Workman drives National Oilwell Varco to new heights
BY MORRIS R. BESCHLOSS
PVF and economic analyst
Robert Workman has been group president of National Oilwell Varco’s Distribution Services group since January 2001. During his tenure, revenues have increased from $521.3 million to $1.37 billion (2006), while EBIT (earnings before income taxes) has grown from $12.9 million to $96.1 million (2006). He has completed numerous acquisitions, in the U.S. and abroad.
National Oilwell Varco is a leading provider for the worldwide oil and gas industry and has been dedicated to providing the highest-quality oilfield products and services for more than 150 years.
The company engages in the design, construction, manufacture and sale of systems, components, services and products used in the oil and gas industry worldwide. From a spare part to a comprehensive drilling system -- and from a generic valve to a fully integrated supply chain process -- National Oilwell Varco delivers unlimited customer solutions. The company operates in more than 40 countries and 200+ locations through three segments: Rig Technology, Petroleum Services & Supplies and Distribution Services.
Distribution Services provides maintenance, repair, operating supplies and spare parts to drill site and production locations through more than 170 service centers located in the U.S., Canada and most other major oil producing countries. The group’s customers include drilling contractors, rig fabricators, well servicing companies, national oil companies, major and independent oil and gas companies, oilfield service companies, pipeline operators and other supply stores.
We are privileged to present the following Q&A with Robert Workman.
Beschloss: The success of National Oilwell Varco has made it one of the world’s most renowned in all aspects of the global energy industry. As president of the company’s fast-growing Distribution Services segment, how do you view the future opportunities of the sector in relation to the multi-billion-dollar corporation of which you are a part?
Workman: National Oilwell Varco is excited about the future opportunities to provide its customers with an increased breadth of product offerings and reduced costs from synergies associated with producing oil and gas.
National Oilwell Varco is organized into three segments: Distribution Services, Petroleum Services & Supply and Rig Technology. Distribution Services is a major contributor to National Oilwell Varco’s success in achieving significant savings for our customers as we pursue continuous development of expertise in supply chain management. We provide solutions to challenges that our customers face in the areas of performance costs, transaction costs, material costs and infrastructure costs.
I am very optimistic about Distribution Services’ opportunities as we continue to improve the value we bring to customers, achieved in part by leveraging National Oilwell Varco’s position within the marketplace.
Beschloss: Your meteoric growth in this decade has depended on organic expansion, as well as on acquisitions. Do you expect to maintain this dual pattern of your growth in the foreseeable future?
Workman: The Distribution Services group at National Oilwell Varco will continue to broaden its product breadth, supply chain solutions and geographic proximity to customers both through organic expansion, strategic acquisitions and partnerships. This approach has worked well for us over the last several years and will continue to accelerate our pursuit to improve our service levels to our customers.
Beschloss: Since National Oilwell Varco is so closely tied in with global energy development, what parts of the globe represent your most outstanding areas of expansion in the future?
Workman: National Oilwell Varco already operates 170+ Distribution Service Centers in 14 countries that provide coverage to a majority of the world’s producing and exploration areas. These areas include: Australia, Brazil, Canada, Indonesia, Mexico, Netherlands, Norway, Saudi Arabia, Scotland, Singapore, United Arab Emirates, U.S., Venezuela and Thailand. Our plans for 2007 global expansion include Qatar, Libya, Angola, Egypt and Russia. In addition, we are giving consideration to expansions into Malaysia, Vietnam and India. Over the next several years, I would anticipate expansion into areas where our customers operate to continue at this aggressive rate.
Beschloss: How does your business group maintain an industry-leading presence in this competitive oilfield supply market?
Workman: We maintain a leadership position in today’s marketplace by providing value-added solutions, facilities in strategic geographic locations, trained manpower to support product needs and delivery requirements, a broad offering of products at competitive prices and superior customer service. We have expanded our product breadth to not only include the commodity items commonly required by our upstream customers but also to provide solutions for their artificial lift, pumping, valve automation, gas measurement, electrical and control needs.
A major contributing factor to National Oilwell Varco’s success in achieving significant savings for our customers comes from leveraging our expertise in supply chain management. We can help the customer address the challenge to reduce total cost of ownership with our integrated supply chain solutions, appropriately named SCOPE, which encompass inventory and warehouse management, logistics and performance, procurement, business process and information solutions.
Distribution Services also continues to pursue a path of innovation. We are taking a revolutionary step forward in the oil and gas industry by taking the supply store all the way to the rig. By taking NOV supply chain solutions to each rig, we are creating core business efficiencies and increasing profitability for the contractor. Benefits for the customer include improved product availability and replenishment speed, minimized total cost through improved inventory visibility and reduced obsolescence, maximized return on investment by transferring the burden of rig inventory to NOV, vendor consolidation leveraged through nov purchasing power, elimination of duplicate processes and immediate access to additional support and capacity as required.
Beschloss: What type of strategic relationship does Distribution Services have with its customers?
Workman: The strategic relationships that NOV develops with its customers depend on many factors such as their size, breadth, current supplier base, technology capabilities and current operations. National Oilwell Varco’s goal is to be the exclusive service and supply provider for its customers. Our initial step with a customer is to assess their needs and determine what solution will compliment, leverage, and enhance their business practices. After their needs are determined, a unique strategic business model is implemented for that customer. These business models range from traditional supply program to NOV’s fully integrated SCOPE program. The customer’s ultimate goal is the determining factor for the type of strategic relationship that is developed. Through such strategic relationships our customers are able to focus on their core business efficiencies.
