Halliburton turns freight transport, compliance into “selling point” in company.
By Chris Gillis
In the highly competitive world of oil and gas, brand recognition and the ability to deliver goods and services quickly and reliably are sacred.
Not to mention, there are the tens of billions of dollars in shipments moving internationally at any given time to support the industry and much of this equipment and related parts are destined to some of the most remote and occasionally hostile parts of the world.
Keeping all of this activity from coming undone at Houston-based oil and gas industry giant Halliburton is a core of highly trained and knowledgeable logistics professionals.
“We’ve been growing large amounts of business in new countries and adding new capabilities, and it’s become a major selling point for logistics within the company,” said John Vogt, vice president of global logistics, in a recent interview. “But it’s certainly not as easy as it may sound.”
Halliburton, a diversified oilfield service provider, has grown its operations to about 80 countries in recent years. This global operation includes 192 international and 111 U.S. field camps from which it delivers services and products. Halliburton also has numerous small facilities that include sales, project and support functions, and bulk storage.
Some of the hotbeds for today’s oil and gas exploration are far from established ports and roads, and in some cases in the middle of the ocean. Yet the potential for rich finds has traditionally meant suppliers to this industry throw everything they’ve got at getting their goods to these sites, no matter the transportation and logistics costs. Five years ago, Halliburton was no different in this “at-all-cost” mindset.
Vogt said when he joined Halliburton six years ago, after a long career in the chemical industry, “logistics didn’t have much credibility as a competitive tool” in the company.
“What we’ve evolved into today is from a small core team trying to solve problems to one that’s managing a business,” he said.
While Halliburton would not divulge its actual transportation and logistics spend, Vogt said it tends to match that of most heavy industries, which would make it about 12 percent of the cost of goods for Halliburton’s $25 billion in annual revenue.
“Today we see logistics as a marketable commodity and contributor to sales,” Vogt said. “It’s become an adjunct to Halliburton’s marketing capability.
“Our senior managers, including at the regional and director levels, constitute an awesome team,” he added. “Each international move requires 25 major actions to complete, which demands multiple people of the team working together to make this all happen.”
However, he doesn’t downplay the enormous pressure this new stage of logistics at Halliburton puts on his staff in Houston and overseas. “You don’t get credit for the 99 shipments you moved correctly last week. You get remembered for that one you messed up,” he said.
And the expense of errors is enormous in the oil and gas business. For example, it could cost more than a $1 million a day for an idled drilling rig waiting for a part. “There are some big consequences” for logistics failures, Vogt said.
Gaining Control. In 2006, Vogt and his team set out to develop a five-year strategic plan to gain a firmer hand over Halliburton’s global logistics management.
The company’s list of goods, which ranges from basic commodities such as sand to highly specialized valves and instruments, is about 1.8 million stock-keeping units. Of this amount about 80,000 core products move routinely across 12 product lines. Unlike some of its competitors, Halliburton also has manufacturing in many locations, including the United States, Canada, United Kingdom, Malaysia, Mexico, and Singapore.
With so many moving parts in its supply chain, Halliburton over the years incurred an abundance of freight forwarders to manage cargo moves. The information behind these relationships was also minimally automated and highly fragmented. “What we were looking at was a system struggling to deal with all the complexities of international logistics,” Vogt said.
Similarly, the scope of Halliburton’s transportation requirements is highly diverse. In addition to using standardized ocean container and air transport, the company commonly charters vessels and all-cargo planes to move large cargoes, such as bulk chemicals and outsized pieces of machinery.
Halliburton has long had an SAP information technology platform in place, but it struggled to support the company’s varied supply chain. The company essentially crafted a logistics program internally to sit on top of its SAP platform, including implementing advanced electronic-data-interchange connections with service providers and consolidated documentation. “We now have advanced facilitation through SAP, but it’s not an SAP product,” Vogt said.
“We’ve taken our analysis beyond just measuring lane segments, which is the traditional way in logistics,” said Alan Bielefeldt, Halliburton’s director of systems and projects. “We’re taking the supply chain back to the beginning – when the cargo is available – and following it all the way until it’s on the shelf.”
These system enhancements also helped the company reduce its list of core forwarders from 21 to five. Halliburton would not mention the forwarders it now uses by name, but said they’re among the top seven global players.
“We now measure these forwarders using our own data,” said Paul Hanks, director of international movement for Halliburton. “Many companies still let forwarders come in and tell them how they’re performing.”
Each forwarder that works with Halliburton supplies about 30 pieces of information on each cargo move, which is further analyzed by the system. This data is used to put Halliburton’s forwarders through a quarterly performance review.
Halliburton has also used its newfound logistics controls to build a global cross-dock capability. Vogt said the operation resembles a domestic less-than-truckload cross-docking concept, but on a much larger, international scale.
