Benchmarking Study - · PDF filePwC About the Study 4 April 2015 • The PwC Upstream...

Benchmarking Study

PwC Upstream Procurement/ Supply Chain Management

PIDX Spring Conference

Houston, TX April 9, 2015

PwC

Agenda

2

April 2015

Welcome and introduction

About the study

Key findings

Overview by area (Strategy and Organization, Sourcing/P2P, Technology, Materials Management)

Conclusion

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About the study

3

April 2015

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About the Study

4

April 2015

• The PwC Upstream Procurement/Supply Chain Management (PSCM) benchmarking study is the first PSCM study in the US to focus solely on the E&P sector. PwC 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 PwC 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.

PwC

Study Participants

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April 2015

17.0

13.0

0

10

20

30

2012 2013

Average operated rig count

$1,795$2,291

$0

$1,000

$2,000

$3,000

$4,000

2012 2013

Oil/gas revenue ($MM)

3,503 3,523

0

4,000

8,000

12,000

2012 2013

(Gross) operated producing wells

242 265

0

100

200

300

400

500

2012 2013

(Gross) operated wells drilled

55.3% 55.6%

0%

20%

40%

60%

80%

100%

2012 2013

Oil/Liquids Percentage

117,600 106,044

0

100,000

200,000

300,000

2012 2013

Net production (BOE/day)

The grey rectangle represents the middle half

of all data

The line inside the rectangle is the

median of all data

The study included 21 entities, 18 of them independent E&Ps.

PwC

45.0%

25.0%

15.0%

15.0%

Total E&P FTEs

Less than1,000

1,000 to2,500

2,501 to4,000

More than4,000

Participant profile

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April 2015

23.8%

52.4%

23.8%

Total Spend

Less than $1B

$1B to $5B

More than $5B

FTE – Full Time Equivalent B -Billions

23.8%

28.6%33.3%

14.3%

Total PSCM FTEs

Less than 25

25 to 50

51 to 100

More than100

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Key Overall Findings

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April 2015

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Key Findings

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April 2015

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.

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Key Findings, cont’d.

9

April 2015

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.

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Strategy and Organization

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April 2015

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Centralized

PSCM Organization

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April 2015

Reporting and organization structure

Is there an individual with accountability for PSCM in

your organization? 90%

Does organization have a centralized shared service

for transactional activities? 65%

Does this position have direct accountability over

the PSCM function for each individual asset?

36.8%

21.1%

15.8%

10.5%

10.5%

5.3%

COO/SVP or VP Operations

VP Services/Administration

Regional VP

Technology

VP Drilling/Drilling &Completions

CFO

Title to whom PSCM Lead reports

62%

Hybrid Decentralized

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.

PSCM Organization

model

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Center-led Structures

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April 2015

Hybrid (“Center-led”) model associated with greater efficiency and reach

KPIs / Ratios Average by organization model Implied impact using

denominator average Hybrid (n=12) Other (n=9) ∆

Managed spend ($US MM) per PSCM FTE $46.83 $17.09 $29.74 +$1.4 billion

Managed spend ($000s) per supplier $493.32 $305.60 $187.72 +$1,606K

Percent spend under formal contract (%) 69.5% 43.9% 25.6% +486.5 million

Annual savings target as percent of total spend 2.1% 0.0% 2.1% +$40.4 million

PSCM FTE per $1B managed spend 21.4 58.5 -37.2 45.5 fewer FTEs

Materials Management FTE per $1B managed spend 3.7 14.5 -10.8 13.2 fewer FTEs

Percent of categories with designated preferred suppliers 70.0% 50.0% 20% n/a

Inventory value (current) per net MBOE $585.02 $713.91 -$128.89 -$5 million

% change in inventory value per net MBOE since 2012 -29.4% +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.

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Impact of Resource Plays on E&P Supply Chains

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February 2015

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, cross-functional teams used to minimize downtime

• Drilling activity drives high transaction volume

• Steep production decline curves drive more drilling activity

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

Proximity to asset

• Procurement decisions pushed closer to the assets

• PSCM resources integrated with asset-based experts and even co-located 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.

