SCM Processes and Procedures Manual.pdf

NNPC Limited SCM Process and Procedures SUPPLY CHAIN MANAGEMENT PROCESSES AND PROCEDURES MANUAL NNPC Limited January 2023 NNPC Limited SCM Processes and Procedures Document Review, Check, Endorsement & Approval Issue 1 Signature Name Position Date Issue, Modification PIA Implementation Team...

NNPC Limited SCM Process and Procedures SUPPLY CHAIN MANAGEMENT PROCESSES AND PROCEDURES MANUAL NNPC Limited January 2023 NNPC Limited SCM Processes and Procedures Document Review, Check, Endorsement & Approval Issue 1 Signature Name Position Date Issue, Modification PIA Implementation Team Chief Supply Chain Officer SLT SMT 19/01/2023 19/01/2023 19/01/2023 19/01/2023 Prepared Checked Endorsed Approved 1 NNPC Limited SCM Processes and Procedures Table of Contents Glossary.............................................................................................................................................. 7 Acronyms ......................................................................................................................................... 10 Full Meaning.................................................................................................................................... 10 Document Review and Approval............................................................................................. 14 1.0 Introduction ..................................................................................................................... 15 1.1 Background ................................................................................................................................................. 15 1.2 Structure of the Manual ....................................................................................................................... 16 1.3 Compliance .................................................................................................................................................. 16 1.4 Users ................................................................................................................................................................ 16 1.5 Updates to the Manual ........................................................................................................................ 17 2.0 Plan Procurement ............................................................................................................. 21 2.1 Plan Procurement Policies .............................................................................................................. 21 2.2 Plan Procurement Procedures ....................................................................................................24 2.3 Plan Procurement Input & Output Documents ............................................................... 26 2.4 Plan Procurement Key Performance Indicators............................................................... 27 3.0 Category Management ................................................................................................... 29 3.1 Category Management Policies .................................................................................................. 30 3.2 Category Management Procedures ......................................................................................... 32 3.3 Category Management Input & Output Documents .................................................... 33 3.5 Category Management Key Performance Indicators ................................................... 34 4.0 Purchase Requisition ...................................................................................................... 36 4.1 Purchase Requisition Policies....................................................................................................... 36 4.2 Purchase Requisition Procedures .............................................................................................. 38 4.3 Purchase Requisition Input & 4.4 Purchase Requisition Key Performance Indicators ....................................................... 40 5.0 Determine Procurement Method ............................................................................... 42 Output Documents .................................................. 40 2 NNPC Limited SCM Processes and Procedures 5.1 Determine Procurement Method Policies ........................................................................... 42 5.2 Determine Procurement Method Procedures .................................................................. 54 5.3 Determine Procurement Method Input & Output Documents ............................. 56 5.4 Determine Procurement Method Key Performance Indicators ............................. 57 6.0 Issue Expression of Interest .......................................................................................... 60 6.1 Issue Expression of Interest Policies ........................................................................................ 60 6.2 Issue Expression of Interest Policies Procedures ............................................................. 62 6.3 Issue Expression of Interest Input & Output Documents ........................................... 63 6.4 Issue Expression of Interest Key Performance Indicators ..........................................64 7.0 Issue Request for Proposal/ Quotation ..................................................................... 66 7.1 Issue Request for Proposal/Quotation Policies .................................................................. 66 7.2 Issue Request for Proposal/Quotation Procedures .........................................................68 7.3 Issue Request for Proposal/Quotation Input & Output Documents .................... 69 7.4 Issue Request for Proposal/Quotation Policies Key Performance Indicators 70 8.0 Evaluate Tenders and Select Supplier....................................................................... 72 8.1 Evaluate Tenders and Select Supplier Policies .................................................................. 72 8.2 Evaluate Tenders and Select Supplier Procedures ......................................................... 79 8.3 Evaluate Tenders and Select Supplier Input & Output Documents...................... 