Supply Chain Management
Supply Chain Management Overview
The oil and gas industry operates in just about every imaginable geographic and climatic region across the world, including some of the most extreme conditions known. Wherever operations are taking place they are dependent upon a complex network of Supply Chain Management in order to deliver the people, materials and equipment where they are needed, when they are needed.
Many of the people who are dependent upon Supply Chain Management are not aware of the complexity, variety and indispensability of the activities involved in providing this support. Much Supply Chain Management activity is generic and is common to all industries and ventures, but the oil and gas exploration and production (E&P) industry frequently presents unique and challenging problems that often have to be overcome by utilizing creativity and business acumen.
PTTEP focuses on effective supply chain management in order to prevent and reduce supplier environment, society and governance risks that may impact stakeholders' trust in PTTEP operation. PTTEP Supply Chain Management has a unique model which comprises of 3 functional roles and 1 business unit as follows:
Global Supply Chain Solutions
This function is responsible for the establishment of PTTEP Supply Chain Management policy, procedures, and management system including advanced ERP technology for all PTTEP operating assets worldwide. On the business side, it provides market intelligence and recommended commercial strategy for each spending category. Robust vendor information system containing vendor pre-qualification evaluation as well as vendor performance is also maintained to enable the supplier relationship program.
Procurement and Contracts
This function is responsible for management of procurement and contracts operational process, covering activities from sourcing, tendering, negotiating and development of orders/contracts with support for contract management activities. For all major spending, Procurement Committee will oversee the overall process to enhance assurance on compliance, fairness and transparency.
This function is responsible for management of logistics operation which includes all modes of transportation under incoterms and all other international codes and standards applicable for safe practice and environment protection. Materials management is also part of this function with an objective to ensure the right balance between overall investment, expenses, and operational continuity.
Petroleum Development Support Base
PTTEP owns and operates 2 supply bases supporting offshore exploration and production activities in the Gulf of Thailand and Andaman Sea respectively. These supply bases are ISO14000, ISO22301, OHSAS18000, and ISPS code certified. Services include vessel berthing, cargo handling, storage, and warehousing. These services are also provided to other E&P companies operated in these regions on a commercial basis.
PTTEP Supply Chain Management (SCM) Model
Below is the PTTEP SCM Model with illustration of key activities leading to a unique business process supporting oil and gas exploration and production industry.
Procurement and Contract Strategic House 2017 - 2021
The framework and the 5-year strategic roadmap for procurement and contract as shown below aiming to ensure that the long-term objectives of the functions are aligned with the company’s business objectives and direction, and the works and activities leading to the achievement of the objectives are identified and planned for execution.
PTTEP establishes supplier management measures in order to ensure the compliance of the supplier’s conduct with required international standards as well as the supplier’s ability to meet the increasing demands for Oil & Gas, achieve targets, maintain product quality, cultivate good relationships between suppliers and PTTEP, and achieve the corporate sustainability awareness acknowledgement of the supplier.
In 2016, a target was set for supply chain cost savings at USD 42 million, and it was achieved through many projects such as Logistics Excellence and Supply Chain Plus initiatives.
Supplier Risk Assessment
Suppliers are one of the key stakeholders to help drive the business toward sustainability. PTTEP manages and assesses supplier risk to prevent and mitigate risk on both environmental and social aspects. Supplier risk assessment analysis consists of four steps.
- New vendor pre-qualification by screening and evaluation suppliers for each business category
- Spend analysis and procurement risk analysis using the Supply Positioning Model
- Supplier classification analysis
- Contract risk management, covering all processes from procurement, bidding, contract preparation and supplier contract management. Including supplier relationship management and supplier performance evaluation
Critical Suppliers are suppliers who pose a very high or high risk and can be categorized as high risk tier 1 suppliers, which also include suppliers in the drilling operations and wellhead platform construction. PTTEP also determines our Tier 2 suppliers by extending the vision through our critical tier 1 suppliers to identify and provide a list of their critical suppliers (Tier 2 to PTTEP where products and services direct or indirect to PTTEP). These high-risk suppliers will be assessed annually by different means such as operation & SSHE audits and site visit. Suppliers are required to develop plans and mitigation measures to reduce possible risks and impact and to develop an audit plan in line with PTTEP Group operation and SSHE audit requirement to ensure that risks are manageable and will not impact the business, local communities and the environment.
