Forced to take a long hard look at itself over the past 12 months, the oil and gas industry is looking less at technology and tools and more toward having the right people with the right mix of experience to help mitigate risk in the future. For more information, please visit: Emptoris website: http://www.emptoris.com/ Emptoris blog: http://blog.emptoris.com/ YouTube channel : http://www.youtube.com/emptoris

1. IPAC BUSINESS MAGAZINE OF THE YEAR 2010
PROCUREMENTLEADERS
31
Issue 31 march/aprIl 2011 www.procurementleaders.com
ANNUAL RESULTS ROUNDUP
BOTTOMLESS PIT
RIO TINTO CPO SCOTT SINGER
ON MINING’S FINEST HOUR
FINDUS PREPARES FOR VOLATILIE PRICES
TAILORING GLOBAL SUPPLY CHAINS
THE ANSWER TO STATE SPENDING
CFOS MUSCLE IN ON PROCUREMENT
MAR/APRIL 2011
REWARDING TIMES SINGAPORE SLANG IT’S ALIvE!
NEWLY ANNOUNCED TALENT, RISK AND TIME ISN’T UP FOR
SHORTLIST INSIDE RELATIONSHIPS IN ASIA STRATEGIC SOURCING

2. on reflection
Forced to take a long hard look at itself over the past 12 months, the oil and gas industry is looking less at technology
and tools and more toward having the right people with the right mix of experience to help mitigate risk in the future
Discussions about risk management event, which had the theme “Smoothing requires “a different employee set and
generally cover the usual suspects of the road to success: managing and a different mindset than when supply
supplier finance, logistics failures, mitigating procurement risk”. While most chain was tactical.” When procurement
raw-materials shortages, natural were from the oil and gas industry, they was considered a tactical function, the
disasters and geopolitical events. soon highlighted a different risk that, people who succeeded were the ones who
Certainly, each of those potential in its various forms, was near the top of could execute and could efficiently place
supply chain disruptions deserves everyone’s mind: the risk of not having a purchase order with a supplier for a set
serious attention and all were on enough people with the right experience amount of money, she said. With today’s
the minds of attendees at a recent and skills to identify and deal with the emphasis on the strategic, different
Procurement Leaders roundtable at range of issues companies face today. skills are important. Among them are
the Four Seasons Hotel in Houston,
sponsored by Emptoris. Procurement today requires a different employee set and
Indeed, the recent regime-toppling
protests in the Middle East, as well as a different mindset than when supply chain was tactical
last year’s Deepwater Horizon oil well
explosion off the coast of New Orleans, “The ‘people risk’ is our biggest focus,” negotiations skills. She worries that
the Eyjafjallajokull volcanic eruption in said Stephen Hester, vice president some buyers have had no negotiations
Iceland that grounded air travel in Europe, and chief procurement officer of Smith training. “They need to learn how to say
crop-destroying droughts in Russia and International Inc, an oil field service ‘no’ and to push back,” she said.
raw materials shortages were pressing company and equipment manufacturer. Tim Moeller, vice president of
reminders to procurement executives “We need to be developing people, making procurement and materials for
around the world of the importance of sure they get international exposure.” Halliburton, a products and services
Portraits: Curtis DeGidio
rigorous risk mitigation strategies. Ann Ackerson, vice president of global provider to the energy industry, also
In fact, one might have expected that supply chain for Pride International, counted people as one of the major risks
oil well disasters and political upheavals a deep-water drilling contractor, procurement has to deal with.
would be the major topics of discussion echoed his sentiments, adding that the “There is a transformation underway
among roundtable participants at the strategic nature of procurement today within the workplace and we have to
52 procurementleaders

3. roundtable risk management
work with a new generation and teach group to ensure they are following
them how to identify risks,” he said. protocol,” she said. Among the strategies
Moeller said that within the oil and that work in her favor in that regard is
gas industry there are a lot of 20- goal alignment. “We have joint goals
and 30-year veterans with extensive with other departments,” she said.