81 8.4 Evaluate Tenders and Select Supplier Key Performance Indicators ..................... 81 9.0 Emergency Procurement .............................................................................................. 86 9.1 Emergency Procurement Policies .............................................................................................86 9.2 Emergency Procurement Procedures .................................................................................... 87 9.3 Input Emergency Procurement& Output Documents ............................................... 88 9.4 Emergency Procurement Key Performance Indicators ..............................................89 10.0 Frameworks Agreement ................................................................................................. 91 10.1 Frameworks Agreement Policies ................................................................................................ 91 10.2 Frameworks Agreement Procedures ...................................................................................... 92 10.3 Frameworks Agreement Input & Output Documents ................................................. 93 10.4 Frameworks Agreement Key Performance Indicators................................................. 93 11.0 Administer Purchasing Cards (P-Cards) ................................................................... 95 11.1 Administer Purchasing Cards (P-Cards) Policies.............................................................. 95 11.2 Administer Purchasing Cards (P-Cards) Procedures ..................................................... 97 3 NNPC Limited SCM Processes and Procedures 11.3 Administer Purchasing Cards (P-Cards) Input & Output Documents ................ 99 11.4 Administer Purchasing Cards (P-Cards) Key Performance Indicators .............100 12.0 Reverse Auction ...............................................................................................................102 12.1 Reverse Auction Policies ................................................................................................................ 102 12.2 Reverse Auction Procedures ....................................................................................................... 103 12.3 Reverse Auction Input & Output Documents .................................................................. 105 12.4 Reverse Auction Key Performance Indicators.................................................................. 105 13.0 Negotiate with Preferred Bidder .............................................................................. 107 13.1 Negotiate with Preferred Bidder Policies ........................................................................... 107 13.2 Negotiate with Preferred Bidder Procedures................................................................... 109 13.3 Negotiate with Preferred Bidder Input & Output Documents .............................. 109 13.4 Negotiate with Preferred Bidder Key Performance Indicators .............................. 110 14.0 Issue Purchase Order ......................................................................................................112 14.1 Issue Purchase Order Policies ..................................................................................................... 112 14.2 Issue Purchase Order Procedures ............................................................................................ 113 14.3 Issue Purchase Order Input & Output Documents........................................................ 114 14.4 Issue Purchase Order Key Performance Indicators ....................................................... 114 15.0 Contract Management................................................................................................... 116 15.1 Contract Management Policies .................................................................................................. 116 15.2 Contract Management Procedures ........................................................................................ 121 15.3 Contract Management Input & Output Documents ................................................... 122 15.4 Contract Management Key Performance Indicators .................................................. 123 16.0 Vendor Management ..................................................................................................... 125 16.1 Vendor Management Policies .................................................................................................... 125 16.2 Vendor Management Procedures ........................................................................................... 127 16.3 Vendor Management Input & Output Documents ...................................................... 129 16.4 Vendor Management Key Performance Indicators...................................................... 129 17.0 Clearing and Haulage ......................................................................................................131 17.1 Clearing and Haulage Policies..................................................................................................... 131 17.2 Clearing and Haulage Procedures........................................................................................... 132 17.3 Clearing and Haulage Input & Output Documents ...................................................... 134 17.4 Clearing and Haulage Key Performance Indicators ..................................................... 135 4 NNPC Limited SCM Processes and Procedures 18.0 Goods Receipt ................................................................................................................... 137 18.1 Goods Receipt Policies .................................................................................................................... 137 18.2 Goods Receipt Procedures ........................................................................................................... 139 18.3 Goods Receipt Input & Output Documents ...................................................................... 142 18.4 Goods Receipt Key Performance Indicators ..................................................................... 