contract management kpis –are operators and suppliers ... · pdf fileimportance of...

Contract Management KPIs – Are

Operators and Suppliers Speaking the

same Language on Contract KPIs

North American Oil & Gas Supply Chain Conference

November 4-5th 2013Daryl Fullerton, PIDX International / Actian

© PIDX, Inc. 2012

Learning and doing

• What other companies are doing with integrated systems

• What their successes have been

• How to pilot PIDX standard with trading partners

• How to reduce maintenance and leverage interoperability

• How PIDX standards support your corporate sustainability

initiatives

� Non for Profit Body – Formed over 25 Years ago (API eBusiness committee)

� Act as an inclusive Global Standards Forum for Oil & Gas eBusiness

� Standardization of Business Processes and Terminology to reduce costs and improve Supply Chain efficiencies to the Industry

� Worldwide – Membership of Operators, Suppliers and IT Technology

Providers

� Make standards available on an open and royalty free basis

PIDX provides a global forum for delivering the process, information and technology standards that facilitates seamless, efficient electronic business within the procurement and Supply Chain of the Global Oil & Gas industry and its trading community.

PIDX Mission

Learning and doing

• What other companies are doing with integrated systems

• What their successes have been

• How to pilot PIDX standard with trading partners

• How to reduce maintenance and leverage interoperability

• How PIDX standards support your corporate sustainability

initiatives

Sample PIDX Operator / Supplier Members

About Me

Daryl Fullerton

Oil & Gas Industry Principal – Actian

Chair Supplier KPI Project – PIDX International

Area Notes

Background • B.Comm & MA is Accounting & Management Information Systems • 13 Years Oil & Gas Experience in Supplier Performance Management & KPIs• PIDX Supplier KPI Project Chair• Actian Oil & Gas Supply Chain / P2P Consultancy

Experience • Supplier Relationship Management / Supply Chain Systems / Procurement Systems

• Specific Line of Business Custom Builds (Upstream, Midstream, Down Stream)• c50 Successful Large Scale IT/ IS Systems projects for Major Oil & Gas

Operators

Operator

System / Consulting

Engagements

Role / Objectives Develop PIDX Standardised Supplier KPI Data DictionaryContinue to advise on best practices for Oil & Gas KPI’s By 2015 see Operators and Service Companies using PIDX Supplier KPI DD

Industry – Current State of SPM / KPIs

• Many Operators have SPM Initiatives in operation or underway.

• Contracts Department KPIs not alligned with Category Line

• Often Contract Awards for a new Supplier based on WOM or past

performance but KPI Terminology / Definitions may differ. – Big

Problem Area

• Many SPM initiatives are Regionally Focused or Category Line

Focused with no Global Company Wide KPI role up.

• Very few provide Visibility on KPIs on Real Time to Suppliers

• No way of facilitating regional Specific KPIs that Matter.

• Huge Drive to Standardize KPI terminology. Apples with Apples

and Like with Like.

• Automated of KPI data gathering extremely low.

• Focus on Lagging Indicators rather than Leading Indicators

• Contract Risks not being captured and acted on quick enough.

Confidential © 2013 PIDX 6

Importance of KPI’s and SPM?

© PIDX, Inc. 2011

1. Making sure we monitor performance to take

corrective actions for performance Improvement.

2. Make sure we have the right KPI’s at Global

and also Category Line Level.

3. Use Historical Performance Data to award future business

4. Ability to compare Apples with Apples and

avoid awarding contracts to suppliers in areas that they dont have experience / proven track

record.

5. Focus on Leading Indicators as well as Lagging Indicators

• Drilling and Completions

• Operations & Maintenance

• Refining

• Pipelines

• Aviation / Logistics

• Indirect Procurement

• Chemicals

• Decommissioning

KPI usage within Oil & Gas Industry

Key Performance Indicators and Role in SPM

• What are Supplier KPI’s – Target Driven Metric Indicators that help you maximise savings, improve quality and reduce incidents with your organisations supplier base.

