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Energy, Oil & Gas Industry Update SCOR for Energy, Oil & Gas Forum for Benchmarking and Practices Gary Kilponen SCC Director & Treasurer May 21, 2010.

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Presentation on theme: "Energy, Oil & Gas Industry Update SCOR for Energy, Oil & Gas Forum for Benchmarking and Practices Gary Kilponen SCC Director & Treasurer May 21, 2010."— Presentation transcript:

1 Energy, Oil & Gas Industry Update SCOR for Energy, Oil & Gas Forum for Benchmarking and Practices Gary Kilponen SCC Director & Treasurer May 21, 2010

2 SCC Energy, Oil & Gas Industry Group Update
Agenda Introductions Purpose SCC Energy, Oil & Gas Industry Group Update Sample Downstream Supply Chain Analysis Research Plan Industry Group Participation Next Steps/Action Plan gk

3 SCC Energy, Oil & Gas Industry Group Purpose
Why we chose to create Industry Group? Energy, Oil & Gas Resources are critical business and personal topics that are on the top of mind E, O & G Supply Chains are: Unique (Capital Projects (ETO), Operations (process), EAM) Have limited benchmark data Still very focused on Procurement (Source) Create a Oil and Gas Supply Chain Process Model to enable industry chain benchmarking and best practice implementation What has happened so far? Energy, Oil and Gas Industry Group formed and kicked off December 2007 Teams were formed to address process models and benchmarking, but realized a common high level industry model was required to move forward The team created a high level Oil & Gas Industry Segment Definition Initial Strategies and metrics for top oil & gas supply chains segments have been developed gk


5 Oil & Gas Challenge: Supply Chain Excellence
Speaker/Trainer Notes How to facilitate and accelerate Improvements in Oil & Gas Supply Chains Completeness: enough reference data to address common Oil & Gas metrics and processes Benchmark: Provide a neutral metrics framework for broad industry benchmarking of supply chains Practices: What are industry-specific best practices can be added to the SCOR™ framework Strategy: Common industry strategies by Oil & Gas supply chain type Flows: what do material flows look like for Oil & Gas, and how do they relate to metrics gk SCOR 8.0 Training Day 1

6 Industry Group Research Phases
Phase I – Supply Chain Identification and Benchmarking Preparation Understand the Scope and Extent of the EO&G Supply Chains Identify Major Supply Chain Types within business segments Identify Major Supply Chain Strategies Create a base of reference SCORcard (metrics) for benchmarking Phase II – Benchmarking Study and Analysis Facilitate industry benchmarking process Analyze and publish results Phase III – On-going Activities Create a base of reference material flows Create a base of reference best practices related to the Energy, Oil and Gas supply chains Identify key supply-chain issues important to Energy, Oil and Gas industry Educate/Discuss shared learning and findings Provide forum for Energy, Oil and Gas supply-chain practitioners to network Purpose: Best practices are not a hype, they have produced outstanding results in existing business situations. As the definition says they need to be defined (structured), so they can be benchmarked. Which we will discuss a little later. gk

7 Defined: The Scope of Energy Oil & Gas
Initial focus on Upstream, Midstream, and Downstream with articulation of some details of the material flow. Identified Infrastructure Equipment & Maintenance as common area to all three. gk

8 Framework for Benchmarking
Supply Chain Definition Supply Chain Prioritization Supply Chain Strategy Selecting Metrics Sourcing Data Creating a Balanced SCORcard™ Performing Benchmark gk

