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GLOBAL SOURCING IN KOG

TIME. QUALITY. GLOBAL COMPETITIVE ADVANTAGE. LIFE CYCLE COST. GLOBAL SOURCING IN KOG. INTO THE NEXT MILLENNIUM. CHANGE. NEW ORGANISATION. NEW CHALLENGE. NEW BUSINESS IDEA. Old Contracting Strategies. New Contracting Strategies. MERGERS & ACQUISITIONS. KOG VISION.

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GLOBAL SOURCING IN KOG

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  1. TIME QUALITY GLOBAL COMPETITIVE ADVANTAGE LIFE CYCLE COST GLOBAL SOURCING IN KOG INTO THE NEXT MILLENNIUM

  2. CHANGE NEW ORGANISATION NEW CHALLENGE NEW BUSINESS IDEA Old Contracting Strategies New Contracting Strategies MERGERS & ACQUISITIONS

  3. KOG VISION "To lead the industry by continuously developing solutions and products for the best possible way of extracting offshore oil & gas resources world-wide"

  4. KOG BUSINESS IDEA • To be a leading turn-key contractor for field development, operation, maintenance, modification, and removal of upstream installations for oil & gas production in the North Sea and for international target projects • To develop winning technologies and products by being in proactive partnership with our clients, and by entering into alliances with external partners • To seek excellence in project execution and enhance flexibility through international partnering and subcontracting • To provide world-wide competence within Kværner for large offshore EPCI projects

  5. KOG SOURCING Total Project Value Our Procurement performance is decisive for the overall financial success Make 20 - 50% Buy 50 - 80 %

  6. IMPACT • Future competitiveness of KOG may depend on the development of new, collaborative relationships with suppliers • The new type of relationship affects all aspects of the way KOG’s business is carried out • The move towards collaborative relationships requires a major change in attitude and practice • Supply Chain management is too important to be left to Procurement alone

  7. WHAT DOES THIS MEAN ? • High profile, top flight Sourcing organisation • Cohesive procurement policies • Improved financial performance of company • Customer focused • Credibility with internal and external clients • Improved relations with suppliers • Open style of procurement management • Information and knowledge sharing • Reduction in total acquisition costs

  8. Tactical Tactical Tactical Tactical Tactical Tactical Tactical Operational Operational Operational Operational Operational Operational Operational EXECUTION OF PROJECTS EXECUTION OF PROJECTS EXECUTION OF PROJECTS KOG Sourcing Synergy KOG Strategic “Sourcing” Philosophy “Sourcing” Strategy KOGAS KOGL KOGI KPS KOP KEU KEN

  9. KOG SOURCING DEVELOPMENT Strategic Sourcing employs a far broader approach than traditional purchasing World-class technology and quality, reduction of 3rd party spend Supplierselection,relation-shipimprove-ment Com-petitionbiddingandagree-ments Mana-gingthevaluechain Orderadmi-nistra-tion Product/projectdesign Concep-tual idea Sourcingstrategy Orders TraditionalProcurement Process Strategic Sourcing Process

  10. LEAPS PROGRAMME * Leading Edge: Aiming towards Proactive Sourcing Strategic Contributor Strategic Sourcing * Supplier Development * Selection of (Preferred) Suppliers * Early involvement programme * Process design * Product & Concept Development Strategic Facilitator Strategic Sourcing Functional Efficiency Administrative Procurement * Requisitions * Inquiries * Offers * Orders * Delivery & Contract logic * Logistics Administrative Function Administrative Procurement NEW SOURCING OLD CONTRACTS Sourcing Characteristics ....... ....... ....... ....... ....... ....... ....... Administrative Limited Reactive Repetitive / Routine Operations Short term / Fire-Fighting Partial Ad hoc / Non-Differentiated ....... ....... ....... ....... ....... ....... ....... Corporate Role Project Participation Team Involvement Type of Activities Scope Vision Product Orientation Strategic Integral Proactive Evolutionary / Decision Making Long Range Planning Holistic Criticality / Differentiated

  11. KOG SOURCING STRATEGY • Sourcing shall: • Perform sourcing in an ethical and respected manner • Optimise the advantage of volume purchasing • Optimise the global supplier base by maintaining a proper balance between security of supply and dealing closer with fewer suppliers • Increase effectiveness and productivity through supplier participation • Put in place the kind of co-operation which will foster a challenge to traditional thinking • Be a driving force that provides KOG with considerable competitive advantage • Increase competence through knowledge based decisions and training • Ensure proper balance between risk and reward

