PwC Upstream Procurement/ Supply Chain Management

Transcription

1 Upstream Procurement/ Supply Chain Management Benchmarking Study PIDX Spring Conference Houston, TX April 9, 2015

2 Agenda Welcome and introduction About the study Key findings Overview by area (Strategy and Organization, Sourcing/P2P, Technology, Materials Management) Conclusion 2

3 About the study 3

4 About the Study The Upstream Procurement/Supply Chain Management (PSCM) benchmarking study is the first PSCM study in the US to focus solely on the E&P sector. is also the first to offer the study from a global perspective, with separate but closely related studies launched in Canada, UK, Norway, and the Middle East. Taken together, these studies will ultimately provide both a regional and a global view of upstream supply chain performance. Launched in June 2014, the study employed both a quantitative survey (administered via an online data collection tool) and significant qualitative analysis, including clarification and validation of survey data and 20 in-depth interviews with supply chain leaders and their teams. The interviews aimed to obtain a deeper understanding of approaches, practices, challenges, and solutions in upstream procurement/supply chain management. The 2014 edition of the study included 21 participants from a wide range of operation sizes (from 11,000 to 800,000+ BOED) and business models (e.g., conventional/unconventional, onshore/offshore). The study objective was to provide insight on trends, maturity and performance of the supply chain across the industry and for each participant. 4

5 Study Participants The study included 21 entities, 18 of them independent E&Ps. The grey rectangle represents the middle half of all data The line inside the rectangle is the median of all data Oil/gas revenue ($MM) Net production (BOE/day) (Gross) operated producing wells $4, ,000 12,000 $3,000 $2,000 $1,000 $1,795 $2, , , , ,044 8,000 4,000 3,503 3,523 $ (Gross) operated wells drilled Average operated rig count Oil/Liquids Percentage % % % 40% 55.3% 55.6% % %

6 Participant profile Total PSCM FTEs Total E&P FTEs 14.3% 33.3% 23.8% 28.6% Less than to to 100 More than 100 Total Spend 15.0% 15.0% 25.0% 45.0% Less than 1,000 1,000 to 2,500 2,501 to 4,000 More than 4, % 23.8% 52.4% FTE Full Time Equivalent B -Billions Less than $1B $1B to $5B More than $5B 6

7 Key Overall Findings 7

8 Key Findings Based on data and interviews Resource play impact. The focus on resource play (unconventional) development has in many cases forced companies to dramatically change approaches to supply chain management in order to be more nimble. In practice this has meant: (a) pushing procurement decisions closer to the assets and integrating (even co-locating) PSCM resources with asset-based experts; (b) rethinking supply models and working with key suppliers to drive cost efficiencies and greater supply certainty; (c) a renewed focus on minimizing inventory to the extent possible; and (d) the use of blanket or contract purchase agreements (not necessarily POs) where possible. Center-led model. Successful organizations are generally moving toward hybrid organizational models, with careful scrutiny given to the areas that should be centralized. Greater use of strategic sourcing and category management. Leading PSCM organizations have recognized the short- and long-run value of applying category management and strategic sourcing. Executive support for PSCM. Senior leadership support is essential for promoting the value of procurement and supply chain expertise across the businesses. 8

9 Key Findings, cont d. Based on data and interviews Standardization. Most organizations have struggled to establish standard processes and policies across regions. Leading PSCM organizations have demonstrated the value of their services (beyond cost savings) to often-skeptical region leaders. Talent Development. Top performers have recognized the need to devote resources to internships, rotational programs, skills assessments, and training in short, to develop the PSCM organization of the future. Materials management. The pace and volume of resource plays and the tremendous growth of the sector have highlighted the challenge of material forecasting. Companies are just beginning to address the challenge of surplus material, and more generally of developing investment recovery processes. Leveraging technology. Many participants have systems that are not being fully leveraged for greater automation of purchasing/requisition processes. Others have systems with significant limitations or use Excel or manual methods for specific areas (e.g., material transfers). Investing in data/analytics. Most participants recognize the importance and power of data analysis, especially spend analytics. But in order to leverage data, their data capture, cleansing, storage, and reporting processes need substantial improvements. 9

