Crisis fuels innovation

Collapsing oil prices were a catalyst for business transformation for this global oil and gas producer in its quest for safe, reliable energy. A massive reduction in cash inflow coincided with payouts due on multiple capital projects. The pressure was on to maintain dividends to sustain market confidence – the company needed to get cash into the system, and fast. 

An opportunity was presented to take money out of the global supply chain through a market response initiative (MRI). Renegotiating terms with suppliers is standard practice but, on this occasion, time was of the essence. What’s more, the program needed to be implemented across a huge and highly decentralized corporation, offering business units the opportunity to opt-out of many enterprise initiatives.

A prototype was up and running in 48 hours, which allowed potential cost savings across the globe to be defined and measured. The full program was rolled out after a short pilot.

• A custom tracking tool recorded the progress of each business unit with its top suppliers.

• The MRI took around $1.5 billion out of the supply chain in just a few months and the benefits continue to accrue.

• An additional $100 million in savings were identified through further assessment of the capability and effectiveness of global procurement function, including recommendations for capital and warehousing improvements.

A crash in oil prices was the catalyst for repricing supplier agreements and improve its resilience for the future. KPMG was reviewing the company’s procurement function, benchmarking it against competitors on factors such as category management when the crisis hit.

With cash flow becoming the number one priority for the business, KPMG switched gears to help renegotiate terms with suppliers. A working solution was up and running in 48 hours, which allowed potential cost savings across the globe to be defined and measured.

KPMG then trained the client’s business units on a standard process for negotiating price reductions with suppliers. A custom tracking tool was built that recorded the progress of each business unit with its top suppliers. Common reporting standards (via SharePoint) supported more effective data analytics. Meanwhile, rapid adoption of the new initiative was encouraged by making every business unit’s current state of play visible to top leadership.

KPMG helped the client extract billions of dollars in spend from the supply chain at speed. The continuing success of the MRI means KPMG is now working with the client on mapping out much broader opportunities for commercial and technological change. In response to the ‘new normal’ of lower oil prices, they’ve turned to KPMG to lay the groundwork for transformation across their value chain.

Threats can be opportunities

Although unwelcome, external stresses can usefully test a business’s resilience and discover efficiencies that can be achieved. Even a crisis requiring an urgent remedy can be a chance to transform the business in positive ways.

Competition galvanizes change

Wholesale rapid change can be hard to achieve in decentralized business units that are built to work independently. However, providing visibility of progress to leadership creates an atmosphere in which teams compete to achieve the best results.

Confidence breeds confidence

Imposing an MRI and common reporting standards on such a massive organization - and at such speed - took a leap of faith. The breadth and depth of KPMG’s expertise carried the client forward at a time when only a radical solution would do. Every part of KPMG’s response was tried and tested, even though the overall solution was new.