IBM Sales and Distribution Chemicals and Petroleum White Paper Tapping the benefits of business analytics and optimization A rich source of intelligence for the chemicals and petroleum industries
2 Tapping the benefits of business analytics and optimization Contents 2 Executive summary 2 The BAO advantage 3 Applying a BAO strategy to the chemicals and petroleum industries 6 The business value 6 The path forward 7 IBM can help Executive summary Even for the chemicals and petroleum industries, which have historically managed difficult environments well, the pace of change in global energy is creating some substantive challenges. Consolidation, new technologies and competitive pressures are affecting these industries on a daily basis. Add to this the constantly changing global market forces increasing energy needs, demanding productivity, political and economic volatility, and environmental and regulatory concerns and you have an increasingly complex landscape. To address these challenges, decision makers must find new ways to differentiate their companies. Accomplishing this requires deeper insight and greater access to relevant information, as well as performance optimization in key operational areas, including: Exploration and production Refining and manufacturing Global operations The chemicals and petroleum industries collect vast amounts of upstream exploration and production data, as well as downstream manufacturing and refining data. There is a need to better connect this data across silos and incompatible systems and to apply greater analytical intelligence to the data to help improve operations and decision making. Armed with better information, chemicals and petroleum companies can improve production output (both upstream and downstream) while gaining better control of production costs. The application of business analytics and optimization (BAO) can help turn information into insights by integrating and analyzing data in near-real time. Armed with better information, chemicals and petroleum companies can improve production output (both upstream and downstream) while gaining better control of production costs. Additionally, insightful data can enhance agility, enable greater collaboration throughout the enterprise and improve safety. This paper discusses the advantages of implementing a BAO strategy and details ways that analytics can help the chemicals and petroleum industries address their unique challenges. It also recommends a five-point approach to operationalizing analytics. The BAO advantage The abundance and relatively low-cost of technology and instrumentation has made it increasingly easy to obtain and share both structured and unstructured data down to a granular level.
IBM Sales and Distribution 3 However, to turn this massive amount of data into intelligent, useful information requires the consistent and broad application of powerful analytics. In a world that has become progressively more instrumented, interconnected and intelligent, organizations that embrace a BAO strategy can view the quantity of available data as an asset, rather than as a burden. This is because they have the ability to utilize and create value from it more effectively. These companies can also give their employees improved access to the information, enabling participation in discovering patterns, identifying new possibilities, creating scenarios, making predictions and prescribing actions. Using information intelligently allows organizations to improve their processes and enhances their ability to meet business objectives. Additionally, it can help them anticipate future events and take appropriate action, whether that means seizing an opportunity or avoiding an adverse event. The implementation of a BAO strategy is closely linked to high performance, with top-performing companies twice as likely as low performers to report using business information and analytics. 1 These top performers implement BAO capabilities to gather and use information both from within the organization and from outside sources, sort through and extract the most relevant aspects of it and align the information with their business objectives and across business functions. They are open to using the insights that they gain in innovative ways, as well as for predicting and preparing in advance of anticipated events. Employees in these organizations are generally more empowered to make decisions based on information they acquire and to act on their insights to drive change. 2 The implementation of a BAO strategy is closely linked to high performance, with top-performing companies twice as likely as low performers to report using business information and analytics. Applying a BAO strategy to the chemicals and petroleum industries Emerging trends in the chemicals and petroleum industries have made it imperative for companies to more intelligently use the information they obtain. This is done to help proactively manage production operations while at the same time reducing operational costs, exceeding operational demands and increasing shareholder value. In addition, companies need to be able to quickly answer a range of critical questions, such as: How can we find and evaluate potential fields more quickly and assess risks more accurately in order to gain a competitive advantage? In what ways can predictive analytics help us improve asset availability and reliability? What can we do to improve the management of turnarounds and shutdowns of assets? How can we optimize field development planning and enable actual field production to meet plan requirements? Are there things we can do to better ensure the safety of our people and equipment? With analytics, companies can consolidate data from a variety of sources production, reserves, accounting and wells into a single operational view. More and more organizations recognize the value of implementing a holistic, integrated BAO approach to replace standalone, ad hoc solutions in which information is siloed and disconnected. A BAO approach can offer chemicals and petroleum companies many competitive advantages, including:
