Supply Chain Management
Importance and Mission
The oil and gas industry operates in just about every imaginable geographic and climatic conditions across the world. Managing complex supply chain is a success factor to ensure on-time delivery of people, materials and equipment to operational sites.
Supply Chain Management will not only contain possible risks on the operations and corporate reputation but also increase operational efficiency, transparency, and shared values between PTTEP and suppliers. Such management as guided by the principles of cost-effectiveness, transparency, efficiency, effectiveness, and traceability involves the first step in selecting vendors and suppliers. It entails a review on suppliers' management of ESG (environment, social and governance) risk, relationship building, and suppliers' capability enhancement through the adoption of digital technology.
1) Target Zero
PTTEP is committed to Safety, Security, Health and Environment (SSHE) management to achieve zero incidents (Target Zero). The goal encompasses major accident events, oil and chemical spillage, motor vehicle incidents, marine vessel incidents, total recordable injury and loss time injury, to ensure nobody gets hurt and everybody returns home safely. More information is available in the SSHE Policy.
2) Green Supply Chain
PTTEP implemented Green Supply Chain in 2019 through the green procurement of goods and services and the development of energy-efficient logistics, in order to reduce greenhouse gas emissions from combustion which causes global warming.
3) Local Content
PTTEP supports local businesses and encourages the procurement of goods and services in the operating areas, to support local economy, employment and income distribution. As a result of the commitment to building long-term relationship local communities where PTTEP operates, the Company gains community trust. Moreover, PTTEP encourages suppliers to operate with care and responsibility towards society and local communities and to source products and services in local areas.
4) Supplier Management and Vendor Sustainable Code of Conduct
PTTEP sources goods and services with honesty, integrity and fairness as guided by the Company's governance principles. The Company takes into account environmental impacts; economic and social factors; contract terms and conditions; pricing; quality; delivery; and SSHE requirements. On top of that, contractors must comply with all of the principles and give importance to social responsibility.
PTTEP believes that it is vital to conduct business under Good Corporate Governance and Business Ethics and emphasizes the rights of internal and external stakeholders' rights through the Supply Chain Management Policy and related activities. For example, PTTEP joins the Integrity Pact (IP) to strengthen the national fight against corruption in line with the procurement and anti-corruption laws. PTTEP is also a member of Thailand's Private Sector Collective Action Coalition Against Corruption (CAC).
5) Cost Effectiveness
The Supply Chain Management Policy to source quality goods and services at the best prices and at the best time is consistent with PTTEP's objectives, ethics and policies as well as relevant laws. PTTEP has adopted more digital procurement systems which have further lowered expenses but raised efficiency.
PTTEP also resorts to PTT Group's integrated procurement scheme for selected goods and services, in order to increase leverage and synergy across the petroleum supply chain. Such goods and services are, for instance, air filter for gas turbines, spare part filters, turbine compressor maintenance services, and procurement of life insurance for PTT Group's personnel.
Supply Chain Management Approach
PTTEP's Supply Chain Management Policy focuses on the efficiency in preventing and reducing social and environmental risks and the monitoring of suppliers that may affect stakeholders' trust in PTTEP's operation and consequently affect the overall business. Under the policy, the procurement of local goods and services is encouraged to support the local economy and generate income where PTTEP operates.
PTTEP Supply Chain Management (SCM) model
Below is PTTEP's Supply Chain Management model with illustration of key activities, roles, as well as supply chain management processes to facilitate all petroleum exploration and production activities in an integrated manner.
Supply Chain Management principles
PTTEP's Supply Chain Management principles consist of four main elements as follows:
1) Supply Chain Management System
To establish the management system that entails supply chain management policy, standards, operational guideline and the adoption of relevant information technology for all PTTEP operating assets in Thailand and abroad.
2) Supply chain management strategies, Procurement and Contracts
To provide in-depth market intelligence and technical information for analysis and the formulation of strategies for each function and to handle suppliers through the evaluation of new vendors and the management of relationships with critical suppliers. The unit is also responsible for procurement process and contracts for various activities, from sourcing, bidding, negotiation, contract preparation and issuance of orders to contract management support and advice to the Procurement Committee to ensure compliance with contracts as well as efficiency, transparency and accountability.
To manage the variety of logistics operations; for instance, personnel and cargo transportation, import/export and customs clearance, and waste management, in compliance with the Company's rules and international safety standards for zero environmental impacts. It is also responsible for inventory management, to strike a balance of investment, expenses, and operational continuity.
4) Petroleum Development Support Base
PTTEP operates two supply bases supporting offshore exploration and production activities in the Gulf of Thailand and the Andaman Sea. These bases provide vessel berthing, cargo handling and warehousing services certified by international standards like ISO 14001, ISO 22301, ISO 45001, and ISPS Code, also to other E&P companies operating in Southeast Asia.
