Evaluation of External Forces Affecting Supply
Chain Sustainability in Oil and Gas Industry Using
Best Worst Method
Saman Sadaghiani*, Karimah W. Ahmad, Jafar Rezaei & Lóránt Tavasszy
Transport & Logistics Section
Delft University of Technology
Delft, the Netherlands
*
saman_sadaghiani@hotmail.com
Abstract—The negative impacts of the oil and gas (O&G)
industry on the environment and society wellbeing necessitate
research on the integration of sustainability in its supply chain
management practices. However, the research on sustainable
supply chain management (SSCM) in the O&G industry context
are still lacking in terms of understanding the factors that
facilitates or hinders its implementation. Therefore, this paper
aims at addressing the gap by assessing the importance of the
external forces within the O&G operating environment t h a t
could affect its SSCM strategy. A literature review w a s
conducted where we identified six external forces namely
economic stability, political stability, stakeholder pressure,
competition, energy transition and regulations. A multiple-
criteria decision making (MCDM) method called Best Worst
Method (BWM) was used to assess the importance of the forces
based on data collected using a questionnaire sent to academic
experts in the fields of SSCM and O&G. It is found that economic
stability followed by competition and political stability are the
most important external forces and regulations and energy
transition are the least important forces influencing the SSCM of
the O&G companies. The outcome of this study could help
O&G companies to identify external forces that can drive
(hinder) their SSCM implementation. Consequently, it enable
them to develop a strategy that take into account their resources
and capabilities to address the external forces as they strive to
make their supply chains more sustainable.
Keywords—Sustainable supply chain; oil and gas; external
forces; best worst method (BWM)
I. INTRODUCTION
Supply chain management (SCM) plays a very important
role in facilitating the achievement of sustainable industrial
activities. Concerns about the impact of the activities on the
environment and society have led to increased interest on
sustainable supply chain management (SSCM) practices that
seek to achieve joint optimization of economic, environmental
and social performance. Research in the SSCM field can be
classified into two different perspectives: (i) micro perspective
that focuses on integrating sustainable practices in SCM
through approaches such as reverse logistics, carbon footprint
reduction, and green supply chain, and (ii) macro-perspective
that takes the broader business environment of supply chain
into account to address sustainability issues [1]. In contrast t o
the first category, research at the macro level is still scarce.
Sustainability issues in the supply chain cannot be addressed
effectively without understanding the environment or the
context in which it operates, thus necessitates for more studies
from the macro perspective [1].
The oil and gas (O&G) industry is, undoubtedly, one of the
most important industries that drive economic and social
development. Due to the strategic importance of O&G
sources, the industry could be affected by various external
forces within its business environment such as economic,
geopolitical, competition and regulations. The nature of its
operations and products has also raised concerns about its
compatibility with sustainable future. Current research on
SSCM of O&G is still lacking in terms of understanding the
external forces that could affect the industry’s efforts in
improving the sustainability of its supply chains. This study,
therefore, aims to address this gap by identifying the important
forces that could drive (hinder) the SSCM practices in the
O&G industry.
This study uses best worst method (BWM) which is a
multi-criteria decision making (MCDM) method to investigate
and distinguish the importance of the forces based on data
collected from academic experts in the field of SSCM and
O&G. The outcome of this study would assist in SSCM
decision-making processes where companies would be able to
develop more effective strategies by considering the
opportunities and also limitations that exist in the
environment.
This paper is organized as follows. In Section II, a brief
review of literature is presented. The methodology (BWM) is
presented in Section III. In section IV, the results are
discussed. Finally, the conclusion of this study is drawn in
Section V.
II. LITERATURE REVIEW
A. The External Forces of O&G Industry
The studies on the macro environment of supply chain
involve understanding the factors that are, to large extent,
outside of the direct control of companies. The O&G industry
is a multi-actor environment meaning that various parties with
978-1-4799-8572-2/15/$31.00 ©2015 IEEE
different positions and powers are involved in the operations
[2]. According to Edwards et al. [2] and Anderson [3], the
O&G supply chains can be influenced by the external forces
such as political, economic, social, environmental, competition,
and legal factors which exists in its business environment.
In this study, six main external forces are identified which
can affect SSCM of O&G industry. These forces are namely
political stability, economic stability, stakeholder pressure,
competition, energy transition, and regulations. First, policies
and decisions made by the governments could directly
influence the activities of the O&G companies since most of
the companies in the O&G industry are either state-owned or
have a close relation with the governments. The governments
in their respective countries have direct control over the
evolution of the O&G industry and could manage it based on
their willingness [4]. According to Hecht and Miller [5] the
sustainability practices cannot be advanced without the
governmental supports and convergence of government and
business interests. Furthermore, due to strategic importance of
the O&G industry, it is in the center of the international
geopolitical and economic outlook, and political instability in
the O&G producing countries might impact the activities of
companies.
