00:00:00 Speaker 1
This episode of the Energy Pipeline is sponsored by Caterpillar Oil and Gas. Since the 1930s, Caterpillar has manufactured engines for drilling, production, well service and gas compression. With more than 2,100 dealer locations worldwide, Caterpillar offers customers a dedicated support team to assist with their premier power solutions.

00:00:28 Speaker 2
Welcome to the Energy Pipeline Podcast with your host, KC Yost. Tune in each week to learn more about industry issues, tools, and resources to streamline and modernize the future of the industry. Whether you work in oil and gas or bring a unique perspective, this podcast is your knowledge transfer hub. Welcome to the Energy Pipeline.

00:00:53 KC Yost
Hello, everyone, and welcome to this episode of the Energy Pipeline Podcast. Today we'll be discussing supply chain disruptions in the oil industry. Our guest is Professor Ayman Omar, associate dean for graduate programs at the Kogod School of Business, and associate professor of supply chain management at the American University in Washington DC. So welcome to the Energy Pipeline Podcast, Professor.

00:01:19 Ayman Omar
Thank you very much, KC. Thank you so much for hosting me on this show. Very excited to be with you today and looking forward to an extended conversation on supply chain management, the oil sector disruption, and what comes next.

00:01:31 KC Yost
Yeah, this is so exciting. I know nothing about this, and I am just really fascinated to hear what you have to say here. But before we start talking about supply and chain disruptions, let's take a few minutes to share your background with our listeners. Now, I know you got a mechanical engineering degree, and I know that you got your master's MBA at UTSA, University of Texas at San Antonio. So go Roadrunners. There you go. And you got your PhD from the other UT for US Texas listeners, that's the University of Tennessee. So tell us about you.

00:02:12 Ayman Omar
Very excited. And had a pleasure in both of the UTs, but prior to the UTs, as you mentioned, I got a mechanical engineering degree from the American University in Cairo. And then I worked in the oil sector after that for a few years, working for one of the major service companies and our clients were the major oil producers, so-

00:02:34 KC Yost
We're allowed to say Schlumberger.

00:02:35 Ayman Omar
So Schlumberger was the company I worked for as a wireline engineer. We used to run services in the exploration phase for major clients, whether it was the Shells, PBs, Amocos, ExxonMobils, wasn't ExxonMobil at that time, which probably dates me. But we had all of those major clients and we would be running exploration services, basically running tools down the well to figure out is there oil, at what depth, at what quantities, what kind of formation and what's the best way to produce at what levels and what's the expected economics of each one of those wells. So that was a little bit of my initial interaction with the oil sector. And I got very interested in that space, but wanted to move more to the operations part of this sector and decided to pursue an MBA. And during my MBA, got interested in an area called supply chain management, which is basically managing the flow of products or services from a source to an end destination and back, where we've got reverse supply chains returns, we'll talk about closed loop supply chains as well. But some of those areas got very interested in it and decided to pursue that even to another level with, as you mentioned, getting a PhD from the University of Tennessee in supply chain management. And joined American University at the Kogod School of Business as a faculty member teaching supply chain management at the undergraduate and graduate levels, and eventually transitioned into a service role in managing all of our graduate programs at the Kogod School of Business, online programs, residential programs and executive programs. We're based, our university is based in the northwest part of DC. We've got a very scenic campus. And one of the areas that the school of business is really heavily invested in is both the sustainability for businesses. How do you make sure that your business is competitive as we move forward, and how sustainability part of that equation. Sustainability is not just necessarily the environmental piece of the puzzle, but it's the economic piece. It's a social piece. And we'll talk about how those things could be potential disruptors to any sector specifically within the oil sector. And how, as an organization, how do you manage those different pieces of the puzzle as you move along and how do you manage different stakeholders as you move along? So that's a major area where we push on in the school, it's embedded in our graduate curriculum, undergraduate curriculum, and we've embedded also AI as we've been pushing since last year. We were one of the few schools that have been listed by the Wall Street Journal of embedding AI in the curriculum as well. All of our graduate students, incoming graduate students this year were required to take an AI workshop. And the goal is not to have everybody in the school be a coder or programmer, that's not where our students were, they hope to be, but it's really understanding how does AI fit with what you're trying to achieve. And again, we'll get back to that during the conversation, the role of technology and how it plays different areas or different aspects of trying to figure out the pieces of the puzzle.

