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 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:
Supply Chain Management System
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. A robust vendor information system containing vendor pre-qualification evaluation as well as vendor performance is also maintained to enable supplier relationship management.
Global Supply Chain and 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, the 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 two supply bases supporting offshore exploration and production activities in the Gulf of Thailand and Andaman Sea. 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 aims 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’s Supply Chain Management Top Priorities
1) Target Zero
SSHE aspiration of “Target Zero” ensures nobody gets hurt and everybody returns home safely and we achieve our target to have zero LTIF, TRIR, Spill and MAE. See SSHE Policy.
2) Green Supply Chain
PTTEP has continuously implemented a green supply chain since 2013. We focus on 4 elements that consist of green procurement, green office, green logistics and green meeting. This project’s purpose is to reduce carbon and ecological footprint from goods purchased, office utilization, marine fleet logistics and meeting activities. 4% (44.5 million USD) of total annual purchase value was under green procurement in 2018. Meanwhile, we target to increase green procurement to 30% by 2022.
3) Local Content
PTTEP supports local business and encourages the procurement of both goods and services in the operating areas in order to support the 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 a 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 2018, the value of local procurement in Thailand was 584 million USD, or 66% of the total procurement annual spending.
4) Commitment to Ethical and Corporate Social Responsibility (CSR)
PTTEP procures goods & services with honesty, integrity, and fairness, with consideration of the impact to environmental, economic and social factors along with contract terms and conditions, price, quality, delivery, and SSHE requirements. Suppliers and contractors must comply with all principles related to sustainable development.
PTTEP believes that conducting its business guided by Good Corporate Governance and Business Ethics is vital. We emphasize the significance of the stakeholders’ rights whether or not these stakeholders are internal or external parties throughout the company policy and supply chain activities such as joining Integrity Pact (IP) for strengthening Company’s Anti-Corruption Policy, fully complying with related laws (i.e. Procurement Act, National Anti-Corruption Law), and joining as a member of Thailand's Private Sector Collective Action Coalition Against Corruption (CAC).
5) Cost Effectiveness
The Supply Chain Management Policy is to procure quality goods & services in the most cost-effective manner on a timely basis, consistent with the company’s objectives while maintaining highest ethical practice and compliance with all legislations and policies. PTTEP has integrated digitalization throughout the procurement system which would result in lower cost and increased efficiency.
PTTEP continues to strengthen the procurement process by collaborating with PTT group on integrated procurement projects to increase leverage and synergy across the petroleum supply chain. This reduces capital investment and creates added value for PTTEP.
- Procurement of Air Filter for Gas Turbine (2 packages)
- Procurement of Spare Part Filter
- Procurement of Turbine Compressor Maintenance
- Procurement of Life Insurance for PTT Group
Supplier Management and Vendor Sustainable Code of Conduct
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.
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 Sustainable Code of Conduct via different channels, such as the Supplier Relationship Management (SRM) Seminar and the PTTEP website.
Risk Assessment in Supply Chain Management
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 five steps.
- New vendor pre-qualification by screening and evaluation of suppliers for each business category
- Spend Analysis and Supplier Classification Analysis through Supply Positioning Model (SPM)
- Supplier Sustainability Risk Assessment
- Integration of ESG Factors in Supplier Selection and Contract Clauses
- Supplier Risk Mitigation Measures
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 Critical 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. In addition, 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.
PTTEP sets in place supplier assessment and audit programs to manage risks, defines mitigation plan, and evaluates supplier performance based on jointly developed mitigation plans, taking into consideration the quality, quantity, safety in production and delivery, as well as 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.
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.
SSHE Contractor Audit
In 2018, PTTEP conducted SSHE high-risk contractor audits according to PTTEP SSHE Contractor Management Standard and Procedure for a total of 48 audits. 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.
High Risk Contractor Audits were conducted based on selecting contractors with high risk activities such as drilling, construction, maintenance, logistics as well as new high risk contractors and past performance.
PTTEP’s 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 an uninformed audit to identify prevention actions and improvement areas for safe operation and increase effectiveness. From following up on recommendation in 2018, 100% of contractors have completed corrective action plans.
Vendor Environment, Social and Governance (ESG) Audit
In 2018, PTTEP already conducted an ESG/sustainability assessment for 7 vendors with high Sustainability risks in 5 areas: 1. Policy 2. Business Integrity 3. Society 4. Occupational Health and Safety 5. Environment, through a certified third party and to ensure that ESG risk in supply chain management will be monitored and managed with the best practice. The assessment results were at very good and excellent levels, no further actions are required.
For more information, please visit PTTEP Procurement and Contract Website and
1) PTTEP Vendor Sustainable Code of Conduct (as of 26 May 2017)
2) PTTEP Vendor Guide (as of 01 September 2018)
3) A Collaboration in ESG for PTTEP's Supply Chain Management (as of 09 March 2018)