Simplifying eCommerce to Strengthen Oil and Gas Service Company's Bottom Lines
By Chris Welsh, CEO, OFS Portal LLC
The flow of cash in the oil and gas industry seems quite simple. Take customer sales orders, fulfill orders, deliver orders, generate invoices, and collect payments. But times have changed. As the industry has grown so too has technology.
Today, operators send orders to oilfield service companies via phone, fax, email, or Electronic Data Interchange. Just as orders come in to a service company in a variety of ways, so too are the invoices sent out to operators. Service companies can have upwards of 300 customers and those customers each have a preferred way of receiving invoices and often multiple ways depending on location.
IT departments have been critical in helping oil and gas service companies streamline the process, whether in internal processes, implementing Enterprise Resource Planning (ERP) systems, or helping select SaaS (software as a service). However, billing and accounts receivable still struggle with inefficiency due to the varying and complex requirements of operators. Facing cost cutting requirements at every level, service companies are working to streamline processes to remain in the game short term and to increase profitability long term. Yet their hands have been tied when it comes to critical functions in finance, specifically invoicing, credit collecting, and payment reconciliation.
These departments require large staffs to oversee and manage billing and payment documents with different operators in different formats. Errors occur, resulting in delays and lost revenue.
Under the current process, most service companies rely on their ERP systems for billing and payment. However, ERP systems are not intended for complex invoicing, incurring incremental costs with each new requirement. Most ERP systems anticipate invoices that will match purchase orders. If the customer ordered two cases of soft drinks, that same two cases of soft drinks can be matched to the purchase order and the invoice. In the oilfield industry no one knows how many cubic feet of cement will be needed at the well site until the job is complete, thus it’s impossible to match purchase orders to invoices. Additionally, these systems are working overtime to handle and process billing and payments, often requiring multiple configurations and reconfigurations prior to sending out invoices via a myriad of output mechanisms; this process is complex and costly.
As the oil and gas industry entered the 21st century, a complicated and expensive web of connections between suppliers and their customers’ Purchase-to-Pay (P2P) solutions evolved aiming to allow each party’s ERP system to automatically consume transaction documents without human intervention. Adding to the cost and complexity, a dedicated team is needed to establish and maintain these integrated connections. Over time, integration leads to a consistent increased run rate in cost per integration. Consequently, suppliers needed an efficient and effective way to integrate to all their customers in addition to reducing the cost of business integration.
Companies want flexibility in eInvoicing and the ability to react quickly to customers. While this may work for its top 10 customers; when scaling eInvoicing to the remaining 300 customers, that same flexibility becomes a liability. The cost and complexity is exponential.
By implementing a standard solution like order-to-cash, the compliance and integration costs are spread out over the platform’s entire customer base, reducing the development costs of manual updates
Managing customer integrations is not a core competency of most oil and gas businesses, and should be outsourced, as business grows, so too will the complexities of integration management.
To reduce complexity, a well-implemented Order-to-Cash (O2C) solution eliminates multiple and ongoing ERP integrations as well as the overall high IT spend associated with implementing integrations. Through an O2C solution, suppliers can access premium integration with their customers at a fraction of the cost. The O2C solution is already connected to over 250 ERP systems and networks including majors like SAP, Oracle, Ariba, and Oildex.
This solution allows data to be converted to multiple output formats, managing and reducing the complexities associated with the supplier’s integrations with their customers and their networks. It also standardizes the accounts receivable process and the way a supplier works with customers.
An O2C solution is an end-to-end, ready-to-connect solution that extends beyond invoicing and fulfilment; it provides credit management and collection services as well as regional value-added-tax compliance. It addresses the main issues suppliers face in the eCommerce process while meeting the needs of their buyers, regardless of the delivery mechanism or preferred format.
An O2C solution also provides suppliers with the capability to outsource their integration management, allowing them to shift staff into value-added roles. The once hidden IT costs are reduced, or eliminated altogether.
Efficient, Effective, eCommerce
The cost of doing business today is expensive, it is necessary to examine the entire supply chain to eliminate inefficiencies and enable an O2C solution to turn a reactive supplier into a proactive supplier.
Let’s look at tax compliancy, for example. The oil and gas industry is a global industry and tax compliancy is paramount. Today the IT team continually modifies (reactive) their ERP system to address tax requirements for each country in which they do business. With an O2C solution, suppliers can generate and manage (proactive) tax compliant invoices for more than 90 countries outside of their ERP. Configuration happens one time for all invoice types. Invoices are delivered to customers’ account payables platforms with full value-added-tax compliant documents built into the O2C system, eliminating a once chaotic process.
Order-to-cash is also a solution for collections. Collections’ costs represent a significant amount of inefficiency in most suppliers’ accounts receivable operations. Working with external collections agencies to collect outstanding invoices becomes simpler with an O2C SaaS solution. The solution transfers data easily and efficiently from the supplier’s system, generating call lists and mailing actions as well as analyzes payment patterns and history across all customers.
IT security is similarly not a core business of most oilfield businesses, but is of paramount concern to CIOs, especially in light of the fact that the oilfield industry has been designated “critical infrastructure” for national cybersecurity purposes. Managing a single connection to your SaaS provider, who has cybersecurity as a core competency, is far more secure than managing dozens or hundreds of integrated connections with customers. The credit management and collections available on the end-to-end O2C solution has proven to produce up to 50 percent reduction in lost revenue and 50 percent reduction in cost of running credit management, and incorporates real-time credit worthiness indicators for supplier’s clients.
The Bottom Line
The oil and gas industry has encountered incredible changes over the last 10 years. So why shake things up in the back office? Simple. Integrated eCommerce is critical to the success of long-term business goals.
According to Andrew Bartels with Forrester Research, “With more and more large companies adopting AP eInvoicing, we are reaching an inflection point in which sellers can start to assume that more than half of their enterprise clients want to receive eInvoices and will want to have an AR Invoicing solution to automate and streamline their side of the equation.”
From an oil and gas industry perspective, if multiple suppliers adopt an order-to-cash approach, we can capitalize on multiple uses of this model, reducing costs for all suppliers.