Interview: “We have responsibility for the full value chain” - ExxonMobil CPO
(Pic Courtesy: ExxonMobil)
The modern global economy relies heavily on the energy sector, which plays a vital role in powering industries, transportation, and homes. Beyond its energy contributions, the sector is also indispensable for the production of petrochemicals and plastics, which are essential for numerous consumer goods, such as medical supplies, components for electric vehicles and wind turbines. However, navigating the complexities of this sector is no easy task. It operates within a volatile market influenced by geopolitical tensions, supply-demand dynamics, and regulatory landscapes. Furthermore, the extraction and processing of hydrocarbons, particularly in unconventional or offshore environments, present significant technological challenges that industry continues to solve.
For its part, the procurement function plays a crucial role in the energy sector by ensuring a reliable supply of equipment, materials, and services. It contributes to operational efficiency, project execution, and competitiveness. In order to gain a better understanding of the role procurement plays in a major oil and gas firm, Beroe spoke to Pamela Skaufel, the Chief Procurement Officer (CPO) at the energy giant ExxonMobil.
It was 9 am in Houston, Texas, when Pamela received Beroe's video call.
Responsibility for the Full Value Chain
Pamela explained the structure and scope of ExxonMobil’s procurement division, saying, "One of the defining factors for us is we're very much a centralized procurement organization since our merger back in 2000."
She elaborated on how ExxonMobil differentiates itself from other companies in the energy sector. She stated, "We have responsibility for the full value chain," meaning that ExxonMobil’s procurement activities span various parts of the business, including the acquisition of vessels for seismic surveys, production in the field, refining, and adjacent chemical manufacturing.
"Compared to other oil and gas industries or other energy industries, where they may be focused on potentially one part of the value chain, we are sourcing everything for the entire value chain," Pamela said.
Supplier Relationship Management
Supplier relationship management is a topic that has been widely discussed across various industries. In some industries, particularly those primarily dealing with indirect services, the emphasis is on building relationships, as it's not highly transactional. Conversely, in the commodities sector, there is a focus on price and cost due to the availability of multiple players in the market.
For ExxonMobil, an international energy and petrochemicals company, the approach to supplier relationship management is distinct. The company runs specific programs aimed at ensuring that they develop and retain high-quality suppliers. Through these programs, ExxonMobil focuses on fostering mutually agreeable terms and agreements with the suppliers to develop a winning proposition for both them and the supplier. This is crucial for maintaining long-term relationships with top suppliers and ensuring the company's needs are met effectively and efficiently.
When it comes to managing supplier relationships at ExxonMobil, Pamela said that there are three main dimensions to consider.
“The first dimension involves strategic relationship management. It is important to have a tiered program that segments suppliers based on their criticality and significance to the business, as well as the financial risks involved. The suppliers at the top of this hierarchy are the strategic partners and carry the most weight. There are also additional tiers for other suppliers, each having its unique importance,” she said.
In managing a large and diverse set of suppliers, it is vital to understand that a single set of key performance measures cannot be applied uniformly. This is tied to the concept of segmenting suppliers and identifying appropriate measures for each segment.
For highly strategic suppliers at the top level, the focus is on assessing the value derived from the partnership. This involves looking beyond mere cost reductions, which are undoubtedly important, to also examining the innovation and business value that the supplier brings. This is about understanding what additional value is being created through the partnership.
“The second dimension focuses on diversity among suppliers, particularly on local and diverse suppliers. The supplier diversity program, established more than 50 years ago in the Houston area, is of high significance, and there is a dedication to substantial investment in this area. By developing local suppliers and building their competencies to be more competitive, companies can ensure that their supplier base reflects the communities they operate in. This is beneficial not only for the local communities and the company but also for the supply chain as it reduces dependency on distant suppliers who may not be readily available in critical times.
“The third dimension is about diversifying the supply chain, which entails continuously seeking alternative suppliers that can be qualified to compete with the current ones. This is done to foster competition and innovation. By regularly seeking out new suppliers to do business with, companies can ensure a more versatile and resilient supply chain,” she explained.
“KPI’s are important to the Procurement function at ExxonMobil,” she also said. “We deploy performance measures in different ways to determine both our performance and the suppliers’ performance. These include assessing on-time delivery, contract compliance, discrepancies in agreed pricing, and invoice accuracy,” she explained.
“Suppliers must be diligent in ensuring the accuracy and timeliness of their invoices, as errors can cause delays in payments and create other challenges. This is essential for both the supplier, who needs timely payments, and the company, which aims to minimize waste and inefficiency in its systems. Hence, the ability to transact correctly is one of the measures that is closely monitored,” Pamela said.
Furthermore, she said it’s worth noting that most of these key performance indicators (KPIs) are reactive, assessing performance after the fact. However, there is a growing emphasis on incorporating these measures proactively at the outset, even during the bidding process. This involves inquiries into suppliers’ historical performance in areas such as on-time delivery or conformity to material specifications. By doing this, the Procurement function can have a better understanding of the suppliers’ capabilities even before entering into a partnership.
