Omar: And then you get a massive disruptive event like COVID and that exposes all of those flows we have in the supply chain. And again, I don't want to take this to a supply chain context yet, but the key fundamental issue, like you said, what you've seen or what you've mentioned as a small group working in a project. That's exactly how organizations function or dysfunction. And it seems very easy and simple. That's one of the biggest challenges of just even forecasting sales over an organization because the forecasting has major implications to all sides of the organization. You start seeing different forecasts coming from different groups based on what they're seeing, based on their perspective and views and incentives. And unless you get one unified forecast, you've got a major problem and everybody's going out of sync. So it's a fundamental issue and you're absolutely spot on with that. 

Yost: Okay, well now that I've taken you down this rabbit hole, let's go ahead and pull back. Although I'm fascinated with the conversation and I really think it's maybe we'll get another podcast and we'll dive deep into that sometime if that's okay with you. 

Omar: Happy to, sure. 

Yost: So let's get back to supply chain disruption specifically in the oil industry. So what are the disruptions that you're seeing in the industry? How are we defining, what are we seeing in the industry as a disruption? 

Omar: Great. So let me take this a step back and mention again, we mentioned the supply chain is a group of organizations. You've got producers, sellers, buyers, intermediaries, transportation companies. They're all working together to move products to get services passed on a combination of both. And there's a plan in place. Unfortunately that plan never works as it's intended to because of some risks, some disruption, some things that take place that we're not planned for. I'll give you a few examples in a second. But one of the biggest issues that we've seen with organizations is historic, the philosophy of how we deal with risks is fundamentally wrong. It's flawed and now we see why it's flawed and there are some ways to start fixing around this. So we'll get to the disasters, we'll get to the concerns, the major risks and sources of supply chain disruptions. And we'll talk also about the ways to fundamentally change the mindset here to start thinking about this in a different lens. And then we'll take that to the industry and how it impacts really the world sector. So examples of supply chain disruption includes things we've seen like natural disasters, so think of hurricanes, earthquakes, floods, anything that's happening suddenly that's changing the dynamics of how products come flow or not flow. Geopolitical instability, we've seen that right. We see this right now live as we speak in the Red Sea with the wars that are going on between Ukraine and Russia and how it impacts the problems. There's an oil tanker that's on fire in the Red Sea as we speak that was set on fire and sabotage as a result of the war that's taking place. So this is just one example that's happening now as we talk about this. Transportation and logistics disruption, so whether it's a port congestion, a backlog in a port that now causes a massive dominant effect of ships not being able to go into. We've seen cyber-attacks. Nobody looks at cyber-attacks but two-thirds of cyber-attacks happen through a third party. What does that mean? And why do I care about this in supply chain risk? The risk in supply chain context is no matter what you do internally for your organization, unless you're looking at the entire supply chain and that context, the probability of getting breached is two-thirds, 66%, you're going to get breached through a third party and successfully breached. 

Yost: Really? 

Omar: You can protect your house as much as you want but if you like think of this as you're standing protecting your front yard and you've got an arsenal of things that are protecting you. 

Yost: Well, I am in Texas. Right. 

