-50%
Solution
The comparison of strategic and conventional sourcing in the context of ADNOC reveals significant differences in the approaches and the impacts of each on category management. Strategic sourcing is systematic and data-driven and aligns procurement strategies with the ADNOC’s broader organizational goals such as sustainability, innovation, and operational excellence (Handfield & Linton, 2019). The emphasis is on total cost of ownership and long-term supplier relationships which are crucial in expenditure optimization while ensuring value creation over the product lifecycle. In contrast, conventional sourcing focuses on short-term procurement practices with an emphasis on immediate cost savings (Monczka et al., 2020). This approach may achieve short-term savings but often fails to align with ADNOC’s strategic goals and can hinder the development of trust and collaboration with suppliers (Trent, 2021).
Strategic sourcing involves building long-term partnerships with key suppliers which benefits ADNOC by fostering innovation, better service levels, and quicker responses to market changes (Cousins et al., 2020). Conventional sourcing typically involves transactional and short-term relationships with suppliers, limiting the potential for innovation and effective risk management.
Strategic sourcing leverages advanced analytics and market intelligence, enabling ADNOC to make informed sourcing decisions that align with its strategic objectives. Conventional sourcing, however, may not fully utilize data analytics leading to less informed decision-making and missed opportunities for optimization.
In conclusion, while conventional sourcing can provide short-term benefits, strategic sourcing is essential for ADNOC to achieve long-term value, mitigate risks, and align procurement activities with its business goals. Implementing a strategic sourcing approach within category management enables ADNOC to optimize procurement efficiency, enhance supplier relationships, and support sustainable and innovative practices ensuring long-term success and resilience in its operations.
4.1 Situation, Target, and Proposal (STP)
4.1.0 Situation
ADNOC operates within a complex and dynamic procurement environment characterized by diverse categories such as equipment, services, and materials each essential to its oil and gas operations. The procurement activities are highly influenced by global market dynamics including fluctuating oil prices, geopolitical tensions, and regulatory changes in the energy sector. All these pose challenges and opportunities that impact ADNOC’s procurement strategies and supplier relationships (see table 1 on the different spend categories and sources in ADNOC);
Table 1:ADNOC Spend Categories; Sources
Source: ADNOC Internal Documents
Procurement within ADNOC is not just about acquiring goods and services but is highly linked to the company’s strategic objectives of operational excellence, cost efficiency, and sustainability. ADNOC faces the challenge of optimizing costs while maintaining high standards of service and reliability across its extensive supply chain. This requires a strategic approach to category management that aligns procurement practices with broader corporate goals.
ADNOC’s strategic goals include integrating sustainability principles into its operations that aim to minimize environmental impact and enhance social responsibility. This complicates its procurement strategies as ADNOC seeks suppliers who not only meet quality and cost requirements but also demonstrate commitment to sustainable practices and regulatory compliance.
4.1.1 Target
The proposed initiatives in category management aim to achieve several strategic objectives. The different strategies which would be used can be implemented by 5 different team members in ADNOC in line with the RACI Matrix as illustrated in the following;
Table 2:RACI Matrix Analysis Summary
Firstly, ADNOC seeks to streamline and optimize procurement practices across all categories to improve efficiency and effectiveness by team member 1 by using contemporary technologies for the PS&M teams. Secondly, the company targets substantial cost reductions through strategic sourcing, rigorous negotiation processes, and efficient supplier management strategies by team member 5 to leverage on advantage on L&D opportunities. Lastly, ADNOC aims to bolster its resilience against supply chain risks by implementing robust risk management frameworks that address supplier reliability, market volatility, and regulatory changes effectively by higher stakeholders engagement with team member 2 being responsible (ADNOC,2023).
4.1.2 Proposal
To address the identified challenges and achieve the outline targets, ADNOC proposes various approaches that include:
Proposal 1: Develop a category strategy
This involves category strategy enhancement to better align procurement practices with strategic objectives through conducting thorough market analysis and assessing supplier capabilities across various procurement categories including equipment, services, and materials. Deeper insights into the market dynamics will help tailor procurement strategies that optimize costs, improve efficiency, and support sustainability goals. Each category strategy will be designed to address specific needs and challenges (Monczka et al., 2020).
Proposal 2: Supplier Relationship Management
In response to the complex landscape in ADNOC’s operations, the company proposes to strengthen its supplier relationship management framework. This focuses on establishing clear and measurable KPIs for supplier performance evaluation. For example, in sourcing for IT hardware, a summary of ADNOC suppliers and KPIs is illustrated in the following;
Figure 8:RACI Matrix Analysis Summary
Source: ADNOC Internal documents
Regular performance reviews will be conducted to assess supplier delivery reliability, quality standards, and compliance with contractual terms. In figure 8, from the evaluation, Plumbus Shop is not used as the main supplier as its overall KPIs results are lower than Tech Consultant (preferred supplier) at 93.2%, McMillan Log (90.6%), Globex Ship (89.0%) and Raw Suppliers Co (87.5%).
By fostering transparent and collaborative relationships with key suppliers, ADNOC seeks to enhance service delivery, mitigate supply chain risks, and capitalize on opportunities for innovation and continuous improvement (CIPS, 2022).
Proposal 3: Technology Integration
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