Introduction
Chevron is among the largest oil and gas companies globally, making it a highly compelling organization to conduct a case study. The company realizes that it is a major energy provider, which can cause devastating pollution and environmental damage if it does not set and adhere to certain standards. One can fully summarize Chevron’s operations management in its initiative called Operational Excellence Management System or OEMS, which focuses on several key areas of operational excellence (OE) as benchmarks for proper management (Operational excellence, 2021).
The assessment will provide a brief description of the company, followed by a comprehensive and in-depth analysis of its critical operational issues. Based on the covered topic, the critical analysis will provide recommendations for improvements in three major areas. These sections will involve Chevron’s approach toward its technology, people, and managerial strategies around the capacity and supply chain. In addition, the critical analysis will provide an in-depth assessment of operations at the company.
Operations and Project Management, and Strategy
OEMS is an integral part of Chevron’s operations management, which is a critical aspect of the business since drilling sites are highly dangerous locations. Such sites can malfunction, which might lead to massive oil leakage, explosion, fire, and other incidents, which means that employees working at these sites are in constant danger. In addition, there is long-term health imposed on workers near the drilling sites, which can manifest themselves in hydrogen sulfide intoxication or poisoning. Therefore, it is evident that Chevron, as a global company, cannot afford to be negligent in the safety of its operations, which is why it launched an operational excellence program in 2004 in order to create a proper OE culture, which centers around safety performance, environment, and health (Operational excellence management system, 2021). In other words, the company takes its operations management seriously concerning all critical aspects involved in the process. It is possible to observe the core elements of the OEMS in Figure 1.
In order to fully understand the underlying framework of Chevron’s operations and project management approaches, it is important to establish certain theoretical concepts. The first concept revolves around the resource-based theory (RBT). The experts initially developed it for strategic management but later transferred the idea to operations management (Hitt, Carnes, and Xu, 2016). It mainly focuses is on a notion of sustained competitive advantage, where the companies gain it through a deliberate accentuation or emphasis on rare, valuable, hard-to-imitate elements of management (Hitt, Xu, and Carnes, 2016). Certain researchers proposed another theory called practice-based theory (PBT), which focuses on transferrable practices (Bromiley and Rau, 2016). In Chevron’s case, it is evident that the theoretical foundation of OEMS is RBT because no other oil and gas company has a similar initiative in regard to its operations management. The source states that during the earliest phases of the integration of the program, the company focused on all its aspects and components, whereas, later, the management realized that it should shift its focus on high-risk elements, such as drilling sites (Oil & Gas IQ Editor, 2020). In other words, Chevron established and developed OEMS evenly in its initial years but then continued to refine the initiative by addressing the most critical issues, such as fatalities among workers.
Currently, Chevron needs a clear set of objectives and priorities regarding its operations management. These include removing high-consequence safety incidents and operations with industry-leading reliability, as well as removing fatalities, serious injuries, and illnesses (Stoessel, 2020). The latter must be a top priority for the company. The following objectives involve addressing operational excellence’s central elements via managing issues, engaging shareholders, and assessing and managing significant environmental risks (Operational excellence, 2021). The system of OEMS itself centers around the idea of safeguards, which establishes through the system cycle of management, operational excellence expectation, areas of focus, and leadership, and OE culture (Operational excellence, 2021). Managers should hold these essential pillars together through a deliberate focus on risk management and assurance, which completes the overall concept of the Operational Excellence Management System – Chevron’s operational strategy.
Process design is a critical aspect of the company’s processes. Chevron segments operations management into four major areas, such as improvement, planning and control, operations strategy, and process design, as seen in Figure 2 (Stoessel, 2020). Correct management of operations needs to be necessary for a company, such as Chevron, in order to remain competitive in the global arena. The global oil and gas industry is continuously looking for new organizational and technological solutions, and managers can use them to increase operational efficiency and reduce costs.
