Specifics of Supply Chain Management in the Oil & Gas field in Russia.SCM in the environment of aggressive growth.
Global Procurement and Supply Chain Management for theOil & Gas Industry2Managing partner• Worked for major oil and gas co...
Global Procurement and Supply Chain Management for theOil & Gas Industry3We are here for: Musings on best practices and p...
Global Procurement and Supply Chain Management for theOil & Gas Industry4billion barrelsbillion barrels per yearProved res...
Global Procurement and Supply Chain Management for theOil & Gas Industry5Significant amount oflocal capital is availablefo...
Global Procurement and Supply Chain Management for theOil & Gas Industry6Reserves, billionbarrels of oilCapitalization,bil...
Global Procurement and Supply Chain Management for theOil & Gas Industry7Source: IHS Upstream Spend Report, 201269,0 94,0 ...
Global Procurement and Supply Chain Management for theOil & Gas Industry8Arctic – next stepGreenfieldsBrownfields
Global Procurement and Supply Chain Management for theOil & Gas Industry9… all of these factors are pretty attractive for ...
Global Procurement and Supply Chain Management for theOil & Gas Industry10The oil & gas “shoot-on-target”: extraction inve...
Global Procurement and Supply Chain Management for theOil & Gas Industry11Foreign giants working in Russia face significan...
Global Procurement and Supply Chain Management for theOil & Gas Industry12Despite well-grounded decisions at the design st...
Global Procurement and Supply Chain Management for theOil & Gas Industry13Real-life example: key issues1. No business need...
Global Procurement and Supply Chain Management for theOil & Gas Industry14Implementing best practices and end-to-end busin...
Global Procurement and Supply Chain Management for theOil & Gas Industry15Fields of reengineeringSupplyChainManagementSCM ...
Example on effects of the implementation ofinitiatives for improving supply systems efficiency3 - 6%Accuracy of planningRe...
Global Procurement and Supply Chain Management for theOil & Gas Industry17The better practices are well known, complex too...
Global Procurement and Supply Chain Management for theOil & Gas Industry18Case: info and background70 ml tons of oilequiva...
Global Procurement and Supply Chain Management for theOil & Gas Industry19Case: key issuesOverallprocurementfunctionInvent...
Global Procurement and Supply Chain Management for theOil & Gas Industry20Case: value-added solutionResults:• Transparency...
BRIGHT is a successful Russian company which provides consulting services andexpertise in the field of supply chain manage...
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London final

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London final

  1. 1. Specifics of Supply Chain Management in the Oil & Gas field in Russia.SCM in the environment of aggressive growth.
  2. 2. Global Procurement and Supply Chain Management for theOil & Gas Industry2Managing partner• Worked for major oil and gas companies forover than 15 years (Yukos, TNK-BP,Slavneft)• SCM project director• M&A leader for oilfield services• The European SCM Excellence AwardConsulting partnership• SCM• Management consulting• Joint venture organization and support in Energy,Oil & Gas, Metals & Mining• Av. partners’ experience in SCM – 11+ years• Over 60 headcountMajor clients:
  3. 3. Global Procurement and Supply Chain Management for theOil & Gas Industry3We are here for: Musings on best practices and perspectives ofSCM in O&G, greenfield & brownfield, etc. Practical benefits (cases, contacts, leads, etc.)It’s all about this
  4. 4. Global Procurement and Supply Chain Management for theOil & Gas Industry4billion barrelsbillion barrels per yearProved reserves:Production:44,6 trillion cubic metres0,6 trillion cubic metres per year1stProved reserves:Production:2ndSource: BP Statistical Review of World Energy June 2012Rank in the world
  5. 5. Global Procurement and Supply Chain Management for theOil & Gas Industry5Significant amount oflocal capital is availablefor JVs:Source: RA Expert research 2011“Light” taxes Government investment &government programmesInvestment in Oil & Gasexploration from RussianFederal funds by 2020Local capitalCompany CapitalizationGazprom over $140 bln.Rosneft over $70 bln.Lukoil over $50 bln.Novatek over $35 bln.Source: The General scheme of oil &gas industry development up to 2030 (Russian StateProgramme)
