THE SUPPLY CHAINS STRATEGIC IMPORTANCE & THE DEVELOPMENT OF SCM STRATEGY, TACTICAL AND OPERATIONAL SUPREME ENERGY

CASE
WIN SUKARDI
PMBS July 2011

Quote of the Day

PROAKTIF

PRO
OPEN MIND RAJIN

Win Sukardi

Sr. Manager SCM Supreme Energy Group Education:

Mechanical Engineering (Ir.), Brawijaya University Petroleum Engineering (M. Eng), Tulsa University Management (MM), SGU-Asia University Business Administration (MBA), Konstanz University Business Law (M. Hum), Gadjah Mada University

Certified Purchasing Manager (C.P.M.) ISM

What we discuss?

What is SCM? Why is it important? Developing the SCM Strategy, Tactical & Operational Considerations Supreme Energys Case Strategy Tactical & Operational Enablers

What is SCM?

Many definitions It is an evolving field since early 1990s Usually related to scope of activities and type of industries Lets explore from APICS (operation/manufacturing), SCOR (six sigma), ISM (process), CSCMP (functional integration, logistics) and others

What is SCM?

APICS The processes from the initial raw materials to the ultimate consumption of the finished product linking across supplier & user companies"

What is SCM?

SCOR

Four basic processes plan, source, make, deliver broadly define these efforts, which include managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer"

What is SCM?

ISM The design and management of seamless, valueadded processes across organizational boundaries to meet the real needs of the end customer"

What is SCM?

CSCMP Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, including suppliers, intermediaries, third party service providers, and customers. In essence SCM integrates supply and demand management within and across companies"

What is SCM?

David Ross (Through Supply Chain Management, 1997): "A continuously evolving management philosophy that seeks to unify the collective productive competencies and resources of the business functions found both within the enterprise and outside the firm's allied business partners located along intersecting supply channels into a highly competitive, customer-enriching supply system focused on developing innovative solutions and synchronizing the flow of marketplace products, services, and information to create unique, individualized sources of customer value."

David Simchi-Levi, Philip Kaminsky, Edith Simchi-Levi (Designing & Managing the Supply Chain, 2003): Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, at the right time, in order to minimize system-wide costs while satisfying service level requirement

What is SCM?

In Supremes perspective, SCM has at least 3 elements:

Procurement (sourcing and operation/ tactical buying) Logistics (warehousing, inventory, import-export, explosives, waste management) Performance and Support (internal and external performance management, general administration, reporting, ERP, and any other IT support)

The importance?

How deep? Is it really important? Lets watch the video! Some cases

Renault and Nissan

Case cited from Elevating Supply to the Executive Agenda by David Bonet and Phil Toy (ISM Article) Carlos Ghosn, named as COO Renault in 1996. He set a goal of USD 2 billion of savings over 3 years How? He has 2 questions: How can Renault and its suppliers improve performance drastically and permanently in terms of total costs, cycle time and innovation? Are Renault's processes, organization, management systems and people suited to achieve these ambitious goals? He again adopted the same in Nissan

Legrand

Case cited from Elevating Supply to the Executive Agenda by David Bonet and Phil Toy (ISM Article) French company, bought by KKR and Wendel in 2002. John Selldrof named as CEO. He then set a goal of USD 20 Million savings of USD 285 Million spending He put supply management initiatives as a high priority to achieve the goal

IBM

Case cited from Elevating Supply to the Executive Agenda by David Bonet and Phil Toy (ISM Article) First CPO, the late Gene Richter, with John Paterson, the CEO, continued in focusing on shared processes and linked objectives with all the business units across the world to have scale economies in spending (sourcing effort) View the importance of SCM function as strategic

DELL

Remember the popular example of what is Dell doing in selling their computer?

The simple one..

Profit Revenue Cost

Up Sustainable and grow

Up Sustainable and grow Down Meeting the quality standards, acceptable to market

Strategic Importance Supremes Perspective

Who and what is Supreme Energy doing? To understand more and to have check & balances on the strategic importance, we shall transform it the Strategy, Tactical, and Operational

Strategic Importance Supremes Perspective

Who and what is Supreme Energy? To understand more and to have check & balances on the strategic importance, we shall transform it the Strategy, Tactical, and Operational

Supreme Energy

Jakarta HQ, geothermal business focus. Joint venture of National + France + Japan 3 WKPs in Sumatera (each WKP is 220 MW capacity); three project companies; total of 660 MW Each WKP has a 35-year contract from exploration to operation & maintenance (5 years exploration + 30 years O&M) Total cost exposure: app. USD 660 Millions each for the all stages (USD 2 Billions in total)

Supreme Energy

Stages: preliminary survey, exploration, development & construction, and O&M Major works (Civil Construction, Drilling, EPC, and O&M) of 3 projects (2 consecutive projects and another 1 project will be in parallel) Involving 3 remote areas Considered low and sensitive margin (IRR Project 16%) Project financed (limited to the low interest of source of fund) 100% equity on the pre-exploration and exploration works

