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TCO Supply Chain Management Overview for Leo Lonergan and Dave Connor

TCO Supply Chain Management Overview for Leo Lonergan and Dave Connor. Date: 15 May, 2008 Atyrau, AHQ. TCO Supply Chain Management Safety Highlights. 11.6 years without a DAFW for Warehouse Operations and Procurement for TCO employees

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TCO Supply Chain Management Overview for Leo Lonergan and Dave Connor

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  1. TCO Supply Chain ManagementOverview for Leo Lonergan andDave Connor Date: 15 May, 2008 Atyrau, AHQ

  2. TCO Supply Chain ManagementSafety Highlights • 11.6 years without a DAFW for Warehouse Operations and Procurement for TCO employees • ZERO derailments resulting in no Railroad service disruptions (World Class) • 2,271 internal safety and efficiency audits were completed • Tengiz Facilities Management achieved 7 years and in excess of 250K man-hours without a recordable incident

  3. TCO Supply Chain ManagementOrganization Chart

  4. TCO Supply Chain ManagementOrganization Highlights • Personnel Development • 2 category manager positions being nationalized • 3 employees on current international assignment – 1 in Nigeria, 2 in Houston • 2 employees going to US on development assignments • Operational Procurement • Deputy Ops Procurement manager position in place as of September 2007 • IRIS Project manager arriving July 2008 for SGP surplus project startup • Will be posting for Warehouse Ops Supt vacancy this month (CVX secondee) • Services and Logistics • Deputy FM Suptd positions created – nationalization of Tengiz FM Suptd scheduled for 2009 • Aviation Supervisor position currently open • Atyrau FM Supvr role filled with SCM hi-potential employee • Business Management • SCM Compliance Officer position to be added 3Q08 • Nationalization of this role scheduled for YE 2009 • C&SP • Contracts Advisor position – job being upgraded to manage contracting process; will permit Category Manager to focus on Category Management • 2 C&SP Business Analysts – in budgetary approval cycle for 2009 • LCD re-organization

  5. TCO Supply Chain ManagementOrganizational Capability • OCI Initiative • Procurement and Warehouse process changes implemented in 2007 – Follow-up review of Warehouse resources scheduled for this year • Petroskills identified negotiation as most critical need • Scotwork training completed in early April • 3 classes – 21 SCM attendees • 2 SCM Leaders enrolled in ASU MBA Program • Several employees enrolled in ASU SCM Certificate Program • Several employees enrolled in ICCAM Course • Contracts Workshop • 3 employees attending Houston Workshop in June • Atyrau Snack and Learns • Legal presentation on T&Cs, CHESM overview, CSOC training, ICG, Tax, etc

  6. Business Management • Planning and Reporting Processes • Directs the Supply Chain Management planning process. • Manages the financial forecast and results reporting for the organization. Assists SCM Managers in business planning, budgeting forecasting, analyses, performance reporting, supplier management, local RoK content and business development and implementation of e-commerce. • Enhance SCM organizational capability to meet TCO/CIEP objectives through optimization of business processes, identification and deployment of internal/external best practices. • TCO’s Process Advisor for the COGS (Cost of Goods and Services) project. Communications • Manages internal and external communications for the Function – develops communications strategies, plans, multi-media presentations, town halls and other employee communications meetings. • Learning & Development • Develop and maintain the Learning & Development program for all SCM groups in alignment with key competency gaps identified using Petroskills CAT and as required by CIEP’s SCM organization. • Manages learning & development curriculum and personnel development programs such as Horizons to support the nationalization and strategic staffing plans.

  7. Business Management • Analytical Support • Provide decision support to SCM functional groups including strategic sourcing efforts and blanket purchase agreements. • Ensure compliance of SCM processes and tools with CIEP standards. • Support key SCM initiatives including Category Management, Investment Recovery & Inventory Optimization, and the Annual Contracting Plan. • Directs and leads portfolio spend analysis and categorization of spend and suppliers. • Assist with inventory analysis to optimize inventory, lease versus buy, in-source / outsource decisions.