00:05:38 KC Yost
Fascinating, fascinating. So how large is the school of business?

00:05:44 Ayman Omar
So we're 1200 students, give or take around 400 at the graduate level, 800. So mid-size school. We've got both modalities for all of the programs. And we've had that pre-COVID. So I know a lot of schools have pushed to online programs after COVID. We've had our online programs since 2016, so way before COVID was in place. And we've recognized that the future of higher ed is not necessarily in one modality, but it's a flexibility of bouncing back and forth inaudible. Because people want the convenience of remote, just like what we're doing right now. We're not in a physical space next to each other, this allows us for the convenience, flexibility. But at the same time, in some situations, also people appreciate being physically or on campus, meeting guest speakers and meeting other folks in person and having those kinds of interactions and conversations. So we've pushed to have both modalities across programs, and the goal is to make sure that this is a seamless transition and it's really pick your path based on the program you're looking for. Modality comes next, it's really what program are you looking for?

00:06:47 KC Yost
I got you. I got you. Very good. So I don't know if we talked about this, but I did a little stint of teaching at the University of Houston. I taught, I don't know, 15 semesters for the undergraduate school. I believe it was their senior project, 4333. And basically it was case studies. The Harvard case studies would come down on Southwest Airlines or AT& T or whomever. And it was amazing. I always tried to put the students in groups, one finance guy, one marketing person, one accounting person, one whatever, management person, and tried to get that. And I found that in almost every group, every time the people would read the same case study and the finance guy would think it's a finance problem, the marketing guy would think it was a marketing problem, the accounting person would think it's accounting problem. Does that still happen? I mean, this was 40 years ago. Does that still happen in undergraduate school? Although, I know you're not into it, but just curious.

00:07:58 Ayman Omar
No, to some extent, yes, because it depends on your lens and depends on also your comfort zone. And that's a challenge. And that's where we push students to be outside of their comfort zone, because why do you tend to approach the finance piece if you're finance students? That's where you're comfortable. You're not comfortable with the strategy part, you're not comfortable with the marketing piece. That's where you feel your strengths are and this is where you want to approach it. But I think you bring up a great, but first of all, let me say that 15 semesters is not a short stint of teaching. I think you're probably a faculty emeritus by now going through all of this. And I'm sure you've seen a lot over the time. And I think one of the biggest things in group projects, pushing folks outside of their comfort zone, whether it's by content or also by their interactions with different people, because that becomes the most challenging part for them as they pursue careers beyond school. It's not understanding the finance piece or the technical pieces. It's really how do you now implement this within a team, how do you implement this with your suppliers, with your customers? How do you make sure that your whole ecosystem is going at the same wavelength? And we both know probably this is the hardest thing in any organization, in any job, in any work, it's managing and working with people. And I think that's a big value of those kinds of groups, even with the challenges that the students see.

00:09:19 KC Yost
Communication.

00:09:20 Ayman Omar
Yep.

00:09:20 KC Yost
Communication. That was the core that I was trying to get across with trying to mix all of these people together. Teach the finance person to talk to the marketing guy, and not be condescending and respect their position and look at a problem from others' perspective. That was the goal of the exercise. So anyway-

00:09:48 Ayman Omar
That's a good point, KC. Now let me take this even one step further if we can if you don't mind just going through this. Because in supply chain management, one of the biggest barriers, something that we call is the great divide. And that's exactly how people continue to behave even after school, because the finance department is focused on the financial piece, the accounting department is focused on the accounting piece, the inaudible procurement department is focused on their own incentive, their own interests, their own, not because of a personal agenda or not because they're good or bad people, but that's how the structure is based in the organization. That's how their incentives are based. And that's where you say the key word you mentioned is communication. And unless we're communicating those kinds of things across within an organization but also across organizations, that's where we start having issues. And the issues could be masked for some time, but we're just trying to put out fires the whole time. And then you get a massive disruptive event like COVID, and that exposes all of those flows we have in the supply chain. And again, I don't want to take this to a supply chain context yet, but the key fundamental issue, like you said, what you've seen or what you've mentioned as a small group working in a project, that's exactly how organizations function or dysfunction. It seems very easy and simple. That's one of the biggest challenges of just even forecasting sales over an organization, because the forecasting has major implications to all sides of the organization, you start seeing different forecasts coming from different groups based on what they're seeing and based on their perspective and views and incentives. And unless you get one unified forecast, you've got a major problem and everybody's going out of sync. So it's a fundamental issue and you're absolutely spot on with that.

