Logistics Costs Optimization of an Oilfield Service Company Branch

Keywords: logistics costs, TCO, centralized procurement, ABC-XYZ inventory analysis, economic order quantity, classic inventory management models, strategic profit model. The purpose of this research is to develop practical recommendations for logistics costs optimization in an oilfield service company. A number of objectives were solved in order to achieve the purpose set: - current logistics system of SLI Ltd. company described and analyzed; - theoretical background on total logistics costs analysis in production companies gained frm various sources; - challenges of material procurement process defined and analysed; - methods of process reorganization and improvement proposed; - economic effect from proposed methods calculated. As a result of current logistics system analysis it was concluded that company has faced a few major challenges: 1. Inefficient order management and inventory management processes; 2. Lack of cross-functional communication within logistics department; 3. Narrow planning horizon. All these imperfections have caused a noticeable growth in logistics costs. To resolve these issues it was proposed to centralize inventory and procurement management for particular groups of materials identified based on the results of ABC-XYZ analysis. As a result, return on equity have grown 0.08% and considering the fact that the economic effect was calculated only for one item, it could be extrapolated for the whole range, achieving more sufficient growth of ROE.