Strategic Sourcing As Part of Category Management
Overview
Supply Chain Value Continuum Strategic Sourcing is a key tool, but should not be the end goal Category Management 2. Assess Stakeholder Requirements
1.Conduct Spend Analysis
6. Measure Performance
Total Value
3. Market Analysis
Painting & Coating
Strategic Sourcing 4. Develop Strategy
Proactive
5. Execute Strategy
Pipeline Project
Auburn Inventory
Compressor Maintenance
Facility Project
Traditional Procurement
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Category Management
2015 Category Management – Strategic Sourcing | July 2015
Transaction Management Reactionary
Level of Sophistication
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Challenges to Category Management Success
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2015 Category Management – Strategic Sourcing | July 2015 Power Advocate, Inc. Confidential
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Overview
Why? They need to see value
> BU leaders do not view supply chain as capable of driving improvement > Feel that engagement with supply chain is too difficult or time consuming > They don’t know how to engage - Process is too confusing > BU leaders are not interested in driving improvement
> Without executive sponsorship for supply chain, BU leaders do not feel compelled to
engage
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2015 Category Management – Strategic Sourcing | July 2015
© 2015 The Williams Companies, Inc. All rights reserved.
Category Management Process Example Timeline for 4+ Month Process
2. Assess Stakeholder Requirements
1.Conduct Spend Analysis
6. Measure Performance
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3. Market Analysis
4. Develop Strategy
5. Execute Strategy
2015 Category Management – Strategic Sourcing | July 2015
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Overview
Strategic Sourcing Value Proposition Risk mitigation & cost reduction through improved transparency, technology & collaboration Cost & Market Intelligence
> Typical Cost Structures > Cost Trends – Input Cost Drivers – External Demand Drivers > Should Cost Models ERP Sourcing Events
Implementation / Restructuring of Pricing Agreements
> Lump sum / Fixed Price – with & w/o escalation or incentives
> Day or Hourly Rates > Time & Materials or Unit Rates > Separation of material, labor and margin Improve Stakeholder Input
> Standardized & centralized – Item #s, category codes, commercial language
> Cross-Company Interaction
> Fluid contract creation
> Often
> Early
> System transactions reflect project management
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2015 Category Management – Strategic Sourcing | July 2015
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Step 1 Spend Analysis
Total Williams Pipeline Maintenance Services sub-category is ~$xM (~$xM OA only) SPEND BY OA AND PIPELINE MAINTENANCE SVC. CATEGORY ($M) Pipeline Maint. & Repair
Access
OA
Atlantic Gulf
E&C
Pipeline Inline Painting & Inspection/ Coating Pigging
Pipeline Integrity
ROW Maint.
Cathodic Hydrostatic Location Protection Testing Services Services
Aerial Other Services
Total
OA
E&C NGL & Petchem OA Northeast E&C G&P OA E&C West OA E&C Total OA Total Total Spend
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2015 Category Management – Strategic Sourcing | July 2015
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Pipeline Maintenance Services sub-category contains ~$xM of OA spend, ~$xM total spend
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2015 Category Management – Strategic Sourcing | July 2015
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Pipeline maintenance and repair: ~25% misclassified, ~40% construction APPROXIMATE PIPELINE MAINTENANCE AND REPAIR SPEND BREAKDOWN
SAMPLE ITEM DESCRIPTIONS • HESS-NEC LATERALS - (C.) 1100924 - INSTALLATION OF APPROXIMATELY 1 465 FEET OF 20 PIPE
DIRECTIONAL
Construction / • CONSTRUCTION OF ONSHORE PIPELINE FACILITIES Digging / Installation • MUNCY LOOP - (A.) 1093152 - INSTALL AND MAINTAIN SOIL EROSION AND SEDIMENT CONTROL DEVICES
Maintenance / Repair
• WO 1150377 - RLJ - EI 119 / EI120 PIPELINE REPAIR AS PER ATTACHED PROPOSAL DATED JULY 1 2013
Valve Replacement
• 1101390 - M AND J GATE VALVES
Pipeline Integrity
• SPREAD 18 - (B.2) 1134339 - 520 INTEGRITY REPLACEMENT - INSTALL 24 LEIDY A FROM M.P. 162.77 - 163.09
Hydrostatic Testing
Pipeline Painting & Coating
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• 1104674-EWR 3 LOCATE INSPECT AND REPAIR 8 AMOMALIES BETWEEN ROOSEVELT AND GOLDENDALE TM
Note: Item level data only available for ~60% of pipeline maintenance and repair spend 2015 Category Management – Strategic | July 2015 Source: WilliamsSourcing Transaction Data
• 1116677 - 2013 M AND J GATE VALVE UPGRADE TM
• 1104247-WENATCHEE HYDROTEST-LS • SPREAD 14 - (D.1) 1110087 - JOB 1: HYDROSTATIC TESTING OF 30 MAINLINE A FROM M.P. 1631.72 - 1631.87 • WO 1099026 - (2011-2012) SPREAD 14- REMEDIATE ANOMALIES - REMEDIATE/ INSTALL PIPE COATING FOR ANOMALY REPAIRS ON 30 MAIN LINE A BETWEEN LINDEN REGULATOR (MP 1808.19) AND PASSAIC RIVER (MP1819.01) • PRINCETON DIV. - SPREAD 15 - (E.14) - 1105018 REMEDIATE.REPLACE PIPE COATING FOR ANOMALY REPAIR ON 8 CAMDEN © 2015 The Williams Companies, Inc. All rights reserved.