  6. 6. Global Procurement and Supply Chain Management for theOil & Gas Industry6Reserves, billionbarrels of oilCapitalization,billion USD051015202530080160240320400480GAPSource: Company`s annual reports, Bloomberg data
  7. 7. Global Procurement and Supply Chain Management for theOil & Gas Industry7Source: IHS Upstream Spend Report, 201269,0 94,0 109,0 103,0 132,0 144,0 167,080,0123,0189,0 194,0238,0286,0323,067,076,091,0 85,093,0100,0110,063,086,0112,0 106,0133,0151,0181,0137,0223,0322,0 301,0392,0477,0528,062,079,0107,0102,0121,0143,0163,052,072,0102,097,0119,0138,0163,00,0200,0400,0600,0800,01000,01200,01400,01600,0Russia &CaspianLatin AmericaNorth AmericaMiddle EastEuropeAsia-PacificAfricaSummary upstream CAPEX and OPEX spending – By regionUSDbillion2004 2006 2008 2010 2012F 2014F 2016FForecasted CAGR for the world: 9.2%Forecasted CAGR for Russia: 9.6%
  8. 8. Global Procurement and Supply Chain Management for theOil & Gas Industry8Arctic – next stepGreenfieldsBrownfields
  9. 9. Global Procurement and Supply Chain Management for theOil & Gas Industry9… all of these factors are pretty attractive for the world’sleaders to come to the Russian market in all their glory…bringingBest foreigntechnologyExpertiseGlobalagreementsCapitalMarketrecognition
  10. 10. Global Procurement and Supply Chain Management for theOil & Gas Industry10The oil & gas “shoot-on-target”: extraction investments areprimary, but not the only to be consideredOil & gas extractioninvestmentsInvestments in services(exploration, drillingetc.)Investments ininfrastructure (transport,communications, supportetc.)
  11. 11. Global Procurement and Supply Chain Management for theOil & Gas Industry11Foreign giants working in Russia face significant pitfalls as aresult of unevaluated risks of local content and culturespecifics«The pressure on the Sakhalin-2has been seen as «softening-up»exercise to force theinternational oil companies (IOCs)to revise the terms of theirinvestments to allow greaterRussian participation in theirprojects».…Shell surrendering itscontrolling stake in SakhalinEnergy»Royal Dutch Shell Blog«Gazprom officially admitted thatthe giant Shtokman project on gasproduction in the Barents Sea wasfrozen for n undefined period oftime: the costs proved to be toohigh».Energy news«For much of its eight-yearhistory, Russian oil companyTNK-BP Ltd. has seen its twoshareholders at odds. BP PLCand a group of Soviet-bornbillionaires known as AAR havedone battle in courtrooms andboardrooms from Siberia to theCaribbean»The Wall Street Journal
  12. 12. Global Procurement and Supply Chain Management for theOil & Gas Industry12Despite well-grounded decisions at the design stage, projectexecution and spend effectiveness are lacking. Andconsiderable part of challenges lies in the field of ProcurementPracticalefficiency/valuegeneration(ROI)SpendConstruction,Execution &OperationsEngineering &TechnologyFinancial decision,Strategy and projectdesign• Need to comply with localtechnical standards• Poor local technologies• Harsh environment• Lack of infrastructure• Harsh environment• Remote locations with undevelopedlogistical infrastructure, complicatedsupply routes• Expensive mobilization for non-localsuppliers• Undeveloped local suppliers• Low qualified local staff• Fraud as common practice• Non-transparent localdecision maker structure• Undervalued importanceof long-term planning
  13. 13. Global Procurement and Supply Chain Management for theOil & Gas Industry13Real-life example: key issues1. No business needs (demand) managementsuitable for SCM.2. No Category management process.3. Roles & Responsibilities. Lack of healthycross-functional interaction and no creativetension between technical and commercial(procurement) roles. Technical roles prevail.4. Low compliance.5. No Supplier performance management andproactive supplier development planning.6. Poor data management (catalogues) does notproperly support SCM process requirements.7. Insufficient SCM Staff competences toproperly perform within defined processes.OverallprocurementfunctionInventoryManagementPerform inventory controlPlan and manage inventorySupplier PerformanceManagement &DevelopmentMeasure and drive performanceEstablish, negotiate and manage supplierdevelopment plansContractor Selection& Contract AwardNegotiate contractStrategic SourcingManagement andCategory ManagementDefine sourcing strategy by categoryAnalyze spend and assess opportunityAnalyze supply marketBusiness needsmanagement (demandmanagement)Planning