Omar: Go ahead. And you've got the backyard wide open and you're inviting folks through the backyard. That's exactly through a third party. And again, their major target was breached like that then it's a major case and there are many organizations that have been disrupted through a third party. What does that cause? It's now when you've got production sites that go offline. Now when you've got ports being impacted, now when you've got suppliers or vendors or intermediaries that are being shut down, disrupted, cannot work or latent shipments do not have the right shipments. That's all affecting and just general volatility in supply and demand that we've seen over time. So you see all of those effects and then you start thinking of, okay, so why are we missing this? Because as we start planning for our supply chain operations, we always think of a black swan event and ignore that. And we keep saying, well, this is a black swan event. This is going to happen once in a lifetime. Right. And maybe that's true. But what I care about is not the actual event. What I care about is am I going to see another event? Not necessarily the same thing that's going to cause the same thing. So we've seen wars, we've seen COVID. We've seen what's happening right now in the Red Sea and the Suez Canal. We've seen a ship get stuck in the Suez Canal and stop all of the traffic back and forth. Right now we see in the Panama Canal because of the drought, the water levels are down, the level of ships that are flowing through the canal, the amount of cargo that they can carry on. That's being disrupted. That causes a lot of ripple effects and again, dominant effects back one. So you see on and on and on of those kinds of examples and you keep thinking of a black swan event, the bridge in Baltimore, the port of Baltimore that got hit by a ship. Sure. So what you need to do is rethink how you look at risk and disruption and assume this is happening in some place. This is going to happen instead of the just in time, now just in case. Just in case something happens. How do we deal with this? As opposed to let's plan on things based on a perfect setting and a perfect supply chain just because we know this is not going to happen. Maybe the port of Baltimore is not going to be hit for another hundred years. I hope so. But there's another event somewhere else that's going to cause the same disruption and chaos to my supply chain and how do we deal with those kinds of things?  

Yost: So if we're looking at how supply chain disruptions impact the oil sector, that's exactly what you're talking about. Literally because the oil production and distribution effort is so widespread and so exposed, all of these disruptions that tanker in the Red Sea, the problems with colonial pipeline. Let's go to natural gas and talk about the cyber issue with colonial pipeline. I mean these are all disruptions that can impact oil and gas. 

Omar: Right. So a few things. You mentioned one that's spot on which is production and distribution disruption. But let me start even with the cost of operations because as you see those disruptions taking place, and I'll give you an example from my background is we're providing a service to one of the companies on an offshore rig or an offshore platform. And we've got very specific high tech tools and we need specific parts and supplies to those tools if they fail. Now we're on the right, if we don't have the right supply, the right component, the right part and we need to get that from somewhere. And that gets delayed, everything gets delayed and production operations get delayed even on site. So this is not even transporting oil or gas to different sites or locations. That's even actual production being disrupted because of those components. Because of that disruption now we're mismanaging our inventory levels and how we manage inventory. Do we have too much on hand? Do we have too little on hand? And that's additional cost of operations to all of the oil companies. Again, when I say oil companies I'm talking about the sector whether it's the producer, the service companies, everything's good. But maybe somebody's paying that check upfront but everybody's getting part of the tab as we move forward.  

Yost: Well, you know, I was involved in offshore Gulf of Mexico in the s quite a bit, worked for companies that had pipelines out there and there was a group of pipeline companies that actually had repair equipment where they'd all chipped in to purchase this repair equipment so they could get their hands on valves and pipe and clamps and whatever the case may be to immediately address any leaks that were out in the Gulf of Mexico to get themselves back online and then they would replenish this storage effort. But that's that you get into the discussion. What's too much? What's too little and all of that, right? And you're probably getting both wrong so you have too much of a certain product somewhere and too little somewhere else and now you're getting hit with both costs of cost of stockouts and costs of overstock. And again in an offshore production or exploration environment the worst thing, the worst nightmare, the thing that drives everybody insane and you start getting calls from headquarters in Sugarland, Texas, rigged downtime. Why on earth are we late? Why is there a delay of a few hours? That's the worst nightmare. And when you've got supply chain disruptions you're either going to over prepare it or not prepare it or you don't know how to prepare it. So that's part of the cost of operations. The other part, the second part to this is as you mentioned it's the production and distribution disruption. So how are we getting the products from A to B? Are the ports congested or are the ports not congested? Are the ships delayed? Did somebody set fire to an oil tanker? Are the ships now rerouting around Africa because they're worried about insurance not covering them because of what's happening off the coast of Yemen?  

Omar: Yes. So even though this is not even an operational part but that's an insurance induced alteration because of what's happening geopolitically and now we need to have additional costs, additional time and that's more cost of the operations.         