Vendor Sustainable Code of Conduct
The PTTEP Vendor Sustainable Code of Conduct covers relevant regulations and requirements, code of business ethics, human rights, occupational health and safety, and environment expectations. The Code of Conduct is enforced with high risk vendors or vendors whose work may pose environmental and safety impacts. In addition, PTTEP has identified strategy to support and manage vendors and communicate guidance and knowledge of policy on sustainable procurement in alignment with the PTTEP Vendor Code of Conduct via different channels, such as the Supplier Relationship Management (SRM) Seminar and the www.pttep.com website.
Supplier Assessment and Audit
PTTEP sets in place supplier assessment and audit programs to manage risks, defines mitigation plan, and evaluates supplier performance based on jointly developed mitigation plan, by taking into consideration quality/ quantity/ safety in production and delivery, PTTEP’s basic requirements, including the minimum requirements in labor and environmental laws and management standards such as ISO 9001, ISO 14001, and OHSAS 18001. In 2016, PTTEP has assessed 65 suppliers as the target.
SSHE Management System for Supplier and Contractors
PTTEP has developed the SSHE Management System (SSHE MS) for suppliers and contractors as guidance for controlling and managing operation. The system includes the following elements:
- The integration of SSHE Plan screening criteria to the current procurement procedures
- The identification and assessment of SSHE related risks that may arise from contractors, and the specification of SSHE responsibilities, approaches for control and operations, and the reporting of the contractors’ SSHE performance as required
- Development of initiatives to improve contractors’ SSHE performance and provide SSHE training to contractors whose tasks involve specific risks, and to establish SSHE suggestion system for contractor
- Communication of SSHE expectations to contractors through various channels in order to cultivate the awareness and improve the performance of contractors as well as to build contractor capabilities
- Contractor support to improve SSHE performance to meet the standards expected by PTTEP.
PTTEP has also joined Oil Spill Response Limited (OSRL) to receive support in the case of an oil spill at sea incident and to reduce the subsequent impacts on the environment and local communities. This enables PTTEP to manage the risks of oil spills that can cause major impacts on the marine environment and business operations.
2016 Contractor SSHE Audit
In 2016, PTTEP conducted SSHE High Risk Contractors Audits according to PTTEP SSHE Contractor Management Standard and Procedure for a total of 19 contractors. The objectives are to ensure that the Contractors understand and comply with legislations and PTTEP SSHE Management System in order to properly evaluate and manage all risks associated with their activities and operate effectively.
A total of 19 High Risk Contractor Audits were conducted in 2016, which comprised of 18 annual audits and 1 surprised/unannounced audit, by selecting contractors with high risk activities such as drilling, construction, maintenance, logistics and new high risk contractors.
PTTEP Corporate SSHE team is continuously monitoring our contractors’ SSHE performance and if there are any signs of increasing accidents/trend of high risk incidents, PTTEP will conduct a surprise audit to find prevention actions and improvement areas for safe operation and increased effectiveness. In 2016, PTTEP completed audits for 93.5% of our high risk contractors.
Cooperation in the Supply Chain
PTTEP aims to enhance the procurement process collaboratively through the PTT group integrated procurement projects to increase leverage and synergy across the petroleum supply chain in order to reduce capital investment and to create added value for PTTEP.
The cooperation consists of 3 recent projects which are:
- Procurement of AAF Filter
- Procurement of Spare Part for Control Valve
- Synergy Procurement of Inland Transportation and Customs Clearance Service
PTTEP supports local business and encourages the procurement of both goods and services in the operating areas in order to support economy, employment, and income in the local communities, together with the advantage of lower cost and faster mobilization. As a result of our commitment to building long-term relationship with the communities where PTTEP operates, the company gains each community’s license to operate. Moreover, PTTEP encourages the suppliers to operate with care and responsibility toward society and local communities and to support procurement in the local areas.
In 2016, the value of local procurement in Thailand was USD 560 million, or 60 percent of the total procurement annual spending.