Logistics/Procurement
differences between the US
and Brazil, from a Petrobras’
perspective.
Contributors:
Giselle Barros
T...
• Practical differences, informal trials
• Procurement considered as a part of the goods and services logistics
3/4/2011

...
PB / The US=0,02% ?
Reduced
Petrobras
influence in the
US market, based
on relative size,
market models,
etc.

PB / Brazil...
The supply terms and conditions in
Petrobras Brazil (CFM, MPC, CRCC,
etc…) and vendor registration system
are highly influ...
The absence of additional oil operators
in Brazil and as Petrobras has so many
different prospects, makes Petrobras a
sole...
Petrobras buyers in Brazil are better prepared in
technical specifications matters when compared
to US buyers, in general....
services
EUA

materials

$
materials
Brazil

services

In the US, materials have a low cost and services are of
high cost;...
Purchases in the Petrobras Brazilian market
contain far more formalizations (“red tape”),
as per legislation (law 8666, de...
The law that
government
entities use

3/4/2011

Decree consequence
of Law 9478 (The
Petroleum Law of 1997)

Model that
Pri...
Many foreign companies have already
established branches and offices in Brazil, due
to the many opportunities Petrobras of...
Contracts in Brazil are in part
supported by a civil code, which
defines some of the common
commercial relations.
As per i...
For Offshore Contracts in the US, each party is
responsible for its system and personel,
regardless of whom may have cause...
In the US, MSA’s (Master Service Agreements)
are used to establish the general Terms and
Conditions prior to commencement ...
There is a structured penalties
mechanism in Petrobras Brazil;
In the US, this is substituted by a group
of clauses such a...
Petrobras in Brazil uses a pre-qualification
system as it has historically been the
country’s main industry developer and
...
ts
jec
pro

Petrobras Brazil, hundreds of assets, continuity

???????
Petrobras in the US, no demand continuity yet
3/4/20...
In Brazil, shared resources
partnerships, through service vendors,
have been rarely diffused; in
comparison to the partner...
In the US, discount requests must be
somewhat justified
In Brazil “barganing” is culturaly well
accepted.
In the US, disco...
In the US:
The number of stages or levels of approval
for contracts or purchases is lower; as they
are normally harnessed ...
In the U.S.:
Vendor is first chosen, then scope is
detailed;
Intensively utilizes providers
integrators;
More functional s...
OUTBOUND
production

Oil companies, alliances,
partnerships, similarities
in objectives
market

process
sale

INBOUND
Vend...
In Petrobras Brazil:
The publishing of bids and their
results is a common and expected
practice from the public and suppli...
Clear Scope

RFQ – request for quotation
RFP – request for proposal
RFI – request for information
DA – direct award

DA is...
PR/BR
Purchasing Model Evolution
1) Revamp to Procure

to Pay Purchasing Model (P2P)

Prior Purchasing Model
Purchasing

E...
1-p2p – multiple
interphases
cli1
bu1

cc1

cli2
cli3

ve2
bu2

cc2

cli4

2- Demand is not
consolidated, all
buyers conta...
1-p2p

cli1
bu1
cli2

cli4
cli5
cli6

cat2

.
.
.

Client Portfolio

cli3

cat1

bu2

2- buyer per
category,
consolidates
...
In the US:
• Strong standards for logistics (pick-up,
transportation, storage, delivery) due to volume
and repetition;
• L...
Dimension= size,
volume,
importance
Per project
Few and large events

As per demand
Many and small events

Frequency, quan...
•In the US:
•The repetition and the systematization make
everything run by the book;
•The acceptance of exceptions make is...
“In Brazil, the top 500 companies spend R$
39 billion annually in logistics activities.
Despite this significant effort, i...
Dale Rogers
3/4/2011

31
Do not confuse best
practices with best theories;
Verify if reality “the ideal” is
being implemented.
3/4/2011

32
3/4/2011

33
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Logistics/Procurement differences between the US and Brazil, from a Petrobras’ perspective

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Logistics/Procurement
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Logistics/Procurement differences between the US and Brazil, from a Petrobras’ perspective

