Optimizing Procurement Operation by Excellent Supply
Chain Management
Zeb Feng
Director, BP Procurement & Supply Chain Management - Asia
China Sourcing Summit On Petroleum Equipment
Beijing, April 16-18, 2012
BP Confidential, no further disclosure without BP’s prior written consent
BP at a glance
• About 80,000 employees in more than 80 countries
• 4th largest Global company in the world by Fortune 2011
• Proved reserves of 18 billion barrels of oil and gas equivalent
• 106% production replacement ratio
• 3.8 millions barrels oil equivalent production a day
• 2.4 million barrels per day refining throughput
BP Confidential, no further disclosure without BP’s prior written consent
2
Building a Supermajor
BP’s major partners in China
(1909)
(1999)
(2000)
(2000)
(2002)
(2002)
(2000)
(2001)
BP Confidential, no further disclosure without BP’s prior written consent
(1996)
(2001)
3
Services Industry Evolution
Performance
Leading players are progressing to higher levels of performance by adopting global delivery models and standardising and simplifying end-to-end processes on a
l
a
r
g
e
r
s
c
a
l
e
Phase 2
Phase 1
In House Shared
Services


Individual functions managed in
discrete shared services centers
Each center reports to a functional lead


Outsourced &
Regional/Global Shared
Services
Regional/global integration of back office
Individual functions managed in
regional/global shared services centers
Phase 3
Global Business
Services



Source: Accenture report on Global Business Services, August 2010
BP Confidential, no further disclosure without BP’s prior written consent
Phase 4
2+ funcs combined in 1 business
services solution
Common process, budget, enabling
technology solution
Consistent services mgmt framework
Expanded Global
Business Services



Accountable process owners
Differentiated services to meet local
market needs
One service mgmt framework
44
We surveyed 6000+ executives cross 600 corporation to
understand the “New Normal”
Over the past 3 years
Over the next 5 years
% of respondents1, n = 639
Companies’ top 2 goals for supply
chain management
Percentage-point change between
responses on past and future goals
61
Reducing operating costs
41
Reducing overall
inventory levels
Improving the quality
of products or services
30
12
25
29
21
Improving customer service
36
Getting products or services
to market faster
21
34
Reducing capital costs
Reducing carbon footprint/
creating a ‘greener’ supply chain
-18
+4
+15
+13
16
-7
14
16
+2
9
Reducing risk
-20
3
16
+13
1 Respondents who answered “other” or “don’t know” are not shown
SOURCE: McKinsey survey of 6000+ executives and analysis of 500 SC projects
McKinsey & Company | 5
BP approach to supply market
High
•
Market Sector teams define Boundary Conditions around their areas of spend and Focus on High Value, Risk,
Complexity and No of Vendors per Commodity Group areas :
− Mandated Contracts for spend areas (single & multiple vendors)
•
High
Low
Spend
− Thresholds by spend area where Sourcing is delegated to Regional Procurement Teams
High
Low
High
Complexity
Low
• BSC Team pick up the Low
Value, Risk, Complexity and No of Vendors
areas that historically has had little or no resource focused
on it and consequently no BP leverage or consolidation
Spend
Low
High
Risk
Spend
Low
SPU Embedded Procurement teams pick up the High/mid
level Value, Risk, Complexity and No of Vendors areas
High
BP Confidential, no further disclosure without BP’s prior written consent
Low
No of Vendors per
Commodity Group
6
Centre-led approach – Fabricated Equipment
− Build a demand plan which will identify requirements for Fabricated Equipment at the earliest possible date,
allowing approaches to market to be designed for maximum competition and lowest price.
− Identify a core list of pre-qualified competitive bidders for each equipment sub-category at each site, and using
that list to competitively bid our requirements in a repeatable fashion, thereby reducing the number of suppliers
and increasing the frequency of interaction with each supplier.
− Measure the performance of each supplier on an order-by-order basis and use the performance information
gathered to maintain our pre-qualified core bidder lists.
− Ensure all stakeholders understand and follow the strategy to maximize competition for our current and future
demand.
− The actual mix of suppliers for each site will depend on the capability of suppliers in each local market,
however opportunities for use of common supplier will be exploited where this adds value.
BP Confidential, no further disclosure without BP’s prior written consent
7
Site-led approach – Maintenance,Repair,Operation
− Rationalize the supply chain for each individual site to the optimum number of distribution and integration
suppliers which is supported by the local competitive market, and to work with those suppliers to ensure integrity
and availability while delivering value through process simplification, working capital reduction, demand
management and cost reduction.
− Identify and work with competent suppliers to develop their product range, technical and geographic capabilities
to allow further consolidation over time, providing a pipeline of further value delivery opportunities into the
future at each site.
− The actual mix of suppliers for each site will depend on the capability of suppliers in each local market, however
consolidation opportunities will be exploited where this adds value.
BP Confidential, no further disclosure without BP’s prior written consent
8
Engaging with LCCS brings business benefits while mitigating risks