00:11:41 KC Yost
Okay. Well now that I've taken you down this rabbit hole, let's go ahead and pull back. Although, I am fascinated with the conversation and I really think it's... Maybe we will get another podcast and we'll dive deep into that sometime, if that's okay with you?

00:12:00 Ayman Omar
Happy to, sure.

00:12:01 KC Yost
Okay. So let's get back to supply chain disruption specifically in the oil industry. So what are the disruptions that you're seeing in the industry? How are we defining, what are we seeing in the industry as a disruption?

00:12:20 Ayman Omar
Great. So let me take this a step back and mention again, we mentioned the supply chain is a group of organizations. You've got producers, sellers, buyers, intermediaries, transportation companies, they're all working together to move products to get services passed on, a combination of both. And there's a plan in place. Unfortunately that plan never works as it's intended to because of some risks, some disruptions, some things that take place that were not planned for. And I'll give you a few examples in a second. But one of the biggest issues that we've seen with organizations is historically the philosophy of how we deal with risks is fundamentally wrong, it's flawed. And now we see why it's flawed and there are some ways to start fixing around this. So we'll get to the disasters, we'll get to the concerns, the major risks and sources of supply chain disruptions. And we'll talk also about the ways to fundamentally change the mindset here to start thinking about this in a different lens, and then we'll take that to the oil industry and how it impacts really the oil sector. So examples of supply chain disruption includes things we've seen like natural disasters. So think of hurricanes, earthquakes, floods, anything that's happening suddenly that's changing the dynamics of how products can flow or not flow. Geopolitical instability. We've seen that. We see this right now live as we speak in the Red Sea with the wars that are going on or in between Ukraine and Russia and how it impacts the problems. There's an oil tanker that's on fire in the Red Sea as we speak, that was set on fire and sabotaged as a result of the war that's taking place. So this is just one example that's happening now as we talk about this. Transportation and logistics disruptions. So whether it's a port congestion, a backlog, and a port that now causes a massive dominant effect of ships not being able to go into. We've seen cyber attacks, nobody looks at cyber attacks, but two-thirds of cyber attacks happen through a third party. What does that mean, and why do I care about this in the supply chain risk, supply chain context is, no matter what you do internally for your organization, unless you're looking at the entire supply chain in that context, the probability of getting breached is two thirds, 66%, you're going to get breached through a third party and successfully breached.

00:14:50 KC Yost
Really?

00:14:51 Ayman Omar
You can protect your house as much as you want, but if you... Think of this as you're standing protecting your front yard and you've got an arsenal of things that are protecting you.

00:15:03 KC Yost
Well, I am in Texas.

00:15:05 Ayman Omar
That's right.

00:15:05 KC Yost
Okay. Go ahead.

00:15:06 Ayman Omar
And you've got the backyard wide open and you're inviting folks through the backyard. That's exactly through a third party. And again, the major target was breached like that, then it's a major case. And there are many organizations that have been disrupted through a third party. What does that cause? Is now when you've got production sites that are go offline, now when you've got ports being impacted, now when you've got suppliers or vendors or intermediaries that are being shut down, disrupted, cannot work, are late in shipments, do not have the right shipments, that's all affecting and just general volatility in supply and demand that we've seen over time. So you see all of those effects and then you start thinking of, okay, so why are you missing this? Because as we start planning for our supply chain operations, we always think of a black swan event and ignore that. And we keep saying, well, this is a black swan event. This is going to happen once in a lifetime. And maybe that's true. But what I hear about is not the actual event. What I care about is "Am I going to see another event?" Not necessarily the same thing that's going to cause the same thing. So I'll give you a few examples. Again, we've seen wars, we've seen COVID, we've seen the, what's happening right now in the Red Sea and the Suez Canal. We've seen a ship get stuck in the Suez Canal and stop all of the traffic back and forth. Right now we see in the Panama Canal because of the drought, the water levels are down, the level of ships that are flowing through the canal, the amount of cargo that they can carry on, that's being disrupted, that causes a lot of ripple effects and again, domino effects back on. So you see on and on and on of those kinds of examples. And you keep thinking of a black swan event, the bridge in Baltimore, the Port of Baltimore that got hit by a ship.

