How E&P Companies Can Manage Quality Risk Within The Oil & Gas Supply Chain

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April 20, 2015 – E&P companies who purchase materials and equipment from suppliers who manufacture poor quality products, who extensively outsource without quality checks or who fail to comply with safety and environmental regulations are at risk of costly lawsuits, financial loss, productivity loss and in some cases, long-lasting damage to their brand or reputation in the marketplace. As United States producers begin ramping up their production in the second half of 2015, it is vital that they take measures to ensure that they are responsibly mitigating their quality risk within the supply chain.

While quality risks can emerge at any step during the supply chain process, most issues center on substandard materials or how well the components of finished goods were designed and produced. According to a recent report by AMR Research, an average global manufacturer manages nearly 40 contract manufacturing relationships. The report suggests that in response to shortening product lifecycles and increased product complexity, nearly 90 percent of suppliers outsource some amount of their manufacturing, and more than half expect to increase their use of contract manufacturing over the next two years.

Moving production needs to a third party partner assists manufacturers and suppliers in their ability to move quickly and meet demand while reducing inventory and can also greatly assist in making the supply chain more agile. However, this trend also highlights the need for additional quality assurance measures by both E&P companies and suppliers who must work together to address the problem. 

Suppliers must invest in improving practices, policies, and management systems and should work towards the adoption of international standards such as those put forth by the American Society for Quality, in an effort to demonstrate acceptable practices. Ultimately, these additional efforts benefit suppliers as adherence to these standards differentiates them from their non-compliant competition and strengthens their relationships with E&P companies.

E&P companies must at least periodically authenticate supplier adherence to quality management standards by conducting audits. A thorough quality assurance audit compares an E&P company’s standards to a supplier’s actual policy and practice standards. This analysis helps companies to identify critical gaps in production and compliance as well as areas for improvement. Constantly driving improvement in the area of quality management will greatly reduce the risks and costs associated with material and equipment failure.