Transformation: A Change of Pace
Proceedings — Session: B-1
2011 ISM Diversity Summits
February 9-11, 2011
Boca Raton, Florida
Presenters: Chuck Wardlaw, vice president, U.S. fuels value chain procurement; Samantha Murray, transformation director, U.S. refining procurement, BP
Samantha Murray "was thinking about transformation even before I came to BP in 2009," began Chuck Wardlaw, Vice President of U.S. fuels value chain procurement, of his co-presenter. Murray and Wardlaw's session, "Transformation — A Change of Pace," discussed the transformation path of the U.S. FVC from a procurement standpoint.
"Transformation isn't a quick fix; it's a journey," Wardlaw advised. "We're thinking about what's next because this is still a work in progress for BP."
With more than 80,000 employees worldwide (about 35,000 in the United States), BP is the nation's second largest refiner. The company averages 5.9 million barrels of refined product sales per day from its five U.S. refineries located in California, Indiana, Ohio, Texas and Washington.
"Each refinery has a different heritage, which influences how procurement gets done at the sites," Wardlaw told summit attendees. "So, part of what we'll look at today is how we established some common ways of doing business."
No Small Role
BP's refining and marketing procurement worldwide activities account for about US$25 billion annual spend, with more than 500 procurement professionals on staff. Activities include the purchase of indirect materials, equipment and services for refining, marketing, supply and logistics procurement.
Procurement's value to the refining business specifically is largely measured by its contribution to safe, compliant, reliable and competitive operations for a variety of materials, equipment and services. It uses a category management approach but has to make this work across effectively across all refining sites.
BP called upon Samantha Murray to take look at its procurement within refining in 2008.
"Chuck and I believed that people really could be refocused to drive more strategic versus tactical sourcing activities," Murray said. The pair focused the change agenda on key opportunities in this space: increasing business ownership and alignment around a business-led procurement agenda; creating a stronger linkage between site and centralized category teams; improving demand planning; enhancing strategic sourcing capability; further leveraging supplier management; increasing transactional efficiency; and driving consistent performance management.
"Our goal was to really have third-party spend management become a business capability," Murray explained. Wardlaw echoed her sentiments: "We needed to move from a reactive, transactional approach so procurement would truly have a seat at the table and drive business value."
Although the pair opted not to engage consultants' help centrally, they did apply consulting resources where "the work of procurement is done and can have the biggest effect." And, as Murray pointed out, Wardlaw's role as vice president lent these strategies a degree of visibility they might not have received otherwise.
Getting the Ball Rolling
The extensive transformation program was structured into three key areas of people, process and technology.
People. "People are No. 1; they're our key asset," Murray pointed out. To maximize BP's people power, she and Wardlaw commissioned a benchmarking of competency levels of procurement staff using individual assessments. This highlighted key organizational gaps.
"Training and development was a major investment for us in phase one of our transformation."
Additionally, a reorganization of the procurement function removed many barriers to purchasing professionals working cohesively across all five refineries.
Process. In the areas of category/strategic sourcing, supplier management and P2P, Murray and Wardlaw's efforts focused on the establishment of common procedures, organizational connectivity and plan alignment.
"The most immediate benefits were seen here," Murray recalled. "Building long-term capabilities in sourcing and supplier management are yielding significant changes in our approach to third-party spend management as well as improvements in value delivery."
Technology. Increased use of systems and improved spend data quality will improve the efficiency category strategy, sourcing and supplier management activity within U.S. refining procurement.
Wardlaw and Murray went on to outline the detail of phase one of their transformation program, which has focused on the key themes of people and process. Beginning with the people agenda, the two outlined how establishing a more integrated procurement organization was a key step in enabling successful change. Major organizational changes included switching the functional reporting line from the centralized commercial function to the vice president of the U.S. refining business; moving site procurement managers to report directly to the procurement vice president; simplifying the structure of procurement delivery teams, and moving selected category teams for a global to a regional structure. These changes solved a multitude of cross-functional challenges, according to Murray and Wardlaw, and created a new level of alignment within the procurement group itself.
The transformation also replaced a formerly complex execution model with a simplified model, supported by multisite category networks. "The new category networks make the individual refinery sites accountable for communicating what category plans and strategies need to address for their site," Wardlaw explained.
Looking beyond structure to procurement competency, Murray and Wardlaw "sensed they had a skills problem" if they wanted to support an increase in strategic sourcing. So, they prioritized capabilities development right off the bat.