of business needs for the next periodManage business needsProcessesFunctions Sub-processesPublish planClear needs of on-hand material stockPrepare pre-qualificationSelect supplierContract awardContract Managementand Order PlacementCreate purchase ordersProcesscontrolsandcomplianceOrganization&capabilitiesMonitor and enforce contractsITsystems&toolsConduct supplier reviewsCreate contractConduct RFx/ auctionsHigh-level Procurement & SCM processes classification frameworkBackground: JV between major world and largest Russian oil & gas players.Best operational practices taken directly from the international shareholder.Healthcheck trigger: shareholders not satisfied with SCM. Internal audit rates SCM unsatisfactory.Healthcheck findings:Core reason: best practices implemented as they were,without taking local factors into account
  14. 14. Global Procurement and Supply Chain Management for theOil & Gas Industry14Implementing best practices and end-to-end business focus toproject design, implementation and operation to deal withcapital projects risks and pitfalls is particularly important inthe oil and gas sectorStrategy & Long-term planningCollaboration with local business andgovernmentAttention to the local specifics,adaptation of global practicesEarly involvement of procurement andsuppliers in the project lifecycleEngineering, procurement and construction(EPC) contractors iterationProcurement strategy, smooth handover of materialsfrom project to operationsLeading trends– criticalsuccess factors
  15. 15. Global Procurement and Supply Chain Management for theOil & Gas Industry15Fields of reengineeringSupplyChainManagementSCM strategySuppliermanagementCatalogueITMaterialsmanagement andplanningProcurementprocessesRisks andcontrols Organisation12345678Fields of changes:1. Strategic management of SCM function (goals, KPIs, key principals,segregation of duties and responsibilities).2. Function and organisation structure (separation of SCM function (vertical),multi-functional groups, centralization for major groups of services andmaterials)3. Implementation of services/materials catalogue, matrix of accountabilitysegregation due to category.4. Reference model and corporate SCM framework (demand planning,purchases, contract administration, management of commitments,materials management, etc.).5. Supplier evaluation, supplier efficiency data base6. Optimisation of materials management system, including illiquid and non-liquid assets7. It-strategy based on integration SCM processes with linking processes(production planning, investment and business planning, managementaccounting).8. Risk matrix, Control matrix, risk management procedures.First we need to evaluate existing system and create reference models to initiate future changes: Reference model oriented on strategic goals and long-term targets; Transition plan and first priority activities for model reengineering, based on Company readiness to change and real opportunities to getvisible value
  16. 16. Example on effects of the implementation ofinitiatives for improving supply systems efficiency3 - 6%Accuracy of planningReduction of delivery timeReduction of downtime3 - 10%Consolidation of needs;coverage with procurement strategies,counterparties efficiency managementAutomation of procurement,electronic biddingStandardization and unification oftechnical solutionsCoverage of total cost of ownershipSaving by increase in supplysystem efficiencySaving by increase in planningsystem efficiency2 - 4%Decrease in unclaimed high liquidpositionsIncrease in stock turnover and funds intransactionsReduction of unfinished construction dueto supply shortageReduction of working capitalReduction of non-currentcapitalImproving reliabilityof productionCost reductionOptimization ofcapitalResultingbenefits$8 - 30%$ High-level indicators Basic KPIsDecrease in low-liquid positionsComplete and timely satisfaction of needsReduction of administration costsThe model is based on anaverage scenario and aconservative estimate is used, thelevel of accuracy is (+-50%). If anyof the currentprocesses corresponds to thelevel of "best practices“ the valueof the “Resulting benefits” will bereduced by the improvementvalue of such process. Thedynamics of the “Resultingbenefits” with regard toexperience enhancement andprocess automation.Динамика «итоговых выгод» сучетом набора опыта иавтоматизации процессов: 1styear - 2-6%; 2nd year - 6-12%;3rd year - 8-20%.16
