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Solution
Executive Summary
In this report, an exploration of sourcing approaches and their applicability in an identified area of spend in ADNOC Gas processing has been provided. The spend area that has been selected is fuel used for the vehicles that are used in the advancement of the organisation different operations. This entails a detailed evaluation of different spend areas of ADNOC in Abu Dhabi, including Information Technology (IT), fuel for their vehicles, employees’ uniforms, and logistics. The selected sourcing approaches include single, sole, dual, and multiple evaluated in-depth.
Based on the findings in this report, it is essential to point out that sourcing approaches are critical as they establish the level of dominating the market and leveraging profits. This is while ensuring the most appropriate sourcing decisions are made. Further, the inexistence of a successful sourcing strategy would limit an organisation success in being competitive. In this report, the findings indicate that multiple sourcing is applicable when more than one supplier is engaged with single-sourcing involving a single supplier. On the other hand, sole-sourcing is used in a phenomenon where an organisation procures from a monopoly supplier in their market of operations. Dual sourcing, on the other hand, entails the existence of conflicting needs, which include distinct suppliers and to solve the problem of working with a single or multiple sourcing. For the same of ADNOC Gas processing companies, sourcing strategies are implemented in their commercial directory approach characterised by a pre-award, after-award, and post-award for all their contractors based on their applicability.
To ensure that the different sourcing strategies are adding immense value to procurement strategy and maximising on the ability to leverage supplier appraisal checklists, several recommendations could be advanced. These entail;
- To automate their overall supply and negotiation strategies
- To improve level for engagement with included stakeholders in their pre-awards phase
- To establish a relevant specification on procurement and supply policies
- Significant simplification of information regarding tendering and information
Table of Contents
1.1 Organisation Background. 3
2.0 Selection of a Category of Spend and Position. 3
2.1 Strategic Positioning of Selected Spend Category. 4
2.2.2 Business Hierarchy of Needs. 7
4.0 Supplier Appraisal Checklist 10
4.1 Supplier Appraisal of Fuel Category of Spend. 10
5.0 Conclusion and Recommendations 11
Appendix 1: ADNOC Gas processing company tender assessment 14
Appendix 2: Detailed Kraljic Analysis 15
Appendix 3: ADNOC Gas Processing Guidelines in Post-Award performance evaluation. 16
Appendix 4: Different Contract Phases and HSE Plan. 17
1.0 Introduction
1.1 Organisation Background
ADNOC gas processing company is the organisation of focus. Since 1978, this organisation prioritise in operating high-quality business practices in their sectors of operation. As a result, it is one of the leading global gas processing organisation. Also, it is the largest supplier of gas and related products managing more than 3,000 kilometers of pipeline network, 26 processing trains, and an NGL distillation complex at Ruwais (ADNOC, 2020). This organisation is hence a critical catalyst of industrial output and innovativeness in UAE as a significant contributor to the ADNOC’s strategic objectives. To manage their operations, the organisations have structured a unique sourcing and procurement approach. This is to guide the management relationship with all stakeholders involved in the procurement and supply process. Their sourcing approach can be identified as an industry best-in-class strategy operated locally through a strategy of harnessing an in-country value (ICV) among all their suppliers with a target of improving their In-Country Value (ICV). This is for all their suppliers to boost their contribution by focusing on a process intended to select their local suppliers. Also, part of the sourcing approach adopted by the organisation is to ensure adherence to the most effective Health, Safety, and Environment (HSE) Technical Evaluation. This is in line with Wong et al. (2012) that point out that in modern organisations, to be successful in their business environment, suppliers’ influence must be evident to mitigate the distinct political and business environment disruptions.
1.2 Scope of the Assessment
In line with the identified organisation background, different sourcing approaches will be identified in this assessment. Through this, the different steps followed in the sourcing process in the ADNOC Gas processing company in selected areas of spend were identified. In the end, a supplier appraisal check list has been identified in the spend category, with relevant findings being obtained. This is from the strategic reference of the organisation portfolio. To achieve the intended objective of this assessment, tools such as Kraljic analysis, a business hierarchy of needs, and 10C’s models have been used.
2.0 Selection of a Category of Spend and Position
The procurement department is tasked with an essential responsibility of advancing a strategic sourcing approach with a direct influence on the success and growth of an organisation (CIPS, 2019). Hence, the importance of sourcing strategies in a modern organisation is directed by the view that products and services outsourcing targets multiple suppliers. The sourcing approach has benefits to customers of an organisation by enhancing their satisfaction with the organisation benefiting from profits and dominating their markets. It is in this regard the concept of sourcing approaches has attracted increased study interest from different researchers, particularly regarding the buyer and seller relationships and influence to all stakeholders.
