Oil Services Companies - Make or Buy

Introduction

During the cyclic downturns, oil services companies face difficulties in sustaining operations. As a result, they are forced to abandon projects, cut costs and downsize suppliers. Also, due to the shrinking demand many small scale suppliers of oil services companies find it difficult to stay in business. To establish internal stability during the ramp down period, FieldServices. Inc chose to buy one of its suppliers, CI Inc. However, during the ramp up, insourcing is not an optimal solution due to high internal pricing, and capacity issues. This project will enable FieldServices. Inc to rationally compare options of producing equipments in-house versus buying it from an external supplier.

Statement of Problem

The key question is when is a “buy” strategy more suitable alternate than a “make” strategy? Sourcing from an in-house supplier means that the company will only have to pay for the cost of production, plus a small markup in some instances. However, “make” is not always a good solution. Our project attempts to address this complexity by identifying indicators that balance the make” and “buy” decision in contrasting business scenarios.

Objectives and Scope

The objective of the project is to determine the most appropriate method of product realization using a structured methodology. The project will entail reviewing the manufacturing and procurement processes of FieldServices. Inc. The project will benchmark the best practices in similar industries for optimized capacity management during an upturn.

The scope of the project is to those industries which have a similar cyclic demand scenario as oil and gas industry. The scope is limited to facilitate only decision-making and doesn’t focus on the implementation of the decision. Also, make versus buy decision is applicable only where internal capabilities are readily available.

Methodology / Approach

The project will attack the problem with two different dimensions – 1) Scenario Analysis of existing market and the benchmarked companies. 2) Plant visit, interviews and survey data analysis for cases specific to FieldServices.Inc operations. The project will require interaction with field operations and manufacturing of FieldServices.Inc.

Based on the literature survey of industry best practices, an assessment matrix will be developed weighing factors like manufacturing costs, lead time, internal capacity and others. The project will involve modeling and simulation of capacity in various demand scenarios.

Costs

The estimated cost of the project:

- 1 Procurement Manager – 1 * 270 days * $1580/day

- 1 Global Supply Chain Manager - 1 * 270 days * $1080/day

- 2 Principal Consultants – 2* $2000 (excluding travel expenses)

Benefits

The proposed project will enable FieldServices.Inc to utilize its internal capacity both quantitatively and qualitatively, to meet the demands of its customers during the cyclic upturn. We expect that the streamlined procurement processes will release internal capacity and enable FieldServices.Inc to save $XXX.

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