Procurement and Contract Strategy
The framework and strategy for procurement and contracts, as shown below, is to align long-term targets with the Company's business objectives and direction. It also guides the procurement unit on the execution of activities, to achieve the targets in a sustainable manner.
PTTEP Procurement and Contract Strategy 2020 - 2024
PTTEP establishes a sustainable business code for suppliers, covering business ethics, human rights, occupational health, safety, and environmental expectations for sustainable values. The code is also aimed at reducing procurement-related risks and contractual risks. The key elements are as follows:
PTTEP's category management system catalogues goods and services according to value and risk, and is supported by regular analysis on market condition and internal demand. This measure is expected to deliver maximum efficiency in terms of cost, on time delivery and preferred quality. The three risk aspects including Supply Risk, ESG Risk and Operation Risk are considered in the procurement process for risk assessment, to be in line with PTTEP's policy on sustainable growth
Category Management system is also the basis of Supplier Relationship Management, in terms of supplier categorization, as well as the improvement in procurement process for better alignment with product and service categories. Procurement values in each country, direct suppliers within Thailand and total procurement value are shown in Supply Chain Performance Data.)
Green Supply Chain
Green procurement is a component of Supply Chain Management. PTTEP Green Procurement Roadmap was initiated. Under PTTEP Green Procurement Roadmap (2016-2030), green procurement criteria for each function have been formulated since 2017 and appraised by the Thai Environment Institute (TEI). In 2020, there is an improving trend in our performance compared to the previous year. (Green procurement values are shown in the Supply Chain Performance Data.)
PTTEP supports local products and services to promote the local economy. (Local refers to the country where PTTEP operates.) Particular emphasis is given to local suppliers with the capability of applying various innovations in developing goods and services accordingly to PTTEP's standards and requirements. Such development process is supported by information exchange as well as recommendations on work process improvement and safety issues, issued at meetings to follow up on suppliers' progress (Local procurement data is shown in the Supply Chain Performance Data.)
Vendor Management and Vendor Sustainable Code of Conduct
Under the commitment towards sustainable development and the development of local communities and the environment, PTTEP gives importance to supply chain management and the implementation of those rules on vendors. PTTEP Vendor Sustainable Code of Conduct was formulated, which covers relevant rules, regulations and laws. Such code is aimed at enhancing vendors' knowledge and understanding in sustainable development and ensuring that their operations integrate ethics, respect to human rights, occupational health and safety, and environmental management. PTTEP also identifies a strategy to support, advice and educate vendors on the policy of sustainable procurement, for alignment with PTTEP Sustainable Development Policy, through various channels like pre-qualification questionnaire, bidding documents and PTTEP's website.
Quality, Transparent and Accountable Procurement
PTTEP encourages the bidding for our procurement process. This practice not only allows qualified and capable suppliers an opportunity to offer their products and services but also reduces the operating cost. Through bidding, suppliers can be controlled and evaluated against the preset standards and terms as well as the Company's policies on corruption and Safety, Security, Health and Environment (SSHE) standards. In 2020, PTTEP increased the bidding portion to 66.5% of total procurement that close to the historical average of 70%.
1) Key Aspects of Sustainable Procurement Process
(1) Fair Competition
Fair competition is promoted in the procurement process, to ensure transparency and compliance with related laws, i.e. Procurement Act B.E. 2560. The process is examined for alignment with government management standards as well as the conditions specified in the Production Sharing Contract (PSC).
(2) Supplier Selection
The supplier selection process is improved to emphasize quality and price, in order to strike contracts with qualified suppliers at an appropriate price through a transparent and accountable system. Under the PSC, PTTEP is required to submit the roadmap on annual procurement, procurement strategies and summary for Department of Mineral Fuels' approval. The roadmap serves as part of the selection process, to ensure transparency and accountability.
Assessment of Supply Chain Management Risks
1) Supplier Risk Assessment
Suppliers are one of the key stakeholders to help drive the business towards sustainability. PTTEP thus applies the following 5 steps to assess suppliers' risks to avoid and reduce ESG-related risks:
- New vendor pre-qualification by screening and evaluation of vendors accordingly to product and business category
- Spend analysis and risk assessment through Supply Positioning Model (SPM)
- Assessment of suppliers' sustainability-related risks
- Integration of sustainability aspects in selection process and contract management
- Supplier risk management
Critical suppliers are Tier 1 suppliers that pose high risks in terms of business stability, expertise and supply risk. Such suppliers include those in the drilling operations and wellhead platform construction business. PTTEP selects Tier 2 suppliers by asking Tier 1 suppliers about their information (as well as information on their products and services supplied to the Company). Critical suppliers are subjected to assessment from the operations and safety function as well as annual site visits. In addition, they must devise the plans to reduce possible risks and develop an audit plan in line with PTTEP Group's operation and SSHE audit requirements, to ensure that risks are manageable and will not impact the business, local communities or the environment.