Based on the above explanation, in ADNOC context, having a sourcing strategy would mean appropriate suggestions are put in place for the different spend categories in a well-structured manner. This is informed by necessity, aspect of demand, and supply in their value chain. To identify the area of spend and its positioning, the Kraljic Analysis is applicable and Business Hierarchy of Needs. These tools also guide on the most appropriate sourcing approach and developing a supplier checklist.
2.1 Strategic Positioning of Selected Spend Category
The selected spend category is fuel. The rationale of this is that ADNOC operates multiple automobiles and engines which are powered by fuel. Also, my current role in the organisation is coordinating the operations of upstream and downstream; fuel is essential and accounts for millions of dirhams budgeted by the organisation in this area of spend. Their operations are not only domiciled in its headquarter in Abu Dhabi but in the entire Middle East. There are multiple suppliers also involved with the organisation operations directly impacted by the market dynamics, which also influence the scope of its procurement. The organisation purchasing power, product substitution, and suppliers in existence influence the effectiveness of this spend category.
Also, Information Technology is another category of spend for ADNOC gas processing. The influence of this is that ADNOC is actively engaged in its practices, with technical strategies being established for utilization of fresh and innovativeness. This is intended to maximize value in resource utilization and pioneering strategies adopted and technology use to meeting prevailing needs. For sourcing, the IT services, ADNOC gas processing company, engage international organizations such as IBM, Microsoft, Google, among others, in the provision of their systems. To relate with these suppliers appropriately, ADNOC utilises strategies of long-term relationships, effective risk management, effective planning, and supply process of local practices.
Further, ADNOC gas processing spends on Logistics. This is further grouped into the categories of their equipment maintenance and organisation operations management. Also, they spend on Uniforms for the ADNOC staff. These uniforms are accessed easily in their region of operation with limited constraints incurred directly influencing the scope of procurement process. Their availability on-demand influences this with their procurement being on a need to need basis. This product category availability in Abu Dhabi and UAE contributes to the uniform’s spend category being categorised as having a low-profit impact and limited supply risks incurred. Conversely, logistics is evidenced by over-ordering, the inexistence of adequate services to manage their operations in their working environment, and contracting organisations unreliability.
2.2.1 Kraljic Analysis
Based on the provided discussion on the different categories of spend in ADNOC Gas processing, a Kraljic Analysis Matrix is applicable as summarised in figure 2 (Also, see appendix 2 for more details). The rationale of using this tool is informed by the fact that the tool is used to guide the entire purchasing process. This is by focusing on the areas of security of a supplier, any cost mitigation, to leverage on the organisation purchasing power and to adhere to health, safety, and environmental factors.
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Figure 1: Kraljic Analysis
Regarding the category of strategic items, their procurement contributes to gaining strategic value to the organisation in terms of profit and overall supply risk. Due to the changing nature of technology hence a high risk to ADNOC, strategic items spend category would involve engagement of a single source or a supplier contrary to the use of sole or dual sourcing. In this specific quadrant, ADNOC gas processing supplier management is required to put in place relevant purchasing strategies such as the locked-in sole or dual sourcing. The rationale for this is mitigating risks by changing the dynamics of suppliers to ensure it is in the minimum.
For the bottleneck items representing the logistics, their influence on the ADNOC gas processing annual procurement budget is moderate. This is despite the prevailing supply nature and vulnerability level. Logistics items suppliers have their dominance in their position for distinct products/services. This is affirmed by Croom and Brandon-Jones (2005), who notes that the best sourcing approach must be evidenced by the need to reduce the overall negative effects of inappropriate positioning. For solving the different issues that surround the ADNOC’s procurement department, multiple suppliers could be engaged hence transitioning to a non-critical quadrant being successful.
For leverage items, which include fuel as the preferred category of spend engages multiple suppliers. This is since different aspects are put into accounts, such as the end-product costs, prices, and risks incurred. In this form of arrangement, it is clear that a buyer leverages an increased capability and offering different incentives for actively negotiating. This is since minimal cost savings is evident when a substantial-high amount of resources is demanded. Hence, multiple sourcing strategy would be the most suitable. Through this, the power of the buyer would play a substantial influence on the success of the entire process. In this strategy, it would also be essential to adopt a multiple sourcing strategy for ensuring that the entire procurement process is directed to attaining an increased power of a buyer. Also, essential guidance is offered to the organisation to bid lower costs and shipping costs in the final products procured. Eventually, an organisation purchasing power is promoted hence leveraging on the existence of different suppliers. Hence, it is essential to appreciate the view that procurement relevance and applicability in sourcing leverage items are grouped in high-profit impact with low supply risks incurred.
For the last position, which is non-critical items, this category is characterised by minimal value per unit in existence, albeit multiple suppliers alternative being available with constrained technical and commercial factors. Hence, single sourcing is significantly used as it generates relevant orders and pursuing efficiency in processing, which is the case for the ADNOC gas processing organization context. There are, however, distinct complexities emerging at the phase of sourcing high-quality products with internet sourcing being applicable to engage multiple suppliers being the most popular approach in e-sourcing.
