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ChevronTexaco Well Engineering Operations Category Management

ChevronTexaco Well Engineering Operations Category Management. March 2005. Company Confidential. Meeting Objectives. Category Management Refresher 2005 Deliverables and Opportunities Update & Status of WEO Category Management Cost Management Market Intelligence KPI Review.

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ChevronTexaco Well Engineering Operations Category Management

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  1. ChevronTexaco Well Engineering Operations Category Management March 2005 Company Confidential

  2. Meeting Objectives • Category Management Refresher • 2005 Deliverables and Opportunities • Update & Status of WEO Category Management • Cost Management • Market Intelligence • KPI Review

  3. SBU Category Teams WEO Category Group Structure • WEO Category Council • WEO Members: Kevin Lacy (Decision Executive) • CTNAU Members: Melody Meyer, Warner Williams and Jacke Weber • CTOP Members: Guy Hollingsworth, Gary Luquette, Jim Blackwell, and Dave Connor • Corporate Members: Rhonda Zygocki (HES), John Gaston (Procurement - SM&I), ETC – Randy Kubota • * Denotes Sub-Council / DRB Members • Group Category Management Team • WEO Category Managers • Drilling Rigs: Jim Williams • Subsea Wellhead, Trees & DW Systems: Jim Hosford • CTOP WEO Category Managers • Well Construction Services - Randy English • Well Construction Materials - Dennis Symank • CTNAU WEO Category Managers • Well Construction Services - Kelly Mortensen • Well Construction Materials – Olga Auffant

  4. WEO Category Management Activities

  5. WEO Category Management2004 Activities & Deliverables • HSE Performance monitoring for Big 6 WCS suppliers & VG. Data is located on TReX web site. • Reporting of spend & GVD’s for CVX • Set of KPI’s & metrics identified for WCS • Developed CVX WEO Contract database by SBU & by PSL • WEO BU Category Teams in place • Market & pricing analysis database being developed • Manage price increase requests from suppliers • Market intelligence concerning pricing & performance across all Opco/BU’s • Development of standardized processes and tools • Training requirements established for CM team members

  6. WEO Category Management2005 Deliverables • Develop Category Business Plans • Develop CVX/Supplier Joint Business Plans for Strategic Suppliers • Implementation of KPI’s & metrics relating to supplier’s performance • Establish database for WEO market & pricing analysis • Reinforce utilization of standard process tools to support BU sourcing efforts and contract management (e.g. price increase requests) • Implement Ariba eProcurement tools • Establish network & initiate monthly WEO Category Management Team communication meeting (CM & SME’s)

  7. WEO Category Management Opportunities

  8. 2004 Safety Performance – Incident RatesTotal Recordable and Lost Work Day

  9. 2004 Safety Performance – Incident RatesTotal Recordable and Lost Work Day

  10. 2003 to 2004 Safety Performance – Incident RatesTotal Recordable and Lost Work Day

  11. WEO Category ManagementPossible Opportunities • Strategic Sourcing opportunities across BU’s and Opco’s • Standardization of processes & tools • Leveraging the CVX Enterprise across the Business Units • SM&I - Integration of suppliers into key processes • SM&I – Obtaining value through TCO with emphasis on OE • Sharing of market intelligence concerning pricing & performance across all Opco/BU’s • Establish additional Extended Enterprise agreements with WEO suppliers • Early Pay Discounts via use of eProcurement tools • Develop Technology Strategy with major suppliers • Establish effective Supplier Relationship Teams at BU level

  12. CVX WEO Well Construction Services Category Team Vision and Objectives Vision MainObjectives To be recognized by WEO as creating value while being viewed by suppliers as the customer of choice through working category management at the enterprise level and having alignment with the company’s business unit goals. • Develop PIT/ASR’s to drive OE/TCO improvements • Utilize KPI’s & scorecards to drive supplier performance • Implement at least two off the shelf technologies • Cost Management • Strategic Sourcings Key Elements of Business Strategy In Scope Out of Scope • N/A • Achieve Incident Free Operations • Collaboration with suppliers on the implementation of existing technologies and the development of new technologies • Create value through OE/TCO opportunities that align with the OPCO business goals • Improve Supplier Performance • CTNAU • CTOP • MCP’s Category Structure Well Construction Services Pumping Dir. Drilling Fluids Wireline Rentals& Service Well Const Equip • Cementing • Cementing Tools • Stimulation • Sand Control Pumping & Tools • Directional Tools & Services • MWD/LWD • Whipstocks • Survey Tools • Drilling Fluids • Completion Fluids • Completion Fluids Filtration • Solids Control • Cased Hole Logging • Open Hole Logging • Perforating • E-line/Slickline • Coil Tubing • Fishing Tools • Tubular Running • TCP • Coring • Liner Hangers • Rental Pipe & BOP‘s • SCSSV‘s • ECP‘s • Screens/Blanks

