and that’s that.
Upon entry, you just make sure to capture that the O-rings are delivered to the “ship to” warehouse address selected upon entry and that they’ve been assigned to the requisite work order and associated personnel.
This simplified approach ensures that the data flows and this material is automatically a part of your inventory control system for ease of reference by warehouse management., regardless of location, shift, or employment status (contractor or employee).
And from the requesters perspective, regardless of location –
They have the peace of mind that their reservation has been captured and it’s visible for all concerned parties to see. Ensuring they’ll get their materials when they need it, while eliminating unnecessary purchases.
With a click of a button, the system shows a warehouse manager what was purchased, the final warehouse destination and if any of these materials currently are in the system, where they reside – regardless of who made the request.
After all, shouldn’t all parties within warehouse management have access to the same information considering it all serves the needs of one producer?
3) When Materials are Enroute (The Impact of Variations in Demand)
In the example above, the warehouse managers colleagues may have already bought some extra O-rings at the request of a supervisor in consideration of the PM analytics on the pump in question. But, they haven’t arrived yet. they’re enroute and haven’t been physically placed in a bin/shelf/area and counted at this point.
As a result, the warehouse manager references the “master” spreadsheet that serves as the producer’s warehouse materials catalog, or checks the inventory module in their accounting system. If details above haven’t been captured, they wouldn’t be included in her calculations.the potential for an ill advised purchase becomes clear.
Does this lack of fluid information transfer and systematically powered workflows, coupled with manual entry spreadsheets as a “system of record” make this situation feasible?
If you agree, at the end of the day, warehouse management may not account for these materials en-route, and may buy more O-rings.
It begs the question: Are spreadsheets, or loosely integrated inventory control systems within an accounting system, realistically equipped to simplify and improve communication, collaboration and support informed purchasing decision making?
If not, what is the real cost as a result of this lack of technology across the purchasing ecosystem?
Now, multiply that cost by each warehouse location – and compound it by all the other costs accumulated across this Purchasing series.
4) Purposeful and Professional Placement (No More Second Guessing)
Materials get moved around a warehouse. It’s common and unavoidable.
Your purchasing system says 5 O-rings are in stock at the warehouse, but it’s not in its usual location.
How is this handled today?
Is some form of manual intervention required to begin searching the aisles, bins, shelves?
Is it possible that if it’s an urgent need, that a warehouse manager would go outside their location and begin making calls across other on-prem warehouses, or other vendor run warehouse locations, connexes, etc?
We’ve witnessed this first hand over the years and it’s always a rather time consuming and inefficient ordeal to chase down parts. (Especially when the system of record is largely location dependent, or a shared resource requiring manual updates with zero visibility)
As a result of the time expended and the heavy workload of warehouse management –
Reasonable to assume that more O-rings could be ordered, and another line will be added to the end of a materials list spreadsheet that already has 1000s of lines of inventory?
If so, what if this spreadsheet is being updated or shared amongst other locations, some managed by vendors and contractors, others not, on a shared drive? Is the information reliable in real time?
This scenario is all too common and creates doubt and uncertainty in the mind of even the most experienced warehouse professionals.
Second guessing is no way to work.
Wouldn’t it be better to know for certain, how many o-rings were supposed to be at each location?
Because you knew how many were received at the location in question, on what day, at what time, who signed off on them, who they were allotted for ?
And how many remained in stock at that location, at the time the order was fulfilled/issued and how many remained for ad hoc requests at your discretion.
Equipped with this information, would you need to walk aisles, send emails, make calls to other locations? Or would you be informed in such a manner that you could make a call to that person first and see if they had any further details regarding this misplacement matter? And if they didn’t know, and you couldn’t find it in a brief walk through, wouldn’t it be useful to know how many were relegated to ad hoc vs allotments? That way you can place the order confidently. No second guessing.
Without a centralized and organizationally integrated system that naturally supports data transparency, this straightforward approach to solving a common problem isn’t an option at all.
How often does this happen each day across warehouse management?
How about for producers with 15 different warehouses, and 30 different warehouse professionals, some employees, other contractors, using disparate systems?
In our experience, it’s an awful lot.
5) Transparency Across Receiving, Returns of Excess and Re-issuance
The concept of receiving materials is rudimentary –
Until you begin to add layers of complexity to the equation derived from every day business operations. Things like different warehouses, locations, who is slated to receive what, why, and for what PO?
This topic and its related factors run deep and warrant their own entry that we’ll be covering in part 07 of our purchasing newsletter series. For now, let’s take a look at the receiving aspect of warehouse management. Specifically, from the perspective of “returns of excess” and the implications of these returns upon decisions related to reissuance.
A mechanic asked for 5 O-rings and got 5, but didn’t use two, and returned them to the warehouse.
How will these 2 extra O-rings be recorded, restocked and reflected as such across all of a producers warehouse locations?
All across the world, producers’ warehouse staff handle this rather easily by taking the excess and placing it alongside the rest of the o-rings in a specific aisle, shelf and bin.
Questions begin to surface when you consider how to properly communicate this excess return to the appropriate parties in the organization.
It’s understood, as a warehouse manager, the downstream implications of a return of excess materials and its placement in it’s original location really wouldn’t be a pressing concern …
Until you consider the following –
First, for some reading this article, the question will inevitably arise, “don’t we have a system that alerts everyone required already?”
It’s a great question. After all, warehouse management certainly isn’t all spreadsheets, emails and paper at every producer.
There are countless inventory control systems that this updated information could be entered into.
But, now that the material is placed back on a shelf, do the operational workflows and data capture methods affiliated with a return of excess materials contain the following elements that support the proper reissuance into inventory and final distribution?
Was the return of excess recorded in one system for all departments to see, every time?
Do you know the person to whom it was issued? What if it was a virtual reissuance? I.e.,it skipped being reissued into the warehouse physically and went directly to someone else?
Was the reissuance linked to a specific work order # for immediate access?
Was it tracked on a subledger cost tracking system within the accounting system?
Do you know what task specifically, within the work order #, they were working to ensure proper job costing attribution?
Upon (re)issuance, was there a system generated cost code created in affiliation with this issue so that the accounting system is able to reconcile this piece of material with the quantity ordered?
Is the total value of materials on hand accurate and aligned with inventory needs?
Was a revision date and time captured upon return of excess and the subsequent virtual reissuance?
As a warehouse manager, on the surface, this level of detail may or may not matter to you and that’s totally understandable. Ultimately, it’s critical to an O&G producer in today’s era of cost discipline.
The tremendous disruption we’ve experienced has ushered in an era of change in the industry and cost containment is now everyone’s job, regardless of title.
The details matter.
5 More Areas That Exemplify the Paradox of O&G Purchasing & Curtail the Profitability of Producers
1. The conundrum of controllables.
2. Quickly tagging spare parts and equipment for greater front line safety.
3. Elevating the impact of warehouse management in reducing equipment downtime.
4. The intersection of PM, CM, drawings and materials management.
5. Becoming “audit confident.”
Stay tuned.
Regards,
Michael D’Iorio
TRUApp Energy
Editor, Modern Oil Field Management