The Need for Diverse Talent
In an organization like ExxonMobil, which operates in a highly specialized engineering environment, the evaluation of supplier capability, particularly in technology, engineering, and innovation, is critical. This is unlike businesses that deal with standard services where procurement may not demand as much specialized skill or expertise. In ExxonMobil's case, dealing with complex engineering processes necessitates a procurement team with a robust talent pool. This includes having qualified engineers who can effectively work and communicate with suppliers who might be experts in their fields, such as drilling engineers. Ensuring that the procurement team speaks the same technical language as the suppliers is vital. It may also involve specialized training programs to equip the team with the necessary skills and knowledge. The composition of the team in terms of skill sets and qualifications is essential in successfully engaging with and evaluating suppliers in such a high-engineering field.
“On the procurement team, there is a diverse set of experiences. The team comprises not only supply chain and business graduates, but we have a number of experienced professionals who have been hired from various industries, including some that the company frequently conducts business with. For instance, some members of the team have backgrounds working with drilling companies or major engineering firms. This experience is invaluable as these individuals have sometimes been on the opposite side of the negotiating table, having worked in sales, procurement, or business development roles,” Pamela said.
Also, according to her, there is another segment of team members who rotate through procurement from different departments. For specific categories, the company ensures that individuals with relevant experience are assigned. This approach ensures that the expertise needed, for instance, in marine and shipping, is applied effectively.
“Moreover, the team comprises individuals from various academic backgrounds and includes qualified engineers and scientists who can cater to the need for specialized skills, particularly for major engineering packages. The broad range of backgrounds is one of the advantages of being part of a large company like ExxonMobil, where employees can build their careers by acquiring various skills and capabilities across different departments.
“Furthermore, there has been a growing emphasis on external hiring to incorporate diverse perspectives and experiences from outside the company. This approach is aimed at continuously improving the team and enhancing its capabilities. The team boasts a rich diversified set of skills, which is considered to be one of its key strengths,” Pamela elaborated.
Integral Part of the Business
In response to a question regarding the perception of Procurement as a back-office function and how it is regarded within ExxonMobil, Pamela stated that “Procurement is considered an integral part of the business”. However, she acknowledged that there is opportunity to continue demonstrating Procurement’s immense value as one of the company’s critical business functions.
“The Procurement team is actively involved in driving business objectives, particularly in aspects such as cost-saving measures. We participate in discussions to identify strategies for enhancing competitiveness. Moreover, the Procurement team plays a critical role in the supply chain, especially in sourcing essential products,” she said.
The Procurement professionals at ExxonMobil are embedded in operations across various global locations ranging from Nigeria to Papua New Guinea. Their involvement is fundamental as operations rely on them for sourcing essentials, including boats, vessels, helicopters, planes, and even indirect services such as local hotels and catering.
Currently, efforts are being made to further integrate Procurement into the business lines’ planning and stewardship processes. This integration is critical for aligning Procurement activities with the financial expectations, especially in situations like negotiating contracts for price reductions or adapting to market changes.
“The ultimate goal is to ensure that the business can rely on Procurement and factor in its contributions into planning and financial projections,” she said.
Procurement’s Role in Exploration Activities
Procurement plays a pivotal role in ExxonMobil’s Upstream value chain’s exploration activities. In the context of searching for new oil fields, which can often be challenging, and discovering unconventional locations such as off the West African waters or in Offshore Guyana, the procurement team is responsible for sourcing the right equipment, tools, and services that align with the unique geographies and conditions the exploration teams encounter. Through their expertise and connections, the procurement team ensures that the exploration activities are equipped with what they need to operate efficiently and safely.
Pamela, an industry veteran, gave insights into the company's involvement in securing assets for exploration activities. She stated, “To us, that's just another category, but it happens to be a very exciting one. We have to frequently acquire seismic vessels and drilling rigs, which is one of our biggest categories.”
She further elaborated that the procurement team is responsible for contracting and negotiating day rates for various high-technical specs equipment such as semi-submersible rigs, ultra-deep-water rigs, and drill ships. She emphasized the significance of having pre-negotiated master terms and conditions, saying, "One of the big procurement time-savers is to have pre-negotiated master terms and conditions with some of our biggest suppliers, that allows us to get into the market quickly and negotiate when we think the price is favorable, or when we have an approved program.”
Additionally, she explained that the procurement team’s role varies depending on the region and conditions, and there is a wealth of technical talent within ExxonMobil to evaluate the needs for each exploration campaign.
“The procurement team has a playbook to guide them through the various steps in the procurement process, from the initial acquisition of rigs to securing additional resources like chemicals, pipelines, and production services as the campaign progresses,” she said.
The Operating Model
The procurement operating model at ExxonMobil is centralized, with category strategies being defined at the company's head office in Houston. These strategies guide how the company approaches markets. In addition to the central team, ExxonMobil has local teams in various countries, such as Guyana. The decision to run bids either centrally or locally is based on two factors: the expertise available in the local teams and the local content requirements in specific countries. For instance, in Malaysia and Nigeria, ExxonMobil is obliged to launch bids locally.