They began by revisiting outdated job descriptions, and new, common descriptions were established for staff members who shared the same title from refinery to refinery. Then, working from eight predetermined supply management-specific competency areas, each employee was assessed during a three-hour interview with an independent consultant. Assessment results for the whole organization were then reviewed by the procurement leadership team who made customized development recommendations for each individual. Employees then used an online BP tool, PSCM Academy, to record their results and develop their own training action plans, competency by competency.
At the organizational level, the assessments revealed the need for skills development in three areas as a priority: strategic sourcing, supplier management and contracting. Job training, coaching, computer-based training and "bite-sized," issues-based training were offered.
As Wardlaw pointed out, an added benefit of this approach is that executives can see the progress at both the individual and collective level. "All of this helps move people from a 1 rating, to a 2 rating, to a 3 rating and so on," he told attendees. "But, competency development is a never-ending journey."
Strategic Sourcing Takes the Spotlight
Next, Murray and Wardlaw focused on how they enabled improved strategic sourcing across the U.S. refining organization. Building on the platform of process and capability improvements, executive-led, cross-functional category councils now sign off on procurement strategy and on major breakthrough sourcing activity before those projects are initiated. Meanwhile, multisite category networks act as working groups to lead these sourcing activities and ensure multisite buy in and support to accelerate execution. Finally, the value delivery for any project over a certain dollar value is challenged and validated by a business unit representative to ensure that the reported performance data is credible. Thanks to these and other building blocks of a strong competency base, value delivery has increased more than 200 percent in the past two years.
Moving on from sourcing to supplier performance and quality management, a common supplier qualification process has been developed as part of an eventual holistic quality management system. Supplier quality managers led cross-functional workshops involving engineering and site quality and inspection teams to drive the development of this shared process.
A program of supplier performance management has also been launched at each site, focusing initially on the most strategic services suppliers identified by a segmentation process. Business stakeholders have been closely involved in developing supplier relationships. "A key success factor is that the business, not just procurement, is driving these relationships with the suppliers we're targeting," Murray said.
"As we painted a picture of what supplier relationship and performance management does — they're key levers to achieving safe, compliant, reliable and competitive operations — the leadership team could really see the value," Murray continued. This is especially true considering contracted services account for as much as 60 percent of BP's yearly spend.
As they start Phase 2 of the transformation agenda, BP's U.S. refining business is enjoying a litany of key outcomes:
- An integrated leadership model exists.
- More than 40 staff members have been recruited.
- In excess of 1,200 training and coaching days have been completed.
- More than 250 sourcing projects have been managed electronically.
- A common supplier qualification process has been launched.
- Increased global competitive sourcing is evident.
- A common procurement scorecard is in use.
Additionally, value delivery saw a 100 percent increase by 2009. Equally important, new ways of working — as well as "a new language" of third-party spend management — have been established within the procurement and stakeholder teams alike.
Murray and Wardlaw agree that the transformation, now in its third year, is definitely making an impression on the leadership team.
"Even when there's no procurement person in the room, now they're asking, 'Is procurement involved in this?'" Wardlaw pointed out. "We're developing the organization — and developing the people in doing so. We're helping them see they can be better than they ever thought they could be."
Questions and Answers
A brief, but helpful, question-and-answer session followed Murray and Wardlaw's session.
Q: What has been the toughest transformation challenge?
Wardlaw: The starting point of the process wasn't the same at every refinery. Some sites were more receptive to change than others, and tailoring the program was difficult. We accomplished a lot by demonstrating listening.
Q: How did you ultimately get resisters on board?
Murray: It's a work in progress. For example, at one site, what made a difference was hiring consultants to work with them. In other cases, success breeds buy-in and further success.
Q: You alluded to the fact that no one believed procurement's numbers before. Why? And, how has that changed now?
Murray: Three years ago, procurement routinely entered data into a tool — cost decreases, cost avoidances and so on. The numbers lacked consistent value definitions. Today, we have launched "The Rules of the Game," which provides consistent definitions and requires value delivery to be signed off by a business unit finance representative.
Wardlaw: We also assigned the reporting of procurement savings results to someone in the finance department.
— Reporting by RaeAnn Slaybaugh
About ISM Diversity Summits
Every year since 2009, ISM's Black Executive Supply Management Summit (BESMS), Hispanic Supply Management Summit (HSMS) and Women Executive Supply Management Summit (WESMS) have been co-located. Collectively, these events represent the annual ISM Diversity Summits experience hosted by Tempe, Arizona-based Institute for Supply Management™.
All three summits were developed as forums for diverse executives in supply management to come together and share their unique perspectives. Summit attendees learn from thought-leaders and change agents within their fields and representing leading organizations.