E&P Supply Chain

Performance

Shift from acquisition toward development puts

a premium on execution and

operations excellence

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

PwC

Strategic Direction for PSCM

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April 2015

Key focus areas and key performance indicators (KPIs)

1

2

3

4

Top 5 KPIs to measure PSCM effectiveness

5

Cost reduction/avoidance

Safety

Stakeholder satisfaction

Auto purchase order frequency

Supply reliability

1.58

2.19

2.95

2.86

3.33

3.65

Cost Reduction/Savings

Process improvement

Training/People Improvement

Enabling Technology

Improving businessintegration

Expanding remit of categorymanagement / strategic

sourcing

Key focus areas for PSCM in 2014 (1 = greatest priority)

50% Percentage of PSCM organizations with annual savings target

Average target: 2.3%

of total spend

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Headcount

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April 2015

Strategic FTE represent only about 1/5 of total PSCM headcount

12.4

18.0

29.4

1st Quartile Median 3rd Quartile

PSCM FTE per $1B spend

1.8%

2.5%

3.9%


PSCM FTE (internal) as a percent of total company FTE

13.8%

20.5%

29.2%


Strategic FTE %

18.9

41.3

84.1


PSCM FTE per $1B managed spend

1.9%2.8%

5.4%


PSCM FTE (total) as a percent of total company FTE

18.4

33.9

61.1


PSCM FTE per 100,000 net boe/d

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13.5%

11.9%

15.4%

18.9%

24.7%

15.7%

Leadership

Category Management / StrategicSourcing / Supplier Management

Contract Management andExecution

Transactional Procurement /Buying

Materials Management

Support services

Average % FTEs by category

Headcount, cont’d.

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April 2015

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.

Non-strategic roles

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Spend

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April 2015

Overall, managed spend per supplier is up 71% since 2012

$34.89

$55.74

$80.93


Spend ($US MM) per PSCM FTE

$539.16$480.04

$780.10

$1,206.02

Median ('12) 1st Quartile Median 3rd Quartile

Spend ($000s) per supplier

$12.30

$25.21

$53.08


Managed spend ($US MM) per PSCM FTE

$233.59 $157.77

$399.46

$1,094.44

Median ('12)1st Quartile Median 3rd Quartile

Managed spend ($000s) per supplier

$0.79

$1.64

$2.19


Spend ($US MM) per total E&P FTE

$0.27

$0.72

$1.45


Managed spend ($US MM) per total E&P FTE

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Spend, cont’d.

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April 2015

50.0%43.0%

55.0%

80.3%


Percent spend under formal contract

54.2%

31.5%

61.5%

80.0%


Percent spend managed by PSCM

76.0%

62.0%

75.0%

85.0%


Capex as percent of total spend

24.0%

15.0%

25.0%

42.0%


Opex as percent of total spend

$45.38

$33.21

$50.55

$76.45


Spend ($US MM) per net BOE

120.4%

58.6%

89.5%

126.6%


Spend as a percent of revenue

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Sourcing/P2P

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April 2015

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52.6%

42.1%

5.3%

Ultimate authority for supplier selection

Business/operations Shared PSCM

Strategic Sourcing

20

April 2015

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%

25.0%

41.7%

16.7%

16.7%

Threshold requiring competitive bidding

Less than $50,000

$50,000 to$100,000

$100,001 to$500,000

More than $500,000

21.1%

31.6%

21.1%

26.3%

Number of strategic sourcing events conducted last year

None

1 to 10

11 to 20

More than 20Having

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.

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.

PwC

Spend Analytics

21

April 2015

About 53 percent of participants conducted spend analyses in last 24 months. Those companies had greater PSCM efficiency than their counterparts.

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.