Knowledge of Asia emerging supply market
(Pre-)qualified Asian suppliers in specific categories to meet our supply requirement
Ability to lower overall total cost of ownership;
- Relatively low labor cost provides price advantage for many spend categories, (examples where after including additional logistics
and inspection costs, the savings was 15-35%)
- Including qualified emerging market suppliers in bids, heightens competition which can result in incumbent bidders responding
with more favorable terms
- Enriches category strategies to reflect full global market (for applicable spend sectors)
Supports BP regional strategy including building relationships that can assist with business access
On the ground support to businesses, familiar with culture, language and ways of working in the region, including being primary
interface to supplier
(Pre-)qualification and Quality Control & Assurance on sourced product including specification & requirements clarification, Inspection
& Test Plan development, shipment inspection and / or in shop inspection.
Order management for on-schedule delivery including expediting, logistics optimization and regular status review with global user.
Develop remediation & contingency plan to mitigate potential and identified risks
BP Confidential, no further disclosure without BP’s prior written consent
9
Challenges for emerging supply market sourcing

Readiness for MNCs to go emerging supply market sourcing








Leadership skills / Talent pool management
Cultural & communication gap
Social compliance
Quality management controls & capabilities





Commonalities for leverage (codes & standards, specs, processes & tools, etc)
Cultural, behavior and geo-politics concerns
Intellectual property management
Knowledge of emerging supply markets
Product Performance
Product Safety
Product Reliability
Technical or business sensitivities
Dynamics on sourcing from emerging supply markets



