Energy: Getting More Miles From IT

Welcome Guest. | Log In| Register | Membership Benefits

By Sean Gallagher
Issue date: Sept. 9, 1996

he oil industry is a cutthroat business. When revenues are squeezed, the first thing on the chopping block is the cost of overhead. Like their counterparts in other industries, technology managers at oil companies are having to work hard to cut costs while continuing to deliver cutting-edge technology that will make their companies more competitive.

"Basically , it's a 'do more with less' situation," says Gary Richardson, IT director at Star Enterprise, a joint venture of Texaco Inc. and Saudi Aramco that sells Texaco products in 26 Eastern and Gulf Coast states and the District of Columbia. "Business managers today are willing to kill their mothers to cut cost, and if you're not paying your way, you're gone."

Cost-cutting pressures have become the mother of invention for oil companies. The most visible offspring of cost-cutting is point-of-sale technology. The "pay-at-the-pump" strategy can entail more than selling gasoline. At Chevron's gas stations west of the Mississippi, it means Big Macs and fries, too.

Tremendous Cost
"The cost of physical property is tremendous," says Dave Mitchell, Chevron's general manager of application technology. To bring down real estate expenses, Chevron is teaming with McDonald's Corp. in a joint venture to share facilities. That means combining the IT resources of th e two companies and adding a selection of McDonald's products to Chevron's point-of-sale system.

But the high-tech offspring of tighter spreadsheets aren't limited to burgers. Station fuel delivery costs are also a target for IT. "We're using fuzzy logic to predict consumption at stations," says Mitchell. "Now, stations can run with 20%
less inventory."

Perhaps the single largest spawn of the cost-cutting urge is a movement toward a standard client-server software platform for the oil industry. SAP, Andersen Consulting, and much of the energy industry have come together to produce a common set of core business applications called IS-Oil, based on SAP's R/3 architecture.

IS-Oil is essentially a shrink-wrapped version of SAP's R/3 version 3.0, enhanced for the oil industry based on requirements defined by the IS-Oil consortium. Andersen Consulting has also co-developed a version of IS-Oil modified for the "downstream" segment of the industry, which is everything after the oil-refining pro-cess, from distributors to gas stations.

But how do oil companies using IS-Oil expect to gain a competitive advantage when their competitors are using the same software? "The theory is that everything in IS-Oil is the commodity-level stuff," says Richardson. "You then use your creativity to take advantage of all the data you have in data warehouses and other tools. If you don't have IS-Oil, it's a competitive disadvantage."

In all, 21 oil companies, including Amoco, Chevron, Citgo, Shell, PetroCanada, and Texaco, have subscribed to the software. "If you think about the fact that SAP R/3 is being rolled out to every oil company in the world, that changes a lot of the way you do business," says Carl Williams, VP of IT at Amoco. "IS-Oil won't replace 100% of what we already have, but it will replace a large portion."

Using what amounts to off-the-shelf software for most core business functions means decreased support and development costs. "Our experience in buying software packages in the past wasn't very good," saysMitchell, "We tended to 'Chevronize' everything we bought. We were good about not doing that with SAP financials. We stuck to the processes R/3 uses to achieve the full benefit of support."

Chevron has made a heavy investment in R/3. The first U.S. energy company to deploy the core financials of R/3, it now has over 5,000 R/3 users companywide. "IS-Oil is consistent with where we're going," says Mitchell. Chevron is even exporting some of its investment in SAP R/3. The company is jointly developing a land-management information system with Andersen Consulting that will interface with R/3. Andersen will market the system.

"Hopefully, we'll profit from the sale of the software," says Mitchell, "while reducing the cost of ownership and support."

But using shrink-wrapped software isn't without its system integration requirements, says Amoco's Williams. That integration includes changes in the way companies do business, he adds. "We will have to change some of our business processes to con form with IS-Oil. There's a tremendous pressure on people in the business units to understand the value created by changing their processes to match up with what's being installed."