00:16:52 KC Yost
Right. Sure.

00:16:54 Ayman Omar
So what you need to do is rethink how you look at risk and disruption and assume this is happening in some place. This is going to happen. Instead of the just in time, now just in case, just in case something happens, how do we deal with this? As opposed to let's plan on things based on a perfect setting in a perfect supply chain just because we know this is not going to happen. Maybe the Port of Baltimore is not going to be hit for another a hundred years. I hope so. But there's another event somewhere else that's going to cause the same disruption and chaos to my supply chain. And how do we deal with those kinds of things?

00:17:31 KC Yost
So if we're looking at how supply chain disruptions impact the oil sector, that's exactly what you're talking about. Literally, because the oil production and distribution effort is so widespread and so exposed, all of these disruptions, the tanker in the Red Sea, the problems with Colonial Pipeline, let's go to natural gas and talk about the cyber issue with Colonial Pipeline. I mean these are all disruptions that can impact oil and gas. Right?

00:18:16 Ayman Omar
So a few things you mentioned one that's spot on, which is production and distribution disruption. But let me start even with the cost of operations. Because as you see those disruptions taking place, and I'll give you an example from my background, is we're providing a service to one of the companies on an offshore rig or an offshore platform. And we've got very specific high-tech tools and we need specific parts and supplies to those tools if they fail. And now we are on the rig, if we don't have the right supply, the right component, the right part, and we need to get that from somewhere and that gets delayed, everything gets delayed and production operations get delayed even on site. So this is not even transporting oil or gas to different sites or locations, that's even the actual production being disrupted because of those components. Because of that disruption, now we're mismanaging our inventory levels and how we manage inventory. Do we have too much on hand? Do we have too little on hand? And that's additional cost of operations to all of the oil companies. Again, when I say oil companies, I'm talking about the sector, whether it's the producer, the service companies, everybody's getting hit.

00:19:23 KC Yost
I get it. Sure.

00:19:24 Ayman Omar
But maybe somebody's paying that check upfront, but everybody's getting part of the tab as we move forward.

00:19:30 KC Yost
I was involved in offshore Gulf of Mexico in the '70s quite a bit, worked for companies that had pipelines out there. And there was a group of pipeline companies that actually had repair equipment where they had all chipped in to purchase this repair equipment so they could get their hands on valves and pipe and clamps and whatever the case may be, to immediately address any leaks that were out in the Gulf of Mexico to get themselves back online. And then they would replenish this storage effort. But that you get into the discussion, what's too much, what's too little and all of that, right. Okay.

00:20:14 Ayman Omar
And you're probably getting both wrong. So you have too much of a certain product somewhere and too little somewhere else, and now you're getting hit with both costs of stockouts and cost of overstock. And again, in an offshore, even onshore production or exploration environment, the worst thing, the worst nightmare, the thing that drives everybody insane and you start getting calls from headquarters in Sugar Land, Texas, it's rigged downtime. "Why on earth are we late? Why is there a delay of few hours?" That's the worst nightmare. And when you've got supply chain disruptions, you're either going to over-prepare and not prepare or you don't know how to prepare. So that's part of the cost of operations. The other part, the second part to this is as you mentioned, it's the production and distribution disruption. So how are we getting the products from A to B? Are the ports congested? Are the ports not congested? Are the ships delayed? Did somebody set fire to an oil tanker? Are the ships now rerouting around Africa because they're worried about insurance not covering them because of what's happening off of the coast of Yemen? So even though this is not even an operational part, but that's an insurance-induced alteration because of what's happening geopolitically, and now we need to have additional cost, additional time, and that's more cost of the operations.

00:21:44 KC Yost
Yeah. Or are you going to hire a third party of armed guards to ride shotgun, if you will, on your tanker to try to get through that area? Now they're not going to be able to stop a missile or something like that, but they can take care of pirates and that type of thing. So it gets back to what you were saying, what's enough, what's too little, what works out best?

