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Managing the Supply Chain for Gases: A Guide for Commercial Businesses

Natural gas consumption in the U.S. has been at all-time highs in recent years, reaching 32.26 trillion cubic feet in 2022. Despite this growth, the natural gas supply chain has encountered several challenges, from multiplying lead times to increasing vendor costs. Commercial gas businesses must boost efficiency even when new obstacles appear daily. 

Building a resilient, efficient, cost-effective supply chain is essential to combat industry complexities and meet consumer demands. As the demand for natural gas evolves across industries, prioritizing your supply chain management eliminates unnecessary costs and streamlines your operations. 

Understanding the Industrial Gas Supply Chain

The oil and gas industry is massive, operating through a global supply chain that includes transportation, ordering, trading and control elements. This supply chain represents three components: 

  • Upstream: Finding and producing crude oil and natural gas. 
  • Midstream: Processing, storing and transporting of commodities. 
  • Downstream: Retail outlets and natural gas distribution companies. 

Meeting global gas requirements while maintaining industry control is a complex undertaking. Effective supply chain management turns the chaos into order, streamlining the movement of raw materials, minimizing delays and ensuring optimal resource utilization. Gas prices are affected by supply and demand, meaning the supply chain has a direct impact on gas value. 

With the many steps in the transportation, processing and logistics, supply chain management is key to controlling costs and meeting demands. With strategic supply chain management, the flow of resources can continue. Gas supply chain management minimizes risks by up to 15% and increases cash flow from procurement to payment. 

Supply Chain Management in the Oil and Gas Industry

Ensuring a consistent and reliable energy supply involves five essential steps: 

  1. Exploration and production: The first step involves extracting energy resources, like natural gas, from the earth. Once the resource is located, it’s removed, processed and refined to make it usable. 
  2. Transportation: Gas and fossil fuels are transported via pipelines to distribution centers or end users. The transportation phase involves careful planning and monitoring to maintain the safety and efficiency of the delivery system. 
  3. Refinement and processing: This step converts raw energy into usable forms, removing impurities through innovative technology to ensure quality and safety. 
  4. Distribution: In step four, refined gas products are delivered to the end users. 
  5. Consumption: In this stage, end users apply the gas to their intended use, whether in food and beverage, manufacturing, agriculture, construction or any other relevant industry. 

Challenges in the Gas Supply Chain

The oil and gas supply chain faces many challenges across all stages, and there’s more opportunity for disruption in the modern supply chain due to the dramatic global connectivity increase between people and markets. Locating and extracting raw reserves is increasingly complex, and changing market demands require adaptable refining and processing operations. Some significant challenges in the current supply chain include: 

Changing Demands

Although gas is one of the more stable worldwide industries, global lifestyle changes affect the demand for natural gases. Real-time supply chain adjustments in line with changing user needs are essential to prevent financial losses. 

Supply Chain Visibility

Maintaining visibility can be a significant challenge with multiple elements in the gas supply chain. Organizations can overcome this challenge by emphasizing transparency between vendors and suppliers, international resources, and prices. Breaking the supply chain process down makes it easier to identify and address visibility challenges and streamline the flow of operations.

Data Processing and Management

Supply chains generate massive amounts of data, which requires expert teams and robust computing. The information collected along the supply chain is crucial to creating sustainable procurement strategies and meeting consumer demands. Many organizations partner with data analytics experts to organize and interpret the relevant data, further streamlining the supply chain and addressing other challenges. 

Optimizing Your Gas Supply Chain: Strategies for Manufacturing Efficiency

Supply chain optimization is essential for the gas industry, enabling you to maximize value during gas storage, processing and transportation. Any supply chain inefficiencies leave more room for error, opening your organization to increased risk of financial loss or reputational damage. With so many moving parts to consider, a robust strategy is crucial. 