9 Supply Chain Definition
Transcription Supply Chains are the totality of processes spanning operations from supplier to end-customer, focused on material, work and information flow We use a tool called the Supply Chain Definition Matrix to define the Supply Chains within an enterprise The Supply Chain Definition (i/o Matrix) Matrix helps determine the number and size of supply chains Columns: Customers (Output) Rows: Products (Input) The intersection of each column and row – if the goods or services flow to the customer – is a supply chain Often when companies approach benchmarking, they have the feeling that they have “one” supply chain. The only company that had one supply chain that I am aware of also made a car you could have in any color as long as it was black – the Ford Company, and the model T. They had a very complete horizontally integrated supply chain with one set of customers and one product. All other companies have more than one supply chain. Some are different products, some have different planning characteristics – like build to order, or build to stock, some have radically different customer segments like commercial or retail. In supply chain definition, we identify each unique combination of materials or services that run to a given customer. Sometimes this exercise is called “path to market”, Supply Chain Definition, or simply scoping. There is a very easy way to perform supply chain definition. We set up a matrix or grid The columns of the matrix – the headings – are simply the customers, however you like to identify them, that supply chains flow TO. The Rows of the matrix, are simply the products or suppliers or business lines that supply chains flow FROM.    Once you construct this matrix, then for each row that flows to a customer (column) we can identify that as where a supply chain exists. The following page will illustrate this with an example. gk SCOR Benchmarking

10 Downstream Supply Chain Definition
Using a supply chain identification matrix, created master high-level list of supply chains within Downstream gk

11 Downstream Supply Chain Prioritization
Light Prioritization for further assessments gk

12 Supply Chain Strategy Transcription We use a tool called the Supply Chain Strategy Matrix to Identify priority strategic features or attributes of Supply Chains. Each supply chain strategy is indicated by a collection of ranked features: At this point our focus is to define a supply chain strategy. Frequently business have very vague strategy goals – e.g. “ we want a world class supply chain” or “best customer experience”. The goal here is to explicitly identify a strategy, define it in a standard, regular way which we can use for comparative purposes, and to use it to drive or differentiate decisions at a later stage by being able to measure the outcome of the strategy. I worked with Carly Fiorina many years ago at HP, and one thing she said to me that stuck was that “Strategy is just another name for prioritizing investments.” If your strategy is to be “best customer experience”, that really means that all your efforts, your investments in driving your supply chain will be prioritized towards “best customer experience”. Simple really. The problem is how do you define a strategy in such a way that you can always prioritize, and then measure to know you’re actually accomplishing something? SCOR provides five standard features of a supply chain which, in my experience, can be used to identify virtually any realistic strategy for a supply chain. Reliability is a feature of a supply chain, from a customer perspective, that it delivers on-time, complete, and so on. We all understand a feeling of reliability. Responsiveness asks a question, from a customer perspective, how long does it take to fulfill my needs? Flexibility looks at the ability scale up or down a supply chain. Cost looks at internal supply chain costs, which may nor may not translate to product cost. Lastly assets look at how much capital investment it takes to make my supply chain operate. So lets look at a few strategic statements: “Best Customer Experience” – you’re probably going to immediately focus on reliability or responsiveness. “Price leader” – you will almost immediately focus on the supply chain component of price, the cost. Best “shareholder return” always goes straight to assets. Try this yourself and see if you can name a supply chain strategy, and see how it takes one or more features and says that they are the most important. Reliability On time? Complete? Undamaged? Responsiveness From Customer Request to final acceptance Flexibility How long to scale up? How expensive to scale down? Cost Cost of Processes? Cost of Goods Sold? Assets Working Capital? Return on Investments? gk SCOR Benchmarking