143 19.0 Warehousing .................................................................................................................... 145 19.1 Warehousing Policies ...................................................................................................................... 145 19.2 Warehousing Procedures ............................................................................................................. 147 19.3 Warehousing Input & Output Documents......................................................................... 149 19.4 Warehousing Key Performance Indicators ........................................................................ 149 20.0 Stock Review ......................................................................................................................151 20.1 Stock Review Policies ........................................................................................................................ 151 20.2 Stock Review Procedures .............................................................................................................. 152 20.3 Stock Review Input & Output Documents ......................................................................... 155 20.4 Stock Review Key Performance Indicators ........................................................................ 156 21. Stock Replenishment .....................................................................................................158 21.1 Stock Replenishment Policies .................................................................................................... 158 20.2 Stock Replenishment Procedures ........................................................................................... 162 20.3 Stock Replenishment Input & Output Documents ...................................................... 162 20.4 Stock Replenishment Key Performance Indicators ..................................................... 162 22.0 Stock Write-Off & Disposal .......................................................................................... 164 22.1 Stock Write-Off & Disposal Policies ......................................................................................... 164 22.2 Stock Write-Off & Disposal Procedures ................................................................................ 165 22.3 Stock Write-Off & Disposal Input & Output Documents ........................................... 168 22.4 Stock Write-Off & Disposal Key Performance Indicators .......................................... 168 23.0 Stock Transfer ................................................................................................................... 171 23.1 Stock Transfer Policies ...................................................................................................................... 171 23.2 Stock Transfer Procedures for Transfer of Accepted Goods (Stock Items) to Warehouse ................................................................................................................................................................ 172 23.2.2 Stock Transfer Procedures for Transfer of Goods from One Plant (SBU/CSU) to Another .................................................................................................................................................................. 174 23.2.3 Stock Transfer Procedures for Return of Issued Goods to Warehouse ............ 176 5 NNPC Limited SCM Processes and Procedures 23.3.1 Stock Transfer Input & Output Documents for Transfer of Accepted Goods (Stock Items) to Warehouse ........................................................................................................................... 177 23.3.2 Stock Transfer Input & Output Documents for Transfer of Goods between Storage Locations ................................................................................................................................................. 177 23.3.3 Stock Transfer Input & Output Documents for Transfer Goods from One Plant (SBU/CSU) to Another ........................................................................................................................... 178 23.3.4 Stock Transfer Input & Output Documents for Return of Issued Goods to Warehouse ................................................................................................................................................................ 178 23.4 Stock Transfer Key Performance Indicators ...................................................................... 179 24.0 Custody Transfer ............................................................................................................. 184 24.1 Custody Transfer Policies ............................................................................................................... 184 24.2 Custody Transfer Procedures for Custody Transfer (Non-Stock Items) ........... 185 24.3 Custody Transfer Input & Output Documents for Custody Transfer ................. 188 24.4 Key Performance Indicators ........................................................................................................ 188 6 NNPC Limited SCM Processes and Procedures Glossary Asset Disposal Committee This is an internal committee formed for the purpose of recommending the best method of disposing obsolete or surplus equipment or stock and handling the disposal process. Authority for Expenditure This is a budgetary document that lays out proposed expenses for a particular project and authorizes an individual or group to spend a certain amount of money for that project. Bill of Engineering Measurement and Evaluation This is a document that lists all work items, their estimated quantities and cost, prepared from the specification and drawings of a project. Bill of Quantities This is a document that provides specific measured quantities of the items of work identified by the drawings and specifications in the tender documentation. Business Unit This is a profit center within NNPC Limited which focuses on delivering specific products or services to specific market segment. Capital Expenditure An amount spent to acquire or upgrade productive assets (such as buildings, machinery and equipment, vehicles) in order to increase the capacity or efficiency of the organization for more than one accounting period. Delegation of Authority This spells out the right to approve, perform or delegate certain functions or responsibilities within the Group. Delegation of Authority Manual This is a document which sets out the powers and authority granted to the management of NNPC. The document spells out the right to approve, perform or delegate certain functions or responsibilities within the Group. Delegation of Financial Authority This sets out the hierarchy of financial thresholds that empower staff at different grades within the Group to commit expenditure and incur liabilities or debts on behalf of the Group. 