05/09/2013

Challenges and Best Practices in Oil and Gas

Customer needs and industry challenges inspire best practices in serving the market.

Like in most industries, understanding customer needs in the oil and gas industry is key for those who serve it. Kevin Kampe, president of Womack Machine Supply in Dallas, TX, says the oil and gas customers Womack serves look for total system solutions. “Another thing they really respect and rely on is your technical, market and application know-how.” It’s not just about the products, he says. It’s about understanding customers’ day-to-day challenges and helping them overcome them.

“From that perspective, it’s not any different from any other industry,” says Womack CEO Mike Rowlett. What is more unique to this industry is that product lead time and responsiveness are especially critical, he says. “When you have equipment out on site, there’re millions and millions of dollars depending on the job getting done, so the energy business is not typically willing to wait. If they need the product, typically they need it now.”

Oil and gas business for Womack has grown along with the company since the 1980s, Kampe says, but it has seen ups and downs over the years. More than a third of Womack’s business is now in the oil and gas market. Considering its boom-and-bust nature, especially in the onshore market, meeting urgent needs can be a challenge when it comes to having the right inventory. Many oil and gas customers have specific needs, he says, so Womack stocks many products that only work for a handful of customers, making inventory management more complex.

Resource allocation is a challenge, Kampe says, when business fluctuates. “How do you keep enough feet on the street and enough back-office functionality?” Cash flow is part of the challenge, but Kampe says Womack pays attention to inventory levels and accounts receivable, and the company takes a conservative approach to expenses and investments to ensure cash availability.

But business isn’t entirely unpredictable. Kampe says Womack’s business, albeit with a 6-12 month lag, matches up pretty closely with economic reports and indicators. Kampe says the information helps the company prepare.

George Contos, CEO of fluid power master distributor World Wide Metric in Branchburg, NJ, estimates that 20 percent-30 percent of his company’s business is related to oil and gas. Diversification, Contos says, helped his company weather the start of the recession. In 2007 and 2008, the fluid power side of World Wide Metric struggled, while the marine side stayed strong. When marine began to decline in 2010, Contos says fluid power started to come back online.

Companies have even benefited from diversification within oil and gas. Kampe says the investment cycle in offshore is much longer than in onshore, so offshore companies typically continue to invest even when onshore  business slows or shuts down.

The boom and bust cycle that the industry is known for means that opportunities – and the companies that try to take advantage of them – come and go. “When the (oil) patch is booming,” Rowlett says, “everybody with a truck and a welding torch is out trying to build rigs and get them into the field … When it busts, most of those people go away.”

Kampe says Womack’s experience with a diverse customer base has helped the company to become a market expert that its customers depend on. “We’ve been working with these major players for a very long period of time, and we share that knowledge base with an open technology forum with our salespeople and our customer service people.”

While companies without industry experience may be at a disadvantage, Contos says it is still possible for those without experience to succeed. Those who take the time to learn the industry well will increase their chances of success, he says, but those who don’t may struggle. “You have to know what you’re doing,” he says.