Interview: Supply chain management at BP

In his position as head of the procurement supply chain at BP, Dave Connor is responsible for managing a worldwide supply chain that operates in an environment of high risk. Recently, Connor was on campus for graduation, where the latest class of BP managers would receive the W. P. Carey MBA with a special emphasis on supply chain management. KnowSCM sat in on a conversation between Connor and Professor Dan Brooks as the two discussed the development of the supply chain discipline, managing risk in a supplier network, and how best to prepare for a career in this challenging field.

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Transcript:

Dan Brooks

Dan Brooks: There’s a quote from Hewlett-Packard that says that “Supply chain is the battleground for the 21st century.” A quote like that would be almost impossible to imagine 20 years ago or 25 years ago, that anybody would say supply chain is the battleground in market areas — free market areas. I read recently that hedge funds and emerging market funds are actually taking positions in supply chains as opposed to the companies that are making changes, because the supply chains show change more quickly than the companies that they used to take positions in.

This has been a drastic change in the relevance and the role that supply chain plays in world commerce and in business more broadly. You’ve not only seen these changes but I think you’ve influenced some because of the positions that you’ve had and I wonder if you’d take a minute to just talk to us about what you’ve seen as some of the biggest changes. What were the most significant? And, what’s the impact that those changes have had?

David Connor

Dave Connor: Thank you Dan, I think you’re quite right. Twenty-five years ago, or 20 or 15 years ago, I wouldn’t have expected to hear that quote from Hewlett-Packard. Indeed, I’ve seen a lot of changes. Generally, I’d say, I’ve seen the function change significantly from what has been a — well, what was an administrative function in many cases responding to the business — to more of a partnership with the business, and a look at where the function is now in the leadership of the business. We are at the leadership tables in the regions, in BP, in the divisions.

We’ve moved from everybody can do their own thing in supply chain to a much more centralized or center-led approach in our industry — learning from other industries, and part of that has been through our collaboration with ASU and learning what the best practices are in other industries. We must keep that focus.

So, I see a much more professional function, one that we’re proud to be in. We have supply chain masters now. We have supply chain degrees. We have a whole range of courses available for our professionals to pursue development during their careers. None of this was around in 20 years ago.

Brooks: You say that you have a position as a partner at the leadership table — what are the aspects of that partnership that you see as most significant, especially for a global organization like BP? What are the questions that you’re able to provide insight on, that were not being addressed by procurement and supply chain, say, 15 years ago?

Connor: Well, I’m blessed with market intelligence that was not available to me in the past. We’ve developed a team of experts who monitor the markets and they’re able to provide advice to me which I provide to the executive-level leaders in the company. And probably as important, they provide guidance to the category teams, as they’re developing their sourcing strategies.

As they’re doing their market sector strategy, they use the market intelligence. They look forward to where we think the market’s going to go. This isn’t just about commodity prices; this is about loading and fabrication facilities. It’s about lead time on critical equipment. All that intelligence is gathered through the category teams in part and through the market intelligent teams in part and it’s fed into our strategies, and goes into our business planning across the company.

Brooks: So even for evaluating the prospective return on a new venture, you would see procurement and supply chain as a key strategic partner in even deciding at that level, whether or not those steps should be taken? Do you agree with that, or is that true within BP?

Connor: I think that’s evolving then. We are certainly involved in merger and acquisition preparations, so we have significant input. We are party to developing joint operating agreements to ensure that we have the right structure, and how we’re going to contract within those agreements to leverage as much value as we can through those relationships.

Brooks: A number of changes have occurred at different levels. For smaller firms, there’s certain kinds of changes in the way they do procurement and supply chain management. But I wonder if there’s things that apply in particular to a global organization like BP that you see as particularly effective for improving the way that BP’s able to operate globally?

Connor: One thing I’ve learned, and fairly recently actually, is that one size doesn’t fit all. We have moved to a much more balanced portfolio in BP, so it’s not just about deepwater high-margin oil. It’s also about gas, which is long-term cash flow, relatively low margins and unconventional, such as shale and tar sands.

So, we are getting into areas of much more complexity where the supply chain is even more important. Frankly, our cost management in the high margin areas has been relatively poor as an industry. But when you start talking about low-margin gas, low-margin shale, you cannot afford not to get it right. We have to design our supply chain to be able to keep our costs and our overheads to a minimum, while delivering safety, producing operational risk and creating long-term value for the company.

