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1504 CIPS Qatar IDH
Ian Heptinstall presented on how procurement can help oil and gas companies address issues caused by low oil prices of $60 per barrel. He argued that $60 oil presents an opportunity rather than a problem. He provided several ideas for quick wins that procurement can implement, including auditing existing contracts, improving stock management, speeding up supplier selection processes, using both collaboration and competition better, retaining risk at the aggregate level, and focusing on sustainable quick wins. He emphasized the importance of trust between buyers and suppliers to successfully implement cost-saving initiatives.
1504 CIPS Qatar IDH
- 1. ArcBlue www.arcblueglobal.com @arcbluegobal Procurementand the $60 barrel CIPS Qatar Branch, 28 April 2015 Ian Heptinstall ArcBlue Middle East
- 2. © ArcBlue MiddleEast – part of PMMS Consulting Group, operating in association with The Links Group2 ArcBlue www.arcblueglobal.com @arcbluegobal Procurement and the $60 barrel CIPS Qatar Branch, 28 April 2015 Ian Heptinstall ArcBlue Middle East Slides plus notes from a presentation made by Ian Heptinstall at the CIPS Qatar Branch event in April 2015. Where the slide does not give much information by itself, these additional notes have been added with the key points made in the presentation
- 3. © ArcBlue MiddleEast – part of PMMS Consulting Group, operating in association with The Links Group3 2 Oh no, $60 a barrel The media is telling us about the problems cause by the dramatic fall in oil price over the past year. With the GCC economy so reliant on the Oil & Gas industry, Mike Anwana (CIPS Qatar branch committee member) asked me to present some ideas about what we in procurement and supply chain can do to help resolve the issues caused. I hope they stimulate a great discussion and debate.
- 4. 5 Party-Party…$60 a barrel ©ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group4 $60 oil is not a problem it is an opportunity. The industry has suffered from a decade of “spend-spend-spend”. Production was the issue, and value-for-money was ignored. Now at least there is a narrow window of opportunity where senior executives will be interested in ideas that can maintain business volumes, reduce risks, at lower business costs. This is our day….
- 5. 6 © ArcBlue MiddleEast – part of PMMS Consulting Group, operating in association with The Links Group5 This is our day…. A once-in-your-career chance to be listened to and to act quickly. The chance for procurement to step up to the plate. In this short presentation I will share some ideas that you might be able to use to make a quick impact. They are based on real situations I have seen in Oil and Gas companies over the past few years. They are not textbook theories
- 6. • Nothing – Providingyou are already doing “good procurement” – We should always have been looking to get maximum business benefit, at acceptable risk, without wasting money • Nothing except take the opportunity • The keys of “good procurement” – One size doesn’t fit all – Choosing the right tool for the job – Use the right mix of collaboration AND competition • Ideas for Quick Wins © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group6 What should we do differently in this new era of the $60/barrel?
- 7. © ArcBlue MiddleEast – part of PMMS Consulting Group, operating in association with The Links Group7 http://www.macrotrends.net/1369/crude-oil-price-history-chart © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group7 This chart surprised me, because I had been conditioned that $60 a barrel was really low. It shows the oil price (in 2015 values) over the past 60+ years. • Oil has never sustained >$60 for more than 10 years • In the past 45 years oil has been below $60 more than it has been above In the early 90’s the Oil industry, through the CRINE initiative in the UK (LOGIC is its successor), responded to the dramatic fall in oil price (down to $21 in today’s money) by learning how to make new platforms 30% cheaper to build and 50% cheaper to operate. The graph from the Wall St Journal, indicated a problem well before the price crash, with falling return on capital, despite record high prices.
- 8. 8 © ArcBlue MiddleEast – part of PMMS Consulting Group, operating in association with The Links Group8 We already have all the tools in our “procurement toolkit” to support the oil and gas industry, and the GCC economies that rely on income from oil. We don’t need any new tricks to make a significant, fast impact. The suggestions I have are all proven, text-book procurement. They have been used thousands of times, over many decades, to deliver millions in fast savings.