Second, economic situation and the O&G industry have
bilateral relation since the global economic depends on
constant supply of O&G while development of the O&G
industry heavily relies on the progress of international
economic. Different economic activities such as changes in the
interest rates, taxation changes, and inflation would affect the
operations and profitability of companies in the O&G
industry. Economic instability can negatively impact the
profitability of companies and confront them with financial
risks. The O&G companies have to keep their profitability
high in order to achieve sustainable (economic) performance,
expand their businesses, and be able to replace the
unsustainable processes [2].
Third, stakeholder management is a crucial issue in driving
sustainable practices and the integration of demands from
corporate social responsibility into business processes. It
allows creation of an integrated management system
supporting the proactive development of best practices [6].
Matos and Silvestre [7] found that in development of
sustainable business models, participation of different
stakeholder groups is mandatory since it helps to tackle the
stakeholders’ related issues and avoid possible conflict of
interests in the future.
Fourth, due to huge demand for energy and nature of the
energy market, there is ever-increasing competition amongst
the companies in this field. Competition is a reality for all the
companies in the O&G industry whether organized in
upstream, midstream or downstream of the supply chain.
Companies in the O&G industry can be divided into two
groups. They are either “international O&G companies”
(IOCs) having limited proprietary control over O&G resources
but possessing required technologies or “national O&G
companies” (NOCs) owing O&G resources but not proper
technologies to extract O&G efficiently [2]. Furthermore, the
O&G companies are also confronted with other companies in
the energy market, especially companies working in the field
of alternative energy development such as wind, solar, and
biofuels. Hence, the O&G companies must compete with
companies both inside and outside of the O&G industry in
order to keep their market share and profitability high which
can give the ability to companies to invest and improve their
sustainability performance.
Fifth, one of the most challenging issues confronting the
world today is energy. Providing sufficient energy is vital for
the global economy and the future of this planet. It would be a
great challenge since the world population with higher living
standards is growing. Considering the fact that fossil fuels are
not renewable, it is crucial to find and develop substitutes to
meet the needs of future generations. As a result, a transition
in global O&G production has commenced. The main concern
of the O&G transition is to find and develop environmentally
friendly technologies quickly to first replace conventional
O&G products and then supply the increasing demand of
energy for transportation [8]. Considering the above
mentioned facts, it would be vital for the O&G companies to
also invest in development of alternative energy since it can
safeguard their future growth.
Sixth, regulations in the macro environment play a pivotal
role in shaping an industry. Investigation of the O&G industry
through the last decades shows that the O&G industry has been
confronted with fewer significant regulatory pressures
compared to other traditional industries such as financial and
life sciences. Nevertheless, that situation has changed during
recent years in a way that the O&G industry is now under
various regulatory pressures. The O&G companies are
confronting extended range of regulations from local planning
commissions and national government to global and
international organizations such as the United Nations or
European Union. Globally unaligned (governmental)
regulations can result in diversified operational risks,
environmental impacts, and carbon pricing specially for the
IOCs operating in different countries. Such regulations can
impact performance of companies since implementation and
meeting of these regulations require significant amount of
time, effort, and capital investment [5].
III. METHODOLOGY
A. Data Collection
In order to investigate the importance of the external forces
affecting SSCM of O&G, a survey was conducted to collect
the data needed. For this purpose, an online questionnaire was
designed and sent to academic experts in the USA and Europe
in the field of SSCM and Petroleum Engineering. The
questionnaires were sent to 500 respondents in a survey period
of two months. After four reminders, we received 74
responses where 48 are complete.
B. Best Worst Method
The data gathered through the survey were analyzed using
a new multi-criteria decision making method called best worst
method (BWM) [9]. The BWM is based on pairwise
comparison of criteria that requires fewer comparisons and
also produces more reliable and consistent results compared to
the existing pairwise comparison-based methods. The BWM
consists of five steps to derive weights of the criteria. These
steps are as follows:
1. The first step is determination of a set of criteria
{c1,c2,...,cn} that is needed to reach a decision.
2. The second step is determination of the best and the
worst criteria. The decision maker in this step is asked to
choose the best and the worst criteria amongst the set of
criteria.
3. The third step is about determining the preference ratio
of the selected best criterion over all the other criteria by using
a number between 1 and 9 (1 means equal importance and 9
means extremely more important). The result of this step is the
Best to-Others vector AB = (aB1,aB2,…,aBn).
4. The fourth step is about determining the preference ratio
of all the other criteria over the selected worst criterion by
using a number between 1 and 9. This step results in the
Others-to-Worst vector Aw = (a1W,a2W,…,anW).
5. The final step is to calculate the optimal weight for each
criterion (w1∗,w2∗,...,wn∗). A minmax model is used to find the
weights, and the consistency ratio (please refer to Rezaei,
2015 to find more about the method)
IV. RESULTS
The results of data analysis using BWM reveal that the
economic stability is the most important factor that could
affect the SSCM of O&G. This force is roughly 2 to 3 times
more important than the other forces. The reason of this
significant difference might be because of strong dependency
of every company on economic conditions. Companies would
be able to generate more profits during economic growth. By
being more profitable, companies would be able to invest
more in the expansion of their business as well as investing in
improvement of their sustainability performance.