Amoco is in the first stages of implementing its business process re-engineering initiative, the Amoco Common Process. The company will move to R/3 in September. IS-Oil will be integrated with the company's new process model.

"There's always resistance to change," says Williams. "There will be people who might not see a great deal of benefit from the SAP IS-Oil software. We have to work with the business units to show the value of the software. We have no authority to ram it down anyone's throat. If it doesn't have any business value, then we shouldn't be implementing it."

The move to R/3-based software also opens up an opportunity for oil companies to downsize their systems. A version of IS-Oil will be available for the Windows NT platform. "The NT platform is extremely attractive to the energy industry," says Bill Mi ller, a partner in Andersen Consulting's energy industry group. "They see it as something that will eventually drive their MIP costs down, but they don't see it being there yet. [Windows] NT will get there in one to two years, and companies are looking for IS-Oil to deploy to it."

"We've picked NT as our strategic network OS, and we're moving away from NetWare," says Mitchell. Part of that strategy includes Microsoft Exchange. Chevron, which has more than 25,000 Microsoft Mail users, is testing Microsoft's Exchange E-mail server with about 500 users. "With Microsoft Mail, the mailbox maintenance was substantial for that many users, which is one of the reasons that Exchange is so attractive," Mitchell adds.

As part of Star Enterprise's implementation of SAP R/3 and IS-Oil, the company is making a massive NT deployment. "We plan on rolling out NT to every desktop, along with MS Exchange and the Office suite--Excel, Powerpoint and Access," says Richardson.

To Use NT Or Not
But Amoco isn't quite sold on Windows NT. "We don't know whether we're going to use NT or not," says Williams. "We will be looking at NT for very specific applications, but not for large-scale deployment right now." Amoco's initial SAP deployment will be on IBM's AIX on RS/6000 servers.

One element that doesn't figure heavily in oil industry IT plans is the Internet. While companies are interested in intranet technology, there doesn't seem to be much attraction to the Internet other than as a role model. "There's a wave of interest in the Internet," says Richardson. "However, we have yet to make a case for investing in Internet technology. We're attempting to stay in tune with the changes in this area, but we're not spending significant resources on it."

Richardson adds that most of the interest in the Internet has come from his company's marketing and environmental departments for promotional purposes. As far as using the Internet for business networking, Richardson says, "We are looking at public networking like t hat, but we're big enough to go to a telecom carrier and do [a virtual private network] with them."

Private Networks
Probably one of the reasons the Internet isn't drawing a great deal of attention is that the major oil companies already maintain fairly substantial private networks for their critical applications. Chevron, for example, uses a VSAT network to link its point-of-sale system. Once a credit card is scanned, the information is bounced off a satellite to a Tandem multiprocessor system tied into Chevron's mainframe credit-card system, which does a credit check.

"We've looked at a replacement product for the credit-card system," says Mitchell. "But we couldn't find anything in the distributed environment because of the scalability requirements. There are over 30,000 devices in our point-of-sale network, and it needs very high availability and response time."

Chevron is one of the few oil companies to maintain its own credit-card system. Many, including Amoco, have outsourced th eir credit-card operations. Amoco has also outsourced its Motor Club membership system and support for some financial applications. IS-Oil, in essence, is yet another outsourcing plan.

Just Another Tool
"Outsourcing is nothing other than another tool in our toolbox," says Williams. "We will be doing some more of it, especially in cases where legacy applications will be replaced by SAP R/3."

Star Enterprise has outsourced about two-thirds of its IS functions and plans to outsource the operation and maintenance of SAP as well.

"Clearly, [outsourcing] will increase over the next two years," says Richardson. Star has employed a hybrid model of outsourcing, meaning that specific skill groupings are contracted through specialized companies. That's just one more way the oil industry is responding to pressures to keep costs low and innovation high.

To view the IW 500 Energy chart in PDF format click here

Comments on this story?

http://www.informationweek.com

CAREER CENTER

Ready to take that job and shove it?
Open | Close