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Trimester Business Review TCO Operations Department Supply Chain Mgmt

Trimester Business Review TCO Operations Department Supply Chain Mgmt. May 3, 2006 TCO AHQ. Safety Moment – Near Miss Reporting. Not to inform upon your fellow workers but a form of protection for them It does not have to be personnel within your deparment

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Trimester Business Review TCO Operations Department Supply Chain Mgmt

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  1. Trimester Business ReviewTCO Operations DepartmentSupply Chain Mgmt May 3, 2006 TCO AHQ TCO Confidential

  2. Safety Moment – Near Miss Reporting • Not to inform upon your fellow workers but a form of protection for them • It does not have to be personnel within your deparment • Here’s the link: http://inside.tengizchevroil.com/shares/hse/ TCO Confidential

  3. One key to preventing accidents is finding a potential risk and immediately eliminating or reducing it. Communicating the possible risks, near misses, and personal event stories is an important element to the success of the CBRES Safety and Health Program. A near miss is usually an instantaneous (non-injury or damage) event revealing that an injury or considerable property damage could have occurred if circumstances were only slightly altered. TCO Confidential

  4. A “near miss” is any event having a potential, but unrealized, consequence for serious injury, fire, release of material, damage to equipment or other emergency situation. It is important to address minor incidents like this to avoid recurrence and, possibly, more severe consequences in the future. Many people are familiar with the incident triangle which shows that serious incidents are preceded by many minor incidents. Near misses make up the largest portion of the triangle because they are most common.Recently, the number of near miss reports has decreased. It does not mean that we are having fewer near misses. It simply means that people have stopped spotting and/or reporting them. Loss Prevention has simplified the near miss reporting and recording procedure. Workers who see a near miss situation are asked to fill in the form and report the near miss to his or her supervisor. For additional details, please see the links attached: Near Miss Reporting ProcedureNear Miss Report Form TCO Confidential

  5. Performance vs Targets • SCM HES performance (TRIR/DAFW/MVC) - Dauren • Operational Inventory YTD performance - Bobby • SCM Budget Performance - Dauren • SCM Value Creation YTD - Dauren • RoK Spend YTD – Marat/Almagul • OCI Implementation for SCM – Renee/Teresa Please provide the back-up information (one graph per bullet point) TCO Confidential

  6. Performance versus Targets – Be a Leader in Safety and Environmental TCO Confidential

  7. Performance versus Targets – Be Respected in Kazakhstan Community TCO Confidential

  8. Performance versus Targets – Develop our Workforce TCO Confidential

  9. Performance versus Targets – Achieve Superior Performance TCO Confidential

  10. Performance vs Key Objectives, Deliverables and Milestones • Safety • 2 key incidents = Fatality and bus Incident • CHESM • Workforce Development • Conducted trainings (DPSS, eTools…) • PDC process (more formalized, changes to the SE, Petroskills, Skills Assessment, etc) • Respect in KZ • Finalize the TCO Innovation Strategy • Communication with KMG, MEMR, Akimat • Led and participated in Local Content seminars and conferences • SBD Loan program was reinitiated • Lands Manager was awarded a service medal from the RoK Gvnmt • Superior Operational Performance - SCM Managers TCO Confidential

  11. Performance versus Key Objectives – Superior Operational Performance • Services • Communication / Stakeholder Partnering – Customs. The advocacy strategy has been framed • Operational Efficiency • TCOV to SV transition – Proj Mgr hired • RV Optimization Project – Ph1 to Ph2 on 27 Apr • MOA Plant Archives/Canteen planning for Ph3 to Ph4 on 11 May • Railroad infrastructure is ~85% complete for CEP • Received first draft to implement fleet management • Commercial Travel – trading off end-user dissatisfaction and the AirAstana monopoly is testing Services TCO Confidential

  12. Performance versus Key Objectives – Superior Operational Performance Services • Supplier Management / Integration • ESS • Continued satisfactory performance on catering and facility mgmt • Unsatisfactory performance for transportation O&M • Good performance on local content • Bertling • Still managing this via an ASR…satisfactory performance • Strategic Sourcing • C and FM – sourcing plan being developed, including team make up, risks and stakeholder influence plan • Security and Freight Forwarding strategic plan to commence 2Q06 • Technology • SGI security are now using web-based security cameras • AHQ will be having window film applied in 2Q06 TCO Confidential