Chevron categorizes its process design into three main sections with a unique set of procedural steps in each compartment. It is critical to note that these need to include upstream, midstream, and downstream stages, as seen in Figure 3. Although the company does not manually manufacture oil and gas, assembly principles still apply to the extraction and distribution, where optimization is a key (Komaki, Sheikh, and Malakooti, 2018). For most companies, the application of innovation and participation in operational excellence programs must be a matter of survival. Due to the instability in oil prices, the search for ways to reduce costs remains more relevant than ever. Chevron’s process design will be most successful if it applies within a resource-based theory approach to its operations management. However, it still fails to obliterate many processes following the concept of reengineering (Hammer, 1990). The process approach allows it to get the desired result due to the well-built process logic and the overall rarity of such a measure (Holweg et al., 2018). One of the striking examples of the process design transformation of the business processes of companies within the framework of the process approach, in the context of the digitalization of the economy, is the creation of a standard service center alongside automated mapping of high hydrogen sulfide zones (Stoessel, 2020). The benefits of the process design of shared service centers lie in the localization of the companies’ ancillary activities. It simplifies the analysis and monitoring of the work of various departments. Also, it brings a reduction in operating costs, optimization of personnel, unification, standardization of business processes, and other critical areas of operations.
Supply Chain Management, Capacity, and Quality
Another important aspect of Chevron’s operational excellence manifest itself in its supply chain management, ensuring proper capacity management and quality of control. According to the company itself: “in addition to efficiency and operational excellence, Chevron’s approach to managing our supply chain focuses on two elements that are critical to maintaining our commitment to being a good partner: creating prosperity through local and inclusive economic opportunity and encouraging our partners to meet high standards of safety, social and environmental performance” (Creating opportunity and promoting high standards of safety, social, and environmental performance, 2021, p. 1). Being an oil and gas company, Chevron needs to put a great deal of emphasis on the fact that it can harm the local environment. Therefore, it should help the local community and small businesses by assisting them through various partnerships. For instance, Chevron should continue to help minority-owned, and women-owned businesses promote diversity (Creating opportunity and promoting high safety, social, and environmental performance, 2021). It is also important to indicate that the company needs to utilize RBT with supply chain management, as seen in Figure 4.
The chain begins with drilling sites, which are located all around the globe, and specialists consider them to be the most vital link in the supply line. One of the key reasons is that the drilling process itself is a dangerous endeavor, which also harms the surrounding environment. One should also note that large containers need to store drilled oil, which is also at the drilling site (Supply chain management, 2021). Therefore, it is evident that these locations are of critical importance for Chevron, where the main objective is to optimize these processes. One of the essential aspects of supply chain management in the oil and gas industry is oil supply, oil refining, and oil product distribution (Lima, Relvas, and Barbosa-Póvoa, 2016).
A study suggests that many oil and gas companies expressed lower social intent and higher environmental intent, which in practice reveals itself to be inaccurate, where the ecological performance was poorer than the other (Wan Ahmad, de Brito, and Tavasszy, 2016). However, due to Chevron’s RBT approach in its supply chain management, it should be eager to distinguish itself from other competitors by integrating OE and obtaining a high level of competitiveness. Another research states that there are “sustainability strategies of four key supply chain functions: supplier management, production management, product stewardship, and logistics management” (Wan Ahmad et al., 2016, p. 202). In other words, these procedural steps play a central role in ensuring sustainability, which is the core of OE. However, as the analysis noted previously, Chevron lacks forecasting and aggregate planning measures due to the poor integration of technological tools necessary to monitor all processes (Junior and Filho, 2012). Therefore, it is evident that managers need to implement such measures to ensure optimized supply chain management.
The company should dictate the capacity management for oil storage by the size of the storage units, where the drilling halts if the oil remains unutilized, as shown in Figure 5. In the case of flow and inventory management, it is important to know that the company management conducts distribution on-demand because the relocation process requires a substantial amount of investment and commitment. Therefore, the company should not underestimate the role of technology in supply chain management and capacity management. Many aspects of drilling, refining, and storage are automated, where employees and engineers are responsible for mere maintenance (Bobir, 2017). In regards to ethical operations, Chevron emphasizes environmental preservation and social aid to the local communities. The costs of moving oil and oil products at the implementation stage are a large concentration of capacity management costs.
