Category Management Process Standardization

1. Category ManagementProcess Standardization 07 February 2008

2. 5 SCM Standardization Initiatives • 1) Procurement Operations Metrics • 2) Contract & Procurement Planning • 3) Contract Review • 4) Category Management • 5) Cost of Goods & Services

3. Business Case for Standardization • Achieve more consistent results and outcomes that drive world-class performance • Reduces re-work and inefficiency – processes developed once instead of many times; units focus on execution, not design • Process design not subject to change each time process owner changes • Facilitates knowledge sharing and applied learning across organizational boundaries (e.g. Sponsors, CoPs)

4. Category Management Pillars • Category Planning • Identify business unit needs and priorities • Perform spend analysis to: • Determine category scope and boundaries • - Identify major suppliers • Identify consolidation opportunities within BU and between BUs • Determine key suppliers based on HES risk, BU priorities, and potential value creation • Identify sourcing / re-negotiation activities, in conjunction with corporate category plans • Coalesce global market intelligence with regional and local mkt knowledge to arrive at view of where prices are going • Sourcing and • Re-negotiation • Analyze suppliers’ past performance and market dynamics • Identify local content / SWMBE opportunities • Make re-negotiate and/or source decision and develop associated plan • Utilize corporate category management, sourcing resources, and stakeholder SMEs as appropriate • Perform re-negotiations and/or sourcing • Execute agreement and develop implementation plan • Supplier Management • Identify level of supplier management needed • Develop relationship charter with key supplier and BU representative: • Goals for each organization • Meeting structure and frequency • Identify team members (including SME) for each key supplier • Develop business plan, including specific initiatives and metrics Business Plan CRC validation Contracting Plan E Proc Catalog COGS CHESM Plan Standard Deliverables Category Plan Documented OE, TCO and first cost savings Structured relationships with key suppliers focused on new technology, reliability and TCO value creation

5. Detailed SHALLs (from Process Document) • Category Planning • Each year, each BU shall perform the following three planning activities. • Spend analysis – The top 80% of BU spend shall be segmented by standard group categories. • Supplier segmentation – All suppliers shall be classified by Strategic, Core, Managed, or Blanket. • Category plans shall be developed utilizing standard plan templates. • Category Planning – Spend Analysis • The historical data used in the spend analysis shall be 12 months’ worth of data. The analysis shall be refreshed once during the year to compare actual versus budgeted spend. • Corporate shall maintain a list of group categories, subcategories, and material group codes (MGCs). These apply across all Upstream BUs and cover both materials and services. • Each BU shall provide their spend analysis data to Corporate for consolidation. The BU spend analysis shall utilize Corporate subcategories and MGCs. It is recognized that IT system limitations may impede segmentation by MGCs until eProcurement is fully implemented. • Corporate shall produce a global spend analysis roll-up based on the consolidated BU spend analyses.

6. Detailed SHALLs (from Process Document - continued) • Category Planning – Supplier Segmentation • Supplier segmentation shall account for potential business impact including: technology leadership, TCO opportunities, cross BU leverage and ease of substitution. Independently, the CHESM risk rating will dictate the level of HES-oriented management activities required. • Each BU shall obtain endorsement of its supplier segmentation by the BU Contract Review Committee (CRC) or its delegate. The CRC shall identify BU resources to support activities associated with advanced supplier relationships (ASRs). • Suppliers added mid-cycle and re-segmented suppliers shall be endorsed by the CRC or its delegate. • Category Planning – Product Service Line (PSL) Plans • PSL plans shall support the BU business plan. • Each BU shall determine the PSL plans to be produced based on individual BU focus areas.

7. Detailed SHALLs (from Process Document - continued) • PSL plans shall include the appropriate information contained in the Corporate Category Plan templates to meet the needs of the BU. A completed PSL plan is available via the Category Planning Guidelines (GU_CM_CategoryPlanningGuidelines.doc). PSL plans shall include: • Category Structure • Category Strategy • Category Overview • Vision and Objectives • Demand Analysis • Supply Market Analysis • Supplier Management • Initiatives and Opportunities • The time horizon associated with PSL plans shall be three years. • Each BU shall engage business partner subject matter experts and supply chain subject matter experts as appropriate in preparing PSL plans. • Each BU shall review their PSL plans with each appropriate global category manager for global / regional opportunities. • Each BU shall obtain endorsement of its PSL plans by their Contract Review Committee or delegate.