  13. Performance versus Key Objectives – Superior Operational Performance TCO Confidential

  14. Performance versus Key Objectives – Superior Operational Performance TCO Confidential

  15. Performance versus Key Objectives – Superior Operational Performance • Contracts and Strategic Procurement • Drilling Contract - in 2nd round negotiations with AralParker & Nabors • New Categories established: Production Ops/Equipment, Logisitcs/IT. SMEs identified and teams being formed. ~ 70% of spend segmented • Category Management (eSourcing, Category Planning, and Supplier Management & Integration) training scheduled and fully enrolled • Ariba eSourcing tenders: Drilling Contract RFP underway, Offsite Translation beginning, Catering & Facilities Mgmt planned • Bolashak (Swift) Staffing - Contracts in effect 1/1/06. Initial transition has been smooth. Cost savings trending to $1.8mm for this year • Employee Housing Loan - DRB has agreed that program will be handled by Bank TuranAlem (BTA) and KazCommertz • Employee Savings Investment - in final negotiations with BTA and resolving potential tax implications. Expected to conclude in June TCO Confidential

  16. Performance versus Key Objectives – Superior Operational Performance • Employee Payroll Plan - in final stage of program design. Contracts will be awarded to ABN-Amro (incumbent), Kazcommertz, and BTA. Savings (OPEX) expected to exceed $260K/yr. from this more competitive program which will allow employees a choice of banks for payroll deposit and ATM cards. • Consolidated Well Services Extension- Negotiations concluded with SLB for 7 PSL. Negotiating with Halliburton on coiled tubing and cementing PSLs, Baker for coring PSL. Resolving T&C issues with Weatherford for 3 PSL. • Catering and Facilities Mgmt - Timeline and team formation underway. • Engineering and Design Services - Scope and evaluation format complete and being issued to Production Services Network (former KBR), Parsons and Vetco Aibel. • Locomotive Leasing – project to source twelve locomotives for CEP is underway. TCO Confidential

  17. Performance versus Key Objectives – Superior Operational Performance • 2005 Contracting Achievements • No outstanding action items from Partners Audit • Contracts Manual significantly revised • TCO Contracting Plan process revised and enhanced • E-1 deployment successfully completed • Ariba eSourcing RFP underway • SBD Bank Loan program negotiated & initiated • Employee Housing Loan RFP issued TCO Confidential

  18. Performance versus Key Objectives – Superior Operational Performance • 2005 Major Contracting Efforts • Crude Export Project Rail Expansion contracted and underway • Maintenance Core Contractor Contracts bid and awarded • Staffing IMA confirmed with Bolashak (Swift) • IMA for GE turbines support executed • New Shop and Lab project bid and awarded • Heavy Equipment master contract bid and awarded • ESS contract renegotiated and extended • Consolidated Drilling Services PSL’s under negotiation for extension • Contract placed with Caspian Training to assume operation of craft training center • Drilling contracts renegotiated to reflect decreased drilling program TCO Confidential

  19. Focus Areas:Next Reporting Period • Contracts & Strategic Procurement • Develop Atlas CHESM implementation and plan 2007 Contractor Safety Forum • Schedule CVX Equipment Group Category Managers to TCO for alignment in developing strong Category Plans • Form multifunctional Category teams, prepare all Category Plans • Significantly ramp up eSourcing usage • Train employees and deploy Ariba Contracts 3.0 and Workbench modules when available • Increase usage of CVX IMA’s and Preferred Suppliers TCO Confidential

  20. Lessons Learned:This Reporting Period • Safety • Abnormal Weather conditions (procedures, policies) • We need a comprehensive Vehicle Safety plan • Transformation process • Communication with key stakeholders – timeliness & frequency • Do not be SCM and Atyrau centric • Workforce Development • How are we addressing WIFM for the entire workforce TCO Confidential

  21. Top Issues • KMG, RoK Ministries and NGOs attempting to add oversight, forecasting and bid advertising • Resources and organizational capability constraints: • How do we balance career development opportunities while still meeting base business requirements particularly at higher levels? Need to minimize to maintain and improve service levels. • eProcurement • Foreign Worker license • Skill set gaps versus business needs moving forward • Sense of urgency required to get the TCOV-SV and RV optimization studies commenced • Additional emergency budget will be required to repair the winter damage of 1Q06 • Need to engage Customs in electronic customs documentation to allow CEP • Management of the SGI/SGP surplus (estimated at $50-70MM) TCO Confidential