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 $19.55 +$928.8 million

Managed spend ($000s) per supplier $991.62 $678.17 $313.46 +$751K

Percent spend managed by Supply Chain (%) 73.7% 50.0% 23.7% +450.3 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 26.0 52.3 -26.4 32.2 fewer FTEs

Percent of categories with designated preferred suppliers 82.5% 60.0% 22.5% n/a

Total active suppliers per $1MM spend 1.02 1.51 -0.49 937 fewer suppliers

Inventory value (current) per net MBOE $498.65 $699.63 -$200.98 -$7.78 million

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10.0%

5.0%

0.0%

27.5%

14.5%

0.0%

71.3%

20.0%

6.3%

Time and materials

Fixed Price/Lump Sum

Unit Price

Contracting methods for services by type:


0.0%

4.8%

8.8%

14.2%

23.5%

34.2%

35.0%

51.7%

65.0%

Locally

Regionally

Centrally

Percent of sourcing/contracting done:


Sourcing and Contracting

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April 2015

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.

Do you source any materials or equipment from suppliers

based outside of North America?

71%

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.

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Technology

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April 2015

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Systems Used

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April 2015

SAP44.4%

Oracle11.1%

JDE5.6%

Other11.1%

N/A27.8%

ERP System

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.

93.8%

56.3%

56.3%

50.0%

50.0%

43.8%

25.0%

12.5%

12.5%

Electronic invoicing

Contract management

Electronic catalogs

Spend analytics tool

Supplier portals

eRFX

Complete P2P solution

Supplier management

Other

eProcurement systems used

PwC

61.1%

5.6%

11.1%

22.2%

Data governance organization/team

Data Governance, Taxonomy/Standards and Tools

25

April 2015

Do you currently have a formal data governance program and organization in

place? Which of the following best describes your program/organization?

66.7%

5.6%

11.1%

16.7%

Data governance program

Currently use Deploying now

Plan to deploy No plans to deploy

52.9%

29.4%

29.4%

23.5%

In-house/custom-developed taxonomy

PIDX

UNSPSC

None

Data dictionary standards currently in place

25.0%

18.8%

12.5%

18.8%

25.0%

SAP MDM

sparesFinder

Oracle Master DataManagement

Other

None

Tools used to help govern material master and vendor MDM

Most companies have data

governance programs and

teams in place, but they struggle to

obtain clean, validated master data for PSCM.

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Supplier Integration and P2P Process

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April 2015

7 0.6%

52.9%

23.5%

23.5%

5.9%

Dedicated email Inbox

Supplier portal

Direct ERP to ERPintegration

800 Number

Punchout catalogs

Supplier integration methods

82.4%

23.5%

11.8%

11.8%

5.9%

Invoice matching andpayment

Distribution andevaluation of requests for

quote

Contracting

Acknowledgement ofservices provided on the

field

Acknowledgment ofmaterials received

Procurement activities with automated integration between your systems and those

of suppliers

58.8%

58.8%

58.8%

35.3%

Contract creation

Purchase Order

Material / Service receipt

Matching contract/PO tomaterial/service receipt

Required steps in your (ERP-enabled) P2P process

Note the relatively low levels of automated

integration for acknowledgement of goods received and services provided

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Materials Management

27

April 2015

PwC

73.7%

5.3%

5.3%

5.3%10.5%

Percent of material purchases planned in either project/asset management system in ERP

0-20%

21-40%

41-60%

61-80%

More than80%

Materials Management Function

28

April 2015

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%

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.

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)

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Inventory Management Metrics

29

April 2015

0.7%

1.4%

3.5%

1.4%

Current (1stquartile)

Current(Median)

Current (3rdquartile)

2013Median

Inventory value as a percent of spend

1.4%2.2%

6.5%

2.4%


Current(Median)


2013Median

Inventory value as a percent of managed spend

0.7%

1.4%

1.9%

1.4%


Current(Median)


2013Median

Inventory value as a percent of revenue

$379

$585

$874

$643


Current(Median)


2013Median

Inventory value per net BOE

$1.65

$2.91

$4.47

$3.06


Current(Median)


2013Median

Inventory value ($MM) per Materials Management FTE

0.0% 0.0%

0.7%


Vendor-managed inventory value as a percent of total spend

Average decline in inventory value since 2012 -24%

PwC

pwc.com

30

April 2015

© 2015 PwC. All rights reserved. Not for further distribution without the permission of PwC. "PwC" refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm's professional judgment or bind another member firm or PwCIL in any way.

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