2) Supplier/Contractor Audit
PTTEP sets in place the supplier assessment and audit program and implemented it during and after the contract period, to assess risks and ensure job completion. PTTEP also sets a plan to monitor corrections during and after the work and works with suppliers in executing corrective actions. Should economic, social and environmental risk occur, PTTEP and suppliers jointly locate the cause and find solutions. Corrective actions will then be jointly examined, taking into consideration the quality, quantity and safety in exploration and production. In consideration include the international requirements such as those of the American Petroleum Institute (API) for casing pipes and production pipes in drilling activities, the Offshore Vessel Inspection Database (OVID), the Oil Companies International Marine Forum (OCIMF), and Good Manufacturing Practice (GMP) for food products; as well as minimum labor requirements, environmental laws and management standards such as ISO 14001 and ISO 45001. All vendors are informed about the Vendor Sustainable Code of Conduct and must acknowledge the code through the Vendor Management System's online form before contract signing, for their compliance and certification for the various standards in place. The assessment process also evaluates supplier production capability in order to ensure production and service quality. The process includes the assessment on suppliers' environmental, social and governance performance through an ESG On-site Audit and Key Supplier Site Visit as well as suppliers' human rights practices. The process is to ensure their compliance with PTTEP's sustainable development policy and simultaneously fosters sustainable growth for the suppliers.
3) 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 their operations. The system includes the following elements:
- Integration of SSHE screening criteria to procurement procedures
- Identification and assessment of contractors' SSHE-related risks; and specification of SSHE responsibilities, control and operational approach, and the scheduled reporting of the contractors' SSHE performance.
- Development of initiatives to improve contractors' SSHE performance, such as a performance assessment system, training on SSHE to contractors whose tasks involve specific risks, and an SSHE suggestion system for contractors.
- Communication of SSHE expectations to contractors through various channels in order to cultivate awareness, performance improvement and preparation to satisfy PTTEP's demands.
- Support to contractors' SSHE performance improvement to meet PTTEP's expectations.
4) SSHE Contractor Audit
PTTEP conducted 46 SSHE audits in 2020 on contractors who were awarded high-risk jobs, accordingly to PTTEP SSHE Contractor Management Standard and Procedure. The objectives are to ensure that the contractors understand and comply with legislations and PTTEP SSHE Management System, for efficient evaluation of risk management and efficient operations.
Subjecting to the annual SSHE Contractor Audit are the jobs that pose high risks relating to security, safety, health and environment such as drilling, construction, maintenance, logistics (land, sea and air), and past performance evaluation results. New contractors are also subjected to the audit.
The process to select contractors for the audit also depends on the contractors' SSHE records. Any contractors for high-risk jobs who are very likely to cause accidents, the Company will run the audit to improve their efficiency and safety and monitor the implementation of recommended corrective actions. The audit in 2020 was 100% completed, as planned.
5) Audit on Supplier Environment, Social and Governance (ESG)
PTTEP conducts an assessment on suppliers' sustainability on ESG aspect (ESG on-site audit), to assess sustainability risks in five areas: 1) corporate policy 2) business ethics 3) society 4) occupational health and safety and 5) environment, The assessment was done through a certified third party, to ensure that suppliers' ESG risks are audited and managed with the best practice.
PTTEP's key activities are:
- During 2017 and 2020, PTTEP conducted risk assessment on 2,652 Tier-1 suppliers or 100%, and on 65 Tier-2 suppliers or 88%.
- On-site Audit was extended to cover 19 Tier-1 suppliers which cover pre-qualification and assessment on environmental, social and governance-related risks.
- 100% of 139 new suppliers signed up in 2020 passed the assessment on business performance and their impacts on the environment, society, governance, human rights and labor rights.
- 100% of suppliers with high sustainability-related risks received great to excellent scores in the 2019 assessment and therefore further improvements are unnecessary.
- 100% of suppliers which showed high sustainability-related risks from the 2020 assessment were subjected to ESG on-site audit and have passed the audit with great to excellent scores. Therefore, no corrective action plan is necessary.
Cultivation of Good Relationship with Suppliers
PTTEP have enhanced relationship with suppliers through cooperation and the improvement in supply chain management efficiency. Strategic meetings are organized under the vision of "Energy Partner of Choice", to hear their suggestions and cultivate the understanding of both sides' operations, visions and technology strategies which will improve operational efficiency and foster true cooperation. Additionally, meetings with critical suppliers, such as those in drilling and production site management, are planned with the intent to jointly create a Master Service Agreement (MSA), which covers contracts' identifying standards and relevant conditions for mutual benefits and operational efficiency.