Beschloss: The continuing increase of oil and natural gas prices has had a significant effect on the rising cost of commodities. How does this affect National Oilwell Varco’s Distribution Services and its customers?
Workman: The price of commodities has increased and will continue to increase which, in turn, magnifies the importance of our customers controlling their supply chain costs. Distribution Services’ SCOPE solution enables the customer to direct their focus away from non-core activities and run more effective operations while reducing their total cost of ownership. By utilizing the wide range of services we can provide, our customers meet or exceed their organizational goals and achieve tangible, measurable results.
Beschloss: Regarding Distribution Services, your ability to maintain balanced inventories in your scores of locations seems monumental. How do you maintain a good turnover while servicing the massive range of customers that are part of your worldwide clientele?
Workman: Managing inventory demand with confidence is crucial to success. Accurate demand and asset planning is the foundation for greater utilization of resources. Distribution Services utilizes a comprehensive Materials Management module within our erp system, sap. Our single instance of sap provides numerous materials management tools and global inventory visibility which allows our centralized team to maximize use of that asset.
The material requirements planning program is executed daily and provides accurate inventory data for all of our warehouses. Monthly forecasting considers previous period usage and dynamically recalculates “as required” values, with a specific planning module, allowing for a constant optimization of inventory levels to exceed customer service requirements.
Recognizing that our Distribution Service Centers are closest to our customers and thus possess a unique understanding of their distinct needs in a rapidly changing market place, our Planned Order Review tool was developed to facilitate Distribution Service Center-level planning of its material requirements. Simply, it enables Distribution Service Centers to change any item’s planned order quantities and planning parameters. This tool is designed to combine the strengths of sap and field market intelligence to improve customer service, optimize our inventory investment, and reduce excess, surplus, hardcore and dead stocks.
Beschloss: Your directorship in National Oilwell Varco’s joint venture with the Government of China’s Gansu province bespeaks your company’s vital interest in that nation’s energy development. With China comprising the world’s second largest user of crude oil and its derivatives, how important is this market to your corporation?
Workman: China, with its rapid growth, has literally transformed world energy markets, and particularly oil markets, over the past few decades. China’s economic expansion set the country on a path to becoming both a significant consumer and producer of oil. As the growing number of energy partnerships between Chinese and U.S. companies demonstrate, we are all participating in the creation of a truly global oil and gas market.
China represents a great opportunity to advance NOV’s business, and we intend on extending market leadership in China as it relates to the manufacture and sale of equipment and components used in oil and gas drilling and production, the provision of oilfield inspection and other services and supply chain integration services.
Beschloss: In order to stay on top of the multiplicity of your 14 international locations and 170+ service centers, does information technology play a critical part in keeping you apprised on an ongoing basis?
Workman: Information technology most definitely plays an integral part in the success of our business. As I mentioned earlier, Distribution Services utilizes a very robust and highly flexible world-class ERP system, SAP, in a client-server environment. Within SAP, we leverage the sales distribution, materials management, service, production and the financial and controlling modules. SAP is our primary system and runs all transactions in the distribution organization. Our SAP system records all transactions in real
time, providing National Oilwell Varco and our customers with up-to-date information and global visibility of all operational performance measurements.
As a result of the effort made to provide advanced information technology solutions to our customers as well as to support our internal operations, National Oilwell Varco has been selected by InformationWeek magazine as one of the “Most Technologically Innovative Companies in America” in 2003, 2004, 2005 and 2006.
Beschloss: With competent personnel playing such a significant role in maintaining your phenomenal and profitable growth, are indigenous training programs playing an integral part in keeping your organization staffed with outstanding associates?
Workman: National Oilwell Varco considers our employees our most valuable asset and, as such, provides comprehensive training for products and services designed for internal employee development. We develop, produce and distribute publications, audiovisuals, animations and computer-based training.
New employees attend the National Oilwell Varco New Hire Orientation Program, where they are versed in the two pillars of our business philosophy -- our Shared Values and our Statement of Strategic Intent. New employees are also exposed to an overview of the drilling and production industry and equipment. Employees throughout our organization attend monthly product training programs hosted by manufacturers and suppliers designed to enhance personnel knowledge of the products that matter most to our customers. We also maintain a formalized training program to supply Microsoft Software Training to NOV employees over the internet to promote computer proficiency.
In order to measure employee development and provide feedback, National Oilwell Varco has instituted a Performance Assessment Process that extends across the entire organization. This process is designed to insure that every employee has frequent, regular and immediate feedback, as well as annual performance evaluation. The introduction of the company intranet has made it possible to automate the administration of this process.
Beschloss: What will be National Oilwell Varco Distribution Services’ focus moving forward in the near future? What is your vision for the organization?
Workman: Our vision for Distribution Services is to be recognized as the upstream oil and gas market leader in supply chain management through superior customer service by leveraging the strengths of our employees, processes, suppliers, and information. This is the focus our organization strives to execute on a daily basis.
Morris R. Beschloss, a 50-year veteran of the pipe, valve and fitting industry, is PVF and economic analyst for The Wholesaler.