On Reflection: CPOs Reflect on Supplier Innovation, Risk and Talent - Procurement Leaders Roundtable, April, 2011


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Forced to take a long hard look at itself over the past 12 months, the oil and gas industry is looking less at technology and tools and more toward having the right people with the right mix of experience to help mitigate risk in the future.

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On Reflection: CPOs Reflect on Supplier Innovation, Risk and Talent - Procurement Leaders Roundtable, April, 2011

  2. 2. on reflection Forced to take a long hard look at itself over the past 12 months, the oil and gas industry is looking less at technology and tools and more toward having the right people with the right mix of experience to help mitigate risk in the future Discussions about risk management event, which had the theme “Smoothing requires “a different employee set and generally cover the usual suspects of the road to success: managing and a different mindset than when supply supplier finance, logistics failures, mitigating procurement risk”. While most chain was tactical.” When procurement raw-materials shortages, natural were from the oil and gas industry, they was considered a tactical function, the disasters and geopolitical events. soon highlighted a different risk that, people who succeeded were the ones who Certainly, each of those potential in its various forms, was near the top of could execute and could efficiently place supply chain disruptions deserves everyone’s mind: the risk of not having a purchase order with a supplier for a set serious attention and all were on enough people with the right experience amount of money, she said. With today’s the minds of attendees at a recent and skills to identify and deal with the emphasis on the strategic, different Procurement Leaders roundtable at range of issues companies face today. skills are important. Among them are the Four Seasons Hotel in Houston, sponsored by Emptoris. Procurement today requires a different employee set and Indeed, the recent regime-toppling protests in the Middle East, as well as a different mindset than when supply chain was tactical last year’s Deepwater Horizon oil well explosion off the coast of New Orleans, “The ‘people risk’ is our biggest focus,” negotiations skills. She worries that the Eyjafjallajokull volcanic eruption in said Stephen Hester, vice president some buyers have had no negotiations Iceland that grounded air travel in Europe, and chief procurement officer of Smith training. “They need to learn how to say crop-destroying droughts in Russia and International Inc, an oil field service ‘no’ and to push back,” she said. raw materials shortages were pressing company and equipment manufacturer. Tim Moeller, vice president of reminders to procurement executives “We need to be developing people, making procurement and materials for around the world of the importance of sure they get international exposure.” Halliburton, a products and services Portraits: Curtis DeGidio rigorous risk mitigation strategies. Ann Ackerson, vice president of global provider to the energy industry, also In fact, one might have expected that supply chain for Pride International, counted people as one of the major risks oil well disasters and political upheavals a deep-water drilling contractor, procurement has to deal with. would be the major topics of discussion echoed his sentiments, adding that the “There is a transformation underway among roundtable participants at the strategic nature of procurement today within the workplace and we have to52 procurementleaders
  3. 3. roundtable risk managementwork with a new generation and teach group to ensure they are followingthem how to identify risks,” he said. protocol,” she said. Among the strategies Moeller said that within the oil and that work in her favor in that regard isgas industry there are a lot of 20- goal alignment. “We have joint goalsand 30-year veterans with extensive with other departments,” she said.experience who will be retiring in Halliburton’s Moeller, meanwhile,the next few years. “These veteran warned that “The c-suite has to setsupply chain professionals have tribal the tone on linkage of goals amongknowledge and can smell risk before procurement and stakeholders withinthey see it – given their tenure,” he said. the company.” Gerard Kubisiak Hether Benjamin-Brown“Additionally, today’s supply chains are Emptoris Calpine Corporationless US-centric, involving more global Anticipate riskeconomies, many of which have unstable Beyond the related issues of peopleenvironments, such as in third world development and people and stakeholdercountries.” management, Scott Christman, director All agreed that talent development in of supply chain, National Instruments,general is a crucial issue for procurement said that his board of directors expectsand that international knowledge or him and his team to ask the what-ifsexperience, as well as experience in that will help them anticipate risks.other functions within an organization, “They want us to think out of the box,”will be a big part of the skillsets of he said. Mike Burgett Ann Ackersonsuccessful procurement executives. Likewise, Tommy Murphy, VP of NuStar Energy Pride International The concern with people and staffing supply chain management at Keyalso extended to two other areas; one a Energy Services, which develops on-perennial issue and one more surprising. shore energy production services, saidMoeller referred to the people constraint, his board wants him to have a betteror risk, associated with limited housing crystal ball than the industry hasavailability in some regions. He said generally had.Halliburton has ongoing operations in “We need to get a better handle onNorth Dakota and a major constraint strategies and best practices of others inthose operations face is lack of housing the industry and we have to take betterfor workers. advantage of that,” he said. Stephen Hester Tommy Murphy “One of our biggest risks to our growth Interestingly, no one on the roundtable Smith International Key Energy Servicesthere is that there isn’t enough housing panel mentioned cost as a major risk. Ofstock to accommodate the employees course, raw material pricing volatility iswe need to have there,” he said. “We always something procurement has tohave had to work with local real estate prepare for and, just like procurementpeople and construction companies to executives everywhere, panelists arefind innovative ways to overcome short- charged with controlling costs fromterm housing constraints to mitigate suppliers. And the risk that costs will risethe risks.” is real. Political turmoil in Egypt, Yemen, Tunisia and Libya has raised oil