  8. Business Management • eProcurement • Directs enterprise wide data collection efforts and supports implementation of electronic procurement solutions.

  9. Contracts and Strategic Procurement Key Functions • Manage categories of spend to effectively meet customer needs and reduce costs • Negotiate, prepare and manage contracts to reduce risks and costs • Akimat relationship management 2007/8 Focus Items • Significant sourcing events • Site Services, Freight Forwarding, Security, Aviation, OCTG, WCS, Well Cleanup, 3D Seismic • $2.0+ billion being sourced • Category Management • On-going – plans, spend analysis, ASRs • Cost of Goods and Services (COGS) • M&T Contracting group now part of C&SP • Ariba Contracts Workbench deployed – need to optimize • CHESM • On-going – now included in CRC form/discussion and annual plans • BPA development • Ariba Catalog development • eSourcing usage • Minimum Remuneration

  10. Contracts and Strategic ProcurementContracts Review Committee • CRC in place for several years • Charter being amended to include Category Management, Cost of Goods and Services, Supplier Segmentation, etc – completion by June • Bifurcated CRC process • CRC pushback on meeting frequency and low dollar-value contracts • Standard CRC – aligns with standard • Category Plans, COGS, annual plans, contracts over $2.5MM (80%) • Functional Committee • Contracts under $2.5MM but over $250K/$500K • Demonstrates governance to partners

  11. Contracts and Strategic ProcurementAnnual Plans Two annual plans at TCO • PC Plan • CRC Annual Plan PC Plan • Formation Agreement requires PC approval of: • Contracts over 2 years duration or over $25M value • Affiliate Work Orders over $500K • PC Plan under development now – CRC will review/approve in July – PC approval in September • Contracts requiring PC approval not executed until endorsement received – no compliance issues Annual CRC Plan • $250K / $500K thresholds for inclusion on Plan • Plan Development starts Oct/Nov with CRC review and approval in December • Will align with ACPP – including Material Procurement • 2008 approved plan reduced items at bi-weekly CRC meetings – ~60% reduction in meeting agenda items • Process Improvements implemented in 2007

  12. Contracts and Strategic ProcurementAkimat Interaction Foreign Worker Licenses (FWL) • Every expat in RoK (excluding Chevron/XOM secondees) requires an FWL • Limited availability – split between TCO and Agip • Allocation of FWLs between contractors to ensure no impact to operations and/or projects • Weekly commission meetings to review and approve FWL applications – pre-meetings with Dept of Labor to ensure no disruption to operations by FWL rejection SGI/SGP Demobilization • SGI/SGP nearing full facilities – construction personnel being demobilized • Could impact up to 16,000 Kazaks (~5,500 already demobilized) – total amount could triple unemployment rate in Atyrau Oblast – concern regarding social unrest • Working with Agip and Akimat to transition workers to Eskene West • Other demob activities as required – speeches at contractor forums, interviews with local media, etc Other Labor Issues with Akimat • Contractor Collective Agreements • Various Akimat/Labor Ministry MoUs • Conduit between Akimat and contractors

  13. Contracts and Strategic ProcurementCategory Management • 5 categories • Services – 19% of spend • Production Operations/Equipment – 27% of spend • D&C – 6% of total spend • Major Capital Projects/FE – 48% of spend • Marketing and Transportation • Plans finalized for Prod Ops and D&C • CRC review/endorsement in June • Services RFPs and Minimum Remuneration program negatively impacted development of Category Plans in 2007 • Spend analysis complete – COGS analysis covered 94% of spend • ASRs with Bertling, GE, Areva, ESS, Honeywell

  14. Contracts and Strategic ProcurementSpend Analysis 2007 spend data – analysis excludes M&T spend

  15. Operational Procurement Key Functions • Procurement and expediting for operations and capital project activity with coverage in both Atyrau and Tengiz • Warehouse operations, including investment recovery support from the Industrial Base in Tengiz for operations and capital project activity 2008 Focus Items • Implement and track the 6 GU Procurement Operations Metrics • Align the 5 category procurement groupings with the C&SP Equipment Category Plan • Implement the Class B refurbishment program for DSE and non-DSE parts/equipment • Transition the Turnaround warehouse over to SCM including personnel by September 30th • Ensure all SGI/SGP spare parts are ordered and received by target start-up dates with data cleansing activity in place • Manage SGP surplus starting Q3 2008 – 40,000 line items, $90MM • Kick-off Bar Code Team to evaluate the scope for applying the new technology and deploy in conjunction with the E1 8.11 rollout • In conjunction with C&SP develop a sourcing strategy to increase the number of BPA contacts by 80-100% by year end 2010.

