Sumitomo Supply Chain Management Services for Tubular Products Circle the Globe

It is a trend that is quickly spreading across many industries. More companies are ceding their supply chain operations to companies that specialize in these areas while they focus on their core competencies.

And on the cutting edge of this change in the OCTG (Oil Country Tubular Goods) category is SCGTS (SC Global Tubular Solutions), a subsidiary company created in 2002 by Sumitomo Corporation of America (SCOA), Sumitomo Corporation (SC), Sumitomo Corporation Europe (SCEU) and Sumitomo Corporation (Singapore) Pte. Ltd. (SCSI), specifically for Supply Chain Management (SCM) Operations.

SCGTS provides consulting services to SC, its subsidiaries and and affiliates (SC companies). The SC companies now provide pipe, pipe accessories, and services for oil companies. In the past, the oil companies bought the pipe and handled all the associated activities themselves for the drilling projects around the globe.

"The oil business model started to change about seven years ago when the oil companies decided they didn't want to be in the business of managing the pipe that they needed in all these international locations," explained Ronald Freeman, General Manager, SCGTS.

"Up until that point the oil companies went out on the market and got the best deal they could on the pipe they needed. They then had it shipped into the country where the project was and they would be responsible for ensuring that it cleared customs and that they would have the facilities to take care of it. At some point they realized it might be better to outsource the supply and management of the pipe. They proposed and we agreed that it would be beneficial that we take over the purchase, logistics, tracking and selling of the pipe as they needed it."

At the time, the SC companies did not have the core competencies to investigate, propose, implement, and operate SCM projects. They needed to establish a center of expertise and recruit people who had the experience with the management of pipe. This led to the creation of SCGTS. "That was the change that drove us to have a need for experts in supply chain management," said Mr. Freeman.

Today, many of the big oil companies look to the SC companies to fulfill these needs, and in providing these services to oil companies, SCGTS has worked with the SC companies to build up a state-of-the-art supply chain management system that could be a prototype for industries beyond OCTG.

Nine Projects, and more in the pipeline

Sumitomo Australia Ltd. in Perth undertook the first OCTG supply chain project for Woodside Petroleum. This was followed by SCEU's Aberdeen, Scotland project named Badentoy Tubular Services. Then came projects for SCOA in Chad, SCSI's CORAL in Malaysia, SCEU in Norway, SCOA in Equatorial Guinea and Alaska, SCEU in Dubai, and SCOA in Nigeria. Today SCGTS monitors nine projects on four continents with oil companies such as ExxonMobil, BP and Shell.

Meanwhile, SCGTS is focused on working with the SC companies to increase the number of active projects. The oil drilling business is dynamic as new oil fields are discovered on a regular basis. Among the places oil companies are now looking is Russia's Sakhalin Island, an island north of Japan. The major oil companies have operations there, and an SC company utilizing SCGTS expertise wants to work with them to supply pipe and provide the associated supply chain management services.

How OCTG projects work

According to Mr. Freeman, there are two fundamental models under which SCGTS-monitored projects operate. In the first model, the SC company coordinates with subcontractors in the country where the pipe is sent and subcontractors provide most of the actual physical services. This model applies to seven of its current projects. In the second model, the SC company is in a direct operational role, providing the physical services associated with the project. This is the model for two of the current projects.

In the first model, the SC company provides coordination services. In the second model, the SC company provides both coordination services and operational management.

For the SC company, the second model is much more demanding from both a human resources and coordination point of view. This requires SC company personnel to travel to the site and set up the entire service facility including establishing a local entity, building a pipe yard, getting office facilities, and establishing local relations.

For all of the projects, the Information Services Group (ISG) of SCGTS provides the computer system maintenance and computing environment administration. This allows the projects to access the SCGTS iTIMS computer system for the pipe tracking and record keeping that is necessary to maintain control of the pipe needed for drilling. They also maintain the SCGTS TIMSIS web site, where pipe data captured in iTIMS is replicated for access by customers.

In addition, the need for a pipe-forecasting tool led to the development of the SCGTS I-Well system, used extensively in its project in Alaska and Dubai. The ISG group is also working with other SCGTS staff members and site personnel to define the business requirements for an updated version of iTIMS.

This year the nine projects have handled a significant amount of pipe. All of the pipe is tracked in the iTIMS system from the moment customers indicate the need until its delivery and eventual use.

The Future of SCGTS

The future of SCGTS is directly linked to the future of OCTG supply chain management. It is clear that the business model has changed for some oil companies -- BP, ExxonMobil, Shell -- in terms of how they now work with the SC companies. SCGTS, working with the SC companies, has stepped into this niche and provided the required services. This will be the future of a certain percentage of the SC companies' pipe sales. SCGTS, as the center of expertise for OCTG SCM, is strongly supporting the SC companies in their efforts.

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