Logistics and Petroleum Development Support Base's Operational Strategies
The framework and strategy for logistics, as shown below, defines long-term targets in alignment with the Company's business objectives and direction. It also guides the planning on logistics operations and activities, to lead the Company towards the objectives in a sustainable manner.
PTTEP Logistics Strategy 2020 - 2024
PTTEP considers safety a key aspect in business operations and strives to become an organization without accidents through the implementation of a proactive safety culture. In order to instill awareness in safety and prevent serious accidents and impacts on stakeholders and the environment, PTTEP organized the following activities in 2020:
- "Safety Stand Down" was organized at all operating areas to emphasize the importance of workers and contractors' safety and to enable greater safety and maximum efficiency.
- Driver's Fatigue Detection System was implemented to monitor driver behaviors including fatigue, drowsiness, loss of concentration, and negligence. This system incorporates Facial Recognition technology and Video Analytics to monitor real-time behavior via camera installed in front of the vehicle. While in transit, the camera monitors the driver and records data. High risks will trigger a sound and vibrating signal to the driver's seat and notifies the central control room for further action. The control manager is able to assess and evaluate the driver's long-term performance through the information dashboard shown in the data analysis system, to prevent possible risks and find measures that will improve drivers' training.
- "Perfect Day" initiative was launched to incentivize personnel in assuring safety under SSHE Target Zero. The initiative is aimed at continuously enhancing safety standards and adjusting driving behavior. All drivers are urged to do their best in preventing road accidents, based on the concept that accidents are preventable. Drivers who passed assessment were rewarded.
Under the policy to keep inventory at an appropriate level, PTTEP in 2020 proceeded with actions to enhance inventory management efficiency, particularly for the Bongkot, Arthit and S1 projects which together own 93% of total inventory value. From past operations, it is estimated that a 38.4 million THB reduction in inventory value can be achieved compared to 2019. Key points of such actions are:
- Review inventory management to ensure the design process, features identification, procurement, storage, disbursement and amortization is efficiently implemented and aligned with the Company's internal control measures as well as relevant government regulations. In 2020, PTTEP studied options to hand pipe products, parts of Oil Country Tubular Goods (OCTG) which contain high inventory value. To utilize the pipes efficiently for maximum benefits, the Company struck consignment contracts with a supplier, having the supplier store pipes at a central storage facility in Thailand for further distribution to all PTTEP projects. Each project will place orders accordingly to what it actually needs. The approach reduces pipes in inventory and facilitates the supply of pipes. The Company also improved the pipe procurement strategies, by sourcing seamless steel pipe and removing spirals in the country. The strategy supports the development of local businesses against foreign peers, creates jobs, cuts inventory and reduces shortage risk. Another strategy concerned the reuse of OCTG thread protection, which significantly reduced plastic waste and promotes efficient resource utilization.
- Match inventory storage level with actual demands, to reduce inventory and appropriately utilize storage space. The technology based on machine learning was studied and developed, to forecast appropriate inventory levels for future demands.
- Centralize inventory management through central database, to handle unused or lightly-used and reusable items. These items are returned to the central warehouse. This reduces new orders as well as procurement process and time, which hence results in lower expenses and production cost.
- Evaluate, test and write off inventory which are degraded, obsolete or inconsistent with current operations. The process is to increase storage efficiency and reduces storage cost. (Evaluation data and amortization expenses are shown in the Supply Chain Performance Data.)
Green Logistics Management
PTTEP operates logistics according to the 3E strategy (Economics, Efficiency and Environment) and aligns the operations with Safety, Security, Health and Environment (SSHE) standards. In focus are also effective cost management, planning, forecasting, collection, international standard shipments, and reliability in the delivery process. The Company installed the GPS vessel monitoring system in every ship in 2013 to ensure efficient use of fuel. The company controls fuel consumption and reduces green gas emissions simultaneously. In 2020, fuel consumption has been reduced from 15,000 to 6,000 liters per ship per day or equivalent to a reduction of approximately 9,000 liters per ship per day. Fuel consumption has been controlled, along with the reduction in greenhouse gas emissions. The Company later implemented the Centralized Vessel Utilization Management system. In 2020, 25.4 million liters of fuel were saved or a reduction in greenhouse gas emissions by 37,439 tonnes of carbon dioxide equivalent (Data on greenhouse gas emissions is shown in the Supply Chain Performance Data) while shipment efficiency was maintained. The average cargo space utilization of the fleet was approximately 85%.