This is the tenth installment in our series of blog articles dealing with source-to-pay and upstream oil and gas. Read the previous blog here.
Materials complexity erodes margin in energy supply chains when inventory spread across wells, yards, and warehouses can’t be seen or tracked accurately, which leads to duplicate purchasing, stranded and obsolete stock, and material movements that never reach the accounting system. Each loss is small on its own, so the erosion goes unmeasured, but together these gaps tie up working capital and quietly reduce margin. The fix is a single, accurate view of what inventory exists, where it is, and what it’s worth.
Materials rarely get the attention that sourcing or invoicing does. A bid is a visible event with a clear decision. An invoice is money on the line. Materials, by contrast, are just the pipe, valves, fittings, and equipment sitting in a yard or on a pad, and it’s easy to treat them as a background detail rather than a place where money is actively being made or lost. That assumption is where the trouble starts.
The reality is that materials tie up a large amount of capital and touch nearly every part of field operations, and when they’re managed loosely, the cost doesn’t show up as a single dramatic loss. It leaks out slowly through duplicate purchases, stranded inventory, write-offs, and costs that get booked to the wrong place. Because no one line item looks alarming, the erosion goes unnoticed for a long time. It’s one of the quieter ways margin disappears in an upstream supply chain.
Key Takeaways
How does poor materials management erode margin?
- Through costs that stay individually small and collectively large: duplicate orders because no one can see existing stock, inventory that expires or gets written off, and material movements that are never captured financially, so the books stop matching reality.
Why is materials management so hard in upstream oil and gas?
- Because inventory is spread across wells, yards, and warehouses, moves constantly between them, and often gets tracked in spreadsheets. Without shared visibility, teams reorder what they already own and lose track of what they have.
What does good materials control look like?
- A single, current view of what inventory exists, where it is, and what it’s worth, with every transfer and count captured and every completed transfer flowing into the accounting system, so operational reality and financial records stay aligned.
Where the Margin Actually Goes
The losses in materials management are easy to overlook because each one is individually reasonable. Take duplicate purchasing. A crew needs a part, can’t easily confirm whether it’s already sitting in another yard, and orders a new one to avoid delaying the job. That’s a sensible call in the moment. Repeated across dozens of locations and hundreds of items, it means an operator is buying things it already owns while capital sits idle on a shelf somewhere else.
Stranded and obsolete inventory works the same way. Material gets bought for a project, the project changes, and the surplus never gets redeployed because no one has a clear view of it. Eventually it’s written off, and the carrying cost until that point is real money. Then there’s the quieter financial problem: when material moves between locations or gets consumed on a job and that movement is never captured in the accounting system, the books drift away from physical reality. Costs land in the wrong cost center, valuations go stale, and the numbers finance relies on stop reflecting what’s actually in the field. None of these is a crisis on its own, which is precisely why they persist.
Why Upstream Materials Are Uniquely Hard to Control
Part of what makes this so common is that upstream materials are genuinely difficult to manage. Inventory doesn’t sit in one warehouse. It’s scattered across active well sites, staging yards, and central warehouses, and it moves between them constantly as jobs start and finish. A valve bought for one pad ends up on another. Surplus from a completed well goes back to the yard, or doesn’t.
When that activity is tracked in spreadsheets and email, or in a system that wasn’t built for how the field actually works, visibility breaks down almost immediately. Two locations can’t see each other’s stock. A transfer happens physically but not on paper. A count taken last quarter is already out of date. The people doing the work are capable and diligent, but they’re working without a shared, current picture, and no amount of diligence fully compensates for that. The complexity is real, and it compounds as activity scales.
Turning Materials Into a Point of Control
Getting control of materials doesn’t require treating them as a major project. It requires a single source of truth for inventory that the whole operation can see and trust.
Our materials management solution provides that by tracking inventory across wells, yards, and warehouses in one place, down to the location and sublocation, with each item tied to your item master. Teams can look up stock from the field, run cycle counts on a mobile device, and request and receive transfers between locations, with the value of each movement captured as it happens. Completed transfers then flow into your ERP through export or API, with no manual re-entry, so the physical movement of material and its financial record stay aligned instead of drifting apart. Paired with the ordering and invoice workflows in the broader Source-to-Pay platform, it supports clean three-way matching across the order, the receipt, and the invoice, so what was ordered, what arrived, and what gets paid all reconcile.
The effect is that materials stop being a blind spot. You buy less of what you already own, you redeploy surplus instead of writing it off, and finance gets numbers that match the field. The margin that used to leak quietly out of materials stays where it belongs.
Materials will always be complex in this business. Whether that complexity costs you margin comes down to whether you can actually see it.
Frequently Asked Questions
What is materials management in oil and gas?
- Materials management in oil and gas is the process of ordering, receiving, tracking, storing, and transferring the physical materials and equipment an operation needs, such as pipe, valves, fittings, and consumables, across well sites, yards, and warehouses. Good materials management keeps an accurate, current record of what inventory exists, where it is, and what it’s worth, so teams don’t over-buy or lose track of what they already own.
How does poor inventory management affect margin?
- Poor inventory management affects margin through costs that stay small individually but add up: duplicate purchases of items an operator already owns, working capital tied up in stranded or obsolete stock, write-offs when surplus is never redeployed, and misbooked costs when material movements aren’t captured financially. Because none of these shows up as a single large loss, the margin erosion often goes unmeasured for a long time.
Why is inventory tracking harder in upstream oil and gas than in other industries?
- It’s harder because upstream inventory doesn’t sit in one place. It’s spread across active well sites, staging yards, and central warehouses, and it moves between them constantly as jobs begin and end. When that activity is tracked in spreadsheets or disconnected systems, locations can’t see each other’s stock and physical transfers often go unrecorded, so the inventory record drifts away from reality.
What is three-way matching in materials management?
- Three-way matching compares the purchase order, the receipt of goods, and the supplier invoice to confirm that what was ordered, what actually arrived, and what’s being billed all agree before payment. In a connected source-to-pay process, materials receipts feed that match automatically, which reduces billing errors and reconciliation work.