• Common KPI Categories in SPM may Include:

Cost / P2P - Spend Overruns, Non Productive Time, DSOs, DPO’s, Payment to Net Terms Compliance Ratio

Delivery- Service Delivery, Product Delivery, On Time Logistics

HSE - Safety Record, Accidents, Spills, Near Misses

Quality - Job Quality, Product Quality

Risk - Late Delivery, Management, Staff Turnarounds, DIO.

Efficiency - Days 10k, NPT, Right First Time

Behavior / Innovation - New Ideas, Creativity, Value Add

Right First Time Invoices, Invoice Error Ratio

Do you as Category Managers get to :

Set KPIs that are Incorporated in Contracts ?

Set and Monitor Targets within Contracts ?

Are they alligned to your Needs to do SPM?

Question:

Response :

Ok then, Who sets the KPIs in all the Thousands

of Contracts and their associated Targets?

Question:

Response : “Bob, in the Contracts Department does”

Current State of Contract Management KPIs

KPIs set by Contracts Department not alligned

with Category Line Objectives for efficient SPM

Inefficient processes / systems for Tracking KPI Compliance against Contracts

KPI terminology differs between Contracts and

Category Line Managers

Targets being set at Corporate Contracts

instead of by Category Managers at Local Level

The Role of KPIs in Managing Contracts driving continuous Improvements on Supplier Performance

1. Improves Performance of Suppliers2. Issues and problems can be identified and resolved quickly2. It signals your organisation takes supplier performance seriously.3. Helps align suppliers with your vision organisational goals4. Good suppliers will be more willing to work with you- win new business.5. Poor performing suppliers will be rooted out quickly6. Effective Risk Management – Actions, Root Cause Analysis, Controls7. Cost savings8. Effective relationship management – Drive Innovation9. Effective management of preferred supplier – Customer of Choice10. Enables evaluation and comparison of Suppliers11. Promotes continuous improvement12. Two Way measurement - Highlights possible weaknesses with the

buyer

The Role of KPIs in Managing Contracts driving continuous Improvements on Supplier Performance

• Operator / Supplier of Choice

• Efficiencies• Cost Reduction

• Innovation

• Risk Management

• Compliance

• Bench Marking against Peers

• SPM

• HSSE Improvement

• Contract Award

KPIs role in reducing Supplier Risk

Ways KPIs reduce Supplier Risk Management

• Vision Sharing (HSSE No1 Priority)

• Category Line KPIs• Local Targets (e.g Days per 10k)

• QPRs

• Joint Risk Register

• 2nd Tier Supplier Risk Register

• Actions Item Tracking

• Continuous Improvement

• Training / Culture

• Reward Lessons Learned

•Note that important not to sacrifice one KPI to achieve another

•e.g Days Per 10k at the sacrafice of HSSE

Lagging Indicators

Lagging Indicators

Lagging (sometimes called trailing) indicators are widely used to measure

performance — particularly for occupational safety and equipment reliability. These indicators include well-established parameters such as lost time accidents, first aid

cases and recordable injuries. •Fatalities;

•Days away from work;

•Recordable injuries (as a function of exposure hours);

•Spills affecting the environment (failure of all containment barriers); •Volume of oil spilled that is not recovered;

•Greenhouse gas emission equivalents;

•Total hydrocarbon emissions; •Total discharges to water; and

•Total hazardous waste energy use.

Lagging indicators by themselves do not provide much explicit guidance to management as to what needs to be done to keep improving safety. The events themselves have to be analyzed using some type of root cause analysis. Also, lagging indicators tend to react quite slowly to system changes.

Leading Indicators

Leading Indicators (HSSE Examples)

Leading indicators are forward-looking. They provide management with an

assessment of their process safety program.

The following are some examples of leading indicators.