Yost: Yeah. Or are you going to hire a third party of armed guards to ride shotgun if you will on your tanker to try to get through that area? Now they're not going to be able to stop a missile or something like that but they can take care of pirates and that type of thing. So it gets back to what you were saying. What's enough? What's too little? What works out best?  

Omar: And there are shippers who have decided, you know if insurance is not covering me in that area, I'm not going through that area and if the stuff is delayed the shipments are delayed, they take longer, they cost more. Tough luck. I'm not going to risk a 5 million tanker or 5 million container ship to go through and just be faster. And the last is here of how this impact, all of that disruption, how that impacts the oil sector is now you start getting even higher pressure towards renewables and people start shifting their focus and attention and energy towards renewables. I know we're going to get into pieces of that later on in the conversation but I think that becomes a secondary effect or impact based on all of the disruptions we're seeing throughout the supply chain.  

Yost: I got you. I got you. So let's talk about digital technologies and innovations like AI. You mentioned AI earlier and your graduate students having to get involved with that. So how is that improving the supply chain resilience, if you will, in the industry?  

Omar: Maybe you cannot prevent an event from happening, but maybe now you can shift where your production is in a faster scale. Maybe if you know that information ahead of time, maybe I can change what's happening in the ports of the West Coast in LA and Long Beach, but now I can reroute my ships to go through somewhere in Texas or somewhere in Florida or somewhere in the East Coast. So ahead of time before they get stuck into those situations. So information really helps us get to another level of, again, it's track and trace visibility, transparency. How do you see end-to-end what's happening? And how do you make sure that all parties, and again, it's all parties within your network are seeing that same information? So when a problem happens somewhere, I'm not reacting to it eight weeks or three weeks or four weeks after it happens. When you're reacting to a problem at your doorstep, that's too late. You're limited in terms of options. You can't react to it. How do I react to it is faster. There's a simulation we do with our graduate students, and even at the exact level, it's called the bullwhip effect or the whiplash effect in supply chains and how some noise in the supply chain causes major swings. And the problem with those swings is people do not see enough multiple levels in terms of what's coming down the pipeline and by the time they react, it's too late so they overreact. And this is what we see. We've seen this with COVID. During COVID, we've seen this in, again, it's a natural human behavior. But even in an industrial setting, your options are limited at that point if you've not taken that decision two or three weeks at a time. One, by the way, you've had a chance to do this. So back to your question about technology. Technology, again, not trying to push for a specific platform or a specific solution by itself, but technology, whatever works for an organization, whether it's AI, a blockchain, just using simply analytics, a combination of all of this, making sure that there's enough visibility throughout the different key players, key partners. And it's not just data because sometimes I see data points but I don't understand really what does this mean. What did that number go from five to eight? What does that mean? Is this an expectation? Is it disruption? Should I plan for something? Is it going to go from five to eight to twenty? Or is it five to eight and dropping back to five? So just having those conversations really helps. And those conversations could be aided with a lot of technology. Some of the stuff you've mentioned in terms of AI, now you can reduce the time and effort that it takes us to process some of that information. So thinking of those as support tools, not just the solution to the problem itself. The problem starts with looking at the entire process and where those critical things are. 

Yost: So what you're doing is developing a process and a procedure. And if you will, letting me go back to my Fortran days in the 1970s, if this, then do this. And basically what technology lets you do is make that decision quickly instead of because the process has already been worked out. If this happens, then do this. Or if this happens, then check this. And if this is what's happening, then do this. But AI or whatever platform you have allows you to go through that much more rapidly than if you were going through a three-ring binder with 600 pages trying to figure out the process. Is that it in a nutshell?  