Brooks: One interesting comment you made is about the role of complexity. In this portfolio you have present sources of energy like deepwater, where a lot of the technology is relatively new. There aren’t a lot of suppliers to call on and the risk is substantial. How does procurement and supply chain take into account the kinds of risks that an energy company like BP has to manage effectively to be productive?

Connor: It’s a good question, and you know I get if I turn the clock back, each of our individual projects — and we’ve got 42 on the books right now, what we term major capital projects — each of those in the past would be buying subsea equipment that would be going on the ocean floor anywhere between two and ten thousand-foot depths, and they would be customizing that equipment as they saw fit, and there would be very little standardization. Effectively, there’ll be very little reliability.

If you consider the intervention costs in deepwater, and the risks — not to just the environment but to reputation as we saw in Macondo — this is something that we couldn’t sustain as an industry. Where we are now, I’m pleased to say, is that we’ve centralized and standardized. We now focus our subsea production systems with just two suppliers, not ten suppliers as in the past. We rigorously manage the design and drive to standardization, which gives us the reliability and efficiency, and safety that we require. And of course, safety is good business. At the end of the day, we get better value through these focused relationships and standardized kit.

Brooks: With the increased complexity, and the role that technology plays with this complexity, do you find that that’s affecting the portfolio of skills you’re looking for when you’re putting together a procurement and supply chain team that can work effectively at this strategy level? Do you have to get more specific in terms of knowledge of technology, or are you able to deal with that effectively as you have in the past?

Connor: We have the technical experts, in the technical teams, who are part of the strategy, development and sourcing and in supply management efforts. So I don’t want the supply chain folks to become technical experts, but I do need them to be more expert in what we do. In the past, we’ve had the competency to conduct competitive tendering — three bids and a buy. That’s been what we’ve grown up with. We’re now into an area of much more complexity in negotiating, backed up with cost modeling, with awareness of where the market is, and building relationships — long-term deep relationships with few suppliers. So it requires a much higher level of competence, negotiation skills, commercial skills and most importantly to me, our relationship skills.

Brooks: Are you taking risk explicitly into consideration when you’re making those kinds of decisions about with whom you partner long-term?

Connor: In the past, I think we’ve generally segmented our suppliers using spend—how much we spend with our suppliers. We’ve talked about risk but really it was secondary to the level of spend, which we saw as the highest business impact. So, that would generally determine what we would call a strategic supplier in the past. Where we are now in our industry — and I believe BP is leading in this area — is we segment by risk first. So the first lens we look through is risk. Is this a high risk activity? What are the potential consequences of this activity? They’re the suppliers — they’re the categories that we put through the highest level of rigor. This is not a one-size-fits-all, so the highest-risk categories are treated quite differently than lower risk or medium risk. We go through a very intensive qualification, prequalification/qualification process to assure ourselves that we are developing these long-term relationships with very capable suppliers. Then post-award, we ensure that we have the competence to undertake the assurance that the contractors are actually delivering what they should do, safely.

Brooks: Interesting. Have you seen a change in the behavior or the approach that your big suppliers take as a result of your change in behavior? Have you influenced the way that they approach this partnership by changing the way you approach this partnership?

Connor: I believe we have and we can, more. The first thing we look at, is to align the values of the suppliers and the company. If we haven’t got the same values, we don’t have the same vision of where we can go, then we’re not going to have a long-term relationship and we need to manage that in a more traditional manner. There are many suppliers out there who still are in that area where they are out to maximize their returns and they really don’t want a long-term partnership.

So, we’re looking for suppliers that we’ve got that cultural alignment with and that we have the same values. That’s step one, before we go into developing the relationship and the long-term agreements.

Brooks: It’s interesting that you would identify your values as one of the most influential aspects of contract negotiations and supplier vetting. Do you think of that explicitly when you’re doing negotiations? I mean, think about your values and the influence they will have, not just on a supplier, but really a broad network of suppliers, right, because BP uses so many?

Connor: I’m in the middle of this right now Dan. We are the prequalification before we even talk about costs and quality around values. So we are vetting — right now we are vetting our rig suppliers to determine which ones we want to have in the next round where we’ll look at some of the more traditional measures.

First of all, we’ll look at them through this values lens. We meet them, we sit down, we discuss with them what are values are. We ask them what theirs are. If we feel that alignment, then they go on to the next phases. It’s very difficult to measure and it’s not something you can do by email or through electronic means. You really have to get face-to-face and feel each other out — it’s been a bit of a chemistry test.