00:22:06 Ayman Omar
And there are shippers who've decided if insurance is not covering me in that area, I'm not going through that area. And if the stuff is delayed, the shipments are delayed, they take longer, they cost more, tough luck, I'm not going to risk a 500 million tanker or 500 million container ship to go through and just be faster. And the last is here of how this, all of that disruption, how that impacts the oil sector is now you start getting even higher pressure towards renewables and people start shifting their focus and attention and energy towards renewables. I know we're going to get into pieces of that later on in the conversation, but I think that becomes a secondary effect or impact based on all the disruptions we're seeing throughout the supply chain.

00:22:55 KC Yost
I got you. So let's talk about digital technologies and innovations like AI. You mentioned AI earlier and your graduate students having to get involved with that. So how is that improving the supply chain resilience, if you will, in the industry?

00:23:13 Ayman Omar
So I'll always say that resilience starts with process, not with the technology. But the technology is a very powerful tool. So whatever that platform is, whether it's AI or using analytics or using a blockchain platform, this all helps you get to a better level of visibility. The ability to track and trace, ability to be more responsive. Maybe you cannot prevent an event from happening, but maybe now you can shift where your production is in a faster scale. Maybe if you know that information ahead of time, maybe I can't change what's happening in the ports of the West Coast in LA and Long Beach, but now I can reroute my ships to go through somewhere in Texas or somewhere in further or somewhere in the East Coast, so ahead of time before they get stuck into in those situations. So information really helps us get to another level of, again, it's track and trace visibility, transparency. How do you see end-to-end what's happening, and how do you make sure that all parties, and again it's all parties within your network are seeing that same information? So when a problem happens somewhere, I'm not reacting to it eight weeks or three weeks or four weeks after it happens. When you're reacting to a problem at your doorstep, that's too late.

00:24:34 KC Yost
Right.

00:24:34 Ayman Omar
You're limited in terms of options, you can't react to it. How do I react to it is faster. There's a simulation we do with our graduate students and even at the executive level, it's called the bullwhip effect or the whiplash effect in supply chains, and how some noise in the supply chain causes major swings. And the problem with those swings is people do not see enough multiple levels in terms of what's coming down the pipeline and by the time they react, it's too late. So they overreact. And this is what we see. We've seen this with COVID. During COVID, we've seen this and again, it's a natural human behavior, but even in an industrial setting, it's just your options are limited at that point. If you've not taken that decision two or three weeks out of time, one by the way, you've had a chance to do this. So back to your question about technology. Technology, again, not trying to push for a specific platform or a specific solution by itself, but technology, whatever works for an organization, whether it's AI, a blockchain, just using simple analytics, a combination of all of this, making sure that there's enough visibility throughout the different key players, key partners. And it's not just data because sometimes I see data points, but I don't understand really what does this mean? Why did that number go from five to eight? What does that mean? Is this an expected, is there a disruption? Should I plan for, is it going to go from five to eight to 20 or is it five to eight, then dropping back to five? So just having those conversations really helps and those conversations could be aided with a lot of technology. Some of the stuff you've mentioned in terms of AI, now you can reduce the time and effort that it takes us to process some of that information. So thinking of those as support tools, not just the solution to the problem itself. The problem starts with looking at the entire process and where those critical links are.

00:26:28 KC Yost
So what you're doing is developing a process and a procedure. And if you will, letting me go back to my Fortran days in the 1970s, if this, then do this. And basically what technology lets you do is make that decision quickly instead of, because the process has already been worked out. If this happens, then do this. Or if this happens, then check this, and if this is what's happening, then do this. But AI or whatever platform you have allows you to go through that much more rapidly than if you were going through a three-ring binder with 600 pages trying to figure out the process. Is that it in a nutshell?

00:27:15 Ayman Omar
So that's part of the analysis and part of it is understanding that the if part to the Fortran, worked on Fortran 77 as well, so that's long time ago. So the if part, if something happens, getting a sense that that actually took place two, three weeks ahead of time. Thinking of movies when they happen, when something happens and then you go back in time and say inaudible, it's not going back in time, but it's not waiting until two weeks after something's happening elsewhere and then you're reacting late to it. And this is what helps you start to jump into the Fortran mode and say, if took place, let's go with the then.

