An oilfield services firm was struggling with unexplained inventory growth, unforecastable cash flow and unauditable period-end financials, and frequent inventory write-downs to overhead for parts that should have been charged as part of service delivery with associated mark-ups, resulting in lower project profitability. The client engaged Eikon-X to triage these challenges and to implement changes to the operating model.

Approach:

1) Documented current P2P operating model (people, process, data and tech gaps) for the 16 direct material categories of both consigned and purchased parts moving through a hub-and-spoke network of DCs, field warehouses, and truck stock. 

a. Supply Chain: assessed processes strategic sourcing, product and services vendor selection and onboarding, transactional purchasing, purchase requisitions and purchase orders; process for hot shot, day-of-purchases, and spot market purchases versus strategic sourcing and category management

b. Operations, Warehousing, Logistics: assessed material receipts and put-away, pick-pack, replenishment signal, consignment management, and cycle count processes

2) Conducted root cause analysis of process breakdowns, discovering:

a. Little direct connection from the replenishment signal to purchasing to job costing and invoicing or approvals; anyone could make purchases of any amount from any supplier

b. No one single source of the truth – multiple, redundant home-grown tools with frequent manual transcription of data across platforms created confusing and unreliable signals throughout the supply chain

c. No internal controls or segregation of duties to prevent errors and fraud - Sales team managed suppliers and executed transaction purchasing, Purchasing issued purchase orders only to match supplier invoices once received, Accounting paid invoices without supporting documentation

d. No accountability for shrinkage of high value truck stock sold to competitors

e. No inventory strategy, standard process, or standard inventory accounting method

f. Little quantified data for KPIs to truly gauge performance

3) Over a six-week project, the team designed and implemented the future state operating model:

a. Created level 5 process maps and screen/keystroke instructions for each step in the end-to-end procure-to-pay process, breaking down Level 4 activities into specific, individual tasks, showing exact steps, systems, timing, and responsibilities, crucial for training, execution, and automation, acting as the "how-to" guide

b. Supply Chain process changes

i. Reorganized roles and responsibilities across the process to remove Sales from supplier relationships and purchasing

ii. Implemented new purchase requisition and purchase order processes, added project number and ticket number as required entry fields on purchase orders; established process controls and KPIs to drive accountability

iii. Developed product vendor and service provider on-boarding packet

c. Field Operations and inventory management processes, systems, and metrics

i. Established in a price book and in the Quick Books Online item master a new taxonomy of item and service numbers, warehouse bin numbers, units of measure, and standard cost

ii. Added item and service numbers as required entry fields to operations field tickets

iii. Established cadence for full physical cycle counts for warehouses and trucks

iv. Assessed and selected cloud-based inventory management system

d. Accounting and Controls

i. Separated key duties of supplier selection, PR generation, PO generation and approval hierarchy, and accounts payable invoice approvals, ensuring no single person has control over a whole process to ensure financial reporting integrity and compliance

ii. Established a three-way match requirement for payables to verify a suppliers’ invoices by comparing it to the original purchase order (and ensuring PO was issued prior to the invoice date) and the goods receipt to prevent fraud and errors, ensuring payment is only made for correctly ordered and delivered goods or services

iii. Implemented new, single purchasing and accounts payable technology tool tied to Quick Books Online to accelerate and streamline both the sourcing activities and month-end financial close

iv. Implemented single accounting method and mapped item/service/bin numbers to both field tickets and to chart of accounts to tie field service, inventory

Results: The new closed-loop, linked, and auditable transactional data flow from field operations through supply chain to warehouse operations, clearly separated ownership of duties, and new KPIs and accountability controls created predictable project revenue and cost of goods/services sold, stabilized cash flow with insight into open purchase orders and supplier invoices, and reduced overall inventory by over 40%.