SUPPLIER PERFORMANCE MANAGEMENT: CASE STUDY FROM

THE OIL INDUSTRY

P. McVeigh
SPM Consultant, Biznet Solution, Ireland

Abstract
This paper examines how Supplier Performance Management (SPM) theory
and practice have helped transform the Oil Industry in terms of how operators
are collaborating with and raising the performance of their suppliers. This
paper will develop an understanding of how to measure and manage
performance information in large supplier focused enterprises. In tackling these
issues, the paper integrates a number of existing concepts and illustrates how
global enterprises can have a common structure upon which a performance
measurement model can be developed. The paper will conclude with a
discussion on the relative merits and limitations of the project, whilst sharing
knowledge emerging from company research.

Keywords: supplier performance management, measurement

Performance Measurement Systems (PMS) have been at the top of the research and business
agenda over the past few years. (Najmi et al, 2005) Academic and practical guidelines have
been developed to create a framework for the process design of a performance management
system. Oil majors have realised the importance of implementing dynamic and balanced
performance measurement systems to facilitate them to raise the performance of, and
collaborate with their suppliers. However, little research exists concerning SPM being used in
an arena as heavily dependent on its suppliers as the utilities industry. This paper discusses
how Biznet Solutions worked with several major oil companies to develop and implement a
dynamic Supplier Performance Measurement solution to advance the performance of their
service companies and alter the way operators manage their global supply base.

As companies increasingly focus on their core competencies and outsource a greater

percentage of work, their success becomes ever more dependant on the performance of
strategic suppliers. Oil companies require a systems and processes to manage their suppliers
and ensure that the benefits and requirements identified at sourcing and acquisition stages are
delivered throughout the life of the contract. SPM enables companies to focus their resources
on value added activities instead of reacting to unexpected supplier performance induced
problems.

In the utilities industry over 70% of an operators total spend will be on their service
companies, therefore the ability to manage these suppliers is crucial. Service companies will
complete thousands of tasks daily for oil companies, gathering the performance information
required can be an overwhelming job fraught with inconsistencies in data collation,
management, analysis and distribution. Oil majors face a significant challenge in terms of
gathering performance data and a creating visibility across their supply chain. Furthermore,
due to the economic climate and oil price volatility, operators require faster information and
more stringent controls on how their suppliers are performing globally.

1
This paper will combine underlying theory of performance measurement with practical
insight, demonstrating how supplier performance measurement was applied to the utilities
industry, whilst indicating how the use of appropriately defined measures can ensure strategic
alignment of an organisation. Today companies are challenged with developing meaningful
metrics and turning them into actions that improve supplier performance. It is paramount that
these Key Performance Indicators (KPIs) are developed and aligned with the overall business
strategy; this ensures that procurement function reflects and supports the company. The paper
will highlight the expectations and results achieved with Biznets initiative, illustrating the
framework used for measuring supplier performance in the Oil Industry. A conceptual case
study is offered identifying the design, implementation and development of the performance
measurement tool, outlining the processes that were undertaken, considering industry
requirements. Results of the framework will be demonstrated, with the projects deliverables
and shortcomings discussed.

This paper will develop an understanding of how to measure and manage performance
information in large supplier focused enterprises. In tackling these issues, the paper integrates
a number of existing concepts and illustrates how global enterprises can have a common
structure upon which a performance measurement model could be developed. The paper will
conclude with a discussion on the relative merits and limitations of the project whilst sharing
knowledge emerging from company research.

Overall, the objective of developing a tool which would ensure performance visibility and
encourage proactive rather than reactive decision making was achieved. As a result of these
processes Biznet clients have improved their performance and reduced the direct and indirect
costs of their local and global supply chains. This paper will outline Biznets findings
regarding best practice for SPM in the oil industry. Over the last ten years Biznet’s Supplier
Performance Management System has been developed and deployed in the areas of Upstream
business including Exploration & Production (Drilling & Completions, Exploration,
Operations and Chemicals) as well as Downstream areas such as Refining and Marketing.

Bibliography
Najmi, M., Rigas, J. and Ip-Shing Fan. (2005), “A framework to review performance
measurement systems”, Business Process Management Journal, Vol. 11 No. 2 pp109-
122