1. How strategic procurement can help deliver better
outcomes in capital works
Matthew Rae
National Supply Chain Manager
Procurement in Infrastructure and Capital Works
11-13 August 2015

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Agenda
About APA
Understanding Market Conditions – including the Economic Outlook
Opportunities to minimise Project Cost
Pricing and Through Life Support
Lean Procurement
Innovative Strategies to achieve results
What does success look like?

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APA Overview (Ticker: APA AU)
Market capitalisation
ASX rank(1)
Rating
A$10.2 billion (as at 27 Feb 2015)
S&P/ASX 50
Moody’s: Baa2 (outlook Stable),
confirmed 10 Dec 2014
S&P: BBB (outlook Stable),
confirmed 10 Dec 2014
Assets owned/ operated Over $12 billion(1)
Gas transmission
14,744(2) km transmission pipelines
Underground & LNG gas storage
Gas distribution
27,100 km gas network pipelines
1.3 million gas consumers
Other energy infrastructure
585 MWpower generation
244 km HV electricity transmission
Gas processing plants
Employees More than 1,600
Australia’s largest gas pipeline owner by pipeline
length, capacity and volume
(1) Does not include QCLNG Pipeline – financial close pending
(2) Includes QCLNG Pipeline (543 km) – financial close pending
Does not include Eastern Goldfields Pipeline (292 km)– under construction

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Reducing the organisations’ exposure to risk by
understanding market conditions and working to
support local industry

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Understanding market conditions – Economic Outlook
– In the last decade Australia has doubled its total economic production to $1.5 trillion
– Over the last decade the Asian economic expansion has fuelled an unprecedented level of
demand in our mining sector. The IMF forecasts that Asia will contribute 42 % of global output by
2019
– Mining has made a significant contribution but it’s the services sector that actually makes up the
bulk of Australia’s economy……with Construction only 8%
– The $A had depreciated as avg price of commodity exports has fallen
– Against the green back, the currency has fallen from US$1.10 to US$0.74
– It is believed a lower $A would help rebalance the economy

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Understanding market conditions – Economic Outlook
Source: Economic and Political Overview 2015, Committee for Economic Develop of Australia
– Gross Domestic Product (GDP) has remained below average for 2015 and looks like staying that way.
– Overall growth in other (non minding) sectors has improved but remains below average (3.5%)
– Resources investment has now been declining for 18 months, but expected to worsen

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Understanding market conditions – Economic Outlook
– Labour market conditions are poor
– Gradual increase in the unemployment rate to more than 6 per cent currently.
– The unemployment rate is expected to rise to around 6.5 per cent this year before declining
gradually.
– Inflation will not be a focus for some time
– Disinflationary pressure, spare capacity & lower commodity prices will continue to dampen inflation
– Inflation to sit between 2-3% for foreseeable future
– Australian interest rates remain attractive to foreign investors
– RBA cutting cash rates to historical lows – remaining at 2% as announced last week

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Understanding market conditions
Demand and supply drivers
Map the competitive landscape
Make vs. Buy – what are your organisations core capabilities - are they changing?
How attractive are you as a customer?
Who supplies your major competitors? Why?
Understanding supplier economics and investment/business drivers
Trends, innovations & key market insights
Identify supply risks for critical goods & services

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Mitigating exposure to risk
Are the market conditions right for this Capital Project to proceed?
Business Continuity Plans in response to changes in market conditions
Hedging against exchange rate movements
Managing moves in key market indices e.g. sharp decline in oil prices since
mid 2014
Understanding and capitalising on competition for Capital Works Projects
Diversification
Allocation of risk (where viable) from customer to contractor

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Reducing exposure to risk……through supporting local industry
Its not just a government initiative
Localised labour is of critical importance to many organisations
– Not just during construction but post commissioning
– Reactive maintenance
– Reciprocal Trade
Materials
– Local supply, storage, consumables, fabrication works
Other Local Infrastructure and Service Industry

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Opportunities for strategic procurement to help
minimise overall project cost

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More than just a tendered price, focus should be on TCO over the life of the asset
– cradle to grave
Includes:
– planning and design
– construction and acquisition
– maintenance/renewal
– depreciation and cost of finance
TCO expands the narrow confines of price to a vast field of opportunities
Price is not only different from cost, in fact it is merely one element of cost
What is Project Cost?
Anyone can get a low price.
The object of good business is to attain the lowest TCO.

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The cost of construction has steadied over the last few years
Regardless of the current market conditions procurement can assist to minimise project cost
in many different ways – both pre and post mobilization and commissioning
– “Back to back” with the commercial deal
– A tight specification
– Clever design and standardised building practices
– Risk and Reward
– Procurement of Long-lead items
– Contractor Model and Selection
– Planning and Scheduling
Opportunities to minimse overall project cost

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The ugly auntie at the BBQ no one wants to speak to !!
Plays an important role in aligning key players
Pricing strategy impact directly drives project cost
Contract Management and performance against KPI’s
Managing any variations and or disputes as they arise
Management of payment schedule in accordance with agreed terms
Any rework performed at no additional cost
Conducting Post Implementation Reviews
Opportunities to minimse overall project cost
- post mobilisation and commissioning

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Introducing innovative strategies and creating a lean
procurement department to achieve
successful results in your capital projects

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Continuously improving and rationalising procurement and supplier management in order
to :
– Avoid non-value adding activities
– Minimize Transactions
– Reduce the Total Cost of Ownership
– Improve performance through more efficient practices
– Better satisfy stakeholders
– Streamlining the Contractor and Supply base
Lean procurement….means ??
Lean procurement means…….
providing optimal value to both internal and
external customers
Gordon S, President of Value Chain Group, Oct 17, 2013

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Innovative Strategies to achieve results
New Procurement Models
Development of generic Scopes of Work
Forward Procurement Planning/Procurement Dashboard
Automation & simplification of process to reduce lead times
Supplier Prequalification and Compliance
Post Implementation Reviews
Don’t keep doing the same thing………
and expect a different result !!

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Procurement Process – High level alignment to Project Management Methodology

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Forward Procurement Planning/Procurement Project Dashboard
How are Capital Projects tracking overall?
How are Capital Projects tracking by state?
Where are the bottlenecks?
Is procurement performing?
Procurement Benefits Realisation
Comments Log
Performance against previous month
EXAMPLE ONLY

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What does success look like?
The company and indeed procurement looking beyond the activity associated with an
individual project
Consolidation through Standardisation – “Cookie Cutter Projects”
Aggregating and Managing Demand
Dedicated capital-procurement strategy that considers supply market, company
capability, and the requirements for capital projects
High-performing cross-functional teams

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Early engagement is the key to successful Capital Projects
Understand the market conditions in which you are operating
Spend your companies money as if it were your own
Anyone can get a lower price, the object of good business is to reduce the
TCO
Successful Capital Project Procurement is not a set and forget
Some key takeaways…
Future vision happens……as a result of what we to today

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For further information contact
Matthew Rae
National Supply Chain Manager
Tel: +61 8 8113 9130
E-mail: matthew.rae@apa.com.au
or visit APA’s website
www.apa.com.au
Delivering Australia’s Energy