Fluor Procurement Overview
China Sourcing Petroleum Equipment Summit 2012
© 2012 Fluor Corporation. All Rights Reserved.
Fluor
China Sourcing Petroleum Equipment Summit 2012
Global Petrochemical Project Execution
Discussion Topics
Fluor
Petrochemical
Procurement
Fluor
Project Sourcing Trends
Execution Strategies
Prospect Update
2
Fluor Corporation
Executive Overview
One of the world’s leading publicly traded EPCM companies
Over 1,000 projects annually, serving more than 600 clients in
66 different countries
More than 42,000 employees
– 1,900 Procurement
professionals
Offices in 28 countries
on 6 continents
100 years of experience
3
Fluor China E&C Company
Office Profile
Executing projects in China since
1978
More than 250 projects completed in
China
Strong FSR/FEED/PMC/EPCM/EPC
execution capabilities
9 Mega Projects executed during the
last decade
Beijing
Fluor has worked with more than:
– 20 Class A China Engineering
Companies
– Several Super Class / 1st Class
construction companies
Shanghai
Current staff ~ 876
Office Locations:
– Head Quarters, Shanghai
Dawning Center
– Beijing Lido Plaza
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Fluor China E&C Company
Customer Value Proposition
Dependability and Reputation: Proven track record of successful
project execution in China - minimizing clients’ risk exposure, worldclass reputation in project management, systems and tools.
Depth and capability of resources, including access to world wide
expertise
Unmatched capability with very large projects but also with small and
medium sized projects.
Full range of services from FSR, conceptual, self-perform design,
procurement, construction, start-up, commissioning to O&M.
Our world class and leading track record in Safety in China
Class A Design and Pressure Piping QC and Class 1 Construction
License
Large and highly capable China Sourcing center allowing customers to
maximize China content whilst meeting safety and quality criteria
Extensive fabrication management experience – over US$ 1 billion in
the last 3~4 years.
5
Fluor Procurement
Sourcing and Procurement Trends
Current Sourcing and Procurement Trends
Capital
Project Market
Development
Best
of Local Supply Content Capabilities
Country Sourcing (BCS)
Modularization
Execution Strategies
6
Fluor Procurement
Current Sourcing and Procurement Trends
Petrochemical Capital Project Market Impacts
Petrochemical Capital Project Markets
– High Growth Markets - Asia and Middle East
– Constrained Capital Project Funding
Driving more moderate design margins, industry specifications, High Value and best country
sourcing trends
– Increased Local Content and Social Regulatory Requirements
– Remote Project Sites, Constrained Resource Base
Client Market Profile
– Rise of National Oil Companies
– Total Cost of Ownership Focus
Competitor Market Profile
– Established Asian Competitor Base – Expanded Global Market Reach
Commercial Contracting Structures
–
–
–
–
Increased competition base
Increased Risk to Contractor
Lump Sum Turn Key Market
Execution Partnerships critical to pursuit and award opportunities
7
Fluor Procurement
Current Sourcing and Procurement Trends
Local Content Requirements
Local content is rising to the top of developing country political agendas impacting oil,
gas, and mineral development capital projects
Local Content Requirements will be increasingly used as means to strategically develop
national industries and generate employment
– Countries will utilize procurement and contracting instruments to creatively build national
competitiveness through capital investment, technology transfer, and skills development.
The regulations, compliance requirements, business development, project delivery, and
social performance policies have to be formulated with great care and aligned to the
domestic suppliers ability to win contracts on the basis of an international competitive
tender
– Instead of creating new jobs and filling local order books the result can be harmful impact on
the country or region’s long term growth
– Introduction of new risks and higher costs to investment projects
– Reduce the volume or timeliness of government revenues from the project investments
Project Execution Risks and Opportunities
– Capital Project Execution Framework Flexibility
– Ability to optimize Local Labor and Supply Market Capability
– Western and Local Supply Integration Programs (Craft Training, Supply Integration)
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Fluor Procurement
Current Sourcing and Procurement Trends
Best Country Sourcing (BCS) and Market Intelligence Capabilities
Owner inquiries specific to BCS capabilities continue to increase
– Owners are interested in cost and schedule comparison across multiple emerging market s
– Specific to the China, India, South East Asia, Brazil, and Russia supply markets
Source from the best competitive market location based on job site location and
project execution strategy
–
–
–
–
Landed costs – logistics
Customs Clearance Costs
Leverage/Optimization of International Country Trade Agreements
Optimized Cost, Schedule, Landed Costs, Customs, Trade Agreements
Enables
– Supplier Integration Initiatives
– Front End Supply Partner Brokering
– Competitive Price Based Agreements that
support capital projects, MRO, and total cost
of ownership
– Cost Baseline knowledge that supports
more effective Negotiations
– Expanded Sourcing Strategy Capabilities
E&I Comparative Analysis
Opportunity Categories
China Price Advantage
vs. Traditional Supply