7 NNPC Limited SCM Processes and Procedures Disposal Request Form This is a form used to initiate, document, and track the disposal process of assets. Expression of Interest This is a formal notice to potential suppliers that NNPC Limited is planning to acquire goods or services and inviting interested suppliers to register their interest. Economic Ordering Quantity This refers to the ideal order quantity that the Group should purchase in order to minimize its inventory costs. Enterprise Resource Planning This refers to the technologies and systems NNPC Limited uses to manage and integrate its core business processes in real time. Form M This is a mandatory document completed by all importers for importation of goods into Nigeria. The life span of a Form M is 180 days (for general merchandise) and 365 days (for plant and machinery), after which an extension of 180 days (for general merchandise) and 365 days (for plant and machinery) can be granted on the Form M by an Authorized Dealer. Any further extension has to be approved by the Central Bank of Nigeria. Goods Receipt Note A Goods Receipt Note is a receipt given to the supplier to confirm delivery or acceptance of goods by the supplier. It is matched against the purchase order and the supplier’s invoice before payment is made. Letter of Credit This is a letter issued by a bank to another party to serve as a guarantee for payments to be made to the other party under specified conditions. Material Issue Voucher This is used to document the issuing out of materials to the user department. Material Return Form This is used to document and track the return of previously issued materials back to the warehouse. Material Safety Data Sheet This is a document that provides information on the potential hazards (health, fire, reactivity and environmental) and how to safely handle the chemical/hazardous product. 8 NNPC Limited SCM Processes and Procedures Material Transfer Voucher This is used to document and track the transfer materials or equipment from one location to another. Operating Expense This are expenses the business incurs through its normal business and operational activities. Pre-Arrival Assessment Report This is a document submitted to the Nigeria Customs Service as import documents for assessment and clearance before the arrival of the cargo. Pro-forma Invoice A pro-forma invoice is a preliminary bill of sale sent to buyers in advance of a shipment or delivery of goods. It gives a description of the purchased items and notes the cost along with other important information, such as shipping weight and transport charges. Purchase Order A purchase order is a written authorization from a buyer to acquire goods or services. The document authorizes a supplier to deliver to the buyer at the price, quality level, delivery date, and certain other terms specified in the agreement. A purchase order is legally binding after the supplier counter-signs it. Request for Proposal This is a document that solicits proposals from qualified contractors interested in providing the NNPC Limited with procurement of goods, works or services. Request for Quotation This is the process by which NNPC Limited invites qualified vendors to submit price quotes for the purchase of specific goods, works or services. Strategic Business Unit This is a relatively autonomous business unit within the Group that operates as an independent enterprise with responsibility for generating its own operational results and earnings. Single Goods Declaration This is a Customs document, which shows unabridged details of imported or exported goods. 9 NNPC Limited SCM Processes and Procedures Turnaround Maintenance This is the periodic maintenance in which plants are shutdown to allow for inspections, repairs, replacements and overhauls that can be carried out only when the assets (plant facilities) are taken out of service. Terms of Reference This is a document which defines all aspects of how an evaluation will be conducted. It describes the objectives and scope of the evaluation, outlines the responsibilities of the evaluation team, and provides a clear description of the resources available to conduct the evaluation. Acronyms Full Meaning ADB Authorized Dealer Bank ADC Assets Disposal Committee AFE Authorization For Expenditure BEME Bill of Engineering Measurement and Evaluation BOQ Bill of Quantities CAC Corporate Affairs Commission CAPEX Capital Expenditure CASHES Community Affairs, Safety Health Environment and Security CFO Chief Financial Officer CIP Carriage and Insurance Paid to CP&S Corporate Planning & Strategy CQS Consultants Qualification Selection CSF Critical Success Factors CSU Corporate Services Unit DDP Delivered-Duty-Paid DFA Delegation of Financial Authority DM Deputy Manager 10 NNPC Limited SCM Processes and Procedures Acronyms Full Meaning DOA Delegation of Authority DRF Disposal Request Form EOI Expression of Interest EOQ Economic Ordering Quantity EPC Engineering Procurement & Construction ERP Enterprise Resource Planning ETSD Engineering and Technical Services Department FBS Fixed Budget Selection FCCS Financial Commitment Control Slip GED Group Executive Director GRC Governance Risk & Compliance ICB International Competitive Bidding ITT Invitation to Tender KPIs Key Performance Indicators LC Letter of Credit LCS Least-Cost Selection MEAT Most Economically Advantageous Tender MIC Media Interface Connector MIV Materials Issue Vouchers MRF Materials Return Form MRP Materials