  13. CVX Category Manager Roles • Jointly Accountable for delivering sustainable results (e.g. OE Results, Savings, Leakage) • Communicate category successes and lessons learned • Ensures Category Management Best Practices/Lessons Learned are used (Supplier Management and Sourcing) • Manages the portfolio by applying Category Management processes (Strategy Development thru Supplier Management & Integration [SM&I]) • Maintain corporate level supplier relationship including issue intervention and resolution • Integrating local category plans into an enterprise level plan • Working with CT Procurement GMs, MCP Project Management and SBU Category Managers to achieve results • Establish and monitor global category KPIs • Maintain scorecard using global KPIs – scorecard will be rolled up by SBU by Opco • Manage existing IMAs and develop new IMAs as required • Benchmarking/Market Intelligence • Promote use of Ariba and coordinate Ariba support as necessary • Own standard RFI/RFP template • Drive supplier performance via metrics • Develop and implement Category and Supplier Plans • Development of initial category plan and coordinate with SBUs • Finalize and implement category plan

  14. Local Category Manager Roles • Jointly Accountable for delivering sustainable results at SBU Level (e.g. OE, Savings, Leakage) • Primary liaison for CVX category manager • Communicate category successes, lessons learned, and performance issues • Ensures Category Management (Supplier Management and Sourcing) Best Practices/Lessons Learned are used • Applying the Category Management process in category (Strategy Development thru SM&I) • Working with functions (e.g. Drilling, FE, etc) and CVX Category Manager to achieve results • Interacts with CRC to align plans and assign resources • Use and modify cost models to manage spend • Use and monitor global category KPIs. Establish local KPIs as required (eg local content) • Manage performance of all suppliers in category • Develop and manage local agreements as necessary • Use competitive intelligence and benchmarking to manage suppliers • Use Ariba tools and standard RFI/RFP template • Developing and monitoring Category and Supplier Plans • Develop local category plans with functions (e.g. Drilling, FE), coordinate with CVX category manager, and obtain CRC approval • Finalize and implement Category Plans

  15. Subject Matter Expert Roles • Actively participate with local Category Manager in Category Management processes • Provides operational and functional guidance and feedback to local Category Manager • Jointly Accountable for performance results (e.g. OE, Savings, Leakage) • Take a leadership role in Supplier Relationship Teams • Represents the Contract Owner (Budget Owner)

  16. WCS Mission – Increase value from ChevronTexaco assets through the delivery of quality goods & services from Schlumberger with focus on Value Creation within Operational Excellence and Total Cost of Ownership that produces profitability for both companies. DRAFTChevronTexaco/Schlumberger2005-2007 Supplier Business Plan

  17. Matrix analysis validates that commodities and high business impact product service lines require very different approaches High • High expenditure levels • Large percent of expenses • Key to core business • Time sensitive • Reduce/eliminate company’s risk and exposure to price increases/supply disruption - Secure existing sources of supply, search for substitutes, etc. Drill Fluids Cementing MWD/LWD CH Logging Tubular Running OH Logging Compl Fluids Coil Tubing Directional Tools Rental Tools Sand Control Pumping Stimulation BusinessImpact Downhole Purchased Tools • Low expenditure levels • Small percent of expenses • Not Key to core business • Time independent Fishing Tools Liner Hangers ECP’s Sand Control Tools Testing Underbalanced Drilling Cement Tools Flow Control Equipment Solids Control Whipstocks Screens & Blanks SCSSV’s TCP Slickline Coring Low Self Elevated Platforms Fluids Filtr Differentiated Coil Rentals Mud Logging Survey Tools Low Supply Market Complexity High • Many options • High buyer leverage • Low technical complexity • Few options • Low buyer leverage • High technical complexity Commodity

