In 2012 a BP oil rig off the Gulf Coast of the U.S. exploded and sank due to defective cement on the well. Eleven lives were lost and there was incalculable environmental damage. The fault was mainly with BP but also with the rig operator and contractor. BP and its partners were blamed for a series of cost cutting decisions, insufficient safety systems and systemic root causes tied to the cement.

Guy Allen of Real World Sourcing, LTD noted, “Protecting against quality risk starts with the design of a product. Where possible, it should be straight forward to manufacture and produce. The quality and performance of your suppliers should also be part of the key decision-making criteria in your selection of the supplier. Once in production, close monitoring of production quality should be expected of the supplier. The supplier’s use of statistical process control, quality checks and routine testing to eliminate substandard material and products is required. In addition the buyer must include consequential damages clauses in the supply contract.”

Oil and Gas Lesson

Fadel Gheit, a senior oil and gas analyst at Oppenheimer said, ‘The Gulf of Mexico is the most profitable part of the world for BP.” In September 2014, a U.S. District Court judge ruled that BP was primarily responsible for the oil spill because of its gross negligence and reckless conduct. BP was ultimately fined $18.7B.

This tragedy was one that not only shook up families with the loss of life and environmental destruction but it also opened some doors for more collaboration. Robert Handfield Ph.D., North Carolina State University believes “there is a lot of room for all of the players in the oil and gas industry to work together to identify risk mitigation and solutions for deep sea oil drilling. This is a highly complex and technical environment, and there are many, many opportunities to drive better collaborative contracts and risk mitigation strategies throughout the supply chain. “

Final Point

Supplier relationship and management of it is critical to strategic procurement. The strength of the relationship is two vs. one, transparency, collaboration and innovation. Real value is extracted when working together. Supplier Value Management is vital to visibility between partners and the building of trust.