  16. Operational ProcurementPerformance versus Key Objectives 2008 YTD Accomplishments • Procurement has provided resource coverage for all small capital project requirements • Wilson Kazakhstan MRO Inventory Ownership transfer to TCO • SGI/SGP Two Year Operating Spares – 19,280 items ordered • Partnering with Operations • Transitioning T/A satellite whse to SCM in Q4 08 • T/A Material Coordinator identified this month • Coordination w/SGP Phase 5 and SERIP Team • Data cleansing, 0/1 min/max, DSE, Class B refurbish • Chemical QA/QC Process

  17. Operational ProcurementPerformance versus TargetsOperational Inventory - $160MM Estimate by YE 2008

  18. Local Content Development Key Functions • Support TCO Internal Customers to search for qualified RoK Suppliers of Goods and Services to develop and increase Local Content share. • Analyze company G&S Procurement and develop TCO Needs Targeted List for G&S. Develop plans for RoK Suppliers development and involvement. • Pre-qualify suppliers, develop requested business and technical capabilities of Suppliers to meet company requirements. • Interface with Internal and External stakeholders and business communities to develop Local Content and contribute to increase of Local Business competitiveness. • Support and develop Small Business via Interest Free Loan issue for entrepreneurs, contribute to creation of jobs in region.

  19. TCO Supply Chain ManagementLocal Content Development GroupTCO ROK G&S Expenditures Target for 2008 1.2 bln Actual spend YTD $ 374 mln or 48%

  20. TCO Supply Chain ManagementLocal Content Development GroupBusiness Seminars conducted in 2007 for Local suppliers • E-Procurement • Competitiveness and Innovation based on quality and ISO 9001 • Small business development and financing sources • CHESM • TCO requirements and prequalification process • Business-seminar for Contractors

  21. TCO Supply Chain ManagementLocal Content Development GroupCreated Joint Partnerships in 2007 • Flour and NSS -EPCM • PSN (Production services network) +Kazstroiservice –EPCM • Teboddin +KaspiMunaygas -EPCM • Flowserve+NSS – pump repair shop - joint service for OPS • Compus group +KMG service – Transportation service

  22. Local Content Development • Key focus area for 2008 • 2008 target for RoK G&S - $1,200 billion • Increase TCO local content via better communication with TCO Major Projects owners and base operations, there are opportunities to involve RoK G&S for major capital projects and spend on existing operations including Turn-Around and TCO Social Projects. • Support joint venture partnership between RoK and International Suppliers. • Contribute to the development of local companies’ capabilities to supply quality EPCM services. • Update FPK Database with new RoK Suppliers and utilize FPK Database as additional resource to search for potential suppliers. • Supplier forum 2008

  23. Security Key Functions • Achieve a safe and injury free workplace by aggressively enforcing the use of personal protective equipment (PPE), through the behavior based safety (BBS) process and to enforce TCO motor vehicle safe operations. • Manage Environmental Performance by providing high quality security services to Gas Utilization, Crude Tank Farm, and the Associated Crude Projects. • Develop and sustain World Class Organization by developing, training and nationalizing the TCO Security Department and its leadership to effectively operate within and support the business. • Achieve Excellence in Base Business by providing timely and responsive security support. • Manage SGI/SGP Security during transition to base operations activities. • Develop Future Growth Concepts by providing proactive security support and integrated security services during the planning, design and construction phases. • Provide proactive and routine security support to all MCPs.