Number of field visits and inspections;

Number of safety audits;

Number of safety communications and safety meetings; Percentage of incidents investigated;

Number of near miss responses;

Number of positive rewards and recognition given; and

Safety communications; Claims reporting analysis;

Safety committee activities; and

Number of safe behaviors observed.

How well do you know your supplier ?

© PIDX, Inc. 2011

1. Do you know your Suppliers Capabilities

2. What is their previous track record like.

3. Are they Innovative – new ideas.

4. Is the relationship one way or a partnering

relationship.

5. Do you do 360 degree performance

feedback. Ie Relationship KPI’s

6. Do you Monitor Specific KPI’s at the

Catagory Line

Short Video on Contract award within a

Company that do not have KPI’s and an

SPM program.

How Relevant are the KPI’s we set at the Contract Level to the overall objectives of the Category Line Managers ?

1. Specific to particular Category Line

business Objectives and drivers for

effective Supplier Performance

Management ?

2. Do they reflect job specific objectives?

3. Do they Incentivise performance

Improvement?

4. Specific to Local regulations, e.g local

Content

5. Specific to Regulatory Compliance

6. Are the focused around Lagging

indicators or Leading Indicators

7. Ability to Take Action

Drilling Fluids

Scorecard

Cementing

Scorecard

Helicopter

Scorecard

Integrity Mgt

Scorecard

Waste Mgt

Scorecard

5 Global KPI

2 x E&P Segment

10 x Category

5 x Sub Category2 x Regional

1 x Local

5 Global KPI

2 x E&P Segment

7 x Category


1 x Local

5 Global KPI

1 x Aviation Segment

6 x Category

2 x Sub Category0x Regional

1 x Local

5 Global KPI

2 x Ops Segment

7 x Category


1 x Local

5 Global KPI

2 x Ops Segment

4 x Category

2x Sub Category2 x Regional

1 x Local

Apples with Apples – KPIs at the Category Line LevelApples with Apples – KPIs at the Category Line Level

Need for Global and Category Line Specific KPI’s

Drilling Fluids

Scorecard

Cementing

Scorecard

Helicopter

Scorecard

Integrity Mgt

Scorecard

Waste Mgt

Scorecard

5 Global KPI

2 x E&P Segment

10 x Category


1 x Local

5 Global KPI

2 x E&P Segment

7 x Category


1 x Local

5 Global KPI


6 x Category


1 x Local

5 Global KPI

2 x Ops Segment

7 x Category


1 x Local

5 Global KPI

2 x Ops Segment

4 x Category


1 x Local

Apples with Apples – Global KPIs V Category v Local KPI’sApples with Apples – Global KPIs V Category v Local KPI’s

Need for Globally Inherited KPI’s

1. Cost Variance2. HSE Incidents3. Quality Conformance4. On Time Delivery5. Satisfaction Levels

Drilling Fluids

Scorecard

Cementing

Scorecard

Helicopter

Scorecard

Integrity Mgt

Scorecard

Waste Mgt

Scorecard

5 Global KPI

2 x E&P Segment

10 x Category


1 x Local

5 Global KPI

2 x E&P Segment

7 x Category


1 x Local

5 Global KPI


6 x Category


1 x Local

5 Global KPI

2 x Ops Segment

7 x Category


1 x Local

5 Global KPI

2 x Ops Segment

4 x Category


1 x Local


1. Non Productive Time2. Incremental Benefit


Optional Segment Specific KPI’s

Drilling Fluids

Scorecard

Cementing

Scorecard

Helicopter

Scorecard

Integrity Mgt

Scorecard

Waste Mgt

Scorecard

5 Global KPI

2 x E&P Segment

10 x Category


1 x Local

5 Global KPI

2 x E&P Segment

7 x Category


1 x Local

5 Global KPI


6 x Category


1 x Local

5 Global KPI

2 x Ops Segment

7 x Category


1 x Local

5 Global KPI

2 x Ops Segment

4 x Category


1 x Local


1. Non Productive Time2. Incremental Benefit

1. Drilling Fluids Cost per Bbl drilled2. Mud-Related problem time 3. Down Hole Losses4. Days per 10,000 Feet


NB Category Specific KPI’s

KPI Targets – Ensure at Global V Local level

Findings from Oil & Gas Survey Recent Survey on Contract Management KPIs for SPM (Oct 2013)

