Quality, Productivity, and Profit: An Industry Conundrum
Authors: Granberry Curtis E. 
Published: December 2007

This paper discusses an approach to enhance an oil-related organization's potential for survival and growth and the relationship of the API Production Dept.'s quality initiative to this approach. It advocates some steps that could be taken by industry to increase the probability that this API initiative will be successful.

Introduction

Today's basic challenge for most of the oil industry is to survive. This challenge should not come as a surprise to anyone who even occasionally reads an oil industry publication or attends an industry meeting. It is interesting to note, however, that the price of crude oil in March 1987 was at a historically high level, in 1986 dollars, except for the period 1979–85. This paper hypothesizes that there is a very real opportunity for innovative, flexible, and disciplined organizations to achieve real growth during the rest of this century. The proposed approach is to "do it right the first time." The API quality initiative, implemented in 1983, is intended to make it easier for people in the oil industry to do it right the first time.

The Theory

Companies that use human and financial resources most productively to produce a product that is in demand will become formidable in their industry. Stated differently, the way to meet today's economic challenges is to "be the lowest-cost producer of a product and/or service your customer wants to buy while simultaneously aiming for the highest-quality product, the highest-quality service people, and the best deliverability out of inventory." There is an ever-increasing volume of public information that substantiates the premise that doing it right the first time dramatically improves the productivity of both human and financial resources. Savings on the order of 35% of operating costs are achievable. Having safe, interchangeable equipment and material, as well as proven, sound engineering and operating practices, will facilitate doing it right the first time. The purpose of the API Production Dept.'s standardization program is to develop and to publish standards to help industry in these areas.

The Words

Because the key words used here are commonly used by many people in many different ways, the following definitions are offered.

Productivity is measured by the price that must be charged for the product to produce an acceptable level of profit.

Quality is conformance to requirements (not levels of goodness).

Cost is the sum of initial price plus operating and maintenance expense plus the cost of nonconformance (e.g., warranty service work, premature replacement, and loss of production).

Conundrum is a problem that is unusually intricate and difficult to solve.

Safe means the equipment and/or service conforms in every detail to a design that has been demonstrated to perform satisfactorily in the service intended.

Interchangeable means the equipment conforms in every detail, within specified tolerances, to both fit and function of a "safe" design, but not necessarily form.

Background

Domestic industry in general, and the petroleum industry in particular, seems to be struggling with a conundrum.*Profitability (even cash flow) is too low to retain an adequate number of qualified staff and/or to maintain adequately the equipment necessary to produce our product.*The time and expense of fixing or scraping things that were not done right the first time (lack of quality) results in reduced level, of production and reduced productivity.*Reduced productivity results in either reduced profitability or in higher prices.*How can we afford the time, money, and manpower to correct the situation?

Many companies (producers, manufacturers, and service companies) have not yet, for one reason or another. decided to invest the resources necessary to do it right the first time. Even though the price of oil is at a historically high level. the loss of major tax incentives seems to indicate that we must perform more "productively" if we are to achieve comparable levels of profitability.

Crosby states that "the ‘it’ in doing it right the first time is the requirement." The standardization program is intended to provide standard requirements to "facilitate the broad availability of safe, interchangeable equipment and materials for general use in the petroleum drilling and production industry and to ensure the broad availability of proven, sound engineering and operating practices. It is proposed that broadly supporting the API quality initiative is one way to leverage our limited resources and to begin to return to acceptable levels of "productivity."

The API Standardization Program has been in existence since 1924.

JPT

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