10 Strategy and Organization 10

11 PSCM Organization Reporting and organization structure Is there an individual with accountability for PSCM in your organization? 90% COO/SVP or VP Operations Title to whom PSCM Lead reports 36.8% Does this position have direct accountability over the PSCM function for each individual asset? 62% VP Services/Administration Regional VP Technology 10.5% 15.8% 21.1% Does organization have a centralized shared service for transactional activities? 65% VP Drilling/Drilling & Completions CFO 5.3% 10.5% Centralized Hybrid Decentralized PSCM Organization model 29% 57% 14% For Hybrid models, work that is centralized is generally around financially critical standards, processes, or procedures. Some are also seeing value in centralizing sourcing/ category management to take advantage of geographic scale. Yet many independents have a culture of business unit autonomy that makes it difficult for a center-led PSCM to sell its services. In some cases, the layer handled by the center is too thin for the supply chain organization to be effective in providing the expertise, visibility and accountability necessary for procurement excellence. 11

12 Center-led Structures Hybrid ( Center-led ) model associated with greater efficiency and reach Average by organization model Implied impact using KPIs / Ratios denominator average Hybrid (n=12) Other (n=9) Managed spend ($US MM) per PSCM FTE $46.83 $17.09 $ $1.4 billion Managed spend ($000s) per supplier $ $ $ $1,606K Percent spend under formal contract (%) 69.5% 43.9% 25.6% million Annual savings target as percent of total spend 2.1% 0.0% 2.1% +$40.4 million PSCM FTE per $1B managed spend fewer FTEs Materials Management FTE per $1B managed spend fewer FTEs Percent of categories with designated preferred suppliers 70.0% 50.0% 20% n/a Inventory value (current) per net MBOE $ $ $ $5 million % change in inventory value per net MBOE since % +9.2% -38.5% -$13.4 million The often competing goals of business or customer intimacy, on the one hand, and consistent use of strategic sourcing techniques and stronger visibility, governance and control, on the other, can be met via the Hybrid model. 12

13 Impact of Resource Plays on E&P Supply Chains Nimbleness required by unconventional plays has led to strategic changes in SCM for many Resource play environment vs. conventional Much faster drilling cycle time Plans are malleable and change often Processes run in parallel Integrated, crossfunctional teams used to minimize downtime Drilling activity drives high transaction volume Steep production decline curves drive more drilling activity Shift from acquisition toward development puts a premium on execution and operations excellence E&P Supply Chain Performance Bringing Supply Chain best practices from outside industry Resource play environment shares similarities with manufacturing/automotive Value in bringing outside best practices into industry, often through hiring Proximity to asset Procurement decisions pushed closer to the assets PSCM resources integrated with asset-based experts and even colocated with them according to category (e.g., drilling) Minimization of inventory Conventional methods applied to resource plays resulted in tremendous surplus, high inventory levels Vendor-managed or consignment-based inventory now common pay for it when used Altering supply models Working with key suppliers to drive cost efficiencies and greater supply certainty Buying equipment vs. leasing it or vertically integrating to operate divisions that perform selected services. Greater use of blanket agreements Creation of standard (blanket or contract) agreements where possible, in lieu of traditional POs To mitigate risk, contracts must be clear and explicit February

14 Strategic Direction for PSCM Key focus areas and key performance indicators (KPIs) 50% Percentage of PSCM organizations with annual savings target Average target: 2.3% of total spend Key focus areas for PSCM in 2014 (1 = greatest priority) Cost Reduction/Savings 1.58 Process improvement 2.19 Top 5 KPIs to measure PSCM effectiveness Training/People Improvement Cost reduction/avoidance 2 Safety Enabling Technology Stakeholder satisfaction Auto purchase order frequency Improving business integration Supply reliability Expanding remit of category management / strategic sourcing

15 Headcount Strategic FTE represent only about 1/5 of total PSCM headcount PSCM FTE per $1B spend PSCM FTE (internal) as a percent of total company FTE Strategic FTE % % 29.2% % 2.5% 13.8% 20.5% 1st Quartile Median 3rd Quartile 1st Quartile Median 3rd Quartile 1st Quartile Median 3rd Quartile PSCM FTE per $1B managed spend 84.1 PSCM FTE (total) as a percent of total company FTE PSCM FTE per 100,000 net boe/d % 2.8% 5.4% st Quartile Median 3rd Quartile 1st Quartile Median 3rd Quartile 1st Quartile Median 3rd Quartile 15