Omar: So that's part of the analysis. And part of it is understanding that the if part to the Fortran, worth on Fortran 77 as well. So that 100 years ago. So the if part, if something happens, getting a sense that that actually took place two, three weeks ahead of time. Thinking of movies when they happen. When all happens and we go back in time and say you're at the site. It's not going back in time, but it's not waiting until two weeks after something's happening elsewhere. And then you're reacting late to it. And this would help you start to jump into the Fortran mode and say, if took place, let's go with the them.  

Yost: Yeah, yeah. Okay. I got you. I got you. So change gears. Sustainability. Sustainability initiatives. How do these disruptions affect these initiatives?  

Omar:  I'll give you the favorite answer that all of my students give me, which is ‘it depends.’ So I'll talk about but just to frame it to the audience in terms of when we talk about sustainability, we're talking sustainability with the larger context, not just the environmental piece, but we're looking at the social piece, the economy piece and all of it across like in a more comprehensive manner. I think there are two impacts to that. And that's why I say it depends. There are some areas where some of those areas start to slow down some of the sustainability initiatives or become an obstacle to some sustainability initiatives and some areas where they start pushing to accelerate some of the sustainability initiatives. So some of the areas, again, thinking of sustainability in a very, very simple term is reducing waste. As we have more disruption, as we've got more congestion, as we're doing the least optimized routes, whether it's transportation, distribution, warehousing, materials, just think of waste in every place. That's delaying any of the decarbonization projects. That's delaying any of the initiatives. That's any sustainability goals or initiatives that's being slowed down. And that's impacting some of those goals in the oil sector, especially if an oil company has got some goals for decarbonization and getting to those goals. The other part is it causes some capital constraints. The more supply chain disruptions we've got in the oil industry, we talked about the cost that impacts the companies, the disruption, now you're reshuffling resources elsewhere because you're fighting certain things that are flared up. So capital constraints to re-channel to different projects where you're looking at sustainability initiatives, that takes a back step and becomes more expensive to even invest in those projects because of the cost of everything goes up, so now it's even more expensive with at least a lot of resources. So that's why it slows down some of those initiatives. At the same time now we talked about the...when you've got some of that noise and costs is going up and oil prices are going up, oil prices could be going up for different reasons, not related to the actual production of oil itself, but there are so many different reasons of it going up. First thing that people come to mind is, let's restart that conversation of going and shifting to other renewable sources. It adds more pressure to reach some sustainability goals and part of it is putting more focus on circular economy practices.  

Circular economy is closed-loop supply chains of how do you make sure that product is being used  in multiple cycles and multiple stages? It's not being wasted or discarded at some point, so how do you start pushing for those kinds of projects? So that's where I see it's accelerating  or desaturating some of those initiatives.               

Yost: So I think I understand. I think I understand. So the oil industry has a lot to learn. Are there other industries from which the oil industry can learn about how to protect these sustainability issues?  

Omar: I think there's no perfect industry, but there are industries that have moved and think of this as a continuum. There's no perfect goal where you say, I've reached my goal for sustainability initiatives.  

Yost: The world is dynamic.  

Omar: It's revolving. The reason I say that is I started in this research specifically in terms of how do supply chain managers approach sustainability in their perspective and what are some of the best practices approached that with a fellow of my colleagues from the University of Arkansas, Sam M. Walton College of Business, and another fellow from the University of North Carolina. And we started a project looking at best practices. And in reality, we realized company after company. We talked to manager after manager and we realized everybody's struggling. And we realized that's actually the story here to uncover. It's not how everybody's...We talked about the non-exemplars because everybody talks about the exemplar industries. All of those industries are doing the best practices. In reality, everybody is struggling and struggling for different reasons. Some industries have made a push forward such as the fashion and garment and again there's still a lot for them to work on. So as I say that, I don't want the audience to say, oh my goodness, how are you listing that industry? They have a lot of issues. But they've moved a lot. And they've moved a lot, especially on the social part after the collapse of the production facility in Bangladesh. The Rana Plaza building in where that has caused a massive backlash and they started reviewing some of their policies and procedures in place to look at the social aspects of sustainability and how we make sure that...You know, you look at this. Another company that's been pushing on that, so fashion industry to your question, fast moving consumer goods or even major retailers. I'll give you the example of Walmart. Walmart has started pushing on sustainability initiatives especially with the social part because they realized that helps them reduce cost. So it wasn't just being good. It was a combination of being good but also we understand where's the business value proposition. Sure.  