Pipeline integrity: catch-all with various expenditures APPROXIMATE PIPELINE INTEGRITY SPEND BREAKDOWN
SAMPLE ITEM DESCRIPTIONS Misc.
• Only consists of 1 transaction, mostly associated with Atlantic Gulf Discovery sub-OA: KCC PIPELINE DPS.ETSC.003
Construction / Digging / Installation
• WO 1113211; GERMANNA HWY. RT. 3; DI 180; VA; EXPLORATORY DIGS AT WILLIAMS CROSSING OF VA RT. 3 IN CULPEPER CO. VA AS PER PROPOSAL DATED 4/19/2012 AND AS DETERMINED BY WORK PROGRESS.
DIRECTIONAL
• WO 1127851 REMEDIATE AND REPLACE HYDRO DIGS MAIN LINE A DISTRICT 90 ALABAMA
Maintenance / Repair
Largely consists of surveys and assessments
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2015 Category Management – Strategic Sourcing | July 2015
• WO 1103451 REMEDIATE ANOMALIES M/ L C STATION 80 TO STATION 90 • WO#1134741 CONDUCT DIRECT ASSESSMENT OF SELECT WGP ATLANTIC-GULF CROSS-OVER PIPING; 3) 185-10
Pipeline Integrity
Pipeline Painting & Coating Note: Item level data only available for ~40% of pipeline integrity spend Source: Williams Transaction Data
• CASING REMOVAL AND TEST WIRES
• WO 1150377 - EI 120 PIPELINE INSPECTION • WO 1134117 PERFORM A CLOSE INTERVAL SURVEY FROM WATTS ABBITT ROAD AND HWY 601 TO PATTIE ROAD IN APPOMATTOX COUNTY VIRGINIA (APPROXIMATELY 47.48 MILES). • WO1116053; PRICE MILL RD. ROCKINGHAM CO. NC MP1362.25; ENGINEERING INSPECTION EXCAVATION AND RECOATING OF MLA MLB AND MLC ON THE DOWNSTREAM OF PRICE MILL RD.VENDOR SERVICE - RECOAT © 2015 The Williams Companies, Inc. All rights reserved.
Step 2 Assess Stakeholder Requirements
Stakeholder Interviews Understand what success looks like to your stakeholders Interview Objectives
Sample Question Guide
> Fill the data gaps > Clarify the value drivers and customer needs
> Identify additional sources of expertise
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2015 Category Management – Strategic Sourcing | July 2015
© 2015 The Williams Companies, Inc. All rights reserved.
Service Requirements – Painting & Coating Objective: validate service requirements to be fed into RFP
Safety
Cost / Pricing
• Ensure safety meets company’s requirements 100% of the time
• Limit category spend to ~10% of pipeline maint. service acquisition costs
• Meet min. PPE requirements
• Specific rates for rock encounters
• Comply with WilSOP 640.02 (excavation and trenching procedure)
• Erosion control matting and silt fencing priced separately
• Comply with WilSOP O&M 10.17.0308 (damage prevention for excavation and tenching)
• Invoices submitted within 30 days of work completion • Coating to be provided by WMB
Geographical Coverage • Cross-state permitting • Able to access remote areas (esp. in West)
Availability • Able to perform jobs when needed (~10% emergency, rest with 2-4 month lead time)
Quality • Execute the specified job correctly the first time, every time • Meet all coating specifications in WilSOP DES 815.0311 (Pipeline Protective Coatings for Recoating in situ, Field Joints, Tie Ins, and Repairs) • Ability to use brush coating where spray application is not feasible/practical
Are there other requirements that we should include? 14
2015 Category Management – Strategic Sourcing | July 2015
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Step 3 Market Analysis
Painting and coating: supplier cost overview ‘11 –‘13 TREND Margins for large suppliers increased due to their diverse portfolio of OCTG goods and services; margins for small suppliers decreased
INPUT COST DRIVERS • Average wages • Price of coatings and paint
Price of coatings and paint, which is a large share of the Materials cost, has grown by ~3.3% per year. Prices are expected to continue growing at an average annual rate of 3.6%. EXTERNAL DEMAND DRIVERS Standard pricing model used is time and materials; suppliers set the price based on pipe size (sq ft) and charge additionally for materials such as coatings and paint. Reduces supplier risk by allowing them to charge extra in the event of unforeseen overruns, but increases buyer risk because the price is not based on the outcome.
• World production of oil • Industrial production index • Value of construction
Wages’ share of revenue has remained relatively stable, but average wages have decreased by ~1.4% per year.
Moderate price range from $10 to $30 per square foot 16
2015 Category Management – Strategic Sourcing | July 2015
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