00:28:00 KC Yost
Yeah, yeah. Okay. I got. I got you. So change gears. Sustainability, sustainability initiatives. How do disruptions affect these initiatives?

00:28:17 Ayman Omar
I'll give you the favorite answer that all of my students give me, which is, it depends. Yeah. But just to frame it to the audience in terms of when we talk about sustainability, we're talking about sustainability with the larger context, not just the environmental piece, but we're looking at the social piece, the economic piece, and all of it across in a more comprehensive manner. I think there are two impacts to that, and that's why I say it depends. There are some areas where some of those areas start to slow down some of the sustainability initiatives or become an obstacle to some sustainability initiatives and some areas where they start pushing to accelerate some of the sustainability initiatives. So some of the areas, again, thinking of sustainability in a very, very simple term is reducing waste. As we have more disruption, as we've got more congestion, as we're doing the least optimized routes, whether it's transportation, distribution, warehousing materials, just think of waste in every place, that's delaying any of the decarbonization projects, that's delaying any of the initiatives, any sustainability goals or initiatives, that's being slowed down. And that's impacting some of those goals in the oil sector, especially if an oil company has got some goals for decarbonization and getting to those goals. The other part is it causes some capital constraints. The more supply chain disruptions we've got in the oil industry, we talked about the cost that it impacts the companies, the disruption. Now you're reshuffling resources elsewhere because you're fighting certain things that are flared up. So capital constraints to re-channel to different projects where you're looking at sustainability initiatives, that takes a back step and becomes more expensive to even invest in those projects because of cost of everything goes up. So now it's even more expensive with the least amount of resources. So that's why it slows down some of those initiatives. At the same time now we talked about the, when you've got some of that noise, and cost is going up, and oil prices are going up, oil prices could be going up for a hundred different reasons, not related to the actual production of oil itself, but there are so many different reasons of it going up. First thing that people come to mind is, let's restart that conversation of going and shifting to other renewable sources. It adds more pressure to reach some sustainability goals, and part of it is putting more focus on circular economy practices. Circular economy is closed loop supply chains of how do you make sure that that product is being used in multiple cycles in multiple stages. It's not being wasted or discarded at some point. So how do you start pushing for those kinds of projects? So that's where I see it accelerating or decelerating some of those initiatives.

00:31:22 KC Yost
I think I understand. I think I understand. So the oil industry has a lot to learn. Are there other industries from which the oil industry can learn about how to protect these sustainability issues?

00:31:42 Ayman Omar
I think there's no perfect industry, but there are industries that have moved, and think of this as a continuum. There's no's no perfect goal where you say, I've reached my goal for sustainability initiatives. inaudible-

00:31:56 KC Yost
The world is dynamic.

00:31:58 Ayman Omar
Exactly. It's dynamic, it's revolving. And the reason I say that is, I started in this research specifically in terms of how managers approach, how do supply chain managers approach sustainability in their perspective and what are some of the best practices? Approached that with a fellow colleague of my colleagues from the University of Arkansas, from the Sam M. Walton College of Business and another fellow from University of North Carolina. And we started the project looking at best practices. And in reality, we realized company after company, we talked to manager after manager and we realized everybody's struggling. And we realized that's actually the story here to uncover, it's not how everybody's... We talked talked about the non-exemplars because everybody talks about the exemplar industries, right?

00:33:00 KC Yost
Right.

00:33:00 Ayman Omar
This is how all of those industries are doing the best practices. In reality, everybody's struggling and struggling for different reasons. Some industries have made a push forward, such as the fashion and garment. And again, there's still a lot for them to work on. So as I say that, I don't want the audience to say, "Oh my goodness, how are you listing that industry? They have a lot of issues." They do but they've moved a lot and they've moved a lot, especially on the social part after the collapse of the production facility in Bangladesh, the Rana Plaza building in 2013, where that has caused a massive backlash and they started reviewing some of their policies and procedures in place to look at the social aspects of sustainability and how do you make sure that you look at this. Another company that's been pushing on that, so fashion industry, to your question, fast moving consumer goods or even major retailers. And I'll give you the example of Walmart. Walmart has started pushing on sustainability initiative, especially with the social part because they realized that helps them reduce cost. So it wasn't just the being good, it was a combination of being good, but also we understand where's the business value proposition.