8. Detailed SHALLs (from Process Document - continued) • Sourcing and/or Re-negotiation • Sourcing and/or re-negotiation efforts are jointly shared between SCM and the business partner Subject Matter Experts (SMEs) and shall comply with the requirements of local laws, operating agreements and joint venture agreements. SCM shall be responsible for utilizing the appropriate SCM process and best practices, while the SMEs are responsible for the Scope of Work and specifications to meet the job and work requirements. • Phase 1: Identify and assess sourcing and/or renegotiation opportunities • The scope of the new contract with estimated usage and potential spend shall be developed to ensure integration and alignment of potential contracting strategies with BU business plans. • A market analysis shall be performed to evaluate the market conditions and determine potential suppliers so that the contracting strategy (i.e. competitive tender, sole source direct negotiations, re-negotiation) can be assessed and determined. • The contracting strategy shall be aligned with the BU’s contracting requirements defined by the Contracting and Procurement Planning Process and Contract Review Committee (CRC) Process. The strategy shall comply with unique Joint Venture and/or concession contracting requirements, government requirements, and partner requirements as well as BU CRC requirements, guidelines, programs and processes.

9. Detailed SHALLs (from Process Document - continued) • Phase 2: Sourcing Strategy Development, RFX Preparation and/or Negotiation Strategy • Specifications and requirements shall be developed to clearly define the job scope requirements. • SCM, assisted by the BU Contractor HES Representative, shall be responsible for contractor qualification and selection for HES requirements in the CHESM process. The RFX scope of work shall be reviewed by SCM and the BU Contractor HES Representative to determine if the contract will be managed under the CHESM process. If the contract is to be managed under the CHESM process, the RFX shall include the CHESM HES Expectations Used for Contractor Review. • Evaluation criteria shall be developed to ensure that the BU business partner requirements are identified and shall include Operational Excellence (OE) components of HES for initial screening, Reliability and Efficiency; Cost Reduction; Capital Stewardship; and Organizational Capability. • The appropriate Chevron Standard Contract Forms and attachments shall be included in the Requests for Quotation (RFQs) and Requests for Proposal (RFPs). Chevron International Master Agreements (IMA) or North American Master Agreements (NAMA) shall be utilized, when allowed by partners or government partners, for those suppliers having such agreements. • Requests for Quotation (RFQs) and Requests for Proposal (RFPs) shall require that potential suppliers identify and specify any exceptions to the CVX Contract Terms and Conditions (T&Cs) in ther responses. • A single point of contact, or his/her designee, for the BU and the supplier shall be named for each RFQ and RFP.

10. Detailed SHALLs (from Process Document - continued) • Phase 3: Supplier Selection, Negotiations and Contract Development • Supplier evaluation criteria developed in Phase 2 with appropriate weighting criteria shall be utilized to evaluate suppliers’ submittals and proposals. • If the contract is to be managed under the CHESM process, every contractor considered for selection shall complete the BU standardized HES qualification questionnaire. As required and described in CHESM, the BU Contractor HES Representative shall perform an evaluation of the contractor and shall assign a HES rating to the contractor. • Contract award shall be approved by the BU CRC or delegated body within or according to the designated limits of the BU authority. • The contract document shall include both the appropriate agreed terms and conditions with required exhibits and agreed appropriate commercial terms. • The BU shall not negotiate changes or revisions to existing corporate IMAs. • The final contract document shall be approved and executed by duly authorized officers of both Chevron and the supplier. • Suppliers who were unsuccessful in the RFX process shall be notified in writing after the contract is awarded.