13 We advocate using a simple ranking system for industry comparison
Comparative Ranking Transcription We advocate using a simple ranking system for industry comparison Each rank corresponds to a specific percentile in industry performance We do not use averages or other statistical tests Our key ranks: Assuming that you’ve now understood which features are most important in your supply chain, we’ll attach some more information to it. You can prioritize a feature by saying that you want your supply chain to be superior in that feature, advantage, or parity in that feature. This will mean, for our benchmarking purposes, that if you are superior in an attribute you’ll perform in the top 90th percentile of your industry. If there are 100 supply chains in your industry you’re comparing to, you will be in the top 10. If you are advantage, you will be in the top half, so let’s set that at around 70th percentile. If you are at Parity, that means you’re smack in the middle at 50th percentile. Important here is that these are all relative. There are no absolutes in benchmarking, you’re looking at comparative competitive positioning. When you say we want to be “best customer experience” and you translate that to “superior reliability”, this means that you perform in the 90th percentile. It doesn’t say you have 100% percent reliability. It says that if your leading competitors are up to, say, 80% reliable, you will also be around 80%. This is important because the relative advantage is why customers choose you. If you’re better than your competitors – remember we’re doing competitive benchmarking – then you’ll get chosen in a rational world. You don’t have to be much better, just better. So think of this as where you are superior, you’re better than 90% of your competitors. If you are at “advantage”, you are better than around 70% of your competitors. At Parity, you are better than half your competitors. Make sense? The problem now still is – how do I choose a strategy? Performance Percentile Choices Interpretation Superior 90th 1 Need to be “Top 10” performer Advantage 75th 2 Need to be “Top Half” performer Parity 50th “Half better/Half worse” gk SCOR Benchmarking

14 Initial Downstream Strategies
RELIABILITY - The performance of the supply chain in delivering: the correct product, to the correct place, at the correct time, in the correct condition and packaging, in the correct quantity, with the correct documentation, to the correct customer. RESPONSIVENESS - The speed at which a supply chain provides products to the customer. AGILITY (flexibility, scalability) - The agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage. COST - The costs associated with operating the supply chain. ASSETS - The effectiveness of an organization in managing assets to support demand satisfaction. This includes the management of all assets: fixed and working capital. Each unique combination of ratings defines Your Supply Chain Strategy for the channel Think of the rating as a desired state, NOT where you want to improve the most gk

15 Initial SCORcard Created (Consumer Gasoline)

16 Final Benchmarking Phase
Transcription Used for choosing target performance Critical to understand Performance in a particular Demographic Can be “internal” (competing against other supply chains in same company) Aligns Strategy, Performance, and Performance Goals Here’s a sample of a report. How do we read it and interpret the results? Let’s start with Reliability. In it, we were at 97% performance Our goal was to be Superior, which our benchmark says is at 98%. Therefore: To reach our strategic goal of superior reliability, we have to improve our supply chain performance by 1%. Easy, and very specific analysis. I’ve so often heard supply chain improvement programs which focus on numbers like 5%, 10%, 25% - it’s always a multiple of five somehow – of some metric; benchmarking gives you a fairly scientific point of focus with a reasonably exact number. Let’s look at “Response”. In it we were at 14 days. Our strategic goal was to be Advantage, which was 6 days. That’s a pretty big gap, of 8 days. Take a look at “Parity”, we’re even below that, we’re in the bottom half of performance in the industry. To reach our strategic goal of advantage Response, we have to improve our supply chain performance by 8 days. To even reach parity performance we must improve our supply chain performance by 6 days. Let me give a rule of thumb. If you’re in the bottom half, and you need to be in the top half, plan for year one to achieve party, and year to get to advantage. You’ve got a lot of work to do! Let’s look at “Flexibility”. We are at 62 days. Our Strategic goal was 80 days. There is nothing we have to do to improve here. Now, the downside of this is: if there are any supply chain programs (investments – remember Carly) to improve flexibility, we should stop them and reprioritize to the other issues. That’s not always easy to swallow. Looking at Cost, you should see immediately we’re in the bottom half, and looking at Advantage and Superior – there are a very narrow range of values – we have a lot of work to do. Finishing up with Assets, We are at 35 days. Our strategic goal is 33 days. Our gap is 2 days, but notice. We are around 5% away from our goal, but we’re definitely in the top half of performers. You may not want to focus too heavily on getting the extra percent here. In any case, your benchmarking has come to an end, and now figuring out how to bridge all those performance gaps becomes the problem. I’ll speak a little about the timing of the benchmarking and then talk a little about how keeping SCOR in your supply chain has helped companies bridge these gaps. Attribute SAP Metric (level 1) You Parity Adv Superior Gap Reliability S Perfect Order Fulfillment 97% 92% 95% 98% 1% Response A Order Fulfillment Cycle Time 14 days 8 days 6 days 4 days 8 Days Flexibility P Ups. Supply Chain Flexibility 62 days 80 days 60 days 40 days Cost Supply Chain Mgmt Cost 12.2% 10.8% 10.4% 10.2% 1.4% Assets Cash-to-Cash Cycle Time 35 days 45 days 33 days 20 days 2 Days gk *Sample Data Only SCOR Benchmarking