16 Headcount, cont d. Average % FTEs by category Leadership 13.5% The greatest share of FTE overall was devoted to Materials Management, followed by Transactional Purchasing and Contract Management and Execution each considered non-strategic roles. Category Management / Strategic Sourcing / Supplier Management 11.9% Contract Management and Execution 15.4% Transactional Procurement / Buying 18.9% Non-strategic roles Materials Management 24.7% Support services 15.7% 16

17 Spend Overall, managed spend per supplier is up 71% since 2012 Spend ($US MM) per PSCM FTE Spend ($000s) per supplier Spend ($US MM) per total E&P FTE $80.93 $1, $34.89 $55.74 $ $ $ $0.79 $1.64 $2.19 1st Quartile Median 3rd Quartile Median ('12) 1st Quartile Median 3rd Quartile 1st Quartile Median 3rd Quartile Managed spend ($US MM) per PSCM FTE $53.08 Managed spend ($000s) per supplier $1, Managed spend ($US MM) per total E&P FTE $1.45 $12.30 $25.21 $ $ $ $0.27 $0.72 1st Quartile Median 3rd Quartile Median ('12)1st Quartile Median 3rd Quartile 1st Quartile Median 3rd Quartile 17

18 Spend, cont d. Percent spend under formal contract 80.3% Capex as percent of total spend 85.0% 76.0% 75.0% Spend ($US MM) per net BOE $ % 43.0% 55.0% 62.0% $45.38 $33.21 $50.55 Median ('12) 1st Quartile Median 3rd Quartile Median ('12) 1st Quartile Median 3rd Quartile Median ('12) 1st Quartile Median 3rd Quartile Percent spend managed by PSCM 54.2% 31.5% 61.5% 80.0% Opex as percent of total spend 42.0% 24.0% 25.0% 15.0% Spend as a percent of revenue 126.6% 120.4% 89.5% 58.6% Median ('12) 1st Quartile Median 3rd Quartile Median ('12) 1st Quartile Median 3rd Quartile Median ('12) 1st Quartile Median 3rd Quartile 18

19 Sourcing/P2P 19

20 Strategic Sourcing Competitive bid thresholds, strategic sourcing events, and authority for supplier selection Do you have a policy with a defined spend threshold that requires competitive bidding? 68% Ultimate authority for supplier selection 5.3% 52.6% Threshold requiring competitive bidding 16.7% 25.0% Less than $50,000 Number of strategic sourcing events conducted last year 26.3% 21.1% None 42.1% 16.7% 41.7% $50,000 to $100,000 $100,001 to $500,000 More than $500, % 31.6% 1 to to 20 Business/operations Shared PSCM More than 20 Strategic sourcing event: A formal event in which a buyer engages the supply market with an offer to bid on a given scope of work and/or material or equipment specifications with defined bid due dates, evaluates and negotiates bids with potential suppliers, and then awards the contract to a supplier or suppliers. Having business/operations alone as the authority for supplier selection (vs. sharing that responsibility with PSCM) was associated with lower spend per PSCM FTE and per supplier, and higher inventory levels. 20

21 Spend Analytics About 53 percent of participants conducted spend analyses in last 24 months. Those companies had greater PSCM efficiency than their counterparts. KPIs / Ratios Average by spend analysis performed (last 24 months) Implied impact using denominator average Yes (n=10) No (n=9) Managed spend ($US MM) per Supply Chain FTE $38.66 $19.10 $ $928.8 million Managed spend ($000s) per supplier $ $ $ $751K Percent spend managed by Supply Chain (%) 73.7% 50.0% 23.7% million Annual savings target as percent of total spend 2.1% 0.0% 2.1% +$40.4 million Supply Chain FTE per $1B managed spend fewer FTEs Percent of categories with designated preferred suppliers 82.5% 60.0% 22.5% n/a Total active suppliers per $1MM spend fewer suppliers Inventory value (current) per net MBOE $ $ $ $7.78 million Most participants recognize the importance and power of spend analytics. To leverage that power, their data capture, cleansing, storage, and reporting processes need substantial improvements. Spend analytics can not only lead to savings, it can also help companies improve processes, better manage supplier relationships, and better manage risk. 21