- 9. © ArcBlue MiddleEast – part of PMMS Consulting Group, operating in association with The Links Group10 NUISANCE DEVELOP PROBLEM CORE AT THE HEART OF YOUR BUSINESS FUTURE POTENTIAL VALUE BEYOND TURNOVER SOMETHING MUST BE DONE MAKE ATTRACTIVE OR GET RID ATTRACTIVENESS SALES INCOME MARKETRISK SPEND TACTICAL ACQUISITION STRATEGIC SECURITY TACTICAL PROFIT STRATEGIC CRITICAL COLLABORATE MUTUAL DEPENDENCY ENSURE SUPPLY MAXIMISE COMMERCIAL ADVANTAGE MINIMISE EFFORT Price 11 MARGIN COST © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group9 Supply Positioning (Kraljic) tells us to focus and prioritise our attentions, and that one-size doesn’t fit all. Supplier Preferencing reminds us that if we are hard to deal with as a customer, we increase risk and increase price. The GCC is not an easy region to be a supplier. Oil & Gas is not an easy industry to work with as a supplier. The other images highlight risk & vulnerability management, contracting & contract management, and price management.
- 10. © ArcBlue MiddleEast – part of PMMS Consulting Group, operating in association with The Links Group10 Growing from Adversity CRINE © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group10 Here are four diverse examples of significant, step-change improvements in supply chain performance that were driven by adversity – a problem that couldn’t be overcome by continuing “business as usual”, or bullying suppliers. • CRINE has already been mentioned • In Japan the largest government ministry persuaded the construction industry to manage projects differently, and delivered more projects, with a lower budget, whilst allowing contractors to make profit • Zara couldn’t buy like the big retailers, so developed a better supply chain based on speed, not low unit price. Founder Amancio Ortega is 4th richest person in the world now • On the Gulf of Mexico disaster in 2010, BP sent experts into its suppliers to help them produce more urgently-needed equipment. Suppliers increased capacity by 100, 200, 300%+ within days, and at almost no cost. Oh, and saving $200M
- 11. © PMMS MiddleEast – part of PMMS Consulting Group, operating in association with The Links Group11 So what to do?.....
- 12. © PMMS MiddleEast – part of PMMS Consulting Group, operating in association with The Links Group12 Some ides for quick-wins Check your current deals Are you paying extra for things included? Are variations & day-works out of control? Have prices been updated as indexes fall? Talk to you major suppliers “to” them, not “at” them!! Ask for ideas – and listen to the answers. This sounds simple, but isn’t due to ... see next slide Move your stock Most businesses have poor stock management. Too much of some sku’s, not enough of others. Identify & get rid of excess stock. Replenish in small volumes & abolish the idea of EOQ Speed your selection If you want to excite bidders, and really take advantage of a buyers market, you need to be fleet of foot. If you want to take months to make a decision, don’t bitch and moan about high prices!! Compete & Collaborate Neither is “better” – both are great tools. Which ever one you are using, just get better at it, and your deals will improve. Manage Risk That doesn’t mean pass it down to suppliers. Many risks are best managed and retained by the client. Don’t “fix-price” everything!
- 13. 14 Trust me, I’ma buyer © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group13 I said there was a catch to doing these things quickly. Most suppliers don’t trust buyers. Far too many buyers believe lies are a great negotiation technique. This will be your biggest challenge when you sit down and talk with your suppliers, and ask for ideas how you can reduce cost without just squeezing their margin. If they don’t trust that you will act honourably with what they tell you, you will not get the truth.