  18. CVX Well Construction Services – Definition & Scope Well Construction Services Dirirectional Drilling Logging & Wireline Rentals & Services Well Construction Equipment Drillingg. & Completion. Fluids Pressure Pumping Description/Scope Spend & Savings FY 2003 FY 2004 Gross Spend $1,017 MM $1,122 MM • WCS is made up of 6 different categories each containing 3 to 10 product service lines (34 total) • Big 6 suppliers accounted 99% of CTOP WCS spend and 81% of CTNAU spend in 2004. Small regional and niche players accounted for remainder • Many CTOP WCS contracts were renegotiated in 2003 & 2004 • CTNAU awarded 2-year contracts in 2004 Net Spend $ 535 MM $ 601 MM Gross GVD Savings $ 17.0 MM $ 14.3 MM Net GVD Savings $ 9.4 MM $ 8.5 MM Supply Market Characteristics Potential Sourcing Strategies/Areas of Opportunity • Integrated supply solutions while maintaining managed competition • Supplier concentration to maximize leverage opportunities • Strategic bundling of PSL’s and spend to realize additional cost savings • Unbundle services for analysis to gain transparency of costs • Business Process standardization – use of Ariba e-Procurement tools • Manage WCS as global category • High value added products and services • Moderate application of technology, utilization increasing (step change and emerging technologies) • Responding to customers’ supplier rationalization and consolidation of services to meet market demand • Increasing differentiation based on technical innovation and synergy • Primary drivers are oil and gas prices and rig activity • Some Big 6 suppliers are aggressively trying to increase share of CVX spend, others attempting to maximize profit margin • High demand for equipment and personnel • Suppliers gaining improved negotiating position • New entrants into the market in some PSL’s Risk Assessment and Implementation Issues • Host government and regulatory issues • High switching costs in certain areas • Change management related to entrenched suppliers • Conflicting drivers with SBU’s • CVX & suppliers are resource constrained

  19. WEO 2004 Spend by PSL - CVX

  20. Category Overview - Pressure Pumping Category Description/Scope • The Pressure Pumping category includes the following sub-categories: • Cement Pumping • Cementing Tools • Sand Control Pumping • Sand Control Tools • Stimulation Market Trends & Drivers • Current geographic market segmentation is 60% North America and 40% International • Market structure is consolidated, dominated by large players; top 4 with ~90% • Competitive environment in some areas of the world with increased demand on supplier resources in U.S. land-based operations • Barriers to entry are relatively high due to capital intensive equipment and shortage of experienced resources • Emphasis on technology innovation and capability to capture higher margins • The primary market driver is drilling and workover rig activity. Stimulation activity (fracturing, acidizing) is tied to tight gas, unconsolidated sands and aging oil wells.

  21. Schlumberger (SLB) Executive Summary • 2003 revenues = $13,893 MM, 2004 estimated revenues = $11,741 MM • Schlumberger is a diversified top-ranked supplier of oilfield services. SLB has dominant market share in several of the most rapidly growing drilling markets. • 2004 CVX global spend with SLB was $443.4 MM • CTOP = $289.7 MM (65%) • CTNAU = $149.1 MM (35%) • 54% ($233.7 MM) of CTOP’s SLB spend is in directional drilling and logging/wireline services Trends & Issues • 2004 results show improvements from increased pricing • SLB has shed operations that don’t fit their focus -- Sema, compression, land drilling, and drill bits – but continues to offer products and services that support reservoir optimization (one of the fastest-growing segments in this industry) • Longer term strategic issues are focused on improving ROCE.

  22. Well Construction Services • Global Key Performance Indicators

  23. WEO Well Construction ServicesKPI’s – Why they were developed • Monitor supplier’s performance in OE components • (Safety, Environment, Reliability & Efficiency) • Monitor supplier’s achievements of technology innovations • Monitor supplier’s responsiveness to our requirements • Suppliers availability of equipment & personnel • Opportunity for suppliers to differentiate themselves from their competitors • Evaluation criteria of tenders • KPI’s can be used for Risk/Reward systems • Means of sharing of best practices/lessons learned

  24. WEO Well Construction ServicesKPI’s – How they were developed • Reviewed with what other major operators are monitoring • Reviewed with what the suppliers are already monitoring • KPI’s were selected that would drive the desired performance behavior • KPI’s were vetted with suppliers, WEO SME’s, ETC, and the established CM/SME networks • Not meant to be all inclusive • BU-specific KPI’s should be considered • KPI’s can be added or deleted based on the behavior being exhibited

  25. WEO Well Construction ServicesKPI’s – Who reports & monitors Global KPI’s • Suppliers are requested to submit KPI’s on a quarterly basis • KPI’s to be verified with local BU, then submitted by suppliers to CVX Opco Category Managers • KPI’s will be summarized and populated into each Supplier’s Performance Scorecard by Category Management Analysts • Performance Scorecard feedback will be given to strategic suppliers via Quarterly Business Reviews • Performance Feedback will be given to each BU • BU’s will be expected to pass feedback onto suppliers at BU level • Yearly results will be reviewed & discussed at Executive level with Strategic Suppliers

  26. WEO Well Construction ServicesKPI’s – Clarifications/Definitions • HES definitions – Will use the corporate HES guidelines • Successful job – One that doesn’t require any immediate remedial action • New technology – The utilization of new technology for your particular BU. BU will then determine when that new technology becomes SOP • NPT – Downtime that occurs during any critical path activity

  27. WEO Well Construction ServicesKPI’s Definitions – HES

  28. WEO Well Construction ServicesKPI’s Definitions – Directional Drilling Performance

  29. WEO Well Construction ServicesGlobal Key Performance Indicators Questions ???

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