Collaboration is the name of the game for Baker Hughes. A global oilfield services company, Baker Hughes has spent the last few years improving internal integration while tightening its ties to customers and suppliers. This is helping the company enhance supply chain effectiveness and contributing to overall growth.
Baker Hughes was formed in 1987 when Baker International and Hughes Tool Company merged. Both of its predecessor companies had more than 100 years of history dating back to their founders. It was R.C. Baker and Howard Hughes who developed innovative technologies that helped drive the evolution of the American oil industry. Among Baker Hughes’ historical achievements are the development of a revolutionary casing shoe used in cable tool drilling and the two-cone rotary drill bit.
The spirit of innovation continues to fuel Baker Hughes today. Through high-performance drilling, evaluation, completions and production technology and services, integrated operations and reservoir consulting, Baker Hughes helps customers create value from oil and gas reservoirs by providing quality solutions that improve efficiency, reduce risk and can improve productivity.
“Fundamentally, we look to offer solutions in an increasingly complex industry,” says Tammi Morytko, vice president of global supply chain. “We are deeply rooted in innovation and continue to develop the industry. Our integrated supply chain allows us to anticipate our customers’ needs, and it’s our processes and people that make it possible to exceed them.”
The company develops next-generation products and services for drilling and evaluation, completions and production. This helps Baker Hughes work closely with its independent, international and national energy company customers in their efforts to find, evaluate, drill, produce, transport and process hydrocarbon resources.
“Our primary customers are independent national and major oil companies all over the world,” Morytko says. “Our goal is to help them maximize production, so we provide the analytical evaluations and the people, products and tools used to drill and complete wells and produce the oil and gas.”
Today, Baker Hughes is the world’s third-largest oilfield services company, with more than 58,000 employees, operating in more than 80 countries. The company is capable of working in any environment, whether it involves deepwater, unconventional hydrocarbons, or production and water management. Baker Hughes is well known for its differentiated technology, such as providing electronic submersible pumps for the deepest subsea well in the world.
In addition to its commitment to excellence and collaboration, Baker Hughes is driven by its core values. These include integrity, teamwork, performance and learning. “Our culture and core values drive our excellence in business and in corporate social responsibility,” Morytko says.
Baker Hughes strives to provide dedicated local teams that can work with customers to find the proper solution for each project. At the same time, it seeks to offer access to the right experts, technology and data at the right time to help maximize the value of each asset. The company also maintains a lifecycle management focus on reliability, which helps continuous improvements to customer operations.
Over the past few years, Baker Hughes has moved from a product-based business model to a geomarket-focused model. The prior product-based approach meant Baker Hughes had to deal with multiple points of contact for its customers. The newer geomarket focus provides single points of contact and helps the company offer an efficient and reliable one-stop-shop solution for oil services work in a way that is much more integrated.
“About four years ago, we took our verticals and combined them horizontally into one company,” Morytko says. “We are now one large matrix organization.”
In addition, Baker Hughes has invested in a number of new facilities that have been strategically placed for the customer’s benefit, which has helped to address some supply chain challenges. As a result of these efforts, Baker Hughes has developed local geomarket teams that work hand-in-hand with customers to devise dependable, application-specific products and services.
The company now has nine regional and 19 geomarket management teams that work to understand customer needs and coordinate delivery of individual products and comprehensive service solutions. The company’s regions include mainland United States, Gulf of Mexico, Canada, Latin America, Europe, Africa, Russia and Caspian, Middle East and Asia Pacific.
Technology is a major piece of the Baker Hughes approach to business. The company consists of three business segments that cover nine product line groups, each of which develops, manufactures and supports cutting-edge technologies. These segments include drilling, evaluation and fluids; completions, production and chemicals; and pressure pumping. Baker Hughes also provides reservoir development services.
The company has significantly increased its annual investment in research and engineering since 2001. At the company’s innovation technology centers – equipped with state-of-the-art laboratories, prototype equipment and testing facilities – Baker Hughes is developing next-generation products and services for drilling and evaluation, completions and production, and fluids and chemicals.
At the heart of Baker Hughes is the global supply chain group. Leading this team is Morytko, who joined the company in 2010 and is responsible for the leadership of the integrated supply chain, which includes strategic planning, customer service, materials, manufacturing, and distribution and logistics for all Baker Hughes product lines. Additionally, the supply chain works closely with internal partners like human resources, finance, quality and reliability.