2.2.2 Business Hierarchy of Needs
Based on the Kraljic analysis identified strategic positioning, it is possible to develop varying business hierarchies of needs. Hence, the likelihood of developing the ideal sourcing strategy is improved. In the selected fuel category of spend, increased competition and incurring costs determine decisions made in the supplier selection. Business hierarchy of needs is an improvement from the earlier Maslow’s Hierarchy of Needs (CIPS, 2015); offering an illustration on the organisation needs prioritisation to be achieved by an organisation and other stakeholders.
Figure 2: Business Hierarchy of Needs
The most appropriate sourcing strategy would follow figure 2 business hierarchy of needs. ADNOC Gas processing company would be required to implement their sourcing strategies based on prioritisation of products and supplies obtained. For example, a purchase of low-quality fuel products could lead to increased maintenance costs or re-purchasing to replace the product. This could lead to a high-level requisition and also demands aggregate. These aspects are placed at the top of the hierarchy, and as such, their prioritisation is critical. Strictly adhering to the identified hierarchy of needs could solve the need to get involved in activities that are time-consuming for influencing of the needs of the buyers.
The risks in the supply chain for the bottleneck items (fuel category of spend) would be solved by ensuring an increased stakeholder engagement. As illustrated in figure 3, Mendelow’s stakeholder matrix is applicable. The stakeholders are categorised into four categories based on their power and interest. For instance, it would be more useful for the ADNOC Gas processing company to engage a local supplier as opposed to a multinational supplier (See appendix 3). Further, the vendors and contractors could also be involved in ensuring that they maintain services offered through actively collaborating with the administration for improving their ability to access, afford, and avail all the products.
Figure 3: Mendelow Stakeholder Analysis
3.0 Sourcing Approaches
3.1 Multiple Sourcing
This sourcing strategy entails involving multiple suppliers. According to CIPS (2020), through multiple sourcing, suppliers exploit appropriate resources based on demand and buyers quotations. A supplier makes responses based on demand and quotations specifications from the organisation of interest.
In case of ADNOC gas processing, multiple sourcing is best applicable for fuel area of spend due to its criticality. Also, involving multiple suppliers would imply that the contract terms are implemented in detail and successfully. However, the organisation could be protected from issues that relate to the need to maintain their technology, promote technical responsibilities and forecasting capabilities, and operationalization of their operations. Further, quality and competencies of management could be factored for a successful provision of required products and services by an entity. This is the situation in ADNOC since their suppliers for different products and services tend to leverage on issues that affect their negotiations hence decreasing the level of delay and disturbance in organisation schedule.
3.2 Single Sourcing
This is identified as a strategy that entails engaging a single supplier in an identified spend category. The origin of single sourcing is Just-in-Time Philosophy (Das & Handfield, 1997), which is noted to be characterised by a capacity of promoting a high-level increase in integrating single sourcing. It leads to establishment of ideal inventory optimisation (Christopher & Holweg, 2011). This leads to cost savings, improved communication, sustainable practices, and stabilised strategy.
Single sourcing is used in ADNOC in logistics and uniforms categories of spend due to the demand for generating value-added services. The advantage of this strategy in ADNOC is being linked directly to an organisation need to balance distinct purchases with prices and quality of the sourced products and services. Hence, to establish a sustainable supplier-manufacturer relationship, putting in place a sustainable commitment is essential as it informs on the presence of reduced demand to engage more suppliers.
3.3 Dual Sourcing
This strategy is used to maximise the value of the final product through the involvement of contractors who have their subcontractors. This means that it entails the use of different supply networks distinct from a hierarchical pyramid, with the top-tiered suppliers being associated directly with high skills and technology investment.
Dual sourcing in ADNOC is applicable as a consequence of the need for integrating a high-level communication process as an essential undertaking with their suppliers. This is to harness a collaborative practice with procurement demands put into account. Bottleneck items, which are low profits, are procured using this strategy since they have low profits with immense risks at a place for creating a demand for exploitation of distinct strategies, including over-ordering on an availability basis.
3.4 Sole Sourcing
It is identified as a phenomenon where an organisation is influenced by external circumstances to procure from a single monopolist supplier (CIPS Procurement Topic, 2018). This is the case specifically when it comes to the use of electronic data interchanges (EDI), and other technologies facilitated platforms (Ronchi et al., 2010).
In the ADNOC context, sole sourcing is used when there is a need to have alternatives to traditional physical documentation in their procurement. For instance, recently, the organisation has procured a Blockchain technology from Blockchain organisation to streamline the placement of their order and tendering process interactions. This has enabled the establishment of a sole-sourcing strategy due to the link established in the entire supplier process.
4.0 Supplier Appraisal Checklist
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