In most cases, they go unnoticed because distribution costs connect to all enterprises involved in the economic process. However, the adoption of green supply chain management (GSCM) at Chevron is a great move since it leads to better operations management (Green et al., 2012). As such, expenses incurred between two organizations are overlooked. The costs for the sale of oil and petroleum products are more comfortable to reduce and control than production costs since they account for much less work.
Points of concentration of costs for oil products’ capacity management are separate areas within one center of assessments of liabilities responsible for the entire mass of costs attributable to this center. They suggest two options for attributing the prices of oil products’ movement (Bobir, 2017). It applies to the types of oil products and the stages of the relocation of oil products.
Technology, People, and Ethics
Although Chevron highly invests in helping local communities and preserving safety among the workers, its main concern should be environmental protection because the company, as any oil and gas company, is under the watchful eye of environmentalists. Therefore, Chevron needs to approach the given issue by integrating the most advanced technology. Technology will allow it to conduct ethical business practices as well as minimize the risks for its human resources. A big problem is the operation of a marginal stock of producing wells, and today the supply of producing wells with an oil flow rate less than acceptable standards, and the number of operating wells, the operation of which, under the existing situation, can be unprofitable and dangerous for workers (Mohammadpoor and Torabi, 2018). From an economic point of view, they must stop. Still, since these wells participate in the reservoir development system, their shutdown can disrupt effective reservoir development and, ultimately, lead to a decrease in oil recovery. For example, Big Data can offer a wide range of opportunities for gaining a sustainable competitive advantage for Chevron (Matthias et al., 2017). In other words, the company gains significant benefits, such as better drilling, reduction in environmental hazards, and improved productivity, through the integration of the given technology, as shown in Figure 6.
Chevron needs to be ready to consider proposals for methods and technologies to increase such wells’ flow rates and reduce their operating costs. Based on the consideration of technological recommendations that substantiate the real possibility of transferring such wells from the unprofitable category to profitable ones. It can utilize behavioral operations management principles through heuristics to find readily practical ways for optimization and efficiency (Katsikopoulos and Gigerenzer, 2013). For example, the proposed methodology can introduce an absorber bed for treated oil tanks to increase capacity, as shown in Figure 7.
However, in particular, the operating conditions change when developing fields of high-viscosity oil and natural bitumen. There is inevitably a need for heat-resistant systems of anticorrosive coatings with the necessary reliability and durability and lower cost compared to imported ones. Chevron needs formulations and technologies to apply heat-resistant polymer or other coatings to protect against corrosion of oilfield pipelines and process equipment. It is also appropriate to create compositions and technologies for effective thermal insulation of linear pipelines showing a real economic result from their application in practice.
Chevron must be committed to energy efficiency, resource, and energy conservation. The company is already implementing its second comprehensive energy conservation program by organizing large-scale production and energy-efficient equipment and technologies. One example is the development and large-scale implementation of simultaneous, separate production. These efficient technologies, allowing to reduce well drilling and obtain additional oil production, are being introduced in independent oil companies. Still, the volume and pace of technology introduction could be significantly higher.
Other large-scale solutions should include the development, production, and application of chain drives. Their application is especially effective on the complicated well stock. Analysis of Chevron wells showed that after their implementation, the savings in specific energy consumption are 13-20% compared to swing beam pumps (Sun, Zhou, and Gan, 2018). The field research practice has established that the faster the complication is fixed and determined, the more effective elimination. Since the range of analyzed factors increases from year to year, high qualification of the drilling personnel is required (Mohammadpoor and Torabi, 2018). Thus, the human factor has become one of the most important when drilling oil and gas wells.
Conclusion
In conclusion, Chevron is among the largest oil and gas companies, and has many drilling sites worldwide. Its main approach towards its operations management and strategy is OEMS, which bases itself on a resource-based theory. The managers should emphasize human risk reduction and environmental damage prevention. The supply chain is also heavily reliant on technology, and the most important aspects of the chain locate at the drilling site. Therefore, aiding the local community and ensuring proper automation is critical for the company. In the case of people and technology, Chevron views the latter as the only plausible solution for the former’s safety, which is also a major part of its ethical concerns, as shown in Table 1 in the Appendix.
Reference List
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Appendix
Table 1.