Best Practices for Streamlining Operations

Regardless of the complexity of your supply chain, boosting efficiency is always a primary objective. The following strategies can help you ensure you always deliver on time: 

  • Prioritize visibility: You need visibility in every aspect of your supply chain, from your suppliers to your customers. At any given moment, you should be able to track and monitor the movement of goods. Transport management systems (TMS) and other technological advancements provide real-time visibility throughout your operations so you can identify and address any challenges immediately. 
  • Explore automation and other technologies: Automation is one of the most significant advancements in supply change management, enabling real-time monitoring and proactive troubleshooting. Automating supply chain processes reduces the chance of error and frees your team to focus on meaningful tasks like growing your business. 
  • Maintain compliance: Because gases can be hazardous, they are subject to stringent regulations and standards. Maintaining regulatory compliance can be challenging due to the changing nature of government policies. Working with an expert can help you streamline compliance, reducing unnecessary expenses and downtime. 
  • Foster strong relationships: Every moving part in your supply chain represents a different relationship, and each connection is critical. These relationships can be complex in the digitally connected world, spanning time zones as well as national regulations. Prioritize your industry relationships and stay transparent about the status of your operations, keeping all parties on the same page. 

Strategies for Effective Supply Chain Management 

Adapting to the market is essential for effective supply chain management. As you’re downstream supplying end users, you must stay vigilant with your suppliers and manage consumer demand. Stay ready to adapt your strategy to accommodate supply chain disruptions in the upstream and midstream. While some of these elements are outside your control, you can take steps to mitigate the effects of disruptions and keep your customers happy. 

Consider employing the following strategies:

  • Leverage new technology: Many other technologies outside of automation help you manage your supply chain. Cloud computing, the Internet of Things (IoT) and artificial intelligence (AI) facilitate data sharing and collaboration across your supply chain. AI can also provide future demand insights and predict risks to keep your business agile. 
  • Optimize your inventory: Holding and storing excess inventory can be costly. Keep what you need and nothing more using forecasting and demand forecasting. 
  • Prioritize strategic partnerships: Fostering strong partnerships keeps your organization agile and innovative. You can access new markets and leverage opportunities to create value-added solutions with the right team. 
  • Adopt lean principles: Lean principles aim to eliminate waste and maximize value. Applying lean principles allows you to cut non-value-added activities and adopt a posture of continuous improvement and quality control throughout your supply chain processes. 
  • Conduct regular reviews: Effective supply chain management is an ongoing process. Review your processes regularly to ensure efficiency and compliance and avoid bottlenecks. 
  • Integrate sustainability: Almost 90% of consumers believe organizations should do more to reduce their carbon impact. As demand drives much of your supply chain, setting sustainability goals is essential to maintaining compliance, applying acceptable environmental practices and meeting customer expectations. Consider optimizing your delivery routes to save fuel and improve your waste management. 

Explore Inventory Management Techniques

Inventory management is a crucial element of the supply chain. It involves balancing meeting customer demands and losing money on storage. Two principal inventory management techniques exist, both of which have applications in supply chain management. Understanding the differences and weighing the pros and cons of each is vital to making the right decision for your business. 

In essence, inventory management techniques prioritize either preparedness or lean efficiency. The two primary approaches are as follows: 

Just-In-Time Inventory Management (JIT)

As the name suggests, JIT is based on lean management principles and centers around having inventory when you need it. This technique has become the standard in manufacturing due to its cost reduction and elimination of non-value-added steps. As users consume your inventory, you replace it. The goal is to balance production volume with inventory levels, ensuring you only keep the stock necessary for near-term applications. 

The JIT system helps you reduce inventory holding costs, free up cash flow for other business areas and save on insurance premiums. Only having the necessary stock in your inventory also reduces the chances of theft or damage. However, although this system has excellent potential for cost savings, it increases the risk of business disruptions. Your supply chain needs to function optimally to ensure your inventory is replaced before you run too short to meet customer needs. 

Just-In-Case Inventory Management (JIC)

A JIC strategy is based on expected sales. Businesses employing a JIC strategy purchase supplies to meet any reasonable level of demand. The COVID-19 pandemic is an excellent example of the JIC technique in action. During this period, all businesses experienced severe supply chain disruptions, leaving JIC businesses struggling to meet demands. 

Although you incur high inventory holding costs, the method also gives you significant advantages, including keeping up with demand, fewer lost sales and bulk savings. The downsides include tying your capital up in your inventory and losing the flexibility to grow other business areas.