  1. 1. Logistics/Procurement differences between the US and Brazil, from a Petrobras’ perspective. Contributors: Giselle Barros Tiago Bitingder Enrique Guerra Fabrizio Dinelli Claudio Passos Elisio Soares Cesar Palagi D. Rogers by A. Cavanha 3/4/2011 1
  2. 2. • Practical differences, informal trials • Procurement considered as a part of the goods and services logistics 3/4/2011 2
  3. 3. PB / The US=0,02% ? Reduced Petrobras influence in the US market, based on relative size, market models, etc. PB / Brazil = 6% to 8%? Size relation between Petrobras Brazil and the Brazilian market, allowing for greater bargaining power 3/4/2011 3
  4. 4. The supply terms and conditions in Petrobras Brazil (CFM, MPC, CRCC, etc…) and vendor registration system are highly influential in the Brazilian market, as Petrobras constantly promotes local market development The US market (MSA’s, T&C’s, responsabilities, liabilities, etc.) makes constant commercial adjustments based on market intensity (market driven). 3/4/2011 4
  5. 5. The absence of additional oil operators in Brazil and as Petrobras has so many different prospects, makes Petrobras a sole contractor of goods and services for the industry; US Oil Agencies limit partnerships for bidding processes that produce more than 1.8 million bbl/day. In 2008, no company produces more than 500,000 barrels a day in GM ~ 200 companies 3/4/2011 5
  6. 6. Petrobras buyers in Brazil are better prepared in technical specifications matters when compared to US buyers, in general. It is likely a result of the constant transferring of operational personnel to procurement and contracting in Petrobras Brazil. The US however, regarding the market, is better prepared in procurement acquisitions and tactics procedures (Supply chain concepts, TCO, MSA, DA, negotiations, etc); 3/4/2011 6
  7. 7. services EUA materials $ materials Brazil services In the US, materials have a low cost and services are of high cost; Materials: series production, many consumers, high production Services: labor is expensive, employability level is high, growth in qualified local personnel (US born) In Brazil, materials are expensive and services of low cost; Materials: low consumption, not many consumers Services: labor is highly available, investments fluctuate 3/4/2011 7
  8. 8. Purchases in the Petrobras Brazilian market contain far more formalizations (“red tape”), as per legislation (law 8666, dec 2745, etc.), as it is a partialy state owned company, for its existance in a still developing market and possible consequences for suppliers in bid loses with Petrobras. US norms and regulations are passed by strong and distinguished entities, with constant and intense participation from privately owned operators. The State and public organizations are practically those who pass legislation based on scenarios presented by the operators, self protecting themselves, by creating norms to push away from them operational risks. 3/4/2011 8
  9. 9. The law that government entities use 3/4/2011 Decree consequence of Law 9478 (The Petroleum Law of 1997) Model that Private companies normally use. Mind set. 9
  10. 10. Many foreign companies have already established branches and offices in Brazil, due to the many opportunities Petrobras offers its newcomers, once these operate with TRANSPARENCY and EQUAL OPPORTUNITY, even through constant national efforts to always have local participation in projects. Not all hold stocks in Brazil, support, post-sale assistance, manufactoring facilities (as they prefer a representation method instead) nor do they always produce the best results for the country, althought provided with ease of negotiation and language assistance. 3/4/2011 10
  11. 11. Contracts in Brazil are in part supported by a civil code, which defines some of the common commercial relations. As per in the US, it is a common practice that most the terms and conditions are written in order to have validity. 3/4/2011 11
  12. 12. For Offshore Contracts in the US, each party is responsible for its system and personel, regardless of whom may have caused damage; no time is wasted on searching for a who or guilty party; with the exception of gross negligence and missconduct; an indemities network is created, each party indemifies the others (and covers itself through its own insurance); knock for knock. This is most likely due to the intense level of activity and need of focus on production systems. 3/4/2011 12
  13. 13. In the US, MSA’s (Master Service Agreements) are used to establish the general Terms and Conditions prior to commencement of work, between two companies, a supplier and client, in order to prepare for any future business opportunity which may come. MSA’s do not posses a time nor a value CAP (As they are “evergreen” contracts); the purchase or service orders are complementary to the contract, adding scope and value. 3/4/2011 13
  14. 14. There is a structured penalties mechanism in Petrobras Brazil; In the US, this is substituted by a group of clauses such as liquidated damages, indemnity, termination... These allow for their enforcement as they are truly needed, excluding loss of profits, and help in perserving a good relationship with suppliers. 3/4/2011 14
