An article in the Wall Street Journal (July 9, 2016) titled “New Worries over Subsea Oil Wells” describes bolt failure costs for connector units in subsea wells. The bolts were supplied by GE, Schlumberger and National Oilwell, all competitors in the industry. A new regulation will force reporting of bolt failures and sharing of this data among competitors. But new contract offered by GE to its customers let them pay only for up-time of its equipment. Will information sharing among competitors help identify design or assembly flaws? Will the new risk sharing contracts force better designs?
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Global Supply Chain Musings 
More often than not, when there is an opportunity to introduce more accountability into a system people benefit. The idea of paying for a product only so long as it works is interesting, and you better hope we’re not talking about planes or cars… that said, even that premise creates expectations within a company that they need to meet. No one wants to have the lowest metric on that scale. Additionally, in areas like the article mentions that are high stake and high cost to repair the sharing of information would have an impact on industry design standards and improve the overall products. Creating processes and sharing information that prevents flawed designs from being manufactured and implemented will save everyone time and money in the long run.
Information sharing among competitors of subsea oilwell bolt failures could certainly help identify prevalent design or assembly flaws, accelerate development of new designs and increase accident prevention. However, enforcing risk sharing contracts can be done only through effective regulation enforcement.
In fact, the offshore oil and gas drilling regulations placed by the Obama administration in 2016 after investigation of the 2010 Deepwater Horizon oil platform explosion (ref. 1) were rolled back by the Trump administration in 2019 (ref. 2).
References (open source)
Ref. 1 https://www.nytimes.com/2016/04/15/us/politics/us-issuesnew-rules-on-offshore-oil-and-gas-drilling.html
Ref 2. https://www.politico.com/story/2019/05/02/offshore-drilling-rules-1404098
The sharing of information across competitors is crucial for the deep sea drilling industry. This information sharing will help the general public by minimizing equipment failure thus reducing the chance for another Deep Horizon oil spill in the Gulf of Mexico. GE has differentiated itself by only charging their clients for “up-time” of its equipment and will be able to take market share from Schlumberger and National Oilwell unless these companies follow suit. GE is demonstrating the ability to change as this heavily regulated business continues to evolve. Companies such as GE will still be able to differentiate itself through a quality product and innovative ways of billing their clients to ensure all interests are aligned. In an industry that is heavily regulated and where information sharing to benefit public safety is the norm, GE will continue to perform well and as bolt failures fall with design changes across the industry.
The requirement to report failures will incent the drilling companies to check their drills more often and air on the side of caution when making the decision to replace the bolts. The financial incentive to keep producing is very large, around $660K-$800K per day, and that incentive is now somewhat offset with the risk of having a poor quality record that will be public. This should help the drilling companies do the right thing for the environment.
I would think it would be in the best interest of the individual competitors to do additional research involving the coating and installation practices used on the bolts. The company that is able to create the coating that performs the best underwater or is able to come up with a best practice for installation would become the industry leader. The publicity for the company that would be able to solve these problems for the drilling industry should see an increase in the value of their brand. This would move the market towards the company that could innovate fastest.
New risk sharing contracts will enhance the performance of all companies involved. Competition is at the heart process and product improvement. Innovation is fueled by competition.
Accountability and transparency are key to improving the bolts that the suppliers are providing. Three providers is enough to create competition between themselves. I think creating quality standards is an important way to communicate the relative quality between competitors. For example: if there is standard like bolt fails per thousand bolts in a 3 year period is a good way to compare bolts provided by the various vendors. The risk share model is also a very good way to incent the manufactures and the installation vendors to do their job well. Once these standards have been developed, it will be easy for the oil rig companies to analyze which competitor has the best product for the price. Competition breeds productivity.
Data sharing as a whole is a good idea. It causes the manufacturers to focus on putting out good products. It helps the customer make more informed decisions when choosing a supplier. This will lead to more production time and less downtime which will ultimately lead to lower costs for the customer.