Expert Tips for Managing Your Gas Inventory in Industrial Settings

Whatever method you choose to manage your inventory, several best practices exist to help you maximize your setup. Keep the following in mind to optimize your management practices:

  • Prioritize critical stock: Determine which stock makes up the backbone of your sales and ensure you always have those items available. 
  • Conduct regular inventory audits: Audit your inventory regularly to identify stock discrepancies, inaccurate counts and other issues. These assessments are a proactive way of managing overstocking or understocking risks and minimizing forecasting errors. 
  • Review your shipments: Receiving stock from your supplier is a critical link in the supply chain and a key point of inventory loss. When a shipment arrives, take the time to inspect packing slips and check for product damage. 
  • Concentrate on vendor and supplier relationships: Maintaining positive relationships with vendors across the supply chain is essential to effective inventory management. Communicate often and well, and treat your vendors like partners. Pay your bills on time and learn about their processes, creating trust and fostering collaboration.
  • Track your inventory: Monitor your inventory throughout its entire life cycle from transportation to consumption. Consider implementing real-time tracking technologies like barcodes or radio frequency identification (RFID) tags to reduce inaccuracies or theft. 
  • Expect the unexpected: Global supply chains are fickle and prone to change. Develop a contingency plan for potential challenges such as increased demand, cash flow issues, lack of space or purchasing too much inventory. 

Transportation and Logistics Optimization

Transportation and logistics fall in the midstream supply chain, creating a link between the upstream and downstream. Arranging these transportation, storage and processing flows is incredibly complex and involves careful adherence to compliance standards and safety guidelines. 

Speed and quality are the cornerstones of transportation and logistics. Blind spots, bottlenecks and delays can have severe consequences for everyone further down the chain, from commercial gas suppliers to end users. You can combat the effects of disruption with collaboration and lean principles. Consider the following additional tips: 

  • Implement a transportation management system (TMS): TMS software can help you manage your transport operations by providing visibility, automating processes and optimizing routes. Implementing a TMS can reduce transportation costs and enhance overall supply chain performance. 
  • Optimize warehouse operations: Streamlined warehouse operations reduce the time it takes to prepare shipments and improve inventory accuracy. 
  • Leverage technology: Purpose-built technology lets you track shipments and identify problems in real time. With up-to-date information, you can proactively correct any issues, avoiding delays and the associated costs. 

The Role of Industrial Gases in Enhancing Manufacturing Productivity

Industrial gases are critical to various manufacturing processes. As these gases eliminate the need for traditional fueling, they provide quick solutions to many manufacturing issues and increase business efficiency. They don’t leave any residue behind, making them a clean energy source ideal for sensitive applications. Some of the many gases common in manufacturing include: 

  • Argon: Argon is nonreactive, making it a prevalent shielding gas in welding and casting. It’s also used to fill thermal holes in window panes. 
  • Carbon Dioxide: Carbon Dioxide is another popular option as a shield gas for welding. It’s an effective fire suppressant and serves many purposes in manufacturing. 
  • Helium: This gas is popular for welding with nonferrous metals, as it works well with thick materials. In the automotive industry, helium tests various components and ensures they meet industry requirements. It’s also essential in electronics production, where it serves in the manufacture of semiconductors, fiber optics and LCD panels. 
  • Hydrogen: Hydrogen enhances many welding processes and prevents oxidation in metal fabrication. It’s valuable in glass manufacturing as well. 
  • Nitrogen: Compressed Nitrogen gas is essential for welding automotive parts, and plastic manufacturers use it to create complex designs. 
  • Oxygen: This gas is critical in metal processing, automotive and glass manufacturing applications. 

The above use cases represent just a few of the many ways industrial gases support manufacturing efforts. Their unique characteristics make them invaluable in many processes, and ensuring the gas supply aligns with production demands is crucial in any manufacturing context. 

Aim for Supply Chain Excellence With Meritus Gas Partners

Effective supply chain management is the key to minimizing costs and boosting customer satisfaction. As a commercial gas business, you need a partner you can trust to help you navigate the complex and ever-changing industry requirements. 

When you work with Meritus Gas Partners, you gain a partnership and forge long-term relationships with established entities capable of providing the support you need to optimize your processes. Our network of independently operated distributors has the necessary resources to provide local, reliable service nationwide. Reach out to us today to have a team member contact you to answer any supply chain questions.

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