NNPC Limited SCM Processes and Procedures PDF

NNPC Limited SCM Processes and Procedures 3.0 Category Management The Category Management process refers to governing and managing categories which includes defining category portfolio management & segmentation, building business alignment, performing category analysis, defining buying channel an...

NNPC Limited SCM Processes and Procedures 3.0 Category Management The Category Management process refers to governing and managing categories which includes defining category portfolio management & segmentation, building business alignment, performing category analysis, defining buying channel and developing and executing category strategy. Procurement categorisation enhances strategic sourcing of goods, works, and services. Objectives The Category Management process is designed to: • • • • Define the sourcing and category strategy to guide procurement activities in the business. Define and assign buying channels to strategic procurement categories. Develop a system that ensures the periodic review of procurement categories in line with business need and supply risk profiles. Proactively drive sourcing decisions in compliance with the local content targets as specified in the Nigerian Oil and Gas Industry Content Development (NOGICD) Act, 2010 and related regulations. The Kraljic matrix serves as a first level lens to categorize procurement items sourced by the organization. Figure 1 Kraljic's Matrix 29 NNPC Limited SCM Processes and Procedures 3.1 Category Management Policies S/N Description 1. Sourcing Strategy for Procurement A sourcing strategy and plan shall be developed to align with category management strategy. The sourcing strategy articulates the approach to the activity, and defines details such as the method of tender, key milestones, selection criteria/success factors etc. 2. Procurement Categorisation On an annual basis or more frequently where required, the Supply Chain Management shall conduct a review of the classification of the procurement items to ensure the current classification is reflective of the supply volumes, supply risk and profit impact on the organisation. 3. Strategic Items Strategic items have a high-profit impact and high supply risk. Each contract (usually provided by a handful of suppliers) in this segment is unique and focuses upon the shared gains that equal partners enjoy in a collaborative relationship. Purchasing approaches to consider here include using full purchasing power, substituting products or Suppliers, and placing high-volume orders as well as leveraging long-term supplier commitment or making the item in-house rather than buying it. For strategic items, the specific sourcing operational strategy shall be developed in consultation with the key business stakeholders and the Executive Team. 4. Leverage Items These items have a high-profit impact but low supply risk. Examples include computer supplies, lubricants for refineries, fuel for vehicles and generators, etc. For this category of supplies, there is a reasonable number of suppliers of the commoditized goods and services, and the Suppliers can be easily substituted as their offerings are more or less the same. The approach for this category is to leverage the balance of power which is tilted to the organization and negotiate lower prices from the vendors as well as develop long-term supply relationships. For leverage items, Group Supply 30 NNPC Limited SCM Processes and Procedures 3.1 Category Management Policies Chain Management (Corporate Headquarters) is responsible for the negotiation of group-wide framework agreements. 5. Bottleneck Items Procurement items in this segment have a low profit impact but high supply risk. Useful approaches here include over-ordering when the item is available (lack of reliable availability is one of the most common reasons that supply is unreliable), application of lean methods, having backup suppliers and carrying out upfront risk analysis. 6. Routine Items/Non-Critical Items These items (e.g., office stationery and supplies) are low risk and have a low impact upon organizational profitability. Items in this category (e.g., pens and paper), while important, do not have a significant impact upon the business, nor does their absence represent a serious threat. As such, the sourcing strategies deployed here focus on efficiency and reducing administrative burden. Techniques such as e-auctioning and framework agreements are an excellent means to redirect responsibilities either directly to suppliers or to internal customers that are requisitioning the goods. 7. Category Analysis and Strategy Category Analysis shall include key considerations including Category Baseline; Cost analysis; Should Cost; supplier performance metrics; supplier risk profiles including risk mitigation and any dependencies; supplier capacity, the external supply market; traceability (source of supply); economic, political and climate conditions. 8. Innovation and Ethical Sourcing Category Management shall track collaborate with strategic supplier industry to identify innovative and cost-effective initiatives that can benefit the supplier category. It shall also recommend initiatives to drive circular supply chains, reduction of carbon footprint and ethical sourcing in line with the business sustainability policies. 9. Category Buying Channel 31 NNPC Limited SCM Processes and Procedures 3.1 Category Management Policies Buying Channels shall be defined for all strategic procurement categories. The criteria for determine buying channels based on analysed data shall include locations of need; financial thresholds; risk; commodity; complexity; etc. Buying channels to consider are, for example, Catalogue/Punchout; call off contracts, competitive bids, etc. 10. Category Spend Analytics On an annual basis, there shall be a reporting and analysis of data related to expense and accounts payable, category performance, inventory data, overall spend, PO, invoices, P-Card/ Travel and Entertainment (T&E) Expense and KPIs. The output of this analysis will inform a review of procurement category and subsequent update of the category and buying strategy. 3.2 S/N 1. Category Management Procedures Responsible Party Description Job Aid N-5 On identification of an uncategorized ERP goods, service or works Analyse the identified goods, service or works against existing categories (in ERP) and validate that none of the existing categories match the identified procurement need. Note: Uncategorised goods, service or works may be identified in the course of procurement planning or procurement requisition. 2. N-5 Prepare a motivation (New Category Email/ ERP Request) for a new category (including suggested buying channels/ source strategies/ options) and forward for review. 3. N-4 Review New Category Request, approve as Email/ ERP appropriate and update the Category Listing on the system. 32 NNPC Limited SCM Processes and Procedures 3.2 4. Category Management Procedures N-5 On an annual basis ERP Review listing of categories on the system checking for relatedness and similar categories. Evaluate and define sourcing strategies/ buying channel options for the new category. Where similar categories are found, and there is a case for category consolidation, go to step 5. Where there is no case for consolidation, End. 5. N-5 Where similar categories are found, and Email there is a case for category consolidation Prepare Justification for category consolidation or separation and forward for supervisor review. 6. N-4 Review and approve Justification as Email/ ERP appropriate and authorize the setup of consolidated categories (or new categories) as required. End 3.3 Category Management Input & Output Documents Document Description Type Frequency Source Recipient 1. Documented categorization of procurement Output As required N-3 N-2 2. Procurement Plan Input As required N-3 N-5 3. Purchase Requisition Input As require Business Unit N-5 S/N 33 NNPC Limited SCM Processes and Procedures 3.3 4. 3.5 Category Management Input & Output Documents New Category Request Output As required Basis of Measurement Timeliness of procurement item categorisation Time elapsed from the identification of an uncategorized procurement to formal categorization. 2. Completeness of procurement categories 3. Timeliness of category Review 1. N-4 Category Management Key Performance Indicators Performance Measure S/N N- 5 Timeframe Target As required 3 days Number of material omissions and errors in the procurement categories. As required Zero error Latest time to conduct annual category review. Annual Nov 30 34 NNPC Limited SCM Processes and Procedures 35