When the going gets tough, the smooth gets going!
During tough economic times, even the mightiest of them fall and especially in oil and gas industry we have seen that happening when crude plummeted to $32 after hitting a record of $147 a barrel at a point of time
Though prices are now hovering around the $70 per barrel range, there would be tremendous pressure on the majors to go slow on production and this would have a direct impact on the service companies. In this blog, we are trying to analyze how the macroeconomics trickles down to a microeconomic level – we would be focusing on oil field services companies and how recession forces these companies to revisit some of their processes – Warranty for example and how an ERP solution ( Oracle EBS in this case) can be leveraged to achieve business objectives.
What the economic slow down did to oil field service providers is a drastic reduction in their bargaining power with the majors. This directly hit their margins and left them with no choice but to look internally to reduce costs but at the same time not to loose focus on customer service.
Warranty is a term that attracts customers with a commitment to maintain sustainability over a period of time and often bear the repair/replacement costs in cases of failure. While a responsive warranty system guarantees customer delight, the flip side is the cost associated with it.
The Warranty types that are often dealt with in OFS industry for companies dealing with counter sales, sale of manufactured products and services to customer equipment are listed below:
1. Manufacturing Warranty— for all products built and sold by a company, Manufacturing Warranty is provided for a specific period of time. All costs incurred due to manufacturing issues, within the warranty time period are borne by the company.
2. 3rd party work/ AMS (After Market Services) — on services provided by a company on customer owned equipment. If the equipment fails with the same issue or if the repair leads to a different issue, AMS warranty covers the costs pertaining to the rework
3. Supplier Warranty
a. On components used in manufacturing an assembly – Warranty to be claimed from a vendor for a part that is still under warranty period.
b. On components sold to customers (Counter Sales) – Warranty coverage is passed from the suppliers to the customers. In majority of the situations, the company receives the failed part from the customer and deals with the supplier for replacement/ credit.
Now to control costs in the above scenarios, the warranty process should be smooth. What would ensure a smooth warranty process? In our experience, the following factors are important
• A well defined warranty system ( with clear policies/processes)
• Better collaboration ( both with your suppliers as well as customers)
• Better data analysis and reporting
How can IT help in achieving this? From our experience, we have tried to utilize the integrated ERP (Oracle EBS in this case) of the company itself achieve this utilizing the various functionalities available in multiple modules. We would like to share our knowledge and hear more ideas from you on this interesting topic that not only drives cost down, but also helps in getting you the most valuable asset – a delighted customer!
Rajmohan R Nair & Saritha Majjiga are from Oracle Practice of Infosys focusing on oil n gas industry sector