pricesBuild internal relationships and some European countries, will feel Scott Christman Tim MoellerThe perennial people risk also resides especially exposed to economic trouble. National Instruments Halliburtonin the realm of internal relations. But, as National Instruments’Roundtable participants talked of Christman said, “You can’t just worrythe importance of working with such about costs.” that pre-qualification,” she said.internal stakeholders as engineering, Indeed, Benjamin-Brown of Calpine Of course, the history of industry inmanufacturing and other groups to Corporation said that no one at her general is replete with examples whereensure they are supporting purchasing’s company says “cut costs”. Referring safety practices – or lack of – wereinitiatives. “We need to build internal to a risk that is particularly important factors in catastrophic events and the oilrelationships so that the environment in the oil and gas industry, she said and gas industry is no exception. Beyondisn’t ‘us versus them’,” said Ackerson. that Calpine executives say safety is the tragedy of deaths, events such as the Hether Benjamin-Brown, VP of most important. “Safety is our most explosion at the Deepwater Horizon oilsupply chain services for power company important criteria,” she said. “We well have been expensive for suppliersCalpine Corporation, says her executives can’t bring in a supplier that has a poor and local communities alike.rely on purchasing to control compliance safety record.” She added that all Calpine “When we see a supplier where thewith procurement policy. suppliers have to be pre-qualified on [safety] numbers are bad, we require a “I’m expected to manage my peer safety. “I won’t sign a contract without field person to sponsor the suppliers procurementleaders 53
  4. 4. roundtable risk management and monitor them,” said Mike Burgett, VP of strategic sourcing for NuStar Energy LP. “We have high standards and we will step in and tell field personnel how they have to manage the safety of the supplier.” Ensuring safety is simply a cost of doing business, said Smith International’s Hester. One major aspect of risk management is ensuring that the practices, products and policies of tier-two and tier-three suppliers don’t pose a risk. The best way to get that assurance is to select the right he said. “Today, suppliers have to be analyzing their finances,” said Moeller. tier-one suppliers, said Halliburton’s much quicker. It’s not good enough if Monitoring supplier finances is easier Moeller. “If you have the right process suppliers say they can be there in five for US-centric companies, according and rigor to ensure quality, reliability minutes when you really need them in to Moeller. “For suppliers in other and safety from your tier-one suppliers, two minutes.” countries, we have local staff on the the potential for problems from the lower ground to do the analyses,” he said. tiers is much less,” he said. “You have to Share data and goals “They can walk into facilities and make sure your tier-one suppliers are An essential part of building look at finances and procedures and doing the right things.” good supplier relationships is the understand the supplier’s references, as National Instruments’ Christman willingness to share information. well as understand our own industry. It’s agreed. “The first thing you have to Smith International’s Hester said critical to have the right people engaged do to mitigate risks from tier-two and he has quarterly reviews with key in doing those analyses.” tier-three is to ensure that tier-one suppliers during which he shares Everyone agreed that the catastrophe has a quality-control process.” You forecasts. “We can’t expect suppliers at the Deepwater Horizon oil well was a have to ask them about their suppliers’ to respond without knowing how many wake up call for the oil and gas industry capabilities, he said. “You have to keep wells we will drill,” he said. “The more in terms of risk management. the monkey on their back because you you share, the better they can plan. “We looked at training, supplier health and how we would handle If you have the right process and rigor to ensure similar emergencies. It created a lot of introspection. In the end, at NuStar quality, reliability and safety from tier-one suppliers, the we learned that we were fine and we didn’t have to make any changes,” potential for problems from the lower tiers is much less said Burgett. Key Energy Services’ Murphy, pay them for that.” If you get a blank The risk for procurement is not sharing said the Deepwater Horizon incident stare when asking about their suppliers’ enough information.” prompted establishment of a formalized capabilities, you know you’re in trouble, Of course, not all stakeholders in risk-management program at his he added. Still, he noted, “You can never every company are willing to share company that helped them move from have 100% risk mitigation across the information with suppliers. Benjamin- being tactical to being strategic. supply chain.” Brown said, “One of our groups is Surprisingly, while all agreed The way to protect against tier-two reluctant to share information even that technology is important in risk and tier-three supplier risks is to build though we tell them how important it management, there were no technology good relationships, said Benjamin- is to getting good performance from game changers they could anticipate. Brown. “It’s not in the contracting suppliers.” The reason is that they “We are simply looking at how best to process so much as in the relationships are afraid competitors will learn that apply technology,” said Burgett. you establish before you start work on information and use it against them. Nevertheless, the most important the contract.” To monitor overall supplier risk, risk management solution centered Good supplier relationships can go roundtable participants reaffirmed the around managing people and external a long way to preventing a disruption importance of the traditional strategies and internal relationships. “We have to in supply, which is the classic such as supplier finance monitoring, optimize relationships, especially with risk management responsibility attention to contract details and our tier-one,” said Moeller. for procurement. You need to have ensuring alternative sources of supply In the end, that may be the ultimate suppliers that can react fast and either for key materials and services. risk management strategy. ramp up or down when you ask, said “We measure supplier risk through Moeller. “Fifteen years ago there was score cards on the consistency and To comment, email editor@procurementleaders.com more tolerance regarding cycle times,” repeatability of their performance and54 procurementleaders