BP looks for $3 BILLION…including Procurement

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This is the actual headline from today’s paper edition of the Wall Street Journal :

Oil Firm Intends to Increase Efficiency, Benefit From Improved Procurement

In this article,(http://royaldutchshellplc.com/2010/03/02/bp-looks-to-boost-refining-profits/) Guy Chazan reports that BP has just announced a very aggressive target of improving profits by $3 billion and there are 2 main strategies to achieving this goal and these will sound very familiar to most of you:

  • Get better at executing big contracts by implementing a common and centralized approach to project management
  • Improvements in the way it buys goods and services from third parties

Remember that this is not a company that has not been producing results. After all, they took out $4 Billion in costs last year, which was double their target. However, the article does go on to say that their projects had exceeded their budgets by an average of 20% over the last 5 years. MAJOR OUCH!!   Their projects are exponentially larger than what we are used to so a 20% overrun is genormous!

They are looking for $1.2 Billion from their first strategy which means that the Supply Chain/Sourcing organization is on the hook for the rest…$1.8 Billion. I will admit that I don’t know what that represents in terms of their total spend and whether this $1.8 Billion is incremental to whatever they were supposed to contribute to their bottom line.

BIG BUMMER for the Supply Chain/Sourcing organization?? Actually, I would argue quite the opposite. If any of you that work in Supply Chain/Sourcing organizations in other companies are jealous, you have my sympathies.  This is going to be a tremendous opportunity for the Supply Chain/Sourcing people at BP.  Knowing a little about this group at BP, let me assure you that this is not an organization that is starting from scratch. While I am assuming that they are not wanting to claim World Class status yet, they have done a number of things that would form a very solid foundation and clearly they have been producing results.

I think this is an opportunity for them because the attention that will be paid to Supply Chain and Sourcing issues at the top of the house and the sponsorship that may be available to tackle some deep rooted issues( and I assume they have some of those just like the rest of us).  I hope our colleagues at BP can take advantage of this.

I also think that this whole push towards centralization within BP can do nothing but help the Supply Chain/Sourcing organization deliver a much more powerful and cogent argument in support of their goals.

The notion of centralizing responsibility for the project management function will also hopefully mean that there will be a confluence of influence and decision making that may help speed up the decision making process. I sure hope that our colleagues in BP figure out how to take advantage of that.

I also think that there is a strong hint of recognition by executive management of some fundamental Supply Chain issues that impact cost and OTD. If our colleagues in BP can figure out a way to latch on to those issues and integrate them in their value messaging strategy, they will clearly position themselves as even more of a strategic function than they are today.

Here’s wishing the Supply Chain/Sourcing colleagues a lot of luck and we will be watching to see if they can capitalize on the tremendous opportunity that lays before them.

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Dalip Raheja
Dalip Raheja is President and CEO of The Mpower Group (TMG). Dalip has over 30 years of experience managing large organizations and change initiatives. He has worked across the spectrums of supply chain management, strategic sourcing, and management consulting.
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