  15. 15. Petrobras in Brazil uses a pre-qualification system as it has historically been the country’s main industry developer and continious investor in the Brazilian Oil market. In the US market, its own dynamics regulate its existance and quality, acting as almost a self-qualifier; this applies to operators (business uncertainties, probabilistic environment) and first tier goods and services suppliers; On the other hand, suppliers’ sub-contractors (firm demand, deterministic environment), go through a demanding pre-qualification. 3/4/2011 See next slide>>> 15
  16. 16. ts jec pro Petrobras Brazil, hundreds of assets, continuity ??????? Petrobras in the US, no demand continuity yet 3/4/2011 Currently the pre-qualification, registry, etc. is impractical Time Years 16
  17. 17. In Brazil, shared resources partnerships, through service vendors, have been rarely diffused; in comparison to the partnerships amogsts oil operators (competitors yet partners at the same time) In Brazil, when the same occurs, supplier moves onto another industry or dies In the US, when a supplier fails to succeed in a tender (bid), it moves on to other clients 3/4/2011 17
  18. 18. In the US, discount requests must be somewhat justified In Brazil “barganing” is culturaly well accepted. In the US, discounts are offered by the seller, due to high technology rotation and short product life cycle (obsolescence); Note: The above may change, be the opposite, depending on commercial enviroment and or industry 3/4/2011 18
  19. 19. In the US: The number of stages or levels of approval for contracts or purchases is lower; as they are normally harnessed to pre-existing contracts such as “blanket order”, MSA’s, etc. New vendor selection is subject to high executive level negotiations within a company’s business organizations. In Petrobras Brazil, new vendor selection at high executive level is only approved, not selected. 3/4/2011 19
  20. 20. In the U.S.: Vendor is first chosen, then scope is detailed; Intensively utilizes providers integrators; More functional scope. In Brazil / Petrobras: Details are defined as well as the scope, then vendor is selected; More descriptive scope. 3/4/2011 20
  21. 21. OUTBOUND production Oil companies, alliances, partnerships, similarities in objectives market process sale INBOUND Vendors and oil companies have different objectives 3/4/2011 reserve Long term contracts, optimization distribution, shared resources, etc 21
  22. 22. In Petrobras Brazil: The publishing of bids and their results is a common and expected practice from the public and supplier groups. In the US: The same level of public or corporate commitment does not exists in regards to bid results. Short debriefing. 3/4/2011 22
  23. 23. Clear Scope RFQ – request for quotation RFP – request for proposal RFI – request for information DA – direct award DA is used: 1. Strategy 2. Technology 3. Brand 4. “golf” Freedom of scope and vendor selection > 3/4/2011 23
  24. 24. PR/BR Purchasing Model Evolution 1) Revamp to Procure to Pay Purchasing Model (P2P) Prior Purchasing Model Purchasing Expediting Current Purchasing Model Purchase 3/4/2011 P2P Buyers Payments 24
  25. 25. 1-p2p – multiple interphases cli1 bu1 cc1 cli2 cli3 ve2 bu2 cc2 cli4 2- Demand is not consolidated, all buyers contact all vendors ve3 ve4 bu3 cc3 cli5 cli6 ve1 ve5 bun ccn ve6 cli7 ve7 clin ven logistics 3/4/2011 Cli=client Bu=buyer Cc=contract coordinator Ve=vendor 25
  26. 26. 1-p2p cli1 bu1 cli2 cli4 cli5 cli6 cat2 . . . Client Portfolio cli3 cat1 bu2 2- buyer per category, consolidates demand cat3 cat4 bu3 cat5 bun cat6 cli7 cat7 clin catn logistics 3/4/2011 Cli=client Bu=buyer Cat = category 26
  27. 27. In the US: • Strong standards for logistics (pick-up, transportation, storage, delivery) due to volume and repetition; • Logistics norms are product of economic analysis; • There is strong predisposition to add similarities (final destiny, dimentions, weight, type...) for continuous operational demands; • Strong predisposition to budget for specific projects, due to the existance of diverse logistics operators specilized in projects only, others only focused on disaster, recovery, etc. 3/4/2011 See next slide >>> 27
  28. 28. Dimension= size, volume, importance Per project Few and large events As per demand Many and small events Frequency, quantity 3/4/2011 28
  29. 29. •In the US: •The repetition and the systematization make everything run by the book; •The acceptance of exceptions make is a difficulty for the mental model of mass production; the American market has difficulties in implementing solutions, it only uses what it has available and standardized; if something is not available, it is not implemented (refused); •Rules first, second adaptability; 3/4/2011 29
  30. 30. “In Brazil, the top 500 companies spend R$ 39 billion annually in logistics activities. Despite this significant effort, in countries like the US and Japan, 25% of all companies have a logistics department, or outsource this service; in Brazil, this figure does not exceed 2%, which proves the room for improvement for these activities.” (From an interview with a professor from the UFRJ) 3/4/2011 30
  31. 31. Dale Rogers 3/4/2011 31
  32. 32. Do not confuse best practices with best theories; Verify if reality “the ideal” is being implemented. 3/4/2011 32
  33. 33. 3/4/2011 33

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