India Price Advantage
vs. Traditional Supply
Electrical Equipment
Switchgear ( LV & MV)
5-10%
20% – 25%
Transformer ( LV & MV)
5-20%
20% – 35%
Transformer ( HV)
5-20%
10% –15%
Motors
15-25%
10 - 20 %
-
15% – 20%
10-25%
25% – 35%
Fiber Optic Cable
-
30% – 40%
Control Valve
-
20% – 35%
Battery Chargers
Instrumentation
Field Instrumentation & bulks
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Fluor Procurement
Current Sourcing and Procurement Trends
Modularization Design and Construction
Strategies
Increased Number Capital Projects with
Remote Location Sites
– Lack Available Trained Labor
– Increased Policy Costs
– Increased Schedule with stick build execution,
personnel rotations, and land locked
transportation requirements
Benefits to Project/Owner:
– Reduction in direct onsite labour hours,
minimising exposure to safety incidents and
reduction of site infrastructure
– Higher productivity and better quality
management due to centralised construction
workshops, with a permanent and trained
workforce
– Parallel construction
rather than sequential
– Early identification of assembly conflicts,
allowing for corrective action without
impacting onsite progress
Fluor Procurement
Current Sourcing and Procurement Trends
Stick Built
Costs
Tradeworker Productivity
Modularisation
Costs
Higher
Shop environment more productive
Tradeworker Hours
Reduced
Higher productivity
Tradesworker All-In Labour Cost
Reduced
Lower overheads; low cost labor resources
Field Indirect Costs (Camps &
Catering)
Higher
Fewer Tradesman on site
Scaffolding Costs
Higher
More work above grade
Engineering Costs
Higher
More structural design; added project
management
Transportation Costs
Higher
Heavy haul/heavy lift costs
Material Costs
Higher
More structural steel
Project Contingency
Higher
Execution Flexibility
Material Surplus
Cost of Cash
Less risk factors in shop environment
Reduced
Neutral
Design and procurement frozen earlier
Neutral
May be less with modular approach
Higher
Earlier spending
Fluor Procurement
Procurement Execution Strategies
Procurement Execution Strategies include the
following which are being driven and fueled by Best
Country Sourcing, Local Content, and
modularization trends
Sustainable
Supply Chain Focus
Procurement
Outsoucing
Procurement
Offshoring
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Fluor Procurement
Current Sourcing and Procurement Trends
Sustainable Global Supply Chains
Supply Chain disruptions can be devastating for capital project operations and client
relationships.
Globalization has changed how companies manage the supply chain
– Production of goods have shifted to developing and transitional economies
Cost and Schedule Advantages
Increased Capital Project Activities in developing markets (Mining, LNG,
Petrochemical)
Local content requirements
– This has brought new Challenges and Risks
Inconsistent or Poor Quality Equipment and Material
Supply Disruptions – Schedule Impacts
Cultural, legal, administrative, language, and political issues
Environmental – waste and emissions reduction, recycling, product design,
recovery
Social Issues – child labor, working conditions, bribery, corruption
Companies that fail to manage these issues expose themselves to execution failures
and reputational risks
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Fluor Procurement
Current Sourcing and Procurement Trends
Sustainable Global Supply Chains
Critical Success Factors for developing and maintaining sustainable supply
chains in developing and emerging markets include
–
–
–
–
–
–
–
–
–
Identification and Qualification of top tier performers
Relationship Management – Building / Maintaining
China Commercial Terms and Conditions
Continuous Alignment on technical, quality, and commercial
requirements
Procedures Development Assistance
Production / Schedule Planning Support & Assistance
QA/QC/Supplier Quality Surveillance
Final Inspection for Release of shipment
In-Country Presence
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Fluor Procurement
Procurement Execution Strategies
Procurement Outsourcing/Offshore Execution
Client Drivers include Capital Project Cost, Schedule, Funding,
Total Cost of Ownership Focus, and lack of presence or
expertise in high value supply locations.
Lack of Presence and capabilities in high value supply markets – China, SEA, India,
Brazil, Russia
– Cost and Effort to establish presence in cost competitive markets
– Ability to implement sustainable supply chain critical success enablers in these
markets
Asia and Middle East Capital Project Growth
– Capital Project Funding
– Local Content Requirements
– High Value and Best Country Sourcing Drivers
Operations Cost – MRO Spend
– Best Country Sourcing
– Local Content Requirements
– Supply Chain disruptions can impact project schedules, client relationships, plant
operations
15
Market Prospect Update
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Global EPCM Market Size Forecast
Next 5 years
$370B
$600B
$368B
$200B
$120B
$250B
Fluor EPCM Market Forecast
The Americas
oil sands
mining
upstream
shale gas
biofuels
chemicals
$368B
$120B
upstream
mining
Fluor EPCM Market Forecast
Europe, Africa, Middle East
renewables
infrastructure
power
$370B
$200B
power
infrastructure
upstream
upstream
chemicals
infrastructure
Fluor EPCM Market Forecast
Asia Pacific
$600B
infrastructure
power
photovoltaic
nuclear
LNG
upstream/downstream
mining
infrastructure
power
pharmaceuticals
mining
$250B
Q&A
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