experience who will be retiring in Halliburton’s Moeller, meanwhile,
the next few years. “These veteran warned that “The c-suite has to set
supply chain professionals have tribal the tone on linkage of goals among
knowledge and can smell risk before procurement and stakeholders within
they see it – given their tenure,” he said. the company.” Gerard Kubisiak Hether Benjamin-Brown
“Additionally, today’s supply chains are Emptoris Calpine Corporation
less US-centric, involving more global Anticipate risk
economies, many of which have unstable Beyond the related issues of people
environments, such as in third world development and people and stakeholder
countries.” management, Scott Christman, director
All agreed that talent development in of supply chain, National Instruments,
general is a crucial issue for procurement said that his board of directors expects
and that international knowledge or him and his team to ask the what-ifs
experience, as well as experience in that will help them anticipate risks.
other functions within an organization, “They want us to think out of the box,”
will be a big part of the skillsets of he said. Mike Burgett Ann Ackerson
successful procurement executives. Likewise, Tommy Murphy, VP of NuStar Energy Pride International
The concern with people and staffing supply chain management at Key
also extended to two other areas; one a Energy Services, which develops on-
perennial issue and one more surprising. shore energy production services, said
Moeller referred to the people constraint, his board wants him to have a better
or risk, associated with limited housing crystal ball than the industry has
availability in some regions. He said generally had.
Halliburton has ongoing operations in “We need to get a better handle on
North Dakota and a major constraint strategies and best practices of others in
those operations face is lack of housing the industry and we have to take better
for workers. advantage of that,” he said. Stephen Hester Tommy Murphy
“One of our biggest risks to our growth Interestingly, no one on the roundtable Smith International Key Energy Services
there is that there isn’t enough housing panel mentioned cost as a major risk. Of
stock to accommodate the employees course, raw material pricing volatility is
we need to have there,” he said. “We always something procurement has to
have had to work with local real estate prepare for and, just like procurement
people and construction companies to executives everywhere, panelists are
find innovative ways to overcome short- charged with controlling costs from
term housing constraints to mitigate suppliers. And the risk that costs will rise
the risks.” is real. Political turmoil in Egypt, Yemen,
Tunisia and Libya has raised oil prices
Build internal relationships and some European countries, will feel Scott Christman Tim Moeller
The perennial people risk also resides especially exposed to economic trouble. National Instruments Halliburton
in the realm of internal relations. But, as National Instruments’
Roundtable participants talked of Christman said, “You can’t just worry
the importance of working with such about costs.” that pre-qualification,” she said.
internal stakeholders as engineering, Indeed, Benjamin-Brown of Calpine Of course, the history of industry in
manufacturing and other groups to Corporation said that no one at her general is replete with examples where
ensure they are supporting purchasing’s company says “cut costs”. Referring safety practices – or lack of – were
initiatives. “We need to build internal to a risk that is particularly important factors in catastrophic events and the oil
relationships so that the environment in the oil and gas industry, she said and gas industry is no exception. Beyond
isn’t ‘us versus them’,” said Ackerson. that Calpine executives say safety is the tragedy of deaths, events such as the
Hether Benjamin-Brown, VP of most important. “Safety is our most explosion at the Deepwater Horizon oil
supply chain services for power company important criteria,” she said. “We well have been expensive for suppliers
Calpine Corporation, says her executives can’t bring in a supplier that has a poor and local communities alike.
rely on purchasing to control compliance safety record.” She added that all Calpine “When we see a supplier where the
with procurement policy. suppliers have to be pre-qualified on [safety] numbers are bad, we require a
“I’m expected to manage my peer safety. “I won’t sign a contract without field person to sponsor the suppliers
procurementleaders 53

4. roundtable risk management
and monitor them,” said Mike Burgett,
VP of strategic sourcing for NuStar
Energy LP. “We have high standards and
we will step in and tell field personnel
how they have to manage the safety of
the supplier.”