4 Tapping the benefits of business analytics and optimization Improved production efficiency by providing near-real-time information and analytics Greater collaboration by embedding analytics within business processes, organizational roles and responsibilities Measured and managed business tactics to support alignment with the business strategy in near-real-time instead of requiring decision makers to rely on traditional leading and lagging indicators Most importantly, BAO itself is not a capability. To be of value, its concepts, approaches and tools must be an integral part of existing activities, including exploration and production, manufacturing and refining, global operations, business and strategic planning, and asset management. Exploration and production Upstream, a BAO approach can have an impact on cost, productivity and decision-making. Improvements in operations data analysis make it possible to obtain useful information in near-real time, which can help field operations and management make decisions more proactively. Operations optimization contributes to production efficiency and cost management. Analysis of performance indicators, such as data mining and trend analysis, can reduce environmental and safety risk. At the same time, predictive analytics can help companies assess and forecast the performance of wells and facilities in order to support increased recovery rates. Analytics can also provide exploration intelligence on new and potential oil and gas fields and enhance drilling accuracy and production output. Enhance exploration and production To find oil and gas faster and lift it more efficienctly Improve refining and manufacturing efficiency To reduce costs and increase operational efficiency With analytics, companies can consolidate data from a variety of sources production, reserves, accounting and wells into a single operational view. Business and strategic planning Smarter chemicals and petroleum Asset management Manufacturing and refining BAO can help companies optimize performance of their workforce, equipment, systems and facilities. By providing near-real-time information, it can provide greater visibility and flexibility across a company s entire fleet of chemical plants or refineries, supporting improved efficiency, market response and profitability. Optimize global operations To increase visibility, mitigate risk and lower costs across the value chain Figure 1: Applying BAO to the chemicals and petroleum industries
IBM Sales and Distribution 5 Chemicals and petroleum companies can also use advanced analytics to help predict plant or refinery problems. They can then assign resources, priorities and assumptions based on these predictions and perform preventive maintenance as needed. Not only can this reduce potential down time, but it can also help reduce safety risks and environmental impact. Global operations A BAO focus is designed to integrate supply chain planning information (production, inventory and logistics) across disparate operations. It also makes it possible to analyze supply chain performance at a granular level so that companies can identify and enhance their processes to help drive down costs, improve service and reduce risk more efficiently. Additionally, BAO can be applied to vendor and procurement analysis to provide a more consistent measurement of procurement performance and to help improve the management of risks and controls for existing and extended supplier networks. This application can optimally source goods to help increase purchasing power and allows companies to evaluate adherence to contractual terms and to determine the cost of noncompliance. Business and strategic planning Analytics is designed to provide greater transparency and can help increase accountability and manage regulatory compliance. It can also enhance strategic planning, reporting and risk management, as well as help improve decision support for financial performance. In terms of optimizing sales and operations planning, analytics can help companies monitor fluctuating costs of raw materials and thus better control those costs. Additionally, companies can use analytics to identify high- and low-performing areas and to generate plant-specific profit and loss statements. By giving executives the ability to view accurate data across all time horizons past, present and future analytics can help them make better business decisions more quickly. Asset management BAO can help chemicals and petroleum companies improve reliability, safety, productivity and performance by providing greater transparency and visibility across disparate groups (engineering, maintenance and operations). Having a clear, consistent picture of asset condition and performance throughout the company makes it possible for the functional silos to work collaboratively to help achieve operational excellence and higher safety performance. Predictive maintenance is another key area in which a BAO strategy can provide valuable information. By identifying when production assets are likely to fail or need maintenance, companies can schedule preventive maintenance to help optimize production up time and reduce disruptive, costly and unscheduled down time. Companies can also optimize up time and in-service time for field equipment (equipment sold to customers or used to deliver service) by identifying when this equipment is likely to fail or need maintenance. Analyzing warranty and service information can enable you to identify the root cause of failures so that issues can be addressed proactively to help reduce warranty cost, improve customer satisfaction and production processes and prevent recurrence.