ForEx, policy and regulation
Moving beyond manufacturing to building intellectual property
Expansion into service industry to have a more balanced economy
BP Confidential, no further disclosure without BP’s prior written consent
10
Companies with ‘best in class’ market intelligence in four categories from a purchasing
point-of-view
Supply market analysis
•
•
•
•
•
•
•
Global economic outlook
Product consumption and price forecasts
Global industry investment trends
Major industry capacity changes
Key raw material trends
Industry PPI trends
Currency trends
Spend sub-sector intelligence
• Supply and demand
• Cost models
• Inflation forecast
Supplier health
• Assessment of financial stability
• Operational stability
• Growth potential
Diagnostic deep dives
• Study of suppliers’ competencies
• Diagnostic of operational health
• Evaluation of strategic direction
• Assessment of organisational capabilities
BP Confidential, no further disclosure without BP’s prior written consent
11
LCCS opportunity assessment process flow
Problem: What should BP source from China?
100%
$15,000
Logistics
Retail Assets
Marketing Services
75%
Manufacturing Operations
Engineered Equipment & Material
More
500
250
100
50
25
1
$10,000
Capital Project Services
Packaging
50%
Additives
$5,000
Shipping Supply Markets
Alternative Energy Supply Markets
Seismic
25%
Production Operations
Facilities Engineering & Construction
$-
Drilling / Completion & Wells
SPU A
SPU B
SPU C
SPU D
SPU E
SPU F
SPU A
SPU B
SPU C
SPU D
SPU E
SPU F
200
0%
SPU A
SPU B
SPU C
Market Sector Filter
SPU D
SPU E
SPU F
SPU G
SPU H
SPU I
150
SPU Spend Breakdown by Market Sector
100
Apply set of high-level filters to identify market sectors with potential China sourcing
opportunities
Evaluation Criteria
Market
Attactiveness
1
2
Scoring Guideline
3
Supply Market Maturity
(i.e. capacity, capability, infrastructure)
Emerging supply
market with
Emerging supply
limited
market serving
experience
domestic market
serving export
markets
Price Competitiveness
(landed costs)
Un-competitive
Market Dynamics
(i.e. tarrifs, policies, regulation)
Unfavourable
Constant
changes
change to macroexpected within
environment
24 months
Price
disadvantage
Mature supply
market serving
domestic market
but limited
experience
serving export
markets
4
Long standing
history in the
supply market
serving the
export market for
global clients
Price
Advantageous
competitive with
price
global sources
New sources of
value in addition
to price
advantage
0
Spend / Bin Analysis
3.
SPU XYZ, >$250m
Market Sector A, Market Sector B, Market Sector C
5
Mature supply
market serving
the export
market with
global clients
50
Create heat map by
plotting supply market
attractiveness vs. spend
Relative Spend
1.
Favourable
No changes
Neutral changes
changes
expected for the expected within
expected within
next 24 months 24 months
24 months
Prioritization Matrix
2.
For identified market sectors, assess relative supply
market attractiveness for underlying commodity
groups
BP Confidential, no further disclosure without BP’s prior written consent
Supply Market Attractiveness
Commodity Group A
Commodity Group A
Commodity Group B
Commodity Group C
Commodity Group D
Commodity Group E
Commodity Group G
Commodity Group H
Commodity Group I
Commodity Group J
Commodity Group A
Commodity Group K
Heat Map
Commodity Group F
12
Qualification process for
emerging supply market sourcing
Phase1: Sourcing Program Define
Sourcing Request
By BU/Site
BU/Site
Buyer
Buyer
N
Pass?
Y
N
Y
Preliminary
Bidder List
TG
#1
Buyer
ICA Evaluate &
Risk
Assessment
Send ICA to
Supplier
Vendor
In AVL?
BU/Site
Buyer
Improvement
Plan
Supplier Not
Approved
N
Approv
ed?
Y
SQ
Add into AVL
Annual Toll Gate
Input:
• Supplier Annual Audit
• Performance Notice
• Third Party Inspection Report
• Conformance Test Result
•Output:
• Commodity Supplier Strategy
• Update Approved Vendor List
BU/Site
Buyer
SQ
Phase5: On-going Control
Annual
TG
BU/Site
Buyer
SQ
On-going
Control &
Performance
Management
BP Confidential, no further disclosure without BP’s prior written consent
N
On-Site Quality &
Social Com. Audit
Vendor
In AVL?
Toll Gate #3
Input:
• Supplier On-site Audit Result
• RFQ Analysis
• Pre-Sample Evaluation Result
Output:
• Sourcing Approval
• Program Risk Assessment &
Abatement Plan
• Updated RFS Tracking List
Toll Gate #4
Input:
• Validation Test Report
• Pilot Run Result
• Product Approval Submission
Output:
• Product Approval
TG
#4
Buyer
Y
RFQ to Potential
Supplier
BU/Site
Buyer
SQ
Buyer
TG
#3
RFQ Analysis
N
Spot
Buy?
Reject &
Inform
supplier
Toll Gate #2
Input
• Preliminary Bidder List
• ICA Evaluation Result
• Biz Licenses/ Certificate
• RFS Tracking List
Output:
• Potential Bidder List
• Quality Procurement Spec
• Validation Testing Plan
• Updated RFS Tracking List
Pre-Sample
Submission
BU/Site
Buyer
Pre-Sample
Test &
Evaluation
Product &
Process
Development
Pre-Pilot & Pilot
Run
Product
Approval
Submission
Product &
Process
Validation
Y
Product Validation
Y
BU/Site
Buyer
SQ
TG
#2
BU/Site
Buyer
Potential
Bidder List
SQ
N
Phase3: Supplier Approval &
Sourcing Decision
Continues
Improvement
Buyer
Feedback to
BU/Site
Confirm
Spec / CTQ
Toll Gate #1:
Input
• RFS
• Spec/CTQ
Output:
• RFS Tracking List
• Preliminary Bidder
List
Phase2: Supplier Pre-Screen Process
Product
Approv
al?
N
Phase4: Product Qualification Process
Improve
13
Supplier (pre-)qualification
Supplier quality system assessment
• Supplier quality system, process control, facility, resource management, technology & manufacturing capability.
• Based on ISO9000, TS16949, etc
Supplier social compliance assessment
• Environment
• Safety
• Health
• Labor Law
• Comply with local law & regulation and Code of Conduct
Other criteria – ACDD Practices
Remediation & continuous improvement
BP Confidential, no further disclosure without BP’s prior written consent
1414
Have designated teams for each LCCS project
BP Confidential, no further disclosure without BP’s prior written consent
15
Manage LCCS risks on behalf of BP group
BP Confidential, no further disclosure without BP’s prior written consent
16
Provide quality inspection service
BP Confidential, no further disclosure without BP’s prior written consent
17
Manage details on behalf of internal clients
Project
Contents
Internal Stakeholders
BP Confidential, no further disclosure without BP’s prior written consent
18
Provide progress report regularly
BP Confidential, no further disclosure without BP’s prior written consent
19
Build capability for massive & complex LCCS opportunities - Skid module fabrication &
construction
Reduce risk on the Alkylation Unit
Meet the Group expectation for offsite Major Accident Risk
compliance
Increase Refinery gross margin
Increase Refinery premium gasoline capability
Maintain or increase Alkylation Unit availability and
utilisation
Align design capacities of unit changes with future site
strategy
Minimize capital expenditure
15 process equipment fabrication including 1 reactor, 1
stripper, 5 vessels and 8 exchangers
2 skid modules construction, including 7 sub-modules
Order management, inspection service and 3rd party
supervision.
BP Confidential, no further disclosure without BP’s prior written consent
20
Integrate LCCS value with Green & Sustainable Growth strategy
Outcomes of the project:
BP Confidential, no further disclosure without BP’s prior written consent
21