22 Sourcing and Contracting Percent of sourcing/contracting done: 0.0% Locally 14.2% 35.0% Do you source any materials or equipment from suppliers based outside of North America? 71% Regionally 4.8% 23.5% Contracting methods for services by type: 51.7% 10.0% Time and materials 27.5% 8.8% 71.3% Centrally 34.2% 65.0% 5.0% Fixed Price/Lump Sum 14.5% 1st Quartile Median 3rd Quartile 20.0% Sourcing/contracting done centrally is associated with higher spend under formal contract and fewer PSCM FTE for given spend and production levels, compared to sourcing done regionally or locally. In unconventional plays in particular, it is common for operators NOT to sole source, but to use two or more suppliers to encourage some degree of competition. 0.0% Unit Price 0.0% 6.3% 1st Quartile Median 3rd Quartile 22

23 Technology 23

24 Systems Used ERP System eprocurement systems used N/A 27.8% SAP 44.4% Electronic invoicing Contract management 56.3% 93.8% Electronic catalogs 56.3% Spend analytics tool 50.0% Other 11.1% JDE 5.6% Oracle 11.1% Supplier portals erfx Complete P2P solution 25.0% 43.8% 50.0% Supplier management 12.5% Other 12.5% Two-thirds of participating companies reported some degree of manual effort for every requisition they process. That is, none of their requisitions was processed in a fully automated fashion. 24

25 Data Governance, Taxonomy/Standards and Tools Do you currently have a formal data governance program and organization in place? Which of the following best describes your program/organization? Data governance program In-house/customdeveloped taxonomy Data dictionary standards currently in place 52.9% 16.7% 66.7% PIDX 29.4% 11.1% UNSPSC 29.4% 5.6% Currently use Plan to deploy Data governance organization/team 22.2% Deploying now No plans to deploy 61.1% Most companies have data governance programs and teams in place, but they struggle to obtain clean, validated master data for PSCM. None 23.5% Tools used to help govern material master and vendor MDM SAP MDM sparesfinder 18.8% 25.0% 11.1% Oracle Master Data Management 12.5% 5.6% Other 18.8% None 25.0% 25

26 Supplier Integration and P2P Process Supplier integration methods Procurement activities with automated integration between your systems and those of suppliers Dedicated Inbox 7 0.6% Invoice matching and payment 82.4% Supplier portal 52.9% Distribution and evaluation of requests for quote 23.5% Direct ERP to ERP integration 23.5% Contracting 11.8% 800 Number 23.5% Acknowledgement of services provided on the field 11.8% Punchout catalogs 5.9% Required steps in your (ERP-enabled) P2P process Acknowledgment of materials received 5.9% Contract creation Purchase Order Material / Service receipt 58.8% 58.8% 58.8% Note the relatively low levels of automated integration for acknowledgement of goods received and services provided Matching contract/po to material/service receipt 35.3% 26

27 Materials Management 27

28 Materials Management Function Tools used Does your company have a dedicated materials management function? 79% Is this function supported by any additional systems/tools beyond an ERP (e.g. SAP, Oracle)? 58% Percent of material purchases planned in either project/asset management system in ERP 5.3% 10.5% 5.3% 5.3% 73.7% 0-20% 21-40% 41-60% 61-80% Tools include Exchange Base, Infor EAM/EDM, Maximo, PeopleSoft Procurement and Inventory Modules, SAP Asset Management System, and other SAP modules (WM, PM and MM) More than 80% Participants have struggled with establishing visibility and consistent processes/automation around materials transfers and good receipt at the field level. Over 40 percent of participants report no metrics are used to manage MM. 28

29 Inventory Management Metrics Inventory value as a percent of spend 3.5% Inventory value as a percent of managed spend 6.5% Inventory value as a percent of revenue 1.9% 1.4% 1.4% 0.7% 1.4% 1.4% 1.4% 2.2% 2.4% 0.7% Current (1st quartile) Current (Median) Current (3rd quartile) 2013 Median Current (1st quartile) Current (Median) Current (3rd quartile) 2013 Median Current (1st quartile) Current (Median) Current (3rd quartile) 2013 Median Inventory value per net BOE $874 $585 $643 Inventory value ($MM) per Materials Management FTE $2.91 $4.47 $3.06 Vendor-managed inventory value as a percent of total spend 0.7% $379 $1.65 Current (1st quartile) Current (Median) Current (3rd quartile) 2013 Median Current (1st quartile) Current (Median) Current (3rd quartile) 2013 Median 0.0% 0.0% 1st Quartile Median 3rd Quartile Average decline in inventory value since % 29

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