Safety must be paramount when we deal with something as sophisticated as an Oil rig. Every part used in the construction must undergo a great degree of stress test to access their quality and durability. The regulation to share data and information among competitors in this industry is a step in the right direction. The we know about a product, the more we can understand its flaws and the sooner we can take corrective action. Being in Supply chain I can vouch for this happening in the industry. Information sharing has led to better DC designs, improved Labor Management, better Yard management among Retail Supply chain and logistics. In some cases, it has led to companies investing in better designs to stand out in the industry. I am sure the same would apply to the Bolt industry as well. Companies could use the information shared to enact better safety protocols. This is of the utmost importance. Because the last time there was a slack attitude adopted, we had “BP Oil spill” which had a catastrophic and detrimental effect on not only the folks involved with the rig but on the environment too. It is unfortunate that an incident of that scale got people’s attention to this issue, but it is better late than never.
Holding supplier accountable is going to improve quality among the competition. If one supplier has inferior parts, the company will buy the higher quality product when it comes to safety or long term performance. It may be beneficial for the supplier with the higher quality product to keep the information to themselves. They can be the ones to sell the best product and get the major competitors business. If all the firms shared the information, the market could stabilize with several choices that have the same quality standard. However if there was one firm with an outstanding product, it might fuel the other firms to come up with an even better idea.
I think Brian said it best with the first response. At its core, any time that people are held accountable, actual information and data is shared, and mistakes and issues are made public the entire system will prosper. That is however being a little naive to believe that companies are going to be a complete open book to their competitor. Why spend as much on R&D if you can lean on the failures of others to learn what direction to move forwards? Yes competition does spur a better overall product but will all competition agree to play the same game?
In industry’s that carry so much risk in regard to part failures and mistakes it makes sense to put processes in place to help ensure and foster as high of quality product as possible.
Not only it will force better designs as it will force the companies to be more responsible for the environmental damage caused by a bolt failure. Sharing information, in this case, is crucial as this can avoid additional damages. Companies can evaluate common causes related to bolt failure and prevent potential failures.
Sharing of key information across competitors for the good of everyone is encouraged. Especially if its items that are industry standard. In this case it can prevent damages to the environment or large failures which would look bad on the industry as a whole. If a competitor has a failure which causes a social crisis, it can affect everyone. When BP had the major oil leak in the ocean, all oil drilling projects was affected by it. This can be shown in other industries like IT. If lets say HP discovered a flaw or security risk in current server architecture, keeping it to themselves can potentially cause them to look bad in the marketplace, for putting the industry at risk. Being able to come out and show they found a problem and solution first, would give them an advantage over competition.
According to https://www.boem.gov/, in fiscal year 2016, offshore oil and natural gas production has contributed to 315,000 jobs and 30 billion to US economy.
These stats alone tell the magnitude of impact the offshore drilling has. Having that said, there are obvious flaws in the equipment and the high magnitude of impact only further signifies it.
All the three top competitors employ sub-contractors to manufacture the bolts and as such, it is important to create accountability top down all the way. By limiting the payment to the up-time, companies like GE are definitely hitting the sub-contractors bottom line, however, publishing the failure data among the competitors will create a sense of awareness and accountability to minimize such failures and added adds addtional incentives to the three competitors and by extension to the sub-contractors to collaborate with each other to review/research and re-design and manufacture failure proof bolts that will not only improve the oil rigs up time but also add more boost to the economy and minimize safety hazards.
The regulation to enforce information sharing among competitors will absolutely improve performance. As Diane mentioned, the publicity that the company would get for ensuring safety hazards are avoided will bring more value to their brand. On the other hand, nobody wants to be the laggard who may be slow to do anything about the failures and flaws. The regulations will be crucial to protect the environment as well. In my career, I have been a part of an alliance of competitors that was required by the state to improve the performance in credentialing standards in order for providers to see patients and receive reimbursement more quickly. We were required to meet at least monthly and review any new regulations that were upcoming as well as provide feedback on interpretation as well as any potential issues that were currently present. Even though we were competitors, we were all experiencing the same “issues” with the processes that were being enforced but we didn’t necessarily share our “secret sauce” if there were other health plans experiencing something that we learned to overcome. Its a win-win for all.