“We manage the entire supply chain value stream,” Morytko says. “We touch sales, operations and planning for the company for all products, all countries and all regions. We provide customer service for everything we touch and handle order management and fulfillment. We touch manufacturing and oversee all global procurement and strategic sourcing. We handle distribution, logistics, movement of goods, trade compliance, and work in some very challenging countries. We also touch aftermarket service for asset utilization in the field.”
Baker Hughes’ supply chain organization handles everything from obtaining raw materials and components to transforming them into products and services, and moving them from suppliers to customers. Baker Hughes operates more than 65 manufacturing and supply chain facilities, and its multinational teams offer products and services to customers around the globe.
Modernizing every link in the Baker Hughes supply chain has been a major focus for the company. This includes taking steps to improve its cash conversion cycle via the improvement of visibility and agility. The company thoroughly examined its global supply chain to look at all aspects of sourcing, production and logistics.
“Two years ago, we developed the Baker Hughes Operating System, which is the central repository for all processes and procedures around the world,” Morytko says. “This helps our customers receive the same experience from anywhere in the world.”
Baker Hughes has been standardizing its business processes and enhancing business activity monitoring. In addition, the company has worked on devising a system of alerts, and has used historical data as part of a simulation model to help with the prediction of future developments.
All of this work has been taking place in concert with Baker Hughes’ move from a product-based business model to a geomarket-focused model. Several years ago, the company’s seven divisional manufacturing functions were joined into a single global supply chain organization. Equipment manufacturing facilities have been grouped according to the needs of each hemisphere, while chemicals and fluids plants have been centralized.
On top of that, global procurement, transportation and logistics functions have been created. This is part of an effort to take advantage of scale, push process efficiencies and help ensure legal compliance.
Another portion of the transformation of Baker Hughes’ supply chain was the creation of an enterprise sales and operations planning process. This helps the company better predict and meet product needs globally.
Investments in facilities and acquisitions also have been a part of the supply chain’s development. Baker Hughes has made investments into its manufacturing footprint in the United States as well as in Saudi Arabia, Dubai, Malaysia and Mexico, and it has acquired manufacturing companies in Thailand and China. At the same time, although the company reduced its number of suppliers across product lines as part of an effort to enhance purchasing power and realize cost savings, it established relationships with new suppliers in India, China, Malaysia, Russia, Thailand, Mexico and Singapore.
“We have expanded our global footprint and moved some of our manufacturing from Texas and Oklahoma into international regions. This gets us closer to our customers and helps with low-cost sourcing,” Morytko says. “We also continue to build on our strong network of partners and grow our supplier communities around the world to strengthen our portfolio.”
Baker Hughes’ supply chain expansion has left nothing to chance. It has addressed freight and transit issues by developing strategically located transportation and logistics hubs that work together to manage shipping of materials and products. This hub-and-spoke approach is also being used in repair and maintenance, as the company established repair and maintenance hubs to help with the efficiency and reliability of field assets.
“We have distribution centers positioned across the globe in places like Singapore, Dubai, Amsterdam and Houston that allow us to maximize the movement of our assets,” Morytko says. “These centers are capable of holding onto the standard core versions of our products and customizing them, so we don’t have to hold hundreds of SKUs.”
Baker Hughes has grown its IT infrastructure to support supply chain evolution. The company uses SAP for its base platform, building on to it with bolt-on products where necessary to support the supply chain value stream.
The company’s efforts to transform and improve its supply chain have not gone unnoticed. In fact, Baker Hughes won Boston Strategies International’s 2010 Oil and Gas Award for Excellence in Supply Chain Management. The company won the award thanks to its supply chain transformation strategy and initial achievements in cost reduction, supplier categorization and rationalization, strategic sourcing and improvements in lean manufacturing efforts.
“Everything is about on-time product delivery and substantial cost reduction,” Morytko says. “In the last three years, we’ve saved significantly in product-cost reduction with a lean focus that takes the waste out of manufacturing.”
Another critical component of Baker Hughes’ long-term supply chain road map is its employees. Approximately 8,000 members of the workforce are part of global supply chain organization. Investing in their development is of paramount importance.
In fact, Baker Hughes offers a variety of career development programs focused on different levels in the organization from apprenticeships to leadership. Specifically, the company offers unique opportunities to college graduates with a bachelor’s degree or MBA in supply chain management, or a related discipline. Graduates go through a structured, three-year rotational development program consisting of assignments, projects, certification and training opportunities. The new employees gain experience in everything from purchasing and strategic sourcing to materials analysis and global logistics. Ultimately, this puts them on a career track where they have opportunities to lead teams in a variety of functional areas.
