Translating the benefits of procurement for internal stakeholders at BP (part 1)
May 17, 2011 7:11:00 AM
Andrew Collopy [AC], Global Procurement Director, Downstream at BP reflects back on the challenges associated with validating procurement's benefits to internal stakeholders.
CG: Thanks for joining me today Andrew, can you tell me a little bit about your role at BP?
AC: Hi Chris, good to talk with you. I work for BP plc, I’ve been here for just approaching seven years now, and I look after the fuels businesses in our downstream eastern hemisphere, so that’s everything from the UK down to Australia and everything sort of in between; it’s about six billion dollars worth of spend and about 100 procurement people, but it’s just one division of procurement in BP. I report into the Commercial VP of that division. In BP globally there’s probably about 1200 procurement people & 45 billion dollars worth of spend. so that’s kind of where I fit into the huge corporation which is BP.
CG: Could you tell me a bit more about your role then, I mean you touched on it briefly but could you elaborate on any of those details on how you work with your CPO and generally what your day-to-day looks like?
AC: So my accountability really is for all what we call non-hydrocarbon third party spends so effectively that is everything other than buying crude or fuel molecules, it’s actually buying all the support infrastructure that goes behind that. It’s a decentralised procurement structure in terms of BP, so I work for the Commercial Vice President of the eastern hemisphere who ultimately reports through to the COO, who reports through to CEO of downstream; my reporting through to the CPO in downstream is a matrix structure. Whilst I work with the CPO, that part of the work is very much focused around policy, systems and processes whereas I’m in an operating unit accountability for all the spend.
Primarily my day job, at the moment, is driving a procurement transformation programme aiming to up skill the capability of people, processes and systems that we use to enhance the function and the output being greater delivery back to the greater business. Basically we are looking to manage third party dollars on behalf of the business in a more robust way which results either in greater savings being delivered to the corporation or we reduce the risk in terms of how we interface with third parties. So that’s the job in a nutshell.
CG: Great. Moving now out to the wider industry, how involved is procurement in crises situations?
AC: If the crisis is related to the supply chain, then of course we are. A key role of Procurement is assuring supply in the market place to ensure that we’re getting the products and services which we require to do business. We may be dealing with quality issues or performance issues in terms of the supply base or we may be dealing with risk and obviously we are dealing with driving value, so you know there are obviously lots of instances that come up on a regular basis. If we look towards China for example, who is one of the biggest consumers of oil and energy in the world, our refinery businesses are faced with a capacity issue which therefore drives shortages in the marketplace and obviously procurements got a role to play in both sourcing and keeping assurance of supply World events come along & we need to react to them.
CG: BP ended the last quarter of 2010 with a share price rise of seven cents but there’s still a lot of investor uncertainty in the marketplace. What do you think some of the key trends or issues are that you’re anticipating for 2011 from a procurement perspective?
AC: I think we’re in no different position than many other company at the moment and I guess in a procurement world you would say that as the world economy dipped into recession from 2008 onwards you obviously ended up in a scenario where, in lots of markets, there’s deflation and there’s capacity being taken out. In a lot of respects the inflation pressures which you usually see as a procurement person were not there for the past 2yrs.
I think now the concern over the next 12 months is a shift to inflation in the private sector, as opposed to probably the public secto,r as we’re seeing recovery in some areas. A lot of capacity has gone out of the marketplace and the forward outlook is to try and meet growing demand with the remaining, limited capacity.
We’re already beginning to see more inflation in the marketplace which obviously as a procurement organisation part of our role is to counteract that and we’re going to see more capacity constraints as well so, probably the biggest concern moving forward is as we come out of that dip and go into a growth cycle it actually becomes a very challenging time for procurement because you’re facing a marketplace which doesn’t have the right level of capacity hindering your ability to assure supply. Finally, this lack of capacity fuels inflationary pressures on your own costs because third parties are trying to push costs through onto you.
CG: You mentioned quite a few internal pressures over the coming 12 months and combine this with the strong need to drive investor confidence through everything that BP does, this must put a bit pressure on you and your teams going into 2011 - what are your key objectives for the next 12 months?
AC: To be honest, I think our objectives have not changed in light of the external pressures. One of the things that we obviously grapple with as a function inside of a large corporation like BP is how do we translate the good work that we do, whether it’s saving money or cost avoidance or enhancing revenue, into real bottom line results for the business.
In large organisations, when you build functional expertise it’s not always apparent how that investment and that capability is delivering the desired return on investment. So we actually spent a lot of time probably in the last 12 months really trying to say 'ok, how do we translate what we do as a procurement function into what we call our group financial outlook, (the P & L of the businesses) to make it absolutely clear how we’re impacting and improving the bottom line of the business.'