Forcing the companies to share information about their equipment’s failure will definitely be a motivating factor for better designs. The potential loss of reputation / goodwill due to advertised equipment failures will help their design and safety team leadership justify extra manpower, time and investment in their divisions as well.
Information sharing among competitors increase transparency, which leads to better design and guarantees efficiency. Data sharing encourages collaboration between researchers, which can result in identifying key findings faster and facilitate better business value. Also, this will result in large amounts of data. Analysis of this big data help in uncovering the hidden patterns and new insights. Eventually results ]better products and less failures.
When it comes to information sharing with equipment of this caliber and the affects it could have on society if it fails, I think it is of the utmost importance to share information. By making this an industry standard, there is more opportunity to fix what is broke and to make sure we don’t have another oil spill like we did a few years back. Being the first one in the sector to implement this is also a huge move, showing that the company is willing to potentially eat some cost, or publicly announce their imperfections, but transparency is key to the public as well as those involved in the company and backing the company. QA is a very important part of making sure that all parts, down to the smallest of them, are properly fitted and able to handle the load put on them. Mishaps from small overlooked pieces of equipment can have catastrophic consequences. For example, The Challenger explosion as well as the Thresher and Scorpion US submarines were lost due to small/malfunctioning parts such as O-rings. if competitors are also experiencing similar problems, it only makes sense to help one another with the sharing of information, so that the problem doesn’t cause a bigger disaster, and the industry can operate as it was intended to.
Environmental safety should always be a top consideration when looking at products and designs. This type of regulation and information sharing is paramount to the entire industry regardless of the companies involved. I think of automobiles and the safety standards that have evolved since the mid-20th century and primarily seatbelts and airbags. Vehicle safety records slowly became a high consumer marketing aspect that automakers eventually have all adopted and strived to improve. These types of regulations fuel competition and design developments that will ultimately assist everyone.
This is a material science and metallurgy problem that could (and will) be easily solved with the correct research and funding. Once solved, ASTM standards should be created and followed by all of the bolt manufacturers. This is a common issue in large scale manufacturing -having some sub part suppliers who skip steps in the processing chain that they do not realize are critical (i.e. improper heat treatment of the steels) Having to report the failures is a good start, but the companies will most likely not change any of their procedures until it becomes too costly not too. Fines for broken bolts will force these companies to invest in the research to get the bolts made and heat treated correctly, and tightened to the correct torque each time. These big oil companies can usually only be spoken to through their pocketbooks.
I believe that information sharing among the manufacturers will help improve the standards in the industry and as such lead to more reliable designs of the bolts as well as other critical components. The safety of the wells and the potential revenue losses whenever there is an incident should motivate the manufacturers and services company to willing share information.
Service Level Agreements (SLAs) that allow for risk sharing in terms of revenue loss when the platforms are inactive due to equipment failure will definitely motivate GE and other manufacturers to assemble the platforms with better parts.
The information sharing among competitors will provide transparency and indicate how good or how bad each competitor is. However, the data, alone, does not give any clue on what each competitor should do better. It will just indicate who is doing a better job. In this case, companies may try to copy the best performance designs or steal their competitor secrets (maybe through hiring some of their design experts ). Anyway, in the long run, I believe it can drive everyone to improve.
On the other hand, the new contract offered by GE is bold. They can only afford that, if they know they have a reliable design and how better it is versus similar solutions from competitors. This approach will have a better impact compared to just the data sharing regulation. In order to win the market, everyone will need to beat GE. They cannot just offer the same contract as GE if they do not have similar performance. It would create a loss for them.