“This is a great program that develops people to be the future supply chain leaders for Baker Hughes,” Morytko says. “We help them move into full-time leadership roles. The program has been in demand in the United States and around the world.”
Over time, the business of providing oilfield services has become very competitive. Baker Hughes has been on a journey in pursuit of operational excellence while serving an industry that experiences a great deal of volatility. By operating its supply chain at optimized levels, Baker Hughes can minimize the threshold of that variability.
“We must be extremely competitive in terms of our lead times and offer efficient solutions so our customers can focus on producing oil and gas,” Morytko says. “All of our activities are driven toward those elements. We know we must be as local and agile as possible, and we must devise innovative solutions for customers. Supply chain is integral to that effort.”
One integral area of the supply chain where Baker Hughes continues to focus its attention is purchasing. At some companies, Director of Procurement Joe DaMico says, the work of purchasing departments is overlooked because of the misperception they are limited to just placing orders.
In reality, the role of purchasing associates is far more complex. “They need to know something about quality delivery and continuous improvement,” he asserts. “They need to know something about everything.”
Baker Hughes’ North American purchasing departments were established in 2011. “In 2012, the company worked hard to train our people to bring them up to more advanced skill levels, with better tools, better guidance and better procedures to make their jobs more efficient,” DaMico recalls.
Baker Hughes provided training to its employees in multiple areas, including negotiation, use of Microsoft Office applications, compliance with government regulations and blueprint reading. These efforts helped ensure all of its purchasing departments are operating the same way, DaMico says.
So far, the departments have made significant progress. After Baker Hughes started this training initiative in 2012, its Western Hemisphere plants increased their percent rate of on-time completion nearly 20 percent, DaMico says.
Additionally, Baker Hughes saw an increase in the technical skill sets of its purchasing employees.
The process of improving its North American purchasing departments did not happen without its share of challenges, DaMico admits. Often, he explains, this process required increasing awareness among its employees and alliance with customers.
Additionally, Baker Hughes implemented stricter requirements on suppliers to deliver on time. “We had a lot of suppliers coming in for performance reviews,” DaMico recalls. “We [also] held supplier conferences to make sure they were in line with our strategies and our expectations.”
Baker Hughes has rewarded its suppliers for their hard work through its Supplier Platinum Program. During a ceremony, “They’re recognized by the executive team at Baker Hughes,” DaMico says, noting the company is developing ways of recognizing suppliers at the plant level, as well.
Baker Hughes also has implemented new measurement and reporting tools in its supply chain to help evaluate. “These include scorecards which are available to the supplier at all times,” DaMico says. “Any member of the purchasing team can access the scorecards to ensure alignment and to evaluate supplier performance.”
This has significantly improved the supplier evaluation process, he asserts. “Before, the suppliers really did not know how they were doing,” he admits. “If there was a plant that communicated some type of performance to them, it wasn’t on a standard type of chart.”
Additionally, the information is available to any of Baker Hughes’ plants, DaMico asserts. “It’s on a shared website that employees can access and pull data from,” he explains.
DaMico joined Baker Hughes three-and-a-half years ago, after working in the aerospace industry. Although the industries are different, he found the transition to be quite easy.
“The basic principles are similar,” he says, adding he believes Baker Hughes’ quality and technology make it successful. “I think our products and solutions are ones our customers want, because of our performance and reputation.”
He adds that after one year of work, he is proud of the improvements Baker Hughes’ North American purchasing departments have made. Today, “We have some strong purchasing managers in each of the plants,” he says.
Monthly, DaMico performs reviews of each purchasing department. He adds the departments’ scores have improved since he started. And now, DaMico says, the departments operate like well-oiled machines. “The data is well put together and the teams understand it,” he says. “It tells me they support and buy into what we’re doing. It makes me feel good that we have strong ownership of the processes we put out there, and how our teams have performed and progressed.”
Baker Hughes plans to continue to improve its purchasing departments with more initiatives. For instance, “We’re rolling out a supplier direct-ship initiative where our suppliers are tied to our schedules, so [they] deliver when they’re needed and not before,” DaMico says.