  22. Focus Areas:Next Reporting Period • Career enrichment • Schedule CVX Equipment Group Category Managers to TCO for assistance in developing strong Category Plans • Staff, train and deploy Strategic Procurement team • Transition of Commodity Development group to Strategic Procurement • Transition Procurement in to Category buying function • Engage Customs with the advocacy plan to go to e-Customs • Decide on the TCO fleet management plan • Re-organize ESS transportation to improve unsatisfactory performance TCO Confidential

  23. LCD TCO Confidential

  24. Trimester Business ReviewTCO Operations Departmentxxxx Division LCD TCO Confidential

  25. TCO 2006 ROK’s G&S spend Targets • The target for 2006 is 42 % of ROK goods and services spend which totals to $600 MM in dollar value • SCM will work with TCO departments to identify and qualify RoK suppliers and ensure their consideration in our procurement processes. • Usage of RoK suppliers for goods and materials purchases increased to 25% TCO Confidential

  26. 2006 Business Plan Highlights • Business Plan Highlights • Improve communication with TCO Internal Customers. Working jointly with Category managers and Ops procurement. • Searching and prequalification ROK suppliers to support category management and Ops. Procurement activities . • Work with Local banks on issuing loans to Support Local Small Business. To reimburse 35% of total TCO loans. • Support FPAL data base. • Support IFC data base. • Developing ROK suppliers, TCO Confidential

  27. 1Q 2006 LCD achievements • Supporting the Projects : CEEP, CTF, IGILIK, Services • Number of new RoK suppliers qualified • 43 companies both M&G and Services were entered into ROK Suppliers Database. • Materials & Goods Suppliers\Producers: 5 companies prequalified, 2 recommended to Bid. • Companies providing services: 6 companies prequalified, 23 recommended to Bid. Number of RoK supplier forums / seminars sponsored • Workshop with ROK NWU of entrepreneurs “Atameken” targeted to introduce with TCO requirements and selection procedures was conducted. • Made presentation on TCO industrial-innovation development program for 2006-2008 at the meeting with KMG in Astana. • Participated in the conference “Local Content Development in the projects of subsoil users” organized by the ROK Trade and Industry Ministry in Almaty. • Attending Atyrau Oil gas exhibition TCO Confidential

  28. 1Q 2006 LCD achievements • Usage of RoK suppliers for goods and materials purchases increased to 25% • In January 2006 the order is placed with PZTM for 4 heat exchangers, CEP. • FPAL – is in progress and under developing final proposal, budget • IFC – is in retrial Model 1 • Assisting in creating JVs: • Sulzer – repair and maintenance of pumps, • USKO\Novus- manufacture gaskets, • Rauan-Nalko- supply of chemical solvents for industry with first pilot product planned in 2007 • Spend with RoK suppliers Issue loans totaling $1MM • Issued $ 284,000 threw the BTA by today • 35% loans issued earlier to be paid off • $ 94,478 was repaid by 1Q2006 TCO Confidential

  29. ROK suppliers prequalification Chart TCO Confidential

  30. Loans issued within period of 1997-2004. • Repayment schedule yearly (as of 01.04.06) TCO Confidential

  31. SBD Loan repayment table yearly (as of 01.04.06) TCO Confidential

  32. Repayment schedule quarterly in 2006 TCO Confidential

  33. Loan issue through banks TCO Confidential

  34. Top Issues • Develop LCD group work procedures and interface Chart to work with category management group to do effective work on increasing ROK spend within TCO • Find and develop new qualified Kazakh sources for G&S • Pre-qualify and recommend to TCO bids ROK suppliers of goods and services; • Participate in industry initiatives - work with FPAL and IFC on Local Manufacturers’ Database creation and development of Oil Industry Forecast. • Facilitate cooperative agreements b/w foreign and local suppliers; • Continue forums, seminars, workshops with participation of local and foreign manufacturers. • Influence TCO contractors to increase their utilization of ROK G&S; Sub-Bullet • SBD Loan Portfolio selling to the Local Bank TCO Confidential

  35. Focus Areas:Next Reporting Period • LCD group involvement to the Category management activity implementation • Preparation to the Supplier Forum • FPAL project to advance • SBD Loan Portfolio selling to the Local Bank • SBD Loan issuing threw the Kazkomerts bank TCO Confidential

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