  24. SecurityPerformance versus Key Objectives 2008 Focus Items • Complete 100% of the High Risk Security Reviews • Develop Operational Readiness Reporting Process • Transition effectively SGP/SGI security to Base Ops • Standardize OE Element #1 Security of Personnel and Assets • Develop TCO Security joint work charters with ICG, IT/IP, Finance Auditing and OE • Develop Security Awareness and Vigilance Program • Implement Security Management Review findings • Continue to enhance Joint Security Operations Center • Integrate security with Capital Projects • Establish a basis for integration of security technology (Smart badge, CCTV, et al) • Staff Security Liaison Unit • Support Security Services sourcing project

  25. Services & LogisticsOrganizational Chart

  26. Services & Logistics Key Functions • Provide support services in Atyrau, Tengiz and Astana Logistics Significant accomplishments for 2007: • Corporate OE Audit “Good” rating for Motor Vehicle Safety. The assessment was the only “Good” rating out of 18 OE processes reviewed. • Motor Vehicle Crash Rate (MVCR) for Contractor and TCO vehicles surpassed 2007 target of .68 per 1 million miles driven for recordable MVC’s: .571 • Vehicle Display Observation Monitors on TCO vehicles. Focus Items for 2008: Safety, Compliance, Opex Reduction, Efficiency • Launch VDO Monitors in Contractor vehicles program. • SGP/SGI transportation fleet transition to TCO Base Operations.

  27. Services & Logistics Railroad Operations & Maintenance • 82,086 railcars were shipped / received totaling 4,276,267 NT and 7,888,051 gross tons • Resurfaced over 100 kilometers of track Focus Items for 2008 • Support SGP full facilities with personnel and equipment. • Finalize KTZ/TCO joint interchange operations at Siding 8 and Kulsary Station. • Completion of 4 km loop to accommodate sulfur export and additional crude exports – efficiency improvements

  28. Services & LogisticsPerformance versus Key Objectives • Facility Management 2008 - 2009 Focus Items • The West Contractor Area (WCA) will be established to facilitate the extraction of Base Operations’ contractors from the Operational Process Zone (OPZ). • Potential transition of management and operational control of Shanyrak Village from SGI/SGP to TCO Services. • Complete the Tengiz Infrastructure Master plan, including a) Land Use strategy; b) Shanyrak/TCO Village strategy; c) Rotation Village strategy. • Continued focus on Contractor Health, Environment and Safety Management (CHESM). • Complete Atyrau Office restacking project. (Additional 150 offices required)

  29. Services & LogisticsTCOV and SV Services – Factoids • Catering Services • 8 Canteens produce approximately 25,000 meals per day (in total) • 3 Bakeries produce 10,286 rolls and 558 loaves of bread per day (in total) Each week, we consume: • 18.23 tons of chicken • 13.56 tons of beef • 5.42 tons of other meats (pork, lamb, etc.) • 15,790 bottles of Coca-Cola • Housing and Hotel Services • Total Available Occupancy as configured (TCOV/SV combined) – 8,400 • Laundry washed each week - 73 metric tons • Transportation & Vehicle/Equipment Maintenance Services Total Kilometers last year approximates 11,900,000 • LDV’s - 446 • Buses – 106 • Building, Grounds & Facilities • Total area approximates 975 acres • Water treatment produces 2.9 million liters of potable water per day • 8 MW power generation • Warehousing and Procurement per month: • Food WHSE Inventory USD $1,500,000 • Food Procurement USD $500,000

  30. Services & Logistics Aviation - 2008-2009 Focus Items • Obtained Certification for Tengiz Aerodrome (May 2008). • Continued Compliance with RoK Civil Aviation Committee requirements. • Support Aviation Sourcing project. • Aviation OE compliance. Business Services - 2008-2009 Focus Items • Implementation of TCO Record Retention schedule and Information Management policy and guidelines. • Develop and Implement TCO bilingual and trilingual interpreter/translator career ladder. • Develop and implement TCO Admin and Office Assistant career ladders. • Complete Ergonomic assessment of TCOV work stations. • Off-site translation services strategic sourcing – upcoming bid in July 2008.

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