11. Detailed SHALLs (from Process Document - continued) • Phase 4: Sourcing and/or Renegotiation Implementation and Initiation of Supplier Relationship • The BU shall categorize (strategic, core, managed, blanket) any new supplier and obtain endorsement from the BU Contract Review Committee (CRC) or delegated body so that the proper level of supplier management and contract implementation can occur. The CRC or delegated body shall endorse all ASRs and identify and allocate resources to support ASR activities. • A contract implementation plan shall be developed. The degree of detail required can vary from a simple notification to stakeholders including the supplier and contract overview to a detailed management of change plan and implementation plan. • Supplier Management • The supplier segmentation endorsed by the CRC (or delegated body) shall determine the level of Supplier Management for each supplier. • Each supplier designated as strategic shall have an ASR which will be led and by the business partner and facilitated by SCM.

12. Detailed SHALLs (from Process Document - continued) • Prior to any ASR being implemented, the following checklist shall be completed to ensure success: • Senior management support the allocation of resources required to effectively manage the ASR • Business Partner and SCM support the benefit and need for an ASR • Strategic Supplier supports the benefit and need for an ASR • Category Manager shall manage the ASR process • Responsibilities for establishing, implementing, and achieving the goals and objectives, as well as continuously improving the ASR shall be on the PMPs of the Business Partner and SCM ASR team members. • The ASRs shall follow the ASR Roadmap document (GU_CM_ASRRoadmap.ppt) which covers the following five phases: • Chartering the relationship • Team formation and business planning • Establishing team mechanics • Making an impact • Evaluating performance • If more than one Business Unit has identified a supplier as strategic, then Global Upstream headquarters shall work with the BUs which utilize the supplier to determine if a global upstream ASR is required.

13. Detailed SHALLs (from Process Document - continued) • Each supplier designated as core shall have a performance scorecard, which will be led by the business partner (i.e., establish targets, initiate corrective actions) and facilitated by SCM. • Managed and blanket suppliers shall be managed within the Annual Contracting and Procurement Plan process (e.g., expiration dates, insurance). • All suppliers shall be managed as dictated by the CHESM process. • Phase 1: Chartering the Relationship • Chevron and Strategic Supplier management sponsors shall be named and their short- and long-term ASR objectives shall be agreed. • Chevron and Strategic Supplier shall agree the key benefits of developing and implementing an ASR. • Chevron and Strategic Supplier shall confirm the team members that shall participate on the ASR team. • Chevron and Strategic Supplier shall develop a charter that clearly identifies the intent, the scope, team members, and roles and responsibilities within the ASR.

14. Supplier Management Linkage with CRC Supplier Segmentation Tool Supplier Management Standard Deliverables • Strategic • SHALL: ASR Roadmap and Deliverables • BU Contract Owner • Charter • Business Plan • Scorecard Strategic Endorsed Segmentation and Business Partner Support Core Proposed Segmentation CRC (or delegated body) Managed Blanket Profitable Growth Operational Excellence Capital Stewardship Cost Reduction • Core • SHALL: Scorecard • SHOULD: • TCO Initiatives • Periodic Meetings • Periodic Business Reviews Organizational Capability • Managed • SHALL: HES metrics Note: CRC (or delegated body) will also endorse Category Plans • Blanket • SHALL: HES metrics

15. What Now? - Implementation • Each BU starts using consistent templates in 1Q 2008 • Train existing category managers / appropriate personnel on templates • Each BU addresses structure according to BU-specific timing • Includes number of people – by end of 2Q 2008 for first set of BUs • Train new folks – by end of 3Q 2008 for first set of BUs • BUs complete implementation according to BU-specific timing • Definition for “fully implemented the process” • We are analyzing our spend • We have segmented our suppliers • We have a plan in place for ASRs for our strategic • We have developed category plans • We are using the consistent templates from our process • Timing • First set of BUs should finish by the end of 2008 • MCA, GOM, CUE, Canada, Asia South, SJV, TCO • Second set of BUs should finish by the end of 2Q 2009 • Potentially, a third set of BUs to finish by end of 2009

16. Key Linkages • BU Business Plan drives the category management plan • CHESM Process • In the CHESM process, HES KPIs will be tracked for each high and medium risk contract regardless of the supplier segmentation. • CHESM supplier HES grades will be inputs to the CM sourcing/re-negotiation process. • Annual Contracting and Procurement Plan • Category plan drives annual contracting and procurement plan • Supplier segmentation links to contracting and procurement plan, informs the plan. • CRC (or delegated body) to review, approve and identify BU resources for ASRs • COGS - CM provides market knowledge, price forecasts and drives the COGS process. • ETC technology qualification process • Links with supplier innovation aspect of supplier management and is an input to the CM sourcing/re-negotiation process.