The strategic importance

The integration and management of all flows (flow of information, flow of product-goods/services, and flow of funds) Driving force to reduce cost (TCO in some types) and deliver the goods/services at the required time with satisfactory performance in all project phases Driving force to maintain good relationships with key suppliers Add value to the targeted COD (Commercial Operation Date) and maintain production at the service level during the concession contract period

Strategic Importance Supremes Perspective

Who and what is Supreme Energy? To understand more and to have check & balances on the strategic importance, we shall transform it the Strategy, Tactical, and Operational

Development of the STO

Merriam-Webster: Strategy: is defined as a long term plan of action designed to achieve a particular goal Tactical: is defined as involving or pertaining to actions, ends, or means that are immediate or short-term in duration, and/or lesser in importance or magnitude, than those of a strategy or a larger purpose. Operational: is defined as of or relating to operation or to an operation

Considerations

Nature of Company Company/Project Risks Common Practice Stakeholder Value Business Relationships Laws & Regulations

Nature of Company
Type of Institution

Non-profit organizations

Private enterprises

Public sector organizations

Size of Institution

Phase of project

Company/Project Risks

Exploration risk (upstream and downstream) Development risk (upstream and downstream) Operational risk (upstream and downstream) Financial risk Market risk Business risk

Common Practice (OG & GEO)

1. Exploration

Phase of the project

2. Drilling

3. Production & Maintenance

Internal Chain OG & GEO

Common Practice (OG & GEO)

Suppliers RECEIVING

CUSTOMS

WAREHOUSE & INVENTORY CONTROL

PROCUREMENT

REORDER
USAGE
SURPLUS

WRITE OFF

Stakeholder Value
For OG, GEO Energy Cost Minimization Tax Minimization

Profitable Growth E V

$ Market Cap

A
Working Capital Efficiency Fixed-Capital Efficiency

Time

Five Key Drivers of Stakeholder Value

Source: Cap Gemini E&Y Research

Business Relationships
ESDM (EBT-KE) LOCAL GOV.
LICENSE

PT. PLN (PERSERO) PROJECT COMPANY

PPA

PRIVATE COMPANY

Laws and Regulations

Indonesian laws and regulations International laws (especially affecting France and Japanese companies)

Strategy Supreme Energy

Gain the Top management support Fit-for-purpose (relevant) organization Different focus in each stage, based on companys objectives SCM as a center of coordination, prime-mover and as a financial commitment gate-keeper Simple and accountable process, minimize approvals but having a sound control mechanism Limited financial authority (going bigger as approaching the development and O&M, part of risk management)

Tactical & Operational Supreme Energy

To be part of management team, controls from Procurement Committee, BOD Contract Review Three sections in all project stages, functional scope:

Procurement (sourcing, tactical), Logistics (warehousing, inventory, importation, re-exportation, transportation), and Performance & Support

Speed and flexible on exploration stage Lead and drive the process, appropriately Simple procedures, less bureaucracy but two-signatures principle (control) Use standard forms as much as possible

Tactical & Operational Supreme Energy

No ERP, simple database and process tracking system (prior to exploration only) Less paper, use of IT, email, scan, use of standard forms but modifiable Direct import if possible, narrow down the supplier base, use of the relationship type of procurement and selected arms-length (transactional) type

Enablers
Top Management Support People (Relevant) Organization Information Technology

Top Management Support

View SCM as part of management team Obtain continuous trust and appropriate authority Potential improvement: promote the Head of SCM to be an equal level to Engineering, Project, or Operations (VP level).

People

Best and fit-for-purpose people Can-do attitude, good interpersonal skills, strategic thinking, value oriented, and relationship management skills Technical and project management skills Multi background and experience. Work with less supervision and less or nil of staff Avoid under paid: You pay cheap, you will get monkey!.
Seek a balance between buy and make/develop

(Relevant) Organization

To be effective, relevant (fit-fur-purpose), viewed as VALUE, and as part of Management Team Set up Procurement Committee (members are VP level) Small to grow larger (budget constraint) exploration risks Speed, experienced task-force, multi-tasking to a mixed type towards the O&M stage Keep the three sections:

One manager, 3 staffs (4, prior to exploration) One manager, 3 heads, 3 fields, 4 staffs (11, exploration & development) One manager, 3 heads, 3 fields, 8 staffs (15, O&M)

(Relevant) Organization

Set up performance objectives for each section, develop KPI and measure and improve. The fact: less number of people, can do this later

Information Technology

Depends on the project stage, fit-for-purpose, less cost if possible, satisfying the basic needs Moving to the O&M stage, use of the latest proven technology; use of a full scale of e-proc, suitable ERP

Closing remarks

Dont we think that SCM is strategically important? If yes, it is then up to you, as the SCM professional and Manager or VP, to bring and drive it to maximize value to the success of your company! You, us, as the key enabler, keep learning and improve!

Thank You, Wish You All The Best!

Email: win.sukardi@gmail.com