Costs of not Following Common Standards; A Case Study of Cost Implications of Using Customer Specific Requirements Instead of Industry Standards
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In recent years, costs of subsea production systems on the Norwegian Continental Shelf has escalated. In combination with a plunging oil price, this has led to reduced margins for the companies. In order to survive the Norwegian subsea industry need to change from being technology driven, to being cost efficient through the use of standardization, simplification and smarter ways of working. With the cyclic nature of the Oil & Gas industry, cost escalations after periods of high oil price has been a returning problem. Several initiatives has been raised to facilitate standardization of materials and testing, which has led to the development of the NORSOK standards, and later the ISO 13628 standard for subsea production systems. Even if most of the major upstream companies operating on the Norwegian Continental shelf have contributed to the development of the NORSOK standards, they still apply their own set of technical requirements and test requirements for their equipment. This thesis investigates cost implications that arise from use of customer specific requirements, and barriers preventing use of common standards through use of methods from exploratory case studies. The study focuses on fasteners, one of the most basic components of any system, in order to give an understanding of the challenges that exists for standardization. The findings are discussed for how they can be relevant for other types of equipment used in the subsea industry. Fasteners are by their nature ideal for mass production. However, the market for fasteners in subsea use is rather small on a global scale. This makes standardization and well-considered fastener selection critical in order to achieve benefits of scale. The findings indicate that the requirements imposed by the oil companies are not the most decisive cost drivers. Rather it is the lack of coordinating of requirements between companies and standards, and the large number of different fasteners in use that are found to be the main cost drivers. In addition, the procurement strategy applied by most companies promotes low volume orders, and thus does not give room for production to achieve production optimum quantities. In the period 2010-2011 the price of one of the analyzed fasteners increased 60 times. This coincides with the launch of revision 2 of Statoil TR3101. Parts of these costs were related to the introduction of fastener traceability, which had not been sufficient before the release of the TR. The price has declined as fastener manufacturers has become familiar with the new requirements. However, the average price is still over ten times the original for the part numbers analyzed.
Master's thesis in Industrial economics