- 14. © ArcBlue MiddleEast – part of PMMS Consulting Group, operating in association with The Links Group14 If you push risk down to suppliers, and expect them to “really suffer” if they let you down, then the odds are you are paying much more than you need to. This can be proven mathematically. If pushing risk, and the responsibility for the inherent uncertainties of life, down the supply chain was efficient, then the whole insurance industry wouldn’t exist. It does exactly the opposite. Risk is best managed (and minimised in total) at the aggregate level – and in our world, this means with the ultimate customer. In practice this means not fixing all your prices if you want savings. 15 Managing Risk v Offloading it
- 15. © ArcBlue MiddleEast – part of PMMS Consulting Group, operating in association with The Links Group15 Competition & collaboration are the two general ways we manage supplier price. Competition attacks their margin & supplier and buyer pull in opposite directions. The stronger “wins” Collaboration attacks cost, and supplier & buyer attack it together. Both “win” Given cost is usually much bigger than margin, and a lot of cost is driven by the customer and their specification, it is a great place to start looking for quick-win savings. turn need trust The only problem is it requires collaboration, which in Price MARGIN COST
- 16. © PMMS MiddleEast – part of PMMS Consulting Group, operating in association with The Links Group16 Collaboration in practice This sums up collaboration. Suppliers are not your enemy, they are on your side. Do you think the side winning the soccer World Cup motivates players by threatening to kill those who miss tackles or don’t score goals? But many of us seem to believe that you have to do this to motivate a supplier to perform on “our team”. Both cant be logically correct….
- 17. • CapEx ProgrammeReduced by 10-15% • Then do the same projects, just better – Contract – Project Alliancing – Management - CCPM © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group17 Project Alliancing © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group17 I want to finish with a topic that, whilst powerful and simple in concept, is not easy to apply. However, if your organisation wants to reduce its capex programme by 15%,without cutting any projects, this might just be a key part of the answer… I think alliancing was developed by Oil & Gas in the UK in the early 90’s (part of CRINE which took 30% out of the cost of projects). The alliance is a collaborative project team (also called Integrated Project Delivery (IPD) team). The team undertakes to deliver the whole project. All team members share in the risks and rewards of success
- 18. Project Collaboration CaseStudy +25% Profit +30% Satisfaction -10% Cost -20% Time -65% Changes -83% Claims -99.8% LTA © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group18 In the USA, the CII studied over 200 projects. Those using collaboration delivered these results compared to more traditional procurement routes.
- 19. Best of BothWorlds Collaborative Team, Competitive Selection A challenging project A history of poor project performance Urgent business need Aware of claimed success from CRINE in the O&G industry © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group19 CRINE in Oil & Gas focused on mega-projects. This case study from the UK applied the idea of Project Alliancing, along with some of the other ideas I gave earlier in the presentation at a much smaller scale. This project for the speciality chemical company Rohm & Haas has a total value of about $20M at 2015 values. It won the Teesside Business Award for Supply Chain Excellence in 1999, and I had the privilege of working on the team.
- 20. Integrated Project Team AllianceContract Project Collaboration Case Study Rohm & Haas “Fix 7” Project Project Alliance 3-company contract Reduced waste & “policing” Difficult Goals Client EPCM Construct Suppliers Sub- contractors Client EPCM Construct Suppliers Sub- contractors Traditional Approach © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group20 The IPD team involved • Client • Engineering & Procurement partner • Construction & Construction Management partner There was 1 contract with 3 parties Some features… • No client project manager – the alliance supplier members managed the whole project • No-blame culture & contract • Investment in cross-company team building, at all levels • Almost no time spent on claims, variations & contractual arguments • Final account agreed in 1 hour
- 21. • 4 weekselection for $9M construction work • RFP was 3 pages • Payment – Cost + Fixed Fee + Performance Fee Project Collaboration Case Study Rohm & Haas “Fix 7” Project Contin.y Constr EPCM Cost FF 1 PF 1 FF 2 PF 2 FF 1 PF 1 FF 2 PF 2 Safety Schedule Shutdown Cost Behaviour © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group21 Selecting the construction partner took not only 4 weeks, but went through 3 stages (8 on the long- list, down to 5, with final short-list of 2) in this period. RFP was 3 pages because it focussed on the key competences and experiences looked for. Since the detail of the project design was the same for all bidders, it was not part of the decision The fee was based on the CFV method. See our paper on this at: http://profitableprojects.org/wp- content/uploads/2014/11/CFV- Fee-Pricing.pdf Results: Clients got a difficult, high risk project, on time & under budget – a first on that site. Supply partners made good profit without taking unreasonable risks.