Yost: I like that example. My wife loves the truck that says follow me to Walmart. So fair enough.  

Omar: You reduce the impact of transportation you reduce the carbon footprint, you reduce waste in the system and your customers are happy. So it's a combination of business value proposition so those would be the first two industries that come to mind. The major retailers and also the fashion industry that closed the apparel. One other example I'll mention with a project I'll repeat with Walmart but I think it's the platform combining technology, combining transparency and combining waste and the ability to react. So the major retail industry, especially the groceries and food industry, had a major problem and even beyond which is recalls. And I'm thinking of recalls because it fits within the frame of our discussion of recalls as a sudden disruption, something that's happened in the system and we need to react to it. Recalls you've heard about: spinach recalls, food recalls.  

Yost: Sure.

Omar: Problem with that is prior to that solution I'm going to talk about in a second, recalls would cost the industry somewhere between five to fifty billion, billion, B is in Bravo, billion dollars per industry because you don't have enough time to investigate the investigation takes six to eight weeks when you go through all of the chains and all the entities and so on, and what do you happen? You discard or destroy all the products upstream to downstream because you don't have the ability, you don't have the visibility, you don't have the ability to track and trace in a short duration. So Walmart has gone out and started implementing a blockchain platform. And again, I'm not trying to push for blockchain as the solution for everything but that's an example of again pushing for a process where you've got more visibility and ability to track and trace, not because you can stop the foodborne illness or disease from taking place, but you can react to it in a faster way. And that's where I talk about reacting to disruptions in the old industry maybe in a faster solution and now they can react to those kinds of disruptions instead of it taking six to eight weeks now that reaction time is three to five seconds.  

Yost: So just because we're in talking about textiles or we're talking about Walmart or we're talking about whatever, there are lessons that the oil industry can learn from each one of these industries just in how they took care of their problems and their issues. Got it.  

Omar: And even though it sounds like a completely weird industry to think of, but think of this as the parts and components you deal with in the oil industry. Think of those different parts that are flowing back and forth, think of the production that takes into the industry, think of the distribution warehousing and some of the issues that take place in forecasting even. How do you manage forecasting  without enough visibility, enough track and trace, enough and responding to some of those different disruptions? So even though it sounds like it's coming from a far outfield industry, it's actually the common issues are the same. The way you address it is maybe not identical and not exactly the same, but it's more or less the same concerns and same issues across industries.  

Yost: Gotcha, gotcha. I've enjoyed the heck out of this conversation but we're running out of time, so can you quickly talk about the long term challenges that you see and changes that you see in the oil industry as it adapts to these new market realities? You got a reader's digest version of how that is going to look or how you think it's going to look?  

Omar: So I think in terms of again disruption that's taking place, that's going to continue to happen, and that's going to continue to challenge all industries, the current wars taking place may stop but we might have something else popping up somewhere else. I hope not but my guess is some issue or challenge that's going to take place. The question is do we have enough scenarios? Back to your if then as a company, do you have enough of the if then thinking outside of the box, thinking outside of the historic cases, thinking of forward thinking of how do you deal with those kinds of situations in a timely manner and without looking at the immediate cost, because the minute you start thinking of the immediate cost you start shutting down. And all of those different how do you deal with a problem if it takes place because you're not setting up some resiliency in your system. You're not setting up enough redundancy  in your system to deal with those situations. So you're set up, you're set up, you've invested based on a certain structure and that structure allows you to operate in a certain way if things change around you. You're not going to be able to adopt, so part of this is how do you build resilience based on the if then scenarios based on thinking of beyond the black swan event. Think of just major disruptive events that will take place, they could take a different shape but the outcome is the same. So how do you think of resiliency? How do you embed and integrate sustainability, not because it's a great talking point, not because it's a good PR, not because it's a good thing to have on your website, but it fundamentally addresses your business value proposition. And how do you embed that in different aspects, whether it's the, again, the social environment? And how does that work with the economical piece, because the economic piece has to take part of it, otherwise it won't work. So looking at all those dimensions in place.  

