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Promoting Fair-play and Open Competition in the Supply Chain

The International Leaders Forum Moscow, 16 th March, 2007 Andy Alexander Vice President, Upstream Supply Chain Management TNK-BP Management. Promoting Fair-play and Open Competition in the Supply Chain. “Illegal Practices” in the Supply Chain.

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Promoting Fair-play and Open Competition in the Supply Chain

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  1. The International Leaders ForumMoscow, 16th March, 2007Andy AlexanderVice President, Upstream Supply Chain ManagementTNK-BP Management Promoting Fair-play and Open Competition in the Supply Chain

  2. “Illegal Practices” in the Supply Chain. • Information brokering to enable a supplier to win contract. • “Kick-backs” to influence contract award. • Conflict of interest. Employees with external equity interest. • Contract execution – penalty regimes, change orders. • Cartels between suppliers/sharing of business. • Counterfeiting (eg inspection certificates). • “Facilitation” payments – customs clearance etc.

  3. The “Second Oldest” Profession? • A global issue. • 1914 press cuttings detail Siemens/Japanese navy scandal. • Has impacted BP. • In 1993 Paolo Sorreli convicted of illegal information brokering for North Sea projects. Eleven others settled out of court. • Significant business impact: • Reputation easily damaged by corruption. • Operational integrity. • Sub-optimal performance. • Cost.

  4. The Scale of Spend….the “Prize”. • TNK-BP alone spends over $4 billion annually on third party goods and services. • After the BP and Statoil incidents in the early 1990’s the Information Coordination Group (ICG) was established. • They estimate between 3 and 5% of budgets could be wasted if adequate controls not in place. ….and in Russia the trend is to reduce reliance on internal contractors. In TNK-BP we have significantly increased the 3rd party share of our spend. External Internal

  5. The Supply Chain process in TNK-BP is under Transformation…. • The early TNK-BP process was dominated by the DKK’s (Contracting Committees) which negotiated final pricing. • A project team with external consultancy support was formed early 2005 to re-engineer the process. • Full implementation will start mid 2007. • Procedures and Instructions. • Organisational change. • Training. • Common SAP-based system. • In addition to delivery of improved HSE and operational performance through our suppliers, it aims to provide a fair and transparent environment.

  6. Key Principles. • Procurement Policy and Standards. • Ethical certification of employees. • Ethical clauses in tenders and contracts. • Penalties only where appropriate. • Segregation of duties. • Establishment of professional contracting organisations. • Tight controls at key stages (pre-qualification; strategy; bid list; selection). • Individual accountability with assurance. • Sealed bid tendering. • Independent “Back Office” and “deep dive” audits.

  7. It has already started for some of our Long Term Contracting. • Sector teams have been established to support our key drilling and wells services (“List 1”) contracting. • Comprising SCM, technical and business professionals. • Covers $1.4 billion of annual spend. • By end of 2007 we target 30% long term contract coverage for List 1 services. • Open contractor registration on-line at www.tnk-bp.com. • Centralised mandatory pre-qualification process for List 1 services across the company. • Questionnaire completed on line, supported by audits. • Approval of pre-qualified contractors by EVP Upstream; EVP Technology and VP SCM.

  8. Key Aspects of “List 1” Services Long Term Contracting Process.… • Contractor briefing meetings: • Coaching to contractors of new process. • Tender debriefs. • Sealed tender packages with detailed scopes of work; remuneration; terms and conditions. • Adequate bidding time. • Detailed evaluation procedure in place prior to bid opening. • Objective selection criteria. • Separate commercial and technical evaluation teams. • Contractor communication/clarification process carefully managed after bid opening. • All commercial and technical issues resolved prior to award approval.

  9. Impact…. • Positive feedback from contractors. • Provided highly competitive environment. • Introduced new regional contractors. • Provided us the equipment to the specification contained within the contract. • Significantly reduced opportunities for fraud.

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