Falcon Oil and Petroleum (FOP) is one of many oil companies
operating offshore petroleum platforms in the Gulf of Mexico. The
company identifies offshore sites for exploration drilling and constructs
drilling platforms. Once exploration activities are successful, the
platforms are converted to a production platform to extract crude oil and
natural gas. FOB operates multiple platforms and an onshore facility that
serves as the primary interface between the platforms. Boats with
specialized crews provide logistics services between the platforms and the
onshore facility. The boats deliver fuel, water, equipment, and other
needed supplies multiple times a day to the platforms. Accurate and
timely delivery of materials is absolutely necessary for successful platform
operations.
FOP had traditionally focused on exploration and production
activities, paying little attention to operating costs. However, operating
costs had been increasing rapidly. A particularly significant cost was the
operating of boats and crews needed to provide logistics services
between platforms and the onshore facility.
The boats are highly specialized, with built-in storage tanks and
unique cargo space designs. The boat crews are specially trained, and
operating the boats and crews is highly expensive.
Although FOP is dependent on the boat deliveries, it does not use
the boats at full capacity, and they are often idle. Jeff Kessinger, director
of offshore operations for FOB, is now faced with the decision of how to
reduce operating costs. One option is to outsource the logistics service to
a company specializing in providing offshore logistics services. LogisticsOffshore Inc. is such a company, owning and maintaining its own fleet of
boats and crews. Logistics-Offshore could be hired to perform this
function. FOB could sell its boats and focus on oil exploration.
Jeff is aware that outsourcing is an important strategic decision and
there is much to consider. He is not sure where to begin.
Case Questions
1. Identify the potential strategic advantages and disadvantages for FOP
in outsourcing the boat logistics service to Logistics-Offshore. Explain the
strategic implications of each.
2. Identify the type of information Jeff Kessinger needs to gather and
evaluate in order to make his decision.