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Launching an efficient Procurement Spend Optimization project at MOL-Group
MOL-Group Supplier Forum
Budapest, November 18, 2004.
Susan GadóProductivity Centre
AGENDA
Integration within MOL-Group
Importance and aim of launching efficiency improvement initiatives
Examining a company’s purchasing expenditure and selecting subject areas to analyze
Establishing methodology and managing efficient operation of teams
Interpreting results and targeting for future development
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Regional integration in oil and chemical industry
Major milestones
1991 - Established from National Oil and Gas Trust and enterprises
1995 - MOL was privatized
1999 - New Strategy: regional expansion (prominence, efficiency growth)
2000 - Slownaft became regional strategic partner
2001 - Refinery and petrochemical industry cooperation: TVK
2002 - MOL became the major shareholders of Slovnaft
2003 - MOL aquisited the 25% of INA
2004 - Integrated operation with Slovnaft and TVK
MOL shares are listed on the Budapest and Luxemburg Stock Exchange and
traded on London SEAQ International System
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Regional Strategy 2004
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MOL IS AN INTEGRATED OIL COMPANY FROM CENTRAL-EASTERN EUROPE
E&P (Hungary and Russia –exploration in other countries)
R&M (Hungary, Slovakia)
Retail (Hungary, Slovakia, Czech Republic, Slovenia, Romania, Croatia)
Lubes (Slovakia, Czech Republic, Hungary, Romania)
Petchem (Hungary, Slovakia, Czech Republic, Germany, Austria)
Maintenance companies (Single Service Companies in Hungary and Slovakia)
Group includes
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AIM OF LAUNCHING PROCUREMENT SPEND OPTIMIZATION PROJECT PSO
Create spend-transparency across the whole Group
Identify new synergy possibilities withinMOL-Group
Reduce purchasing spend and optimize Total Cost of Ownership (TCO)
Develop system for measuring and tracking savings
Take advantage of Group negotiation
Create common platform for further growth
Offer new possibilities for our suppliers
Major goals
Integration is pretty recent
Strategic overview of integrated purchasing spend hasn’t occurred
Productivity Centre (P.C.) is a new organization within the integrated Corporate Services
Main drivers
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TIMING OF PROCUREMENT SPEND OPTIMIZATION PILOT AND ROLL-OUT WAVES
Preparation
2004
Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2005
Mar Apr May Jun Jul Aug Sep Oct Nov DecJan Feb
Pilot
Wave 1
Wave 2
Wave 3
Summerbreak
Spend analysis for 2004 4 weeks inter-
ruption forsummer break
Christmas/Newyear break
Pilot
Wave 1
Wave 2
Wave 3
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*
We are hereSuccesfully implemented
PSO PROJECT STRUCTUREScope: MOL, Slovnaft, TVK
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Pilot (4 analysis units)
Wave 1 (8 analysis units)
Wave 2(9 analysis units)
Wave 3(11 analysis units)
(1) Valves, piping anfittings
(2) Production chemicals(3) Technological
construction(4) Environmental protection
services
(5) Civil construction*(6) Additives (EU 2005
brand additives mainly)(7) Electrical material and
service*(8) IT services(9) PR and advertising(10) Process control/
instrumentation(11) Packaging**(12) Electricity
(13) Facility management and site services
(14) Site infrastructure (15) Technical services (16) Mechanical materials*(17) Telecom, mail and
other infrastructure(18) IT, telecom and office
material(19) Pumps, compressors
and chemical process equipment*
(20) HSE(21) Logistics
(22) Travel and passenger transport
(23) Well construction & MRO(24) Deep drilling***(25) Geophysical services***(26) Consulting, financial and
legal services (27) Insurance(28) Natural Gas(29) Water(30) Catalysts and packing(31) Service station
construction and equipment
(32) Petrochemicals and Methanol
Casing and tubingspend is covered during wave 1 in a separate work stream, the rest of well construction (completion) will be covered in wave 3
* 35% of Maintenance by SSC is assumed to be included in baseline.** Timing of packaging analysis unit depends on exact starting date of the new units in Slovnaft and TVK
*** Due to public procurement and long term contracts (until Dec. 2005) it is not recommended to cover it before. The exact spend baseline subject to tender will need to be defined later.
Source: McKinsey
Technical/operational factors
SUCCESSFUL SAVINGS INITIATIVE REQUIRES APPLICATION OF COMMERCIAL, TECHNICAL, ORGANIZATIONAL ACTIONS
Volume bundlingOptimize (skip/substitute/etc) itemOptimize quality expectationsOutside/inside employment
Optimize / reduce technical expectationsSubstitute materialsReconfigure plant/processesReduce variety/create modulesAnalyze value-added of purchased goods
Coordinate participants (roles, organizational configuration)Optimize the process (within the organization and with suppliers)
Procurement volume
Characteristics of purchased goods
Commercial/procurement factors
Optimize duration of contractsMake long-term contractsUse/improve conditions of contractIncorporate interest for cost savings into contracts
Utilize competition of suppliersPurchase more from the same supplierCompare performance of suppliersStrengthen cooperation with suppliers
Supplier strategy
Contracting strategy
Procurement organization
Organizational structure/ process efficiency factors (only if potential cannot be un-locked otherwise)
All levers to be pursued simultaneously for each spend category!
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ALL ESTIMATES USE THE CONCEPT OF TOTAL COST OF OWNERSHIP RATHER THAN THE PURCHASE PRICE ALONE
Purchase cost
Shared supplier/ customer costs
Internal business costs
Components of TCO
Purchase price
Transportation
Usage / maintenance trade-off
Statement processing
Purchasing administration
Support and training
InstallationWaste and discarding of unused, expired material
Transaction costs
Warranty
Specifications
Expediting
Capacity
Financing costs
Purchase price is only the tip of the iceberg!
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Key learnings from the pilot projects
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Strong MOL Top Management support Unique opportunity of entering into relationship with the major companies of MOL-Group
New possibility for building efficient cooperation with MOL-Group
What we can offer: What our supplier can obtain:
Streamlined processes across MOL-Group
Better and quicker communication with all related MOL-Group companies andsuppliers
Undertaking cross-business activities within MOL-Group
Easier communication and information transfer with affected MOL-Group companies andsubsidiaries
Harmonised requirements for each spend categories
Possibility for entering into long term relationship with MOL-Group
Using well-known, well elaborated methodology for reviewing the spend categories
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What is your opinion about us?
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�Have you ever taken part in similar projects?
�Do you feel ready and capable to fulfil our requirements?
�What kind of new ideas do you have to present us?
�Are you satisfied with:
� up to the present co-operation with MOL-Group
� our supplier evaluation system
� the information transfer
�How do you see the MOL’s market position on your field?
Discussion points
•Where we are now?
•How can we improve?
•Questions and answers
Join us to be successful!
Susan GadóMOL, Director of Productivity Centre
E-mail: sgadó@mol.hu