Supply-chain Cost Strategies for Surviving Depressed Prices

Moderator: Héctor Rocha, Partner, Segment Energy at EY
Panelist: James Buis, District Manager Mexico of Nalco Champion
Panelist: Esau Sasso, Country Director Mexico & Central America for Baker Hughes
Panelist: Alfredo Carvallo, Director General of McDermott Mexico

Low oil prices have forced companies to reinvent themselves and their capabilities, while trying to capitalize on every long and short-term opportunity the country offers, agreed panelists at the Mexico Oil and Gas Summit 2017 as they reflected on their supply-chain cost strategies for surviving depressed prices.

“In the past few years, the industry has experienced massive changes and companies have had to reinvent themselves and their supply chains to face this market shock,” said Héctor Rocha, Partner, Energy Sector at EY, during the panel discussion at the Hotel Sheraton María Isabel in Mexico City on Wednesday.

Rocha was accompanied by Alfredo Carvallo, Director General of McDermott Mexico; Esau Sasso, Country Director Mexico and Central America for Baker Hughes; and James Buis, District Manager Mexico of Nalco Champion.

“Low prices are not unique to Mexico, so every company has had to adapt their business strategy to a new environment. The industry has been adapting by itself,” said Carvallo. Sasso added that part of the strategy Baker Hughes has undergone in Mexico in this process is understanding what the customer wants and not only what they as a service company think the client needs. “It is not a matter of the prices you are offering them, it is rather a matter of how much in costs you are helping them save.”

Buis added that even though pressure to reduce costs has affected everybody, companies still must maintain the same quality standards that characterized them. “The products and services we offer our clients must be the same wherever we are. Service requirements might be different from one place or another but the quality has to be the same.” However, for Sasso the responsibility for quality does not end with supplying the same standard everywhere. “We have to show new operators that in Mexico we have local suppliers that have been our local partners for years and that have absorbed our level of quality and our corporate culture. For us, it is critical to pass our standards to our suppliers; in the end, suppliers are critical for moving to the next phase.”

Rocha added that in most cases, local suppliers tended to be passed over for international suppliers, an issue that Carvallo attributed partly to the fact that new operators are not aware of the capabilities that exist in Mexico. “If I were an operator I would be looking for people who have been operating in Mexico and can provide technical support in the country.” Buis added that having local suppliers can help with availability of products and cost-efficiency of services.

Local suppliers not only help companies in terms of cost-efficiencies but also in complying with local content requirements. Buis recognized that, although calculations for local content are complicated, they focus on having a very localized force, a strategy that the other panelists also acknowledged. “There was a time when we needed to bring personnel from other countries to increase the efficiency of our operations in Mexico. That is not the case anymore. The efficiency of Mexico’s labor force has increased,” Carvallo said. Sasso added that having a qualified workforce used to be a challenge but the situation has been reversed: “Keeping our people focused and engaged in what we are doing is the challenge. Retaining our talent is going to be quite critical.”

The panelists agreed that although the past few years have involved a series of changes that none could have imagined, the industry in the country is moving forward and that is a positive sign. Sasso said that his company knows the market and can bring value to new operators entering the country, a sentiment that Buis echoed: “We have to show them local expertise that has been built over the years. We have to show them how capable we are in Mexico.”