  12. Main guidelines for Sourcing’s contribution to KOG business processes KOG SOURCING STRATEGY • In order to ensure maximum momentum during all project phases, category sourcing processes and supplier development initiatives shall be carried out in parallel to the projects sourcing processes • Early supplier involvement is a key driver for project success, and key suppliers shall be involved during the early project phases (pre-sales and tender) • Sourcing shall focus on different kinds of sourcing categories during different stages of the business processes/projects. • To minimise contract price risk and ensure maximum speed in project execution, approximately 50-75% of the total purchasing volume (in financial terms) shall be ready for commitment at contract award

  13. Concept & Development Pre-sales Tender Project execution Sourcing shall focus on different kinds of sourcing categories during different stages of the business processes/projects KOG SOURCING STRATEGY High focus Medium focus Low focus Type of sourcing categories Implication to M/B Strategic products - Continuously check technology & price - Develop with supplier in tender phase Strategic products - Keep same across projects - Review in strategy process Long lead items - Always check technology & price in tender phase Long lead items - Apply M/B-decision tool in every project Operational items - Estimate price in tendering - Buy in execution Operational items - Always control / buy

  14. 100% 75% 50% 25% 0% To minimise contract price risk and ensure maximum speed in project execution, approximately 50-75% of the total purchasing volume (in financial terms) shall be ready for commitment at contract award KOG SOURCING STRATEGY Percent of total purchasing volume committed Conc. & Dev. Pre-sales Tender Project execution Time (in project) Pre- qualification Contract award Focus

  15. High Possibilities to influenceproject success Consequences of actions taken Early supplier involvement reduces project risk and also enables early receipt of supplier information, and, hence, facilitates completion within the overall project schedule Low Early supplier involvement is a key driver for project success, and key suppliers shall be involved during the early project phases (pre-sales and tender) KOG SOURCING STRATEGY Time Production &operations Projectphases Decom-missioning Project execution Concept & Development Pre-sales Tender

  16. TOTAL VALUE TOTAL VALUE OPTIMISATION OPTIMISATION Adding Value Adding Value Adding Value Adding Value Global Sourcing Global Sourcing Adding Value Adding Value Adding Value Adding Value Risk Management Risk Management Adding Value Adding Value Adding Value Adding Value Innovation Innovation Early Involvement Early Involvement KOG SOURCING: ADDING VALUE

  17. Cost Reduction In the New Era

  18. Cost Reduction In the New Era

  19. Supply Chain

  20. OIL & GAS SUPPLY CHAIN

  21. FPAL

  22. Origins emanate from CRINE • Developed by industry wide group over 3 year period • Industry based company formed in December ‘96 • Integrated activities of QUASCO and OSCAR • Established Aberdeen office base in October ‘97 History

  23. SUBSCRIBERS ACCESS INFORMATION BENCHMARKED PERFORMANCE DISTRIBUTED FPAL Process SUPPLIERS’ DETAILS CAPABILITY ASSESSMENT PERFORMANCE FEEDBACK FPAL DATABASE

  24. Supplier Elements Assessed • Organisation • Planning & Delivery • Facilities • Supplier Management • Commercial Management • Instrumentation & Communication • Product Quality • Health & Safety • Product Performance in Service • Environment • Competency/Training • Service Quality • Improvement • Project Management • Customer Interfaces

  25. Purchaser Elements Assessed • Specification • Change Control • Enquiry Documents • Documentation • Bid Clarification • Delivery • Purchase Order Documents • Commercial Management • Cummunications • After Sales Experience • Manufacturing • Operational Feedback • Quality Control • Co-operation

  26. Strategic Value to Suppliers • Provides a structured and credible mechanism for advising their interests and experience • Aims to eliminate repetitive and non-added value visits by purchasers • Brings opportunity for getting objective feedback on their performance • Opportunity to benchmark their performance against others and direct required improvement • Opportunity to give feedback on purchasers’ performance in non-attributable manner

  27. STRATEGIC VALUE TO SUBSCRIBERS • Provides structured and up-to-date list of interested suppliers • Minimised need for repetitive investigations/pre-qualification • Provides comprehensive starting point for bid lists • Brings structured process for assessing supplier performance • Opportunity to get feedback on own procurement practices with a benchmarked comparison • Becoming the Industry ‘standard’ for performance assessment

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