Brooks: Yeah, it sounds exciting and productive, and challenging. This wasn’t something that took place, say, 15 years ago? Is that accurate?

Connor: I’d say it’s very accurate in our industry. I believe the nuclear industry, aerospace industry is where — were probably in that place, in that time, but in the oil and gas, it was very traditional.

Brooks: What do you see as the most significant changes for — especially for an organization like BP that’s global, that deals in a high risk environment — what do you see as the most significant changes over the next decade, that would take place in your mind?

Connor: Well, let’s talk about supply chain specifically. What I’ve said is, we’re going to need a higher level of competence. We are centralizing so I need to have MBAs in my team. I need to have people with great commercial acumen and great relationship skills. I see even greater use of technology in the future, and I see us working with our suppliers rather than develop that technology in house, to leverage what they have, which is something that we haven’t always done. So, getting that early integration with the suppliers, leveraging and focusing the technology to our mutual advantage is absolutely key. You know, I need the team that can deliver that.

Brooks: That’s interesting how you’ve seen the industry change, how about your own personal career and how that’s advanced in these industries over that same period of time? What have you seen as key steps in your own personal career that have enabled you to be a successful as you have been now as head of procurement and supply chain management at a global energy firm?

Connor: Well thanks Dan, and I’ve had quite an interesting career you might say, which has included time on projects, time in the business side and operational side, and a good degree of time out in the field.

I think it’s absolutely imperative to me if you aspire to leadership in this function, that you must have time in your career, working in the field operations, working alongside the suppliers and the operations folks. I don’t see how you can develop a supply chain vision without understanding how you’re going to deliver that to the good of the operation.

Some of the things I’ve done in my career is, I’ve taken a risk. There weren’t many people who were stood up and volunteered for assignments in Sudan and Somalia, which I did both earlier in my career.

Brooks: Wow.

Connor: I think you differentiate yourself from others by taking a challenge, and it has to be the right time for you. But, I think you need to push the envelope some and get out of your comfort zone. So that’s one thing I did, which has stood me in very good stead. The other thing is, at times you have to look laterally. It’s not always about a promotion, it’s about deep competence in parts of our function. Taking lateral moves to develop yourself and grow as a professional I think is absolutely key.

Brooks: What lateral moves, when you look back, stood out as particularly enriching or deepening in terms of your overall competence to move forward?

Connor: Well, I’ll give you an example. I was the logistics manager in the operation so I was managing movement of rigs, seismic crews — I had boats and airplanes and helicopters, so it was the perfect job for a boy. Yet, I went from that job to an analyst’s position in the procurement area because I saw that I had to deepen my knowledge of the market place and grow and develop in that area.

I went from a very exciting job to an equally exciting job, but quite different. That’s not something that naturally comes to many people.

Brooks: Were there any times when you were in the Sudan or Somalia when you second-guessed your standing up to take that position, or were you truly engaged in making that the best possible return?

Connor: No, I think — I never thought being an analyst was going to be exciting, but it was actually. It really stood me in good stead for my future career, because I had the operational experience as much as anybody could get. So, I checked that box. You know, to continue down that line would have been fun, but it wouldn’t have developed me. So, purposeful direction into an area of development, whether it’s into market intelligence or whether it’s into any other part of our function is really key I think, for our folks as they grow in their career.

Through developing myself, I made myself available for positions I wouldn’t have been considered for. I will always remember the day I was on a drilling rig in northern Somalia, my wife was in Mogadishu, and I got a phone call from the head of procurement in Chevron at the time, asking me if I would take up a position in procurement in San Francisco. I knew it was all worthwhile then.

Brooks: That’s quite a difference. A move from an oil rig off the shore of Somalia to downtown San Francisco.

Connor: Absolutely, and if I hadn’t developed myself, I wouldn’t have been suitable for that position.

Brooks: Would you say that having been off the coast of Somalia made you more effective in downtown San Francisco?

Connor: Absolutely, because as we developed I moved into actually, the strategic procurement manager for the upstream role. I’d seen the upstream — I’d been out there, I’d touched it. As we developed our strategies for the group, I was able to provide valuable input and insights on what was possible and what wasn’t possible.

Brooks: That’s great — the road to San Francisco goes through Mogadishu. People should make a mental note of that.

Connor: Absolutely.

Brooks: Thanks very much. This has been a really productive opportunity for us to hear from an organization that’s a leader in this area. We really appreciate your time. Thanks Dave.