  17. 17. Global Procurement and Supply Chain Management for theOil & Gas Industry17The better practices are well known, complex tools,approaches and frameworks are important, but much morecritical is the value generation by right implementationComplex approachto supply chaintransformationCore elements ofbest practicesOrganizationstructure… … ……………………………………………… ………Map of targetprocessesProcessschemesQuantityoptimizationSecurityschemes ofinvestmentprojectsFinancialresponsibilitiesallocationmatrixEstablishmentof regionalprocurementcentersBundles ofregulatorydocumentsDelivery timemanagementManagement ofcompetenciesAutomationrequirementsIntegrateddevelopmentplanImplementationof IT systemsOrganizationstructureProcurementfunctionmaturity model
  18. 18. Global Procurement and Supply Chain Management for theOil & Gas Industry18Case: info and background70 ml tons of oilequivalentExploration8 regionsof upstreamoperations in Russia4 bln USDIn annual Upstreamspending (CAPEX)1.7 – 2.5 bln USDIn annual Upstreamspending (OPEX)Background• The company was created as a strategic partnership between one of the worlds leadinginternational oil and gas companies and a group of Russian businessmen with the aim to jointlyhold their oil assets in Russia and Ukraine.• The international company owned 50% of this JV shared not only capital, but its corporate bestpractices, technology and expertise.• Indeed many of Procurement related practices just haven`t worked: tendering procedure wasunclear, independent controls was not working, level of bureaucracy was too high to make thecompany flexible, planes wasn`t fulfilled.Company`s info: Major vertically integrated Russian oil company, among the ten largest private oilcompanies in the world.
  19. 19. Global Procurement and Supply Chain Management for theOil & Gas Industry19Case: key issuesOverallprocurementfunctionInventoryManagementPerform inventory controlPlan and manage inventorySupplier PerformanceManagement &DevelopmentMeasure and drive performanceEstablish, negotiate and manage supplierdevelopment plansContractor Selection& Contract AwardNegotiate contractStrategic SourcingManagement andCategory ManagementDefine sourcing strategy by categoryAnalyze spend and assess opportunityAnalyze supply marketBusiness needsmanagement (demandmanagement)Planning of business needs for the next periodManage business needsProcessesFunctions Sub-processesPublish planClear needs of on-hand material stockPrepare pre-qualificationSelect supplierContract awardContract Managementand Order PlacementCreate purchase ordersProcesscontrolsandcomplianceOrganization&capabilitiesMonitor and enforce contractsITsystems&toolsConduct supplier reviewsCreate contractConduct RFx/ auctionsHigh-level Procurement & SCM processes classification framework• Low level of procurement centralization• Lack of strategic approach to categorymanagement• Inefficient greenfield procurement process• Law requirements for business needs planning• Reactive vs. proactive controls and inefficientP2P compliance function• Law level of P2P
  20. 20. Global Procurement and Supply Chain Management for theOil & Gas Industry20Case: value-added solutionResults:• Transparency and standardization of processes of planning, procurement system control,performance management and control• Automation of procurement processes including precise procurement and operationalfunctions distinction• Automation of payment processes, segregation of duties related to payments approvaland operational control• Supplier management via long-term framework contracts• Inventory control, online receipt and replenishment of materials; improved inventoryturnover, reduced free inventory• Reengineering of the procurement system*• Implementation of the uniform integrated solution based on the ERP system SAPEnd of the day result – $300 mln in 5 years* The project has won the “SCM Global Awards” international competition as the best Procurement Reengineering Project in Oil & Gas sectorSolution:
  21. 21. BRIGHT is a successful Russian company which provides consulting services andexpertise in the field of supply chain management, planning and control,project management, development and implementation & operation ofintegrated business processes based on ERP-systems.Our services are aimed at achieving global standards in business processesand control mechanisms in the Russian market.© 2012 BRIGHT Group. All rights reserved .

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