17 Industry Group Ongoing Research Plan

18 Speaker/Trainer Notes
Organizational Model Speaker/Trainer Notes Staff, Chair, Team Leaders Steering Committee Leader Upstream 10-15 Participants Midstream Downstream Infrastructure Review Panel Governance Teams Members Governance role is primarily to advocate for the groups function, to agree/setup objectives, timing, scheduling, planning, and to support administration of the overall program Team leaders are split into the four broad categories of Oil & Gas supply chain groupings – everything should be familiar with Upstream/Midstream/Downstream. Upstream is frequently called E&P – Exploration and Production. Our infrastructure group is focused on capital equipment to build out infrastructure for other segments, e.g. refinery is different from a platform – engineering procurement and construction (EPC world) Is a common term, and is a segment that enables or supports the other segments. Examples of key players here would be Fluor, Halliburton – as well as suppliers like GE, Dressler-Rand. Includes aftermarket parts are any parts used to maintaining that equipment – e.g. wear parts – bearings, blades, and equipment moving gas and liquid. Possibility of discussion here. Team members are the active participants in the teams, and are the producers of content, reviewers, and collaborators in the final results of supply chain definition, suggested metrics, and actual performance measures, as well as practices within their segment. cl SCOR 8.0 Training Day 1

19 Phase Deliverables cl Phase III – Data Publishing and Next Steps
Phase I – SCORcard Development Energy, Oil and Gas supply chains definition and priority by sector (Supply chains are typically defined by a combination of products, customers and geography) Scorecard neutral metrics framework for benchmarking study of all sectors in the Energy, Oil, and Gas supply chains Phase II – Study and Analysis User group benchmarking (Approximately 25 sample companies) Phase III – Data Publishing and Next Steps Publish industry benchmarking report (Note: all shared data is aggregated and made anonymous) Develop material and process flows for Energy, Oil and Gas industry relating to metrics Define Industry‐specific best practices can be added to the SCOR™ framework cl

20 Phase I Program Timeline
Speaker/Trainer Notes E.g. Complete phase 1 to go to benchmarking Need timeline e.g. horizontal line with dates, and vertical lines with milestones (gantt?) Be clear that this is to complete phase one Show four teams Indicate teams that only have remaining work E.g. 2-months definition, 2 months strategy 2 months agreed scorecards Final report-out by Sep/Oct SCOR 8.0 Training Day 1

21 Opportunities to Participate
Industry Segment Volunteer Practitioners/Consultants that can provide useful insight into target supply chains Meet bi-weekly via teleconference ( 3-6 hours per month) Anticipate 4-6 month initial commitment (Phase I) Responsible for identification of Supply Chain and Supply Chain Metrics Review Panel Volunteers who desire to participate but cannot commit to a bi-weekly team meeting Will meet via teleconference at project milestones (no more than once per month) Serve as a review panel for the data that is being collected/submitted. Team Leader (Segment) Small group committed to oversee the project Will insure integration of all team data into benchmarking that will be useful for the industry as a whole.  Serve as part of the Steering Committee cl

22 Oils and Gas Industry Group Next Steps
Team Development Administrator: Contact Information Team Upstream Downstream Mid stream Infrastructure Equipment and Maintenance Desired capacity to serve. Development Team Review Team Team Leader (Segment) Develop project plan for each team Resources Timeline cl

23 Speaker/Trainer Notes
Open Discussion SCOR 8.0 Training Day 1

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