“Using Guyana as an example, the local team handles bids for various requirements like OCTG or oilfield chemicals. Once the bids are awarded, the local team takes charge of the day-to-day contract administration. Developing the capabilities of the local teams is vital, as ExxonMobil aims to equip and empower them to execute their local procurement activities in the long term. However, they remain connected to the central category management team to ensure alignment with overall strategies and to leverage ExxonMobil’s scale,” Pamela explained.
The centralization ensures that the company's expertise is shared across the organization and that category strategies capitalize on the scale of the company.
“Additionally, the model allows for dealing with both global and local suppliers effectively, as the company can conduct business at both levels,” Pamela said.
“The local team will get guidance from the category as they prepare for their approach to market. The first thing that they have to do is check in with the category family manager,” she added.
ExxonMobil's Procurement organization comprises just over 2,000 professionals who are involved in end-to-end Procurement processes. In addition, there are about 300 to 400 personnel who operate the warehouses as part of the supply chain organization. These two groups collaborate closely; the warehouse team communicates their stocking requirements to the supply chain team, who then place orders to maintain those stocking levels. This cooperation is essential for ensuring a streamlined and efficient supply chain within the company.
She highlighted the interconnected nature of the procurement teams in different countries, who are linked both to the central category and to the local requirements, and they all report through the procurement function.
ExxonMobil Procurement Org Structure
Exxon manages subcontractors as part of normal oversight. These subcontractors operate under the guidance of ExxonMobil teams according to the specifics of the contract they are engaged in.
“The contracts of these major subcontractors often come with specific performance metrics that need to be fulfilled. These metrics encompass areas such as safety, performance, reliability, productivity, and in some instances, cost-effectiveness -- for example, measuring the cost per foot drilled in a day. Many of these contracts are structured as performance-based contracts,” Pamela stated.
ExxonMobil's Procurement team is responsible for managing the contractual aspects, while the operations teams, which may include drilling, production, or other manufacturing, are tasked with overseeing and ensuring the subcontractors' performance according to the contract. They ensure that subcontractors are meeting daily requirements and assess their performance.
“The performance of subcontractors is periodically reviewed holistically, and based on their performance, subcontractors may receive payments for exceptional performance. In cases where there is an alliance contract approach, subcontractors might share in the gains derived from the contract. Conversely, underperformance may result in penalties or the subcontractors not being eligible for certain bonuses,” Pamela reasoned.
During the course of our conversation, Pamela discussed her top priorities, emphasizing the importance of evolving the category management system. She stated, “One of my top priorities is evolving our category management system. By that, I mean really formalizing our approaches to category management to get even more value from procurement activities.”
She observed that in the absence of a strategic focus on procurement, there is a risk of getting entangled in daily operations, especially considering the large scale of expenditures. She expressed the importance of leveraging company’s scale, saying, “Because we have such a large spend, it's really important that we're doing everything that we can to maximize the scale of ExxonMobil.”
She identified a second major priority as developing what she refers to as the “procurement operation of the future.” She explained, “That procurement operation of the future is about going into a new era of replacing all of our ERP systems.” She also mentioned that ExxonMobil has established a Global Business Services organization which empowers procurement with greater decision-making authority, adding, “With those decision rights comes a responsibility to be very efficient when it comes to rolling out our procurement processes and the business's role in that and procurement's role.”
Furthermore, she touched on some additional priorities, with a particular focus on ExxonMobil’s new Low Carbon Solutions business. She articulated, “As we think about the energy of the future, what is procurement’s role in that? There are three major parts to our new lower carbon business. One is carbon capture and sequestration, the second one is biofuels, and the third one is hydrogen.” She emphasized the importance of understanding and effectively supporting these new categories, which now account for a significant portion of ExxonMobil’s capital allocation.
Rewarding and Fulfilling
In a highly regulated industry, procurement processes are especially complex due to the different regulations in each country. This complexity manifests in the terms and conditions of contracts, which must include specific exhibits to address the responsibilities of both the organization and the suppliers in relation to various regulations. Suppliers may also need to meet certain criteria as part of their qualification or bidding process. Additionally, contracts must be managed to ensure compliance with regulations, often requiring frequent reporting on environmental performance or other regulatory standards.
The procurement process plays a crucial role in ensuring that the final product, even if it is as small as a can of aviation lubricant, meets rigorous standards and regulations.
“One illustrative example is the procurement of components to make Mobil jet oils. This product has been around for more than 100 years. We have been a technology leader for more than a century and our commitment to technology and strong cooperation with manufacturers ensures that we provide industry leading products to our customers. Our detailed requirements ensure that only specific, approved components are used in the product, and changing any component is not a simple matter. The approval and formulation of the components can take nearly a decade, and the procurement process is closely controlled to ensure compliance with these standards.
“Furthermore, the supply chain for this product is sophisticated, involving a long process from formulation of components to formulation and blending by scientists and engineers. After formulation, the product is produced in a lubricant plant, packaged, and shipped globally. Being part of this value chain, whether as a procurement professional or a salesperson, is rewarding and fulfilling,” Pamela concluded.
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