- 22. • A collaborativeproject team is a pre-requisite to a successful project. – Project Alliancing forms a collaborative team across the main companies involved in a project. • But it by itself is not sufficient. – The team needs “to do projects better”. – One great method to deliver benefits from a collaborative project team is a planning & control method known as CCPM (Critical Chain Project Management). Typically projects are 30% faster, and use 30% less resource. • Combining CCPM & Project Alliancing is an approach to procuring and managing capex & construction projects that we have called Profitable Projects. – Simple in concept, but not easy to apply because it involves changing from the “conventional ways”. • Combining proven innovations, to deliver projects • On-time faster, On-budget for less. Without compromising scope or adding risk © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group22 Profitable Projects
- 23. • Existing Suppliers –Audit contracts & compliance – Ask them for help – Offer stability & longevity – Use supply-demand. Why not buy now, when no one else is? • Housekeeping – Stock & Inventory • Selection Processes – Weeks not months – Pages not binders – Teams not Sequences • Get better at Collaboration & Competition – Auctions. If you’re using them at all, you are wasting time & money – Partnerships • Retain Risk • Don’t add long-term risk © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group23 Sustainable Quick Wins - summary
- 24. Any… questions ? comments ? arguments? © PMMS Middle East – part of PMMS Consulting Group, operating in association with The Links Group24 Thank you
- 25. Before moving intoprocurement, Ian worked in the chemical industry as an engineer and project manager, having graduated in Engineering & Management from Imperial College London, in 1985 He worked in project management and procurement roles in ICI, Eutech, GlaxoSmithKline, and NG Bailey. As a consultant he has worked all over the world both with ArcBlue/PMMS, and with REL (Hackett). He moved to Dubai in January 2013 to establish a new office for ArcBlue (then PMMS). His initial focus was delivering training on behalf of CIPS in the MENA region. He is now building on this to expand the business into broader consulting and advisory work, in particular helping clients reduce the duration and cost of major capex projects. © PMMS Middle East – part of PMMS Consulting Group, operating in association with The Links Group25 Ian Heptinstall +971 56 172 0049 +44 7807 848688 Ian.heptinstall@arcblueglobal.com Ian Heptinstall MD – ArcBlue Middle East
- 26. Global Procurement Leadership since1978 UK, UAE, Turkey, Canada, USA, South Africa, Singapore, Hong Kong, Australia, New Zealand, Japan “The change in our category manager’s capability and performance over a 6 month period exceeded our best expectations.” CEO global retail © ArcBlue Middle East – part of PMMS Consulting Group, operating in association with The Links Group26
- 27. © ArcBlue MiddleEast – part of PMMS Consulting Group, operating in association with The Links Group27 Global Procurement Leadership since 1978 Coaching An honest & independent coach can add value in a number of ways. With ArcBlue you get both generic coaching and high-level procurement expertise from experienced CPOs Procurement Technologies ArcBlue has developed a range of simple and affordable technologies. By professionals, for professionals. Profitable Projects On time – in less time. On budget – at lower cost. Same scope, same quality. 25% faster, 10% cheaper Training PMMS has trained more procurement professionals than any other provider – from those starting their careers, to the seasoned CPO Consulting & Project Support We provide hands-on support helping you to rapidly improve your organisation and suppliers From a single savings project to major change programmes Transformation Since developing one of the first strategic diagnostic processes, we have assessed 100’s of global organisations, and supported major transformation across the globe
- 28. A sample ofglobal clients
- 29. North America USA, Canada,Mexico Europe UK, France, Germany, Switzerland, Turkey Southern Africa South Africa Middle East and North Africa United Arab Emirates, Turkey Asia Pacific Australia, New Zealand, Hong Kong, Japan ArcBlue globally With 100 professionals across 5 continents, we offer both global reach and local knowledge with the capability to deliver in 10 different languages