00:34:19 KC Yost
Sure.

00:34:20 Ayman Omar
So-

00:34:21 KC Yost
I like that. I like that example. My wife loves the truck that says, "Follow me to Walmart." So fair enough.

00:34:27 Ayman Omar
Yeah. And they realized as you start investing in the employees of some of your suppliers, that improves the quality of the product. And it's not because they're competing on quality, but that reduces the returns for them. And reduction of returns reduces cost of operations. And it's a win-win win. You reduce the impact of transportation, you reduce the carbon footprint, you reduce waste in the system and your customers are happy. So it's a combination of business value proposition. So those would be the first two industries that come to mind. Massive major retailers and also the fashion industry that closed the apparel. The one thing, one other example I'll mention with a project I'll pick with Walmart, but I think it's the platform combining technology, combining transparency and combining waste and the ability to react. So the major retail industry, especially the groceries and food industry, had a major problem in the 2018, 2019 and even beyond, which is recalls. And I'm thinking of recalls because it fits within the frame of our discussion of recalls as a sudden disruption, something that's happened in the system and we need to react to it. Recalls you've heard about spinach recalls, food recalls. Problem with that is prior to that solution I'm going to talk about in a second, recalls would cost the industry somewhere between five to$ 50 billion, B as in Bravo, billion dollars per industry because you don't have enough time to investigate, the investigation takes six to eight weeks when you go through all of the chains and all the entities and so on. And what do you happen? You discard or destroy all of the products upstream to downstream because you don't have the ability, you don't have the visibility, you don't have the ability to track and trace in a short duration. So Walmart has gone out and started implementing a blockchain platform. And again, I'm not trying to push for blockchain as the solution for everything, but that's an example of, again, pushing for a process where you've got more visibility and ability to track and trace. Not because you can stop the foodborne illness or disease from taking place, but you can react to it in a faster way. And that's where I talk about reacting to disruptions in the old industry, maybe in a faster solution. And now they can react to those kinds of disruptions. instead of it taking six to eight weeks, now that reaction time is three to five seconds.

00:36:56 KC Yost
So just because we're talking about textiles or we're talking about Walmart or we're talking about whatever, there are lessons that the oil industry can learn from each one of these industries just in how they took care of their problems and their issues. Got it.

00:37:14 Ayman Omar
100%. And even though it sounds like a completely weird industry to think of, but think of this as the parts and components you deal with in the oil industry. Think of those different parts that are flowing back and forth. Think of the production that takes in the oil industry. Think of the distribution, warehousing and some of the issues that take place in forecasting even. How do you manage forecasting without enough visibility, enough track and trace, enough and responding to some of those different disruptions. So even though it sounds like it's coming from a far outfield industry, it's actually the common issues are the same. The way you address it is maybe not identical and not exactly the same, but it's more or less the same concerns and same issues across industries.

00:37:59 KC Yost
Got you. I've enjoyed the heck out of this conversation, but we're running out of time. So can you quickly talk about the long-term challenges that you see and changes that you see in the oil industry as it adapts to these new market realities? Do you got a Reader's Digest version of how that's going to look or how you think it's going to look?

00:38:23 Ayman Omar
So I think in terms of, again, disruption that's taking place, that's going to continue to happen and that's going to continue to challenge all industries. The current wars taking place may stop, but we might have something else popping up somewhere else. I hope not. But my guess is some issue or challenge that's going to take place. Question is, do we have enough scenarios back to your, if-then? As a company, do you have enough of the if-then? Thinking outside of the box, thinking of outside of the historic cases, thinking of forward-thinking of how do you deal with those kinds of situations in a timely manner? And without looking at the immediate cost, because the minute you start thinking of the immediate cost, you start shutting down on all of those different, how do you deal with a problem if it takes place. Because you're not setting up some resiliency in your system, you're not setting up enough redundancy in your system to deal with those situations. So you set up, you've invested based on a certain structure and that structure allows you to operate in a certain way. If things change around you, you're not going to be able to adapt. So part of this is how do you build resilience based on the, if-then scenarios, based on thinking of beyond the black swan event, think of just major disruptive events that will take place. They could take a different shape, but the outcome is the same. So how do you think of resiliency? How do you embed and integrate sustainability? Not because it's a great talking point, not because it's a good PR, not because it's a good thing to have on your website, but it fundamentally addresses your business value proposition and how do you embed that in different aspects, whether it's again, the social, the environmental, and how does that work with the economical piece? Because the economic piece has to take 100% part of it, otherwise it won't work. So looking at all of those dimensions in place.

