Much has been written lately about shale development and production being pretty much like manufacturing. Some have suggested that shale production is a perfect fit for Lean manufacturing concepts. True, Lean concepts are mostly a fit in E&P, but there are several caveats. Certitude Group is uniquely qualified to comment on this topic as our consultants have designed and executed numerous projects in manufacturing operations and hydrocarbons production.
Key to Lean manufacturing are strong planning, relevant metrics, and rapid course corrections when something goes “off spec”. The ability to manage in a Lean environment is generally facilitated through business processes and a few critical metrics.
Here’s what we like about lean in E&P:
Business Processes: Manufacturing generally requires a collaboration between numerous organizational functions that contribute to make and deliver products to customers. At this level, E&P is the same as manufacturing. Business processes provide an excellent platform for adoption and integration of Lean concepts and tools.
Business processes are the best way to deliver cross functional work product. These are used to describe a logical sequence of activities along with information and decision making “flows”. E&P business requires the same disciplines where multiple functions participate in planning and process execution. In discrete manufacturing, it’s not uncommon to produce on-spec materials without defect thousands or millions of times.
However, E&P processes are a bit different in that many professionals contribute their best thinking and judgment to the finished “product”. Some things are “digital” and others are not. There are many “monumental” decisions throughout the process, with several likely risking millions of dollars and sometimes the ultimate operational and financial success of a project or asset. Finally, the best processes in the E&P context can ensure favorable outcomes, but there is always the man against nature theme lurking in the background that sometimes defeats the best laid plans.
Because so much is at stake, we advise our clients to ensure their business processes are always up to date both in documentation and in practice. Processes can and should change over time, but what often happens is that business needs drive subtle changes that ultimately are not trained or documented. Once processes become more informal, it is more difficult to troubleshoot issues that arise. Recurring problems are also hard on the culture of a business that in the not-too-distant past was proud of getting it right most of the time through tight processes.
Metrics: Supporting the development and production efforts are process and outcome metrics. These are typically displayed in a dashboard format or as we call it, the Management Operating System (MOS). Based on experience, we recommend leading “process” and lagging “result” metrics. It is interesting to note that metrics are somewhat unique to each business even though many of the process objectives are exactly the same; i.e.- reliability, cost/unit, dwell time, labor productivity, asset utilization, etc. One reason for this commonality is that ultimately, metrics must correlate with the business of making money.
Beyond finance, metrics reflect and reinforce the business culture. Without naming names, some businesses use metrics primarily to reinforce (at a detail level) the specifics of daily work for lease operators; some emphasize the interactions of support groups with production operations; others utilize layers of measurement reaching from development initiation through production. No particular approach is “correct” or “incorrect”, but why the variation? We see metrics as a direct reflection of the culture and psyche of a business. While every organization operates with it’s unique and preferred metrics, ultimately the goal is pretty much the same: meet HSE and Production goals at an appropriate cost per BBL / MMBTU produced.
What about Lean? As Lean techniques represent “better” practices in manufacturing, what about utilizing these in the E&P industry? No problem, Lean has an excellent toolkit to facilitate good practices is almost any business. Exploration and Production is no different.
One of the common methods of framing and communicating lean elements is the “house”. When Lean has gone beyond useful to an organization we often see the “house” graphic being very complex. We’ve found more than a few that are literally indecipherable. The house graphic is a metaphor describing the key elements of a Lean implementation: Approach, Process Improvement, Capability Development, Measurement, and Culture. Often, the house describes the aspiration of the enterprise. Here’s where we start the Lean conversation with our clients: "What problem do you want to solve?"
Our point of view is that successful forays into Lean should start as a project or a series of projects directed at a tough problem. With success, lean can be allowed to “blossom” organically. Start with something small enough to be manageable. Solve one problem and then build on that success.
One of our observations in manufacturing is that Lean sometimes becomes the business objective as opposed to an enabler of performance enhancement. When this happens, operationally speaking: everything is in order… on paper. But sometimes the big business picture is found out in the front yard or down the street instead of inside the lean house.
So lean works well in E&P because development projects and operations generally require business processes and measurement. The building blocks are there.
Like Manufacturing, we suggest keeping it very focused on solving a problem. After succeeding with that, let it grow and develop.
Have a great summer everyone!
Certitude Group can assist with an assessment of the current fit, function, and effectiveness of your business processes and we can design enhancements to not only correct deficiencies but also improve the effectiveness and profitability of your operations. We have identified hundreds of millions of dollars in benefits associated with business process effectiveness upgrades. These benefits materialize through better technical outcomes and cost effectiveness. We can do the same for you and your business.
Just drop a note to email@example.com and we will set up a time to discuss your situation in detail.
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