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Integra brochure
(pdf - 1.6 mb)

December 03, 2014

Efficiency of Procurement is not the Goal, Building of the System in tote is Important

Supply department of any modern enterprise is not only making a pool of suppliers and purchase of necessary equipment and services. But it is a whole system that efficient work influences economic steadiness of the whole company, possibility to implement any projects. In Russian holding companies procurers only begin to implement in their activities modern approaches. We discussed with Director of Supply Chain Department of Integra Group, Michail Shumilishsky, about how supply departments of oilfield service companies are working today.

-Today we still hear that many companies hardly implement new information technologies. And e-procurement system is considered as an announcement on the corporate site. How these things work in Integra?

-Switch to e-procurement system is one of the first changes that our experts offered to do in the company at the time. Implementation of electronic purchase reduces the pressure on the employees, reduces the amount of paper and negotiation work. And the most important, adds transparency to the process of purchase.

In summer, 2002 we engaged consultants to estimate our operating at that moment system. They, of course, said that our processes are non-optimal. I say “of course”, because it was predictable for us at that time.

After the audit we defined ways, marked main directions where to go. By the way e-platform we implemented ourselves, without involvement of internal consultants. It was a first necessary step to free suppliers from the routine and to make them think and work in a new fashion.

Today our e-platform fully integrated in our procurement system and in fact coincident with financial accounting. Besides, all the functionality is partly doubled in internal system for people to be able to choose where it’s more convenient for them to work: in a system or on e-platform.

- And it appears that switch to e-system is going on well. You even became holder of Leader of Competitive Purchase Award. Tell us, please, about the projects you participated with in awards?

-Integra applied for in several categories. One of our projects was change of approach to contracting of transport contractors for subsidiary company of our holding working at well workover.

Operation of this division substantially depended from service quality rendered by the transport contractors, and work with “small” contractors carried a risk for steady operation of the company. As a result we had high figures of non productive time due to law level of provided transport equipment and services in generally. As a result of such a work we had claims from our client, high fine sanctions and decrease of revenue. Generally financial results were far from perfect. Numerous audits, both internal and external, we conducted showed transport problem as the main.

What to do? Large, better organized contractors that we were interested at offered much higher price for services.

The decision was made the change of approach and work with increased price for the service. We implemented strict control over signing of work performed, changed working pattern of special machines, put into effect regulatory requirement to ascertain of in-vehicle monitoring system of the transport and organized clear application system. Also we implemented quality scale that motivated the contractor to render quality service. As the result of the work unit price on special machines and transport services increased 15-20%. But at the same time overall economic performance on the contrary improved.

After three month during which we organized system of transport service, we stated general 10-15 % drop in costs.

Due to execution of this project our affiliate company was brought to a breakeven level.

- If the project proved to be so successful, maybe there is a sense to spread similar systems on the operation of the whole group?

- Sure. We carry out development that was also submitted for competition as a separate project linked to the automation of purchasing system, inventory and transport management. This project implies fill automation of the purchasing and application system including writing off and signing of the volumes. Main goal here as well was cost reduction.

It was based on the principle, that purchasing system is interested in understanding of business requirements on the early stages. The sooner we will find out about the business requirements, the better. However, business-units, unfortunately, often can’t clear and in advance state the requirements. So it turns out that urgent requests and applications prevail and are satisfied on the non-optimal price.

I will repeat that it was very important for us the business requirement starting from services and till the concrete goods was not urgent and we found out about as soon as possible. To solve the task we initiated process of creating a system of maintenance and repair. It is important to note that such systems are widely spread on the West, but Russian companies only start implementing them.

-If the business can’t state the needs in advance, how this system is going to work? And if to talk about repair, often all happens in an emergency mode.

-To implement it in practice is possible only establishing a process of exchange between the system of scheduled maintenance and the system of purchase. Data about assumed requirement are formed on the basis of statistics about operating age, using of spare parts, material. So purchasing department receives information about planned requirement in advance and handles it so that the business was provided in time.

From technical point of view it is not difficult to create such a system. The necessary software product exists and is available. Here it is important what to fill it with. It’s necessary for all the equipment, technical documents and regulations were digitized and filled in the system. Relying on experience of our West colleagues, such systems are well adjusted and work fine.

If to simplify a bit we can describe our system as our goal is that a mechanic, an electrician and any other employee of our company responsible for maintenance works starting it simultaneously received the set of necessary spare parts and materials, necessary for carrying out this work.

For us it’s a goal for the perspective, now experts of our company are working under the creation of such a system. And in forthcoming 2015 we will continue improving supply system of our business. Our main goal as I said is to find out as soon as possible about the needs of our inner client to satisfy them the best way.

- There is one very important, I would even say, key point. The efficiency of purchase (especially services) is not the goal. I will explain. Not considering all the peculiarities of the project and restricted only by principle price-quality purchase doesn’t guarantee success of operating activity and may bring losses significantly exceeding the cost of total purchase. The price of such a mistake can be tens of millions of dollars.

That is why it is important to create an appropriate supply system generally to provide efficiently working production. We should estimate price of not a separate service or stuff, we should look at the project in general. Besides, they are, usually, extended in time, plus serious material and human resources are involved in the projects. Accordingly, one mistake at the stage of collecting a contractor can turn into disaster. Our main goal in the short term is transition to work together on the project in whole, with such approach procurement system has really a possibility to influence the success of the whole operating process.