00:40:20 KC Yost
Economics has got to be extremely important, but it cannot be the know-all to tell-all in the solution process.

00:40:29 Ayman Omar
Correct. And again, the question is the long-term versus short-term. Economic has to be 100% important. Otherwise, you're not sustainable, right? You're not going to endure. So-

00:40:39 KC Yost
We're not in business to break even.

00:40:41 Ayman Omar
Correct. If you don't have the economic piece, it's not going to work. So the economic piece has to be 100%. The question is, how do you strategize based on that economic piece? And again, I've given you examples of major for-profit industry companies that are using some of those strategies because they understand how it also fits in that business value proposition. The same thing applies to the oil sector, whether you're a supplier, a manufacturer, a service provider, a major production company, that takes effect somehow, whether again, whether we talk about renewable energy sources, different energy sources, the same energy sources, regardless of how we pursue this discussion, it's how do you become more sustainable and how do you involve all of those aspects as you move forward? And a big part of sustainability leads to the first question we brought up KC, which is risk and disruption. Because how do you manage risk and disruption? That's part of being sustainable. How do you have in place talented folks that can deal with risk and disruption? That's at the heart of it. It's not necessarily about just being good to the environment. That's going to come as a result, that's going to happen as we work through this. But at the core of it is, how do we become resilient and how do you manage that disruption? Because if we're not resilient, if we can't manage disruption, now we start losing on all aspects. We lose on money, we lose on the environmental piece, we lose on the social piece. Just it's a race to the bottom.

00:42:10 KC Yost
I got you. I got you. Wow, this is fascinating. Fascinating. So we've really had a great conversation here, and I appreciate you taking the time. Anything else you want to throw out via add before we go ahead and sign off?

00:42:25 Ayman Omar
I think just last concluding comments. I'd say again, for the oil sector, the number one part is as you think of your supply chain, thinking of all of those major nodes, all of the key players that come into place, whether it's from an operational standpoint, we talked about the cyber risk element of oil producers. We've seen this happen in the states, we've seen this happen in the Gulf with Saudi Arabia and Aramco. We've seen this with many major organizations where they've had cyber breaches and what kind of risk this poses to the entire ecosystem. So looking at the major nodes, trying to change the mindset of how we deal with risk, major risk events, and then thinking of how do you make sure that you're set up in a way where things are sustainable moving forward.

00:43:14 KC Yost
Excellent. Excellent. Professor, thanks so very much for taking the time to visit today. I thoroughly enjoyed this, and I've probably got two dozen more questions to ask you. Maybe I'll look forward to another podcast if you have time. So great.

00:43:29 Ayman Omar
Likewise, KC. My pleasure and happy to join one of your classes in University of Houston if you decide to go back to teach.

00:43:38 KC Yost
That ship sailed a long time ago, long time ago. It may be the one burning in the Red Sea right now. Anyway, so if anyone would like to get in touch with the professor, you can find him on LinkedIn. That's Ayman Omar, that's A-Y-M-A-N Omar O-M-A-R. I think he's the only one that's listed there as a professor at American University. And if anyone wants to get in touch with him and can't find that, feel free to send me an email. So thank you again, professor. Thanks to all of you for tuning into this episode of the Energy Pipeline Podcast sponsored by Caterpillar Oil and Gas. If you have any questions, comments, or ideas for podcast topics, feel free to email. Or you want to get in touch with Professor Omar, feel free to email me at kc.yost@oggn.com. I want to thank my producer, Anastasia Willison-Duff and everyone at the Oil and Gas Global Network for making this podcast possible. Find out more about other OGGN podcasts at oggn.com. This is KC Yost saying goodbye for now. Have a great week and keep that energy flowing through the pipeline.

00:44:49 Speaker 5
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