Lean Oil & Gas – Extract Millions in Free Cash Flow
Environmental pressures and a growing market demand for alternative fuels are causing Oil & Gas companies to explore new industries. A downturn in demand for current energy sources can leave traditional Oil & Gas companies overextended in terms of their invested capital and operating cash requirements. Liquidity and its maintenance is a constant concern in mitigating the risk of downturns of unknown timings and durations.
To enhance liquidity and improve their ability to attract and maintain investors, progressive Oil & Gas companies have turned to Lean allowing them to:
- Leverage Assets/Operations/Speed to Market
- Increase gross margins
- Strengthen their balance sheets and cash flows
- Create a stable flow of working capital
- Maximize fixed asset capacity
- Increase Return on Assets
Enabling Profitable Growth in Oil & Gas Services
Lean Horizons possesses global experience in Oil & Gas, with remarkable results to prove it. Just one of our engagements in the sector generated:
- Over $100 million in free-cash-flow and associated uplifts in ROA, EBITDA and EPS
- Parallel gains in Capacity, Safety, Quality, and Service/Delivery
These results are not obtained by overlaying “Factory Lean” on a unique business services model. Through an analysis of value and waste creation we can enable your organization to leverage oil field service profits by improving their supporting Value Streams. The return is the strategic liberation of cash from operations to fund aggressive growth.
Reduce Inventory With A Lean Oil & Gas Supply Chain
The Oil & Gas supply chain can be complex, with a single enterprise having thousands of oil rigs located across the globe. Many in of the most remote and inhospitable locations on earth. With a cardinal rule of “keep the rigs running”, out-of-stocks or extended supply lead times for materials are intolerable.
The traditional solution to ensuring reliable supply is an extensive warehouse network, holding stocks of inventory with “just-in-case” policies. An understandable philosophy of “don’t ever run out” creates a massive network-wide inventory, with working capital requirements growing even more rapidly than revenues.
Through Lean, “just-in-case” inventory can convert to cash by:
- Deploying of traditional pull signals (kanban) to regulate inventory levels
- Sales & Operations Planning (S&OP) help to forecast demand dips and spikes
- Statistical analysis to calculate “right sized” (risk calculated) inventory policies at each level of the supply chain
Lean Oil & Gas Administrative Process Transformation
It’s not uncommon for receivables to be on the order of $1 billion and characterized by chronic sources of payment delays. By employing our proprietary Value Stream Mapping for Information flow (VSMi) process your organization can:
- Scope the global improvement opportunity
- Determine first-wave, priority leverage points for the business
- Set a phased deployment plan for Lean-based improvement
- Implement and track the delivery of results to the P&L
The power of VSMi continues to grow as it is extended across the entire supply network in response to process breakdowns pinpointed through root cause analysis. Critically, it’s not just about the tools. Success comes from empowering your organization’s line staff to both mapping and develop solutions to numerous improvement opportunities.
Our people – your coaches – work side-by-side with your teams in the oil fields, on the rigs and in parallel with your central administrative centers to define the necessary information flows and implement the solutions that facilitate payments. This enterprise-wide approach engages all reaches of the receivables process – from the field warehouses, to administrative centers, to Accounts Payable at customer facilities.
Summary of Oil & Gas results
The following provides representative results from Lean client collaborations in Oil & Gas.
- Inventory Reduction
- Reduced 20%-45% (within 18 months)-Fluids-Spares
- Inventory Turns
- Reduced 40%-200% (within 18 months)-Fluids-Spares
- Improved 18-39 days (DSO’s)
- Free Cash Flow
- $75+ million from DSO’s$20+ million from Inventory