17. TCOCost of Goods and Services (COGS) Process February 2008

18. Outline • Background • Scope & Objectives • Key “Shalls” • Snaking & Endorsement • Roles • Annual timing • Pilot milestones • CM & COGS Issues

19. Background • Price increases exceeded expectations during past years • Development of a standard COGS process started in January 2007 • Pilot in 2008 - three CNAEP BU’s and two CIEP BU’s (Asia South, TCO) • Lessons learned will be used to refine the process for roll-out to remaining business units in 2009. • Implementation support will be provided by the corporate GU supply chain function.

20. Scope & Objectives • The COGS process is aimed at forecasting changes in costs for materials and services to: • Enable better planning, budgeting, and decision making • Identify cost trends that impact future business • Enable better management of cost • Addressing sourceable spend = third-party spend (for goods and services) managed by SCM • Includes but is not limited to spend against contracts, purchase orders, service orders • Does not include legal fees, pipeline tariffs, regulated utilities (even though these may be significant to a BU) • MCPs are not in the scope of 2008 implementation • Key deliverables: • Credible and usable BU-level forecasts of market-based cost changes for use in the business planning process • Look-backs to continually improve forecasts

21. Key Shalls • At the BU level • Analyze sourceable spend by category or subcategory • Determine market-related changes in % • Address current year and next three years • For current year – activity changes & market-related changes • For next three years – forecast market-related changes only • Do look-backs to continuously improve forecast accuracy • Forecast and look back often enough to meet BU and OPCO planning needs • Use standard reporting format and calculations • At the GU or Corporate level • Provide global market intelligence as input • Provide global category intelligence as input • In the input, provide forecast guidance for the regions North America, Africa/Latin America, Europe/Eurasia/ME, and Asia Pacific

22. COGS Report (Excerpt) • Calculation Template is recommended • Reporting Template is standard Report Template Note: data shown is fictitious and for illustrative purposes only. Roll-up and aggregation done for the BU

23. Snaking & Endorsement • Once the COGS factors have been drafted, the factors are reviewed with: • Other BU Category Managers • GU and Corporate Category Managers • BU SCM Manager • Strategic Planning • SCM incorporates feedback as they see fit • Once snaking is done, proceed to endorsement • CRC (or delegated body) will be looking for: • Was sound logic used in developing the factors? • Are the assumptions valid? • What is the rationale for deviations from market intelligence and category guidance from GU and Corporate? • How have local market conditions factored into the analysis?

24. Steady-State Roles and Responsibilities Position Responsibilities • CRC Members or Delegates • Endorsement of COGS escalation factors to be used in planning and budgeting • Strategic Planning • Current, planned activity levels, mix • Utilization of COGS data • SCM Manager • Process Sponsor • Strategic Procurement and Contracts Leaders • Process Advisor • CRC interface for COGS • Category Managers • Process SME • COGS forecasting and review • Market Intelligence Group • Global market intelligence as input to COGS • GU Category Managers • Global category intelligence as input to COGS

25. Approximate Annual Timing

26. Pilot Milestones Implementation Milestones for 2008 Pilot BUs • Spend analysis complete • Categories identified and agreed for which COGS factors are needed • Spend extracted into calculation tool • Guidance from Market Intelligence and GU / Corporate Category Management delivered • COGS escalation factors drafted • COGS escalation factors snaked • Planning • PRC Cost Assurance • Consensus reached by GU HQ and SBU category managers on COGS factors • COGS escalation factors endorsed by CRC (or delegated body) • COGS escalation factors utilized in annual planning and budgeting End of Feb 08 End of Feb 08 End of Mar 08 Mid Apr 08 2nd half of Apr 08 May 1 End of Aug 08

27. CM & COGS issues • Spend data • Resources • Implementation • communication • education • training • Delegated body • Categories • Core team visit • Others