Ensuring safety is simply a
cost of doing business, said Smith
International’s Hester.
One major aspect of risk management
is ensuring that the practices, products
and policies of tier-two and tier-three
suppliers don’t pose a risk. The best way
to get that assurance is to select the right he said. “Today, suppliers have to be analyzing their finances,” said Moeller.
tier-one suppliers, said Halliburton’s much quicker. It’s not good enough if Monitoring supplier finances is easier
Moeller. “If you have the right process suppliers say they can be there in five for US-centric companies, according
and rigor to ensure quality, reliability minutes when you really need them in to Moeller. “For suppliers in other
and safety from your tier-one suppliers, two minutes.” countries, we have local staff on the
the potential for problems from the lower ground to do the analyses,” he said.
tiers is much less,” he said. “You have to Share data and goals “They can walk into facilities and
make sure your tier-one suppliers are An essential part of building look at finances and procedures and
doing the right things.” good supplier relationships is the understand the supplier’s references, as
National Instruments’ Christman willingness to share information. well as understand our own industry. It’s
agreed. “The first thing you have to Smith International’s Hester said critical to have the right people engaged
do to mitigate risks from tier-two and he has quarterly reviews with key in doing those analyses.”
tier-three is to ensure that tier-one suppliers during which he shares Everyone agreed that the catastrophe
has a quality-control process.” You forecasts. “We can’t expect suppliers at the Deepwater Horizon oil well was a
have to ask them about their suppliers’ to respond without knowing how many wake up call for the oil and gas industry
capabilities, he said. “You have to keep wells we will drill,” he said. “The more in terms of risk management.
the monkey on their back because you you share, the better they can plan. “We looked at training, supplier
health and how we would handle
If you have the right process and rigor to ensure similar emergencies. It created a lot
of introspection. In the end, at NuStar
quality, reliability and safety from tier-one suppliers, the we learned that we were fine and we
didn’t have to make any changes,”
potential for problems from the lower tiers is much less said Burgett.
Key Energy Services’ Murphy,
pay them for that.” If you get a blank The risk for procurement is not sharing said the Deepwater Horizon incident
stare when asking about their suppliers’ enough information.” prompted establishment of a formalized
capabilities, you know you’re in trouble, Of course, not all stakeholders in risk-management program at his
he added. Still, he noted, “You can never every company are willing to share company that helped them move from
have 100% risk mitigation across the information with suppliers. Benjamin- being tactical to being strategic.
supply chain.” Brown said, “One of our groups is Surprisingly, while all agreed
The way to protect against tier-two reluctant to share information even that technology is important in risk
and tier-three supplier risks is to build though we tell them how important it management, there were no technology
good relationships, said Benjamin- is to getting good performance from game changers they could anticipate.
Brown. “It’s not in the contracting suppliers.” The reason is that they “We are simply looking at how best to
process so much as in the relationships are afraid competitors will learn that apply technology,” said Burgett.
you establish before you start work on information and use it against them. Nevertheless, the most important
the contract.” To monitor overall supplier risk, risk management solution centered
Good supplier relationships can go roundtable participants reaffirmed the around managing people and external
a long way to preventing a disruption importance of the traditional strategies and internal relationships. “We have to
in supply, which is the classic such as supplier finance monitoring, optimize relationships, especially with
risk management responsibility attention to contract details and our tier-one,” said Moeller.
for procurement. You need to have ensuring alternative sources of supply In the end, that may be the ultimate
suppliers that can react fast and either for key materials and services. risk management strategy.
ramp up or down when you ask, said “We measure supplier risk through
Moeller. “Fifteen years ago there was score cards on the consistency and To comment, email editor@procurementleaders.com
more tolerance regarding cycle times,” repeatability of their performance and
54 procurementleaders