TABLE I. WEIGHTS OF THE EXTERNAL FORCES
ECO COM POL STH REG ETR CR
Weight 0.33 0.17 0.15 0.13 0.12 0.10
0.20
Rank 1 2 3 4 5 6
The second important external force is competition.
Companies in the O&G industry have to compete with their
industry peers and companies within the broader energy
industry that are involved in the development of alternative
energy sources. Hence, the O&G companies need effective
strategies to keep their profitability and competitiveness high
in the market. The next important force is political which is
slightly less important than competition. Due to close relation
amongst the O&G industry and the governments around the
world, various political related issues such as governmental
policies, financial supports, oppositions and political unrest
affect the companies in this industry. The next important
criterion is stakeholders. Stakeholders are defined as any
identifiable group or individuals who can affect the
achievement of an organization’s objectives or who are
affected by the achievement of an organization’s objectives.
They can play a pivotal role in activities of a company.
Two next external forces are regulations and energy
transition. The weights of these criteria are roughly equal.
Currently the O&G industry is under various kinds of
regulations that can impact performance of companies since
implementation and meeting of various regulations require
significant amount of time, effort, and capital investment.
(Over) regulations can limit the activities of companies and
hinder their performance [9]. Furthermore, due to importance
of supplying energy for rising population and future
generations as well as environmental problems, it is vital to
find substitutes for fossil fuels. The governments around the
globe have designed various programs to support development
of renewable energies as substitutes of fossil fuels specifically
O&G.
It is found that although regulations and energy transition
are two external forces playing important roles in affecting
performance of the O&G companies, academic experts believe
that they are not as important as economic and competition
forces. The reason might be due to the fact that the significant
aspects of energy transition and regulation for O&G
companies are regulations and governmental incentives which
can affect development of companies. These can be in favor of
development of renewable energies that might lead to
probable dominancy of renewable energies in the future
energy market [3]. Hence, companies working in the field of
alternative energies will be major competitors which can
threaten profitability of O&G companies.
In this study, several sub-criteria of the external forces
were studied to further understand them. Figure 2 illustrates
the importance of the external forces’ sub-criteria. Amongst
the economic related criteria, capital investment program is
the most important criterion which can affect sustainability
performance of O&G companies. Capital investment is crucial
for the O&G companies since it is related stakeholders. It can
lead to development of new technologies and processes that
can replace unsustainable practices. Moreover, by capital
investment companies can replace or renew outdated or worn-
out assets to keep their productivity high, assist companies to
retain a competitive position in the market, plan for securing
funds, and guarantee future sales. The higher importance of
this criterion compared to another two can be due to the fact
that companies need to first remain in the business, make
profits, and then become able to plan and invest in
environmental and social programs.
Amongst political related criteria, it can be seen that
uncertainty in governmental related policies is the most
important factor. The O&G companies are under political
pressure from different parties such as governments, local
communities, NGOs, etc. The O&G companies, either NOCs
or IOCs, have a close relation with the governments.
Accordingly, the policies made by the governments have
direct impacts on the performance of these companies.
Furthermore, in most of the O&G producing countries, O&G
are the main sources of revenues for the governments. In these
countries, in better economic condition, the governments
would be able to support development of alternative energies
and provide financial stimulus. However, during economic
slowdown, the governments might have lower interest to
support development of sustainable energy. Instead, they
might become more inclined towards supporting of O&G as
the source of income and design energy policies in favor of
O&G companies [7]. Consequently, these situations would
make an ambiguous condition for the O&G companies and
can hinder their performance.
Figure 1. The importance of the external forces sub-criteria
V. CONCLUSION
In this study, the importance of external forces affecting
supply chain sustainability of O&G industry by using best
worst method (BWM) was investigated. It is found that
economic stability followed by competition are the two most
important external forces affecting the implementation of
SSCM in the O&G industry. These two forces could threaten
the market share of companies, impact their profitability, and
influence the implementation of sustainable supply chain
practices.
The external forces are largely beyond the control of O&G
companies. Companies must utilize their internal capabilities
to overcome the lack of control over external forces. To tackle
this issue, they can implement enterprise risk management
practices to first identify possible threats or changes in the
environment and then find proper solutions in timely manner.
Besides, early stakeholder engagement would enable the
company to address their concerns effectively, thus avoid
possible complications from society backlash and disruptions.
Furthermore, The O&G companies must consider the issue of
energy transition. Although the O&G will remain as the main
source of energy during next 30 to 40 years, the O&G
companies must consider the transitional support towards
renewable energies. It is anticipated that in the future there
would be a fierce competition between energy companies
since future energy market would belong to companies that
can offer both fossil fuels and renewable energies. Hence, it is
recommended to O&G companies to invest in development of
renewable energies parallel to O&G in order to assure
sustaining their growth in the future.
As a further research, it is recommended to investigate the
possible effects of identified external forces on three
dimensions of sustainability. It is essential to analyze how
these forces can impact each dimension of sustainability and
investigate the way these external forces impact sustainability
performance of O&G companies.
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