So I think that’s one of the key objectives which we’ve been working on over the last 12 months and actually been very successful. I think a lot of companies do struggle with this ‘integrity’ of procurement savings and I think actually we’ve moved a long way down the path to achieve some of that.
The second element is really around what we’re obviously trying to do all the time which is enhance our procurement capability in terms of how our staff support the businesses appropriately. This transformation programme looks at up-skilling and increasing our internal capabilities to better support the overarching business objectives. We’ve probably been on that journey now for 18 months and we’ve not changed direction in terms of how we would fulfil that.
The third and final objective looks at how we interface better with our external markets and really develop our supplier relationship management (SRM) programmes to drive a higher level of mutual advantage. This is an area that we’ve had a couple of false starts on probably in the last five years, and we’re keen this year to ensure that we get that right.
CG: You said you had a couple of false starts on your SRM programmes - can you tell me a bit more about those?
AC: Many SRM programmes are put in place as a central activity for deployment and I just feel as though they often run out of steam as an initiative if you don’t fully interface and get complete internal and external buy-in. Effective supplier management is not only a procurement goal, it’s a wider business goal, and I think that’s the lesson that we’ve learnt since we deployed our first SRM initiative back in 2005.
This year our intent is to build up a more robust and sustainable programme that is more encompassing.
CG: You also mentioned, proving savings to internal stakeholders, what does your dashboard look like, or what do you report on back to the business to prove these successes?
AC: I think if we went back 18 months or so possibly two years, it was a very functional driven agenda, so we had a very good way of capturing savings but the connectivity to the P&L wasn’t there. We have a reporting pipeline tool for example which lists all of our sourcing projects we are delivering and supporting the respective businesses on – these have to have business and finance savings sign-off. We did cut the data in terms of profit and loss but there was no connectivity between that functional activity and the real results of the company in terms of the P & L.
Over the last 18 months we have worked tirelessly to take that good procurement activity which is ongoing and actually do the wiring diagram which says how does that actually show up in the results of the corporation.
I think we’ve done that effectively but of course the balance which you always have to strive for is when you’re getting more integrity you need to be careful that you don’t create a cottage industry around the assurance process. So I think that we’ve gained some success around communicating the results that we attain in procurement and how these reflect with the overall financial outlook of the corporation.
This forms the basis for the annual plan which we then revisit on a quarterly basis through our forecasting, and now that is getting recognised through finance because we’re doing it in terms of what they would recognise as key cost buckets you would find in a P&L – things like gross margin and total cash cost, working capital and capex, and all our results show up against these.
We are beginning to speak the language of the business and more specifically speaking finance’s language which has been a key to success. It’s hard work to maintain this level of internal management and again the balance is always, how do we ensure that we keep the procurement staff focused on the supply market without getting dragged into internal validation.
So, the challenge we’re now facing, is how much time to spend on this internal validation piece – not distracting our good procurement people away from their time with the supply base.
CG: So how long do you think you’re spending trying to interpret these results internally, to prove yourself I guess, and avoid the scepticism verse actually going out to the market and doing your day-to-day procurement job?
AC: This is a difficult question to answer. From a more generic perspective, our intention has always been that we would spend 70 percent of the time externally with the supply market and 30 percent internally but I don’t mean purely on justification of savings.
This 30 percent also involves working with internal stakeholders in terms of driving projects, a subset of that obviously would be in terms of working with finance to ensure that we’re all aligned and that the numbers are correct. I think the reality is, we’re constantly struggling to move away from having to spend 70 percent of the time internally with stakeholders and 30 percent of our time with the supply base, so, we’re trying to redress that
It’s a classic situation, in which procurement people are very good commercially, obviously as their key role is to sit on the opposite side of the table from sales people. Increasingly however, these same procurement people are coming unstuck when dealing with finance as finance’s expectations are to have the “T’s” crossed and the “I’s” dotted and actually sometimes those two things don’t come together too well.
CG: From the perspective of scepticism, you said you’d made some great progress but do you still feel that there is a level of scepticism within the finance team around what you’re actually producing to them?
AC: As of today, we are winning that battle, but it’s taken over 18 months to get there and I think one of the negative side effects of getting there is we’re having to spend a lot of time with finance ensuring that they’re absolutely comfortable with everything that we’re doing in a way which they can translate into the company results.
So I expect that over time their confidence in procurement will grow, bringing with it a higher level of trust and integrity for the procurement team at large.
Stay tuned for part 2 - coming soon...