Delivering Value From Category Management In A VUCA World

Transcription

1 Delivering Value From Category Management In A VUCA World Jennifer Lovell Downstream Contracting & Procurement Transformation Lead Shell International Petroleum Company Limited

2 DEFINITIONS & CAUTIONARY NOTE Reserves: Our use of the term reserves in this presentation means SEC proved oil and gas reserves. Resources: Our use of the term resources in this presentation includes quantities of oil and gas not yet classified as SEC proved oil and gas reserves. Resources are consistent with the Society of Petroleum Engineers 2P and 2C definitions. Organic: Our use of the term Organic includes SEC proved oil and gas reserves excluding changes resulting from acquisitions, divestments and year-average pricing impact. Shales: Our use of the term shales refers to tight, shale and coal bed methane oil and gas acreage. The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate legal entities. In this presentation Shell, Shell group and Royal Dutch Shell are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words we, us and our are also used to refer to subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. Subsidiaries, Shell subsidiaries and Shell companies as used in this presentation refer to companies over which Royal Dutch Shell plc either directly or indirectly has control. Entities and unincorporated arrangements over which Shell has joint control are generally referred to joint ventures and joint operations respectively. Entities over which Shell has significant influence but neither control nor joint control are referred to as associates. The term Shell interest is used for convenience to indicate the direct and/or indirect ownership interest held by Shell in a venture, partnership or company, after exclusion of all third-party interest. This presentation contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as anticipate, believe, could, estimate, expect, goals, intend, may, objectives, outlook, plan, probably, project, risks, schedule, seek, should, target, will and similar terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this presentation, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for Shell s products; (c) currency fluctuations; (d) drilling and production results; (e) reserves estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including regulatory measures addressing climate change; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. All forward-looking statements contained in this presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Additional risk factors that may affect future results are contained in Royal Dutch Shell s 20-F for the year ended December 31, 2015 (available at and ). These risk factors also expressly qualify all forward looking statements contained in this presentation and should be considered by the reader. Each forward-looking statement speaks only as of the date of this presentation, 12 January Neither Royal Dutch Shell plc nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this presentation. We may have used certain terms, such as resources, in this presentation that United States Securities and Exchange Commission (SEC) strictly prohibits us from including in our filings with the SEC. U.S. Investors are urged to consider closely the disclosure in our Form 20-F, File No , available on the SEC website April

3 CATEGORY MANAGEMENT IN A VUCA WORLD Contracting & Procurement in Shell Category management in a VUCA world Case Study: Category Management of Industrial Gases Models of Category Management Copyright Shell International of Shell International Petroleum Company Ltd

4 COMPANY PROFILE In 2015 Active in more than 70 countries 93,000 full-time employees Network of around 43,000 fuel retail service stations Produced 3 million barrels of oil equivalent each day Earnings* of $3.8 billion $28.9 billion of capital investment $1.1 billion R&D *On a current cost of supplies basis attributable to Royal Dutch Shell plc shareholders Source: 2015 Annual Report and Form 20-F Shell International Petroleum Company Ltd

5 BUSINESS OVERVIEW EXPLORATION DEVELOPMENT AND EXTRACTION MANUFACTURING AND ENERGY PRODUCTION TRANSPORT AND TRADING Exploring for oil and gas: Onshore and offshore Refining oil into fuels Developing fields Producing oil and gas and lubricants Liquefying gas by cooling (LNG) Extracting bitumen Producing petrochemicals Converting gas to liquid products (GTL) Upgrading bitumen Producing biofuels Shipping and trading Regasifying (LNG) Supply and distribution RETAIL AND B2B SALES Generating power Copyright Shell International of Shell International Petroleum Company Ltd

6 CONTRACTING & PROCUREMENT Approximately 2800 staff Managing some 26,000 Contracts 1 Million Purchase Orders 3.5 Million Invoices 52,000 Suppliers ~$67 billion in 3 rd party spend in 2014 ~$13.7 billion of this with developing countries 200,000 contractors work every day, in some way, on behalf of Shell Copyright Shell International of Shell International Petroleum Company Ltd

7 CP DRIVERS TO DELIVER VALUE AT COMPETITIVE COSTS Special relations/ Few suppliers Supplier Management Contract Management Contractor HSSE Ensure value for money Stop value leakage Activity planning Risk sharing Performance goals Value add Focused innovation Commodity products/ Many Suppliers Operations Management Standardise and automate processes Consolidate cross business sourcing Consolidate low value requirements Category Management Understand the market Aggregate demand Developing selective sourcing strategies Low value/transaction High value/transaction

8 VUCA WORLD Volatile Unpredictable Complex Ambiguous Copyright Shell International of Shell International Petroleum Company Ltd

9 CATEGORY MANAGEMENT IN A VUCA WORLD Expertise in markets and suppliers Deep understanding of own company requirements Trusted partner to the business Creates winning strategies Skilled deal-maker Skilled relationship manager

10 INDUSTRIAL GASES MARKET Air Liquide/ Airgas, 25% Messer, 2% TNS, 4% Air Products, 12% Hydrogen, Oxygen, Nitrogen, Argon, Syngas, Carbon Dioxide, Rare Gases Capital intensive Large volume requirements delivered by on-site production or pipeline No/limited market liquidity SOURCE: Esprit Associates Global Revenues 2014 $85bln Others, 22% Praxair, 14% Linde, 21%

11 USES OF INDUSTRIAL GASES IN SHELL Oxygen: Gasification in Refining and Gas-to-Liquids; Oxidation for Ethylene Oxide Nitrogen: Inertization, Enhanced Gas Recovery, LNG Hydrogen: Hydrodesulphurisation, Hydrocracking, Hydro-treating Copyright Shell International of Shell International Petroleum Company Ltd

12 MAJOR CONSUMING LOCATIONS North America Europe Asia Graphic for representation only

13 FOCUS AREAS FOR CATEGORY MANAGEMENT Local markets and global trends Should cost modelling Spend variance analysis Contracting strategies Lead sourcing and negotiations Monitor performance and support contract management Supplier relationship management Copyright Shell International of Shell International Petroleum Company Ltd

14 TOTAL COST OF OWNERSHIP Safety Reliability of supply Meeting the demand profile Transparent and communicative Pricing and value creation over the contract lifetime Copyright Shell International of Shell International Petroleum Company Ltd

15 MODELS OF CATEGORY MANAGEMENT Ease of integration Heterogeneity of businesses requirements for the specific spend category Need for strong involvement of final users in the purchasing process due to specific knowledge needed (e.g., specs, local demand patterns) High Low Low High SOURCE: McKinsey USE Spend value/added value ONLY of integration Purchasing volume of the total spend category Synergies across BUs/Geographies (e.g., volume bundling, economies of skill and economies of standard) Potential commonality of supply base for the specific spend category

16 Ease of integration CATEGORIES IN REFINING Assets Refining Corporate Service Material High Low Low SOURCE: McKinsey Scaffolding, Insulation, Painting Chemicals Labour & Administration Pipes, Valves & Fittings Spares, Maintenance & Overhaul Pressure Vessel Plate & Sheet Facility Support Value from integration Electrical (Cable & Wire) Equipment Rental Installation Rotating Equipment & Maintenance Medical Service Industrial Gas Engineering Consultancy Safety & Office Supply IT & Telecoms Oil & Oil Products Transportation Catalyst Jan2017 Hotel & Events High 16

17 IN CONCLUSION Model of Category management aligns with value opportunity and ease of integration of demand Strategies derived from external market and business needs VUCA world requires close partnership with business 17

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