Yost: Economics has got to be extremely important, but it cannot be the know all to tell all in the solution process.

Ayman: Correct, and again the question is the long term versus short term. Economic has to be important otherwise you're not sustainable, right? You're not going to endure.

Yost: We're not in business to break even.

Omar: Correct. If you don't have the economic piece, it's not going to work. So the economic piece has to be there. The question is how do you strategize based on that economic piece? And again I've given you examples of major for profit industry companies that are using some of those strategies because they understand how it also fits in that business value proposition. The same thing applies to the oil sector whether you're a supplier, manufacturer, a service provider, a major production company that takes effect somehow. Again, whether we talk about renewable energy sources, different energy sources, the same energy sources regardless of how we pursue this discussion. It’s how do you become more sustainable and how do you involve all of those aspects as you move forward? And a big part of sustainability leads to the first question we brought up, KC, which is risk and disruption, because how do you manage risk and disruption? That's part of being sustainable, right? How do you have in place talented folks that can deal with risk and disruption? That’s at the heart of it. It’s not necessarily about just being good to the environment. That’s going to come as a result. That's going to happen as we work through this, but at the core of it is how do you become resilient and how do you manage that disruption? Because if we're not resilient, if we can't manage disruption now, we start losing on all aspects. We lose on money, we lose on the environmental piece, we lose on the social piece. It's a race to the bottom.   

Yost: I got you, I got you. Wow. This is fascinating, fascinating. So we've really had a great conversation here  and I appreciate you taking the time. Anything else you want to throw out before we go ahead and sign off?  

Omar: I think just last concluding comments, I'd say again for the oil sector, the number one part is as you think of your supply chain, thinking of all of those major nodes, all of the key players that come into place whether it's from an operational standpoint. We talked about the cyber risk element of oil producers. We’ve seen this happen in the States, we've seen this happen in the Gulf with Saudi Arabia and Aramco, we've seen this with many major organizations where they've had cyber breaches and what kind of risk this poses to the entire ecosystem so looking at the major nodes ,trying to change the mindset of how we deal with risk, major risk events and then thinking of how do you make sure that you're set up in a way where things are sustainable moving forward.       

Yost: Excellent, excellent. Professor, thanks so very much for taking the time to visit today I thoroughly enjoyed this and I've probably got two dozen more questions to ask you maybe I'll look forward to another podcast if you have time, so great. 

Omar: Likewise KC, my pleasure and happy to join one of your classes in the University of Houston if you decide to go back to teach.  

Yost: That ship sailed a long time ago. A long time ago. It may be the one burning in the Red Sea right now. Anyway, so if anyone would like to get in touch with the professor you can find him on LinkedIn, that's Ayman Omar, I think he's the only one that's listed there as a professor at American University and if anyone wants to get in touch with him and can't find that feel free to send me an email so thank you again Professor, thanks to all of you for tuning in to this episode of the energy pipeline podcast sponsored by Caterpillar Oil and Gas if you have any questions, comments or ideas for podcast topics feel free to email or you want to get in touch with Professor Omar feel free to email me at kc.yost@oggn.com. I also want to thank my producer Anastacia Willis and Duff and everyone at the Oil and Gas Global Network for making this podcast possible. Find out more about other OGGN podcasts at oggn.com. This is KC Yost saying goodbye for now. Have a great week and keep that energy flowing through the pipeline.  

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