Gary Kilponen Practice Leader, Supply Chain Performance Sunergos LLC Treasurer, Director

1. Energy, Oil & Gas Industry MeetingSCOR for Energy, Oil & Gas: Project UpdateForum for industry benchmarking and best practices Gary Kilponen Practice Leader, Supply Chain Performance Sunergos LLC Treasurer, Director Supply Chain Council Joe Francis Executive Director Supply Chain Council

2. Agenda • Why are we here? • Supply Chain Council Introduction • SCC Energy, Oil & Gas Industry Group Update • Downstream Supply Chain Analysis • Downstream Overview • Review work to date • Determine Supply Chain Strategies for top 10 supply chains • Upstream Supply Chain Brainstorming • Define Upstream Supply Chains • Prioritize Upstream Supply Chains • Develop Strategies for Supply Chains (time permitting) • Next Steps/Action Plan Oil & Gas Dec 2009

3. SCC Energy, Oil & Gas Industry Group History 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 model was required to move forward • The team created a high level Oil & Gas Industry Segment Definition • Teams have been created and developing strategies and metrics for top oil & gas supply chains Oil & Gas Dec 2009

4. Superior Supply Chain Management (SCM) has Long Been a Source of Competitive Advantage % of Revenue Best-in-class Companies’ Outperform Their Median Competitors with a 50% Cost Advantage Source: PRTM/The Performance Measurement Group Oil & Gas Dec 2009

5. But SCM is Paramount in Times of Economic Uncertainty • In 2007, US business logistics costs rose to an all time high of $1.4 trillion (10.1% of US nominal Gross Domestic Product ) 3 • Supply-chain generally accounts for between 60% and 90% of all company costs1 • A 2% improvement in process efficiency for supply-chain processes has 3000% - 5000% the impact of a 2% improvement in efficiency for… IT… HR… Finance1… Sales… 1 Exclusive of Financial Services companies2 Source: Hoovers 2006 Financial Data, Supply-Chain Council 2006 SCM Benchmark data on SCM cost for discrete & process industries 3 CSCMP 19th Annual State of the Logistics Industry Focused initiatives in Supply Chain Management can result in 30-35% cost reductions, liberation of working capital, and revenue increases of 3-5%! Oil & Gas Dec 2009

6. Supply Chain Council: Introduction Oil & Gas Dec 2009

7. SCC: An independent, non-profit global association • Formed in 1996 to create and evolve a standard industry process reference modelof the supply chain for the benefit of helping companies rapidly and dramatically improve supply chain operations • SCC has established the supply chain world’s most widely accepted framework – the SCOR® process reference model – for evaluating and comparing supply chain activities and their performance • It can be used to describe supply chains that are very simple or very complex using a common set of definitions and enabling a common understanding • It lets companies quickly determine and compare the performance of supply chain and related operations within their company or against other companies • SCC continually advances its tools and educates members about how companies are capitalizing on those tools • With membership open to all interested organizations Oil & Gas Dec 2009

8. Plan What is SCOR®? Supply Chain Supply Chain Process, arrow indicates material flow direction Process, no material flow Information flow Source Make Deliver Supplier processes Customer processes Customer processes Supplier processes Return Return • SCOR is a supply chain process reference model containing over 200 process elements, 550 metrics, and 500 best practices including risk and environmental management • Organized around the five primary management processes of Plan, Source, Make, Deliver and Return • Developed by the industry for use as an industry open standard - Any interested organization can participate in its continual development 8 Oil & Gas Dec 2009

9. OIL & GAS WORKING GROUP Oil & Gas Dec 2009

10. Oil & Gas Challenge: Application of SCOR™ • How to facilitate and accelerate improvementsin 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 Oil & Gas Dec 2009

11. Working Group Tasks • To Date • Understand Scope and Extent of Oil & Gas Supply Chain • In Process • Identify major supply chain types within business segments • Identify major supply chain strategies • Create base of reference SCORcards for benchmarking • Facilitate industry benchmarking process • Future: • Create base of reference material flows • Create base of reference best practices related to identified supply chains • Educate on and disseminate findings Oil & Gas Dec 2009

12. 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. Oil & Gas Dec 2009

13. Framework for Benchmarking • Supply Chain Definition • Supply Chain Prioritization • Supply Chain Strategy • Selecting Metrics • Sourcing Data • Creating a Balanced SCORcard™ • Performing Benchmark Oil & Gas Dec 2009

14. Supply Chain Definition • 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 Oil & Gas Dec 2009

15. Downstream Supply Chain Definition Using a supply chain identification matrix, created master high-level list of supply chains within Downstream Oil & Gas Dec 2009

16. Downstream Supply Chain Prioritization Light Prioritization for further assessments Oil & Gas Dec 2009

17. Supply Chain Strategy • 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: Oil & Gas Dec 2009

18. Comparative Ranking • 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: Oil & Gas Dec 2009

19. 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 - 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 Oil & Gas Dec 2009

20. Initial SCORcard Created (Consumer Gasoline) Oil & Gas Dec 2009

21. Final Benchmarking Phase • 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 *Sample Data Only Oil & Gas Dec 2009

22. Next Steps: Material Flow Retail, Inc S1, P2 HQ P1, P2, D2, S2 Supplier D1, P1, P4 22 Oil & Gas Dec 2009

23. Next Steps: Best Practices • Definitions: • Best practice: "A current, structured, proven and repeatable method for making a positive impact on desired operational results." • Current: Must not be emerging and can not be antiquated • Structured: Has clearly stated Goal, Scope, Process, and Procedure • Proven: Success has been demonstrated in a working environment and can be linked to key metrics • Repeatable: The practice has been proven in multiple environments. • Importance • Alternatives to the way you do business • Equalize the competitive landscape Oil & Gas Dec 2009

24. Upstream Supply Chain Definition Oil & Gas Dec 2009

25. Upstream Supply Chain Prioritization Oil & Gas Dec 2009

26. Initial Upstream 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 - 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 Oil & Gas Dec 2009

27. Oils and Gas Industry Group Next Steps • Organize Industry Group into teams to complete benchmarking metrics for top 30 supply chains • Volunteers to facilitate segments • Upstream • Downstream • Midstream • Infrastructure Equipment and Maintenance • Volunteers for steering committee • Develop project charter • Resources • Timeline • Deliverables Oil & Gas Dec 2009

28. Participation Opportunities and Questions • Supply Chain Council Industry Working Group (IWG): • www.supply-chain.org/node/61 or • www.supply –chain.org/my groups and select the IWG: Energy, Oil & Gas Industry Group • Next Meeting • Join Sub Team: Downstream, Midstream, Upstream, Infrastructure Equipment/Maintenance • Questions? Oil & Gas Dec 2009

29. Contact Slide Joe Francis Executive Director Supply Chain Council, Inc. jfrancis@supply-chain.org (Project Sponsor) Carolyn Lawrence Strategic Programs Administrator Supply Chain Council, In clawrence@supply-chain.org (Industry Group Program Manager) Energy, Oil and Gas Industry Group Executive Team: Gary Kilponen Practice Leader, Supply Chain Performance Consulting Sunergos LLC gkilponen@sunergosllc.com Oil & Gas Dec 2009