6 Tapping the benefits of business analytics and optimization The business value Chemicals and petroleum companies can derive numerous benefits from investing in a BAO strategy, including increased revenues and profitability, reduced costs and improved customer satisfaction and engagement. For example, applying advanced analysis and forecasting upstream can help optimize operations, thereby contributing to cost management and production efficiency. Downstream, the application of analytics to operational and production planning data can enhance profitability and customer satisfaction by allowing a company to implement systematic changes and improvements to refining and manufacturing operations. Additionally, it can improve forecasting, production planning and scheduling, and budgeting accuracy to help enhance production efficiency, increase margins and reduce costs. Analyzing supply chain performance against key indicators and industry benchmarks can help companies reduce their costs and improve service quality and delivery. Greater insight allows decision makers to control the expenses that go toward labor, supplies and services, as well as other areas of the supply chain. Analyzing supply chain performance against key indicators and industry benchmarks can help companies reduce their costs and improve service quality and delivery. Aggregating enterprise data across systems and geographies can provide corporate managers with a meaningful view of business performance. They can then use this information to help analyze trends in operations and build financial models and sales forecasts to make better decisions regarding resource allocation, supplier development and new product investments. The path forward Organizations that execute a BAO strategy typically make it an integral part of their overall business, treating information as a critical asset. Although a truly robust BAO approach addresses a variety of capabilities specific to a company s needs, it is not necessary for all the components to be implemented at one time. The IBM Institute for Business Value, in collaboration with the Massachusetts Institute of Technology, came up with recommendations for bolstering analytics capabilities to achieve long-term advantage. This new path to value consists of a fivepoint approach to operationalizing analytics and is based on surveys of 3,000 global executive managers and analysts, as well as in-depth interviews with academics and subject-matter experts. 3 Chemicals and petroleum companies that see the value in applying analytics to obtain greater insight into their organizations operations can begin by implementing these recommendations. 1: Focus on the biggest and highest-value opportunities. These opportunities will garner the most support and spark the greatest interest. Surprisingly, these big challenges generally do not carry the highest degree of risk. 2: Within each opportunity, start with questions based on business outcomes, not data. These questions should be those that insights would be able to answer. Shifting the focus from data to insights helps to streamline data collection. 3: Deliver actionable insights. Driving action across the organization, regardless of people s analytic skills, is important because insights are only useful if they can be acted upon. Most organizations have complex interdependencies that are difficult to view holistically. By leveraging use cases, analytic solutions, optimization, workflow and simulations, business leaders can drive action by making insights more real for the organization.
IBM Sales and Distribution 7 4: Keep existing capabilities while adding new ones. As adoption spreads, there is a growing demand for a greater variety of skills and deeper expertise. Organizations can fill this need by adding specialists in centralized units. These specialists do not replace the analysts working at point of need. Instead, they complement them while facilitating a broader approach to sharing information and insights. 5: Use an information agenda to plan for the future. Developing an integrated vision for how the pieces need to work together at a foundational level can help you avoid an environment that becomes so complex it cannot meet enterprise needs or one that is so costly to maintain that the organization must stop and simplify. An information agenda that includes a shared approach to governance, data architecture, data management and the analytic techniques and toolkits will go a long way toward operationalizing a company s analytics quickly and efficiently. Getting started Depending on where a company is in terms of its application of BAO, there are three possible entry points. Create a BAO strategy: This is appropriate for companies that see opportunities from deploying enterprise information but lack an action plan. Establish a flexible information platform: This approach is an appropriate choice for companies that currently have an overly complex information environment. Apply analytics to optimize operations: This could be best if an organization has a BAO strategy but lacks sufficient funding to implement programs, or if there is data available from which actionable insight can be unlocked. IBM can help IBM offers easier ways to continue the conversation and discover how business analytics and optimization can work for your organization. Prioritization and readiness planning: IBM can help you assess your current business analytic environment and determine priorities for future enterprise information vision. In-flight portfolio analysis and planning: IBM can examine your existing capabilities and help you determine ways to integrate them into a larger BAO enterprise vision. Opportunity exploration: IBM can help you identify possible innovations and opportunities within existing or desired information assets. BAO-concentrated workstream: IBM can help you get started on BAO projects and solutions for known, identified analytic priorities. Conclusion At a time when every competitive advantage counts, knowing what the likely outcomes might be and where the potential problem areas lie allows a business to tackle important decisions with confidence. Analytics makes this possible and can create tremendous opportunities for chemicals and petroleum companies, even as they face numerous industry challenges and global uncertainty. When implemented as an integral part of a company s overall business strategy, BAO can go a long way towards contributing to a company s ability to successfully manage its business performance.
For more information To learn more about IBM solutions for the chemicals and petroleum industries, please contact your IBM marketing representative or IBM Business Partner, or visit the following website: ibm.com/chemicalspetroleum Copyright IBM Corporation 2012 1 2 3 IBM Global Services Route 100 Somers, NY 10589 U.S.A. Produced in the United States of America January 2012 IBM, the IBM logo, and ibm.com are trademarks of International Business Machines Corporation in the United States, other countries or both. If these and other IBM trademarked terms are marked on their first occurrence in this information with a trademark symbol ( or ), these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this information was published. Such trademarks may also be registered or common law trademarks in other countries. A current list of IBM trademarks is available on the web at Copyright and trademark information at ibm.com/legal/copytrade.shtml Other company, product or service names may be trademarks or service marks of others. Analytics: The new path to value. How the smartest organizations are embedding analytics to transform insights into action. IBM, 2010. Breaking away with business analytics and optimization: New intelligence meets enterprise operations. IBM, 2009. Analytics: The new path to value. How the smartest organizations are embedding analytics to transform insights into action. IBM, 2010. Please Recycle CHW03004-USEN-00