Buying Top Quartile Performance. Wayne Hutchinson Vice President Category and Supplier Management Shell International

Transcription

1 Buying Top Quartile Performance Wayne Hutchinson Vice President Category and Supplier Management Shell International

2 Contents A new set of world circumstances Behaving as a single enterprise Enterprise categories and suppliers Supplier management Performance management Key takeaways

3 A new set of world circumstances In times of economic crisis, companies aim to cut supplier costs However, to succeed beyond these uncertain times, companies must also aim for topquartile business performance and long-term operational excellence Managing supplier relationships strategically, with a focus on contracting and procurement (C&P), can help you to achieve these objectives Oil is around the same price as it was in 2004 but the cost index has doubled Index UCCI (overall) Index UOCI Index DCCI Index WTI $/bbl Dated Brent $/bbl Q Q Q Q Q $/bbl Source: CERA : UCCI Upstream Capital Cost Index: DCCI - Downstream Capital Cost Index: UOCI Upstream Operating Cost Index

4 Behaving as a single enterprise: Benefits for the business Shell has a comprehensive response to the current economic challenge. The values and behaviour part of the response includes Developing and delivering on a clear, integrated group procurement strategy Developing an external supplier management mindset Standardising and globalising processes and systems to achieve efficiencies and cost savings Placing less emphasis on my business and more on the whole Shell enterprise Enabling us to use our spend with suppliers in a consolidated way Many businesses see C&P as a separate administrative mailbox; it can be a strategic part of your business supporting your overall business objectives

5 Behaving as a single enterprise: Benefits for C&P For C&P, the benefits include Clear alignment between business and category strategies Business intimacy (a closer working relationship) Enterprise demand management, consolidated spend One face in the supplier market Standardisation and simplification of business processes Being seen as equal partners to the business Moreover, it provides the opportunity for the C&P function to create value for the business

6 The 16 categories for enterprise-wide management Enterprise-wide categories must meet one of the following selection criteria: Cross-business spend Above a maximum amount in one business Materiality (spend or business impact) Above a spend threshold or Criticality (e.g., tight market or critical HSSE) Value delivery potential high, medium-high Significant incremental value potential of managing on enterprise basis # Enterprise-wide category 1 Instrumentation, automation and electrical (IAE) 2 Rotating equipment 3 Floating production systems 4 Engineering, design, construction, manpower and fabrication 5 Line pipe 6 Static equipment 7 Maintenance and engineering services 8 Logistics 9 Deepwater subsea 10 Industrial gases 11 Energy 12 Catalysts 13 Purchased chemicals 14 Maintenance, repair and operating supplies (MRO) pipes, valves and fittings 15 Offshore installation and heavy lift 16 Metals and alumina

7 Category management Category management is the process by which Shell packages internal demand for goods and services, and presents it to the external marketplace to achieve maximum benefit in areas such as HSSE performance, costs, operational performance, value delivery and technical innovation Enterprise categories and suppliers Demand (business intelligence) Market data Supplier data Current environment Category strategy Supplier strategy Value proposition Sell value proposition Actively work project quilt Support C&P on projects

8 Supplier management: Reaching a new level Develop creative partnerships, aligned with business needs and that aim to create value Get the most from your suppliers, but by working as partners Create transparency between yourself and your supplier Work only with suppliers that are prepared to work in this new way Reduce the number of suppliers you work with

9 Supplier management Innovation, delivery and efficiency from a smaller supplier base Shell supplier segments Shell resource investment Top Core Delivery; innovation; differentiation; value chain opportunities; top performance; joint market making; advantaged supply versus competition in constrained markets Best products and services; delivery; focused performance; efficiency; reduced total cost of ownership; value chain opportunities Focus Time Skills Approach Base Rationalised supplier base; automation; efficiency

10 Performance management to meet business needs Category value Top Core Base Work plans Contract KPIs Contract management plans Category plan with business key performance indicators (KPI) Supplier and business have aligned KPIs Business performance reviews Contract KPIs Contract management plans Category plan with business KPIs Standardisation Business performance reviews Value opportunity realisation plans Maximum standardisation Joint research and development Contract management plans (joint) Materials Services Complex services Performance management impact

11 Proof point: Gas turbines Problem Cost reductions and shorter delivery times became strategically imperative, but quality would not be compromised Value delivered Within just a few months Delivery times cut by an average of 6 months Price cut significantly Vendors standard for each unit maximised Solution We engaged with a vendor and performed detailed reviews of how we both did business Special modifications minimised Costs in the sales purchasing phase cut for both parties Transparency on both sides was enhanced, thus facilitating further cost reduction opportunities Further improvements are expected

12 Proof point: Line pipe Problem Shell purchases huge amounts of line pipe, including high-quality seamless for sour service, and everyday carbon-steel welded pipe However, this spend was highly fragmented Solution Detailed market intelligence, accurate demand forecasting and consolidated spending facilitated a stronger negotiating position Value delivered High-quality pipe deal is significantly better than the market average (which is tracked) Low-quality pipe deal is also more competitive than the market average, and is sourced from China Alternative pipe types are also sourced, potentially unlocking significant savings Further improvements are expected

13 What does top-quartile C&P performance mean? Category strategies that are intimate with the business and add value to it in line with business objectives (C&P working hand-in-hand with the business as equal partners) Integration across business units and functions to optimise demand management Development of supplier relationships that result in lowest cost for both parties Effective contract management, which is key to retaining the value created in category management Best practice tools and processes to ensure a low-cost C&P function

14 Key takeaways for winning in the downturn Suppliers often know where and how to remove costs from your business How often have you asked them about this? Value is often created when there is transparency of objectives and work processes between parties How transparent are you with your suppliers? Top-quartile category management is to beat market pricing as the market moves. Many suppliers do not know the real market price. Do you? Knowing your spend profile with your suppliers and your future demand are key to setting your strategy with suppliers Do you know your supplier spend profile and future demand? Top-quartile performers in category management take real costs out of the business year-on-year

15 Thank you Shell Global Solutions is a network of independent technology companies in the Shell Group. In this presentation, the expression 'Shell Global Solutions' is sometimes used for convenience where reference is made to these companies in general, or where no useful purpose is served by identifying a particular company.