Halliburton’s cross-docks are located in four locations: Houston, the Netherlands, Singapore and Dubai. The Houston site serves Texas and Oklahoma and Central and South America. The Netherlands cross-dock is located between the ports of Rotterdam and Antwerp, and provides coverage in Europe, Eurasia and Africa. The Dubai cross-dock is the smallest, while its Singapore location is the fastest growing due to the increase in oil and gas exploration in Asia.
“We now have a strategic network that allows us to reach anywhere East-West easily,” Vogt said. “That’s pretty radical for a company that used to let forwarders do that job.”
Vogt said it was a “tremendous effort,” with a lot of tests performed in the Houston location before the concept was taken abroad. “We had to get the systems, people and routing methodologies correct,” he said.
Although Halliburton controls activity of the cross-docks, it still relies on the forwarders to provide the physical warehouse space and some labor. “We’ve changed their scope,” Hanks said of the forwarders at the cross-docks.
“Every one of these facilities has Halliburton employees who manage our system and gives the forwarders instructions on what to pull, how to route it, and determines what’s an optimal load,” Bielefeldt said.
“By bringing a lot of the logistics expertise in house we know better the specific airlines we consider most reliable, for example,” Hanks added. “Now we not only ask a forwarder to move the shipment, we explain which airline we want them to use on which routes depending on the type of equipment we’re moving. This capability drives up our reliability.”
In some cases, the forwarder in the cross-dock facility must work with other forwarders that Halliburton determines have more efficient services to move cargo to particular destinations. “The system allows us to surgically choose forwarders for which lane based on their service and reliability,” Vogt said.
The cross-docks are constantly being tested and improved due to Halliburton’s increasing global business requirements. “They must be able to stand up at all times to extra and unusual volumes,” he said.
The same systems platform that’s helped reduce Halliburton’s forwarder roster has done the same for its once even longer list of customs brokers. “We’ve gone from hundreds of brokers to a handful,” Vogt said.
“We now look at what is the best brokerage service for that country with the data connections we require and with the compliance we want,” he added.
“What we’ve found is that the customs brokerage piece has been a key delay in getting the goods to the shelf,” Bielefeldt said.
“When we started, our exports to Brazil were experiencing 30-days customs clearance for ocean and 25 days for air shipments,” he said. “There were many manual processes for managing the shipments.
“So we built a data integration with our broker in country which allowed us to automate many of the processes,” he said. “Now we have the clearance down to an average of five days for air and eight days for ocean.”
Most oil and gas companies hold their goods at origin until all the documents are approved by the Brazilian broker. Then after the cargo arrives by air, it still takes three to four days to release it through Customs, and that’s only if there aren’t further document or procedural delays.
“Our goods depart as soon as they’re available and when that flight is ready to take off,” Bielefeldt said. “We’re now trying to get our air freight movements into that country down to four days or less for when they’re available.”
A major downside to working in developing countries is encountering customs administrations that may have little to no computer technology at the border or in the ports to efficiently clear goods. Documentation may require stamps from various agencies before they’re released. There may also be multiple interpretations of the customs and trade regulations among local government officials. In Angola, for example, it can take anywhere from 45 to 49 days to clear goods.
“It’s not like we’re moving the same thing over and over without any complications,” Hanks said. “There are a lot of different requirements issued by different countries, and what’s required this month may be different the next.”
Political stability in developing countries is another constant concern for companies involved in oil and gas exploration. “I’d say stability only exists in 25 percent of the countries in which we operate,” Vogt said.
One of the most significant aspects of Halliburton’s logistics management is keeping its headquarters and overseas staff trained on the latest internal procedures, regulatory changes, and industry updates.
The company provides a mandatory 40-hour online global education program to its logistics personnel when they join, in addition to regular compliance training for its entire staff and a minimum of 40 hours of continuing training each year.
“It’s essential that we work together as a team,” Vogt said. “Training provides us with a similar understanding, even with cultural and language differences, and technical thinking to enhance our teamwork.”
As a U.S.-based multinational company it’s especially important for country managers to understand and comply with U.S. government laws and regulations, such as the Commerce Department’s Export Administration Regulations and the Foreign Corrupt Practices Act, in addition to overseas regulations.
“Changes in, compliance with, or our failure to comply with these laws may negatively impact our ability to provide services in, make sales of equipment to, and transfer personnel or equipment among some of the countries in which we operate and could have a material adverse effect on our business and consolidated results of operations,” Halliburton stated in its 2011 financial report.
This is no easy feat for a company with about 68,000 people employed globally, and operating in locations where political uncertainty, highly subjective regulatory regimes and unstable currencies exist.
Understanding this, Halliburton has made an effort to hire some of the brightest in the logistics management field. “A large number of the team has a Master’s degree or even PhDs,” Vogt said. “We’ve deliberately built a team that has the best education we can find and with the widest logistics skills that we can put together.”
Vogt said finding qualified logistics talent straight out of university is practically non-existent, although the company regularly recruits from a number of universities.
Young people brought into the logistics program at Halliburton are periodically moved during their first two to three years on the job to expose them to various facets of supply chain management. The goal is to find them roles that best suit their talents or strengths, Vogt said.