Putting energy into relationships
highlighted the benefits of solid relationships. “Cost always matters, and we can influence that through innovation and driving efficiency in our operations,” says Edwards. “The oil prices are variable. So, working closely with suppliers enables you to work effectively through those unpredictable cycles.” He says that while it’s easy to get distracted by day-to-day requirements, companies must dedicate time to supplier management because it is a crucial enabler of value. For Chevron, much of that new value will come from more efficient operations, shared information and insight with suppliers, longer contractual relationships, and commitments to continued innovation. → “Suppliers give us another set of eyes, ears and boots on the ground”
The business is no stranger to supplier management, which has been part of its approach for numerous years. For the past two years, Chevron has re- emphasised supplier management to drive long-term value. “We’ve always recognised that suppliers are a critical part of our business,” says Hopkins, “particularly given the cyclical nature of the oil and gas industry. It’s just been a matter of shifting focus and priorities while examining a different kind of value. We want win-win conversations with vendors so we can be successful together in any environment.” “Volatility in the market and changing cycles are happening faster than they ever have,” adds Matthew Edwards, Manager of Chevron’s Category Management Center of Excellence. “Supply relationships have always been important, and supplier relationship management remains a key enabler. But we don’t want to stand still. We’re differentially investing in supplier management because we see it drives long-term value.” Chevron is working on taking a more consistent approach to segmenting suppliers. It is also inviting greater and more transparent communication with suppliers and investing in technology to support the smooth running of supplier management. Procurement / SCM operations Let’s look at how Chevron manages its vast, global procurement and supply chain operations and what the future holds. Fluctuating oil prices impact most integrated energy companies. When the price of oil per barrel is high, industry spending typically increases with input costs rising and supply constraints more prevalent. “When commodity prices and demand are high, we generally need more rigs, manpower, and materials to support operations,” says Hopkins. Edwards says the business remains disciplined about spending and that expenditure is primarily driven by
operational activity and significant capital expenditure projects in progress. Major global categories of spend include drilling and completions; professional services; logistics; IT and equipment; engineering, fabrication, and subsea expenditures. Each has a global category manager responsible for the direction the company takes. And each of these then drills down to specific product lines, with teams who drive the strategy locally. Global category teams work with the various business units to design and execute strategies, including finding opportunities to leverage spending. Local procurement teams carry out everyday buying; category management; management of warehouses and shore bases; logistics; material control; and aircraft operations. At some locations, procurement professionals provide the services needed to support Chevron’s staff and their families on-site. Shared services centres in Buenos Aires and Manila support local teams, leveraging scale and driving efficiency. Supplier Management Such a large operation requires a sizeable supply base to support it. The business has contracts with more than 15,000 suppliers across the globe, giving its most focused attention to fewer than the top 100 strategic relationships. This status is determined not only by spending levels but also a multitude of other factors, including feedback from executive sponsors and the business, depending on the company and operational requirements. “Identifying the extent to which we apply supplier management principles to our supply base has never been focused on spend alone,” says Hopkins. “There are many more complexities, nuances, and intricacies to evaluate when considering which suppliers are truly strategic. For example, market risk and criticality to the business.” He says the past couple of years, which have seen the impact of Covid and lower oil prices, have particularly
The integrated energy company’s next phase of its supplier management evolution aims to boost resilience and add value for both sides
Chevron is one of the world’s leading integrated energy companies. Procurement/Supply Chain Management (P/SCM) staff alone account for around 1,500 employees who help the company to manage third-party spend ranging from $15- $20 billion a year, depending on activity levels.
The P/SCM organisation spans the globe with business units supported by a central team of subject matter experts. “At the centre we partner to support business units by leveraging expertise, scale, and technologies,” says Justin Hopkins, Advisor, Category Management Center of Excellence.
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