Additionally, Baker Hughes plans to continue to implement lean manufacturing and Six Sigma initiatives. Also in the works is a procurement manual to give Baker Hughes’ staff guidance on its procedures. “If you’re in a particular situation, what’s the general practice and expectation of what should be done?” DaMico says.
In 2009, Baker Hughes consolidated operations to improve alignment and better serve customers. An outcome of this consolidation was the formation of the global supply chain. Up until that point, the company operated separate divisional entities around the globe without a centralized supply chain organization.
Dan Richardson, vice president of completion, manufacturing and strategic sourcing, came on board in 2009 as the company was going through this transformation. After a year running the mechanical commodities group, Richardson was named vice president of global procurement and became part of the process that would create a consolidated company sourcing and procurement standard for Baker Hughes.
“Up to that point, all the divisional entities had procured products with different methods and different structures,” Richardson says. “We wanted to take all of the plants and all the procurement entities around the world and create best practices for standard work, processes and procedures.” The outcome of that work is in the Baker Hughes Operating System.
The company also established different qualification models for its buying groups, organized as buyer level one, two, three and senior level buyer, each level requiring different competencies and certification.
“We’ve developed a qualification matrix that is an electronic tool, where an employee can go and input whether they have certain competencies or not,” Richardson explains. “The supervisor then rates the competencies, so the employees get a baseline on where they are, their developmental needs and the level they are currently qualified to perform.” Depending on results, the employee receives what the company calls a “driver’s license” and is recognized based on the level achieved.
This new buyer level hierarchy is being deployed slowly across the organization. The Eastern Hemisphere has already started putting it in place with a global procurement team of 22 buyers in its office in Mumbai, India.
“We are certifying buyers in India to work in our global procurement office covering the needs of our global plants,” Richardson explains. “Although they operate out of India, they serve the buying needs for plants in Singapore, Scotland and other places around the world.”
Change in any organization is a challenge. “We had a culture that was accustomed to operating within its own individual entities, often different from one another,” Richardson notes. “The reason the transition was so successful was because it was initiated at the top of the company.”
CEO Martin Craighead worked to support the initiative to centralize procedures and processes in the supply chain and procurement areas of the company. The company also made sure those leading the transition were well respected and natural leaders.
“We took key contributors and high-potential employees and placed them in critical roles. This built the strong organizational structure we have today,” Richardson notes.
Baker Hughes and its customers are seeing the benefits of an integrated supply chain. The new structure has encouraged the company to seek new manufacturing opportunities around the world. “We’ve developed new manufacturing facilities in areas, like Malaysia, Dubai, Saudi Arabia, Mexico and Brazil,” Richardson says. “We’ve significantly expanded our facility in Singapore and we’ve dramatically expanded our manufacturing and supply chain footprint around the world to better accommodate our customers.”
The new manufacturing facilities have improved Baker Hughes’ relationships with its customers, suppliers and even the countries where it has manufacturing facilities. The new plants have “improved customer intimacy in many regions by placing the manufacturing facility in those areas,” Richard says. “It has helped shorten our delivery times because we’re closer to the customer in those regions. It has provided the opportunity to grow stronger relationships with the national oil companies in those countries, as well as improved relationships with the states and local governments where we’ve built manufacturing facilities.”
Baker Hughes hires locally when it builds a new plant and tries to employ suppliers in the area close to manufacturing facilities. This approach strengthens the company’s ties with local government and improves customer satisfaction through reduced lead time. “Providing the best quality is a given,” Richardson says. “Providing the best lead time is something we’re striving for and we also want to provide the best cost profile that we can to our customers.”
To keep the company on track, Baker Hughes has hired consulting firm Shingijutsu to supplement its expertise in lean manufacturing. “We’re looking at enhancing our processes and incorporating lean manufacturing techniques throughout our organization,” Richardson explains. “We are also including our supply base in kaizen events, so we can improve their lead times, as well, because many times, our lead times are 50 percent of the product content of what we deliver to our customers. So we’re only as good as our suppliers, so we’re working hand in hand with our supply chain to reduce lead times.”
Richardson expects Baker Hughes to continue its journey of manufacturing globalization with greater focus in Mexico and Malaysia and possible new activity in the Middle East. “We have great leadership at the top of this company, putting us in the lead role in the industry segment where we are, and where we need to go,” he says.
Neither Baker Hughes, nor any of its employees, endorse any of the products or services referenced in this article. The views expressed are not necessarily those of Baker Hughes.