Source : IACCM / 8over8

84 % See Contract

KPIs as Vital to

More effective

Contracting

67 % - Often KPis

Ignored in Contracts

86 % Say Contract

KPIs Drive Better

Performance



Only 19% take

immediate and consistent action

16% seldom take

any Action

KPI Terminology

Are we all speaking the

Same Language?

• Operators

• Suppliers

• Contract Management

• Category Managers

• Global Account Managers

KPI Definitions Chaos – How important is Industry Wide

Standardization of Supplier KPI’s for better Contract Mgt ?

Key Drivers for KPI terminology Standardization:

• Better Contract KPI Definitions with Industry

Acceptance

• Industry wide KPI Repository for Contract KPIs

terminology

• Less Disputes over KPI Terminology in Contracts

• Capability to Benchmark at both RFP and

Operations Phases, Future Contract Award

• Buy in from Operators and Suppliers on SPM

metrics increases

• Better Quarterly Performance Reviews as Less debate over KPI definitions

• Drive to Operator and Supplier of Choice

© PIDX, Inc. 2012

Supplier KPI Project Overview

Overview The PIDX Supplier KPI Projects main focus is to develop a Supplier KPI Dictionary (Phase 1) in 2014 followed by the development andautomation of Supplier KPI data transfer between Suppliers and Oil & Gas Operators (Phase 2) beginning in 2015.

Phase 1 project objectives are to compile an Industry Data Dictionary for Standardization of KPI terminology and definitions, e.g. NPT, TRIR etc

Focus: Upstream / Downstream Commenced: 2011 Participants : c80 Contact: Daryl Fullerton [email protected]

Mike Washington [email protected]

Wins when Implemented• Standardization on KPI Terminology

• Industry Recognized and endorsed

Supplier KPI Data Dictionary.

• Significantly better QPR’s

• Cost savings for Service Companies

• More Accurate Data for Operators

•Standard for Supplier KPI Data Transfer

Key Drivers – Why we Need• Industry Wide KPI Definition Chaos

between different Operator KPI Definitions

and the Supply Chain Supplier Base

• Scorecard Overload

• Cost Savings Time = Money

• Better Data Accuracy

• Improved Data QA/QC

• Scorecard impact on working conditions.

© PIDX, Inc. 2012

2011 - 2013Workgroup Meeting Participation / Expressions of Interest

AfrenApacheBPCairn Energy*ChevronConocoPhillipsEP EnergyKinder MorganMurphy Oil *MarathonNoble EnergyNexenOrigin Energy *Penn West Exploration *RWEShell StatoilTalismanTullow Oil *Wintershal

Aker SolutionsAmecBaker HughesCameronGE Oil & GasHalliburton OceaneeringPacific Drilling *SchlumbergerSiemensTetra TechnologiesTransoceanWeatherford

Total Participants / Interested Parties = c80Last Updated Date: Oct 2013

Operators Service Companies / Suppliers

© PIDX, Inc. 2012

KPI Data Dictionary Contributing Companies & Organisations & Desired State

Already Submitted KPI’sConoco PhilipsStatoilHalliburtonNexenOSHA ActianPICSWintershallAfrenSasolBPHackett Group

Update as at Sept 2013

ApacheAker SolutionsAnadarkoAmecBaker HughesBPCameronGE Oil & GasEP EnergyHessMarathonOceaneeringPacific Drilling SchlumbergerTransoceanWeatherfordWintershall

And as many more contributors as we can get.

Total Participants / Interested Parties = circa 80Last Updated Date: Sept 2013

KPIs Submitted to Date Followups

•36

Performance Areas (Level 1) Framework Agreed

•06/11/2013 Classification: Internal

•

• QUALITYS

UP

PLIE

R

• DELIVERY

• COST

• BEHAVIOUR

• HSE

Level 1

Supplier KPI Dictionary Update

(Oct 2013)

© PIDX, Inc. 2011

1. Template for Data Collection Agreed.

2. 5 Performance Areas Defined and Agreed.

3. Over 420 KPI’s recieved and in progress of

being added to Master Data Dictionary

4. KPI’s Submitted by 15 Companies

5. Planning for Conversion of KPI Dictionary

Spreadsheet to from Excel to Data Base underway.

Accomplishments to Date

Submitted V Standardised

2013 Goal

Mapped

Project Timeline 2013- 2014

Q1 2013

KPI

Dictionary

(alfa version)

Q1 2014

KPI Selection

(Critical few)

KPI Definitions

Standardized

KPI Dictionary

(Beta version

Segmentation)

KPI DictionaryStandardized

Version 1

© PIDX, Inc. 2012

Supplier KPI Project Overview

Overview The PIDX Supplier KPI Projects main focus is to develop a Supplier KPI Data Dictionary (Phase 1) followed by the development and automation of Supplier KPI data transfer between Suppliers and Oil & Gas Operators (Phase 2) beginning in 2014.

Phase 1 project objectives are to compile an Industry Data Dictionary for Standardization of KPI terminology and definitions, e.g. NPT, TRIR etc

Focus: Upstream / Downstream Commenced: 2011 Participants : c80Contact: Daryl Fullerton [email protected]

Mike Washington [email protected]

Wins when Implemented• Standardization on KPI Terminology

• Industry Recognized and endorsed

Supplier KPI Data Dictionary.

• Significantly better QPR’s

• Cost savings for Service Companies

• More Accurate Data for Operators

•Standard for Supplier KPI Data Transfer

Key Drivers – Why we Need• Industry Wide KPI Definition Chaos

between different Operator KPI Definitions

and the Supply Chain Supplier Base

• Scorecard Overload

• Cost Savings Time = Money

• Better Data Accuracy

• Improved Data QA/QC

• Scorecard impact on working conditions.

Why Become Involved?

© PIDX, Inc. 2011

1. KPI Dictionary Access – Exposure to More

KPIs

2. Your KPI’s are Part of a Standardized

Industry wide Accepted KPI Portfolio

3. Access to Quarterly Release of Supplier KPI

Dictionary

4. Network with Industry Peers on best practices

and Lessons Learned on SRM

5. Get Guidance on Establishing Supplier KPI’s

6. Operator / Supplier Presentations

Next Quarterly Meetings – Jan 2014, May 2014

15 Tips for better Supplier Risk and Performance Improvement within the Supplier Performance Lifecycle

1. Set up a 360 Degree Performance Management Process & Culture

2. Align the Expectations and Aims of Operators & Suppliers

3. Establish a few Global KPI’s that cross all Categories

4. Decide which Suppliers to Manage 5. Certain KPI’s set in Contracts should be defined by the Category Line6. The Mix should be both Leading and Lagging Indicators

7. Manage Supplier Risk against KPI results at Global, BU and Local

8. PI Targets should be owned and Managed Local level9. Establish a lessons Learned and Best Practices Knowledge base

10. Implement a Supplier Risk Register – Reward Suppliers that Contribute

11. Foster a 360 Degree Performance Management Culture12. Track and Manage Corrective Actions and Establish Root Cause

13. Share the KPI data real time- Don’t leave to the QPR

14. Quarterly Performance Reviews should be Forward Looking and encourage

the promotion of ideas that improve innovation & service delivery

15. Have an agreed Exit Strategy defined up front for dropping Suppliers that are not meeting Expectations

Q & A

Contact:

[email protected]

[email protected]

www.pidx.org

Linkedin Group: Supplier Performance Relationship Management

Group (Oil & Gas)

© PIDX, Inc. 2011

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