Procurement is typically treated as an also-ran, why me, function by many of the engineers and geologists who are straddled, in their minds, with procurement responsibilities. All too often vendor management and purchasing are treated as clerical tasks pushed off or delegated to individuals as a minor subset of their overall mandate. Particularly these days as G&A expenses have been, or are still being, slashed. Both employers and employees alike are struggling to make ends meet, and reluctantly forced to do more with less!
Now I’m not trying to paint the entire industry black, nor tar many of the dedicated individuals who are still in the trenches doing their best to get things done. Yet many of the employees are still working under informal policies and procedures covering their procurement practices to this day. This may have been fine when mistakes and oversights could be smoothed over by throwing more dollars and bodies at the problem. But as employees and contractors are being ushered out the door so too goes many of the informal checks and balances each person brought to the table. One hell of a predicament for those who are paying the bills and still have skin in the game.
One could easily argue this has led, in part, to the oil & gas industry’s unsavory reputation in Canada, and abroad, as being high cost Producers. Perhaps a reputation more entrenched in today’s reality than previous years’ perceptions. Which leads us to the theme for this issue of Oilfield PULSE …….
Procurement best practices……. What exactly does this mean? Regardless of what industry you may work in, ‘best practices’ is an adaptable term. In the present economic climate, the way companies do business needs to adjust so they can remain viable and profitable. Or in worst case scenarios, to simply claw back to profitability, in hopes of remaining viable. You can’t keep doing informally what you’ve always done, even if you or your people perceive you are good at it! The last two and half years have taught us a hard lesson that it’s no longer feasible to stay the status quo.
Many industry insiders suggest
that cost-effective vendor management
was already broken before the downturn.
Procurement best practices today for one company likely look different for another company within the same industry sector. But should it? Do companies understand the difference between solid procurement practices and just plain old purchasing? What are the procurement best practices companies should evolve toward, and the pitfalls they should avoid to simply stay afloat or thrive in the new norm of a lower price environment?
We have dedicated this issue of the PULSE to answer these very questions. In the articles that follow this month you will learn just how important it is to have your procurement business processes analyzed, mapped and documented. A necessary step before you can truly evaluate the effectiveness of your current procurement processes. Undoubtedly the way you are doing business with your vendors and contractors has changed since the downturn. Dramatic change leading to many new and unwittingly more informal processes.
Procurement doesn’t have to be a nasty word. Done properly and methodically procurement should add value to your organization and return dollars to your bottom line. Yet it should not be a function known for repeatedly beating on your suppliers, who your company relies so heavily on to successfully complete your projects on time and on budget. Given the proper attention and mandate, exercising better procurement practices will enable your company to:
● search for the right vendors that fit with your company
● strategically vet vendors for the best services, supplies and rentals
● align with preferred vendors that match your business ethics and environmental philosophies
● negotiate mutually beneficial contracts and preferential payment terms
● select go-to vendors from product depth charts for sourcing inquiries and bid requests
● issue electronic purchase orders to source products and services
● monitor vendor performance and prepare vendor scorecards
● continually evaluate overall vendor satisfaction for future jobs and projects
The oil & gas industry is self-admittedly, albeit reluctantly, very inefficient when it comes to procurement practices where sprawling spreadsheets, and paper processing are still the norm. Many industry insiders suggest that cost-effective vendor management was already broken before the downturn. Now it’s worse with the substantial purging of human resources and loss of previously known and trusted suppliers.
As the industry recovers and activity rebounds, there must be a willingness to change our way of thinking to adopt new business processes associated with procurement. Whether you are a Producer, EPC or Energy Services Company, the survival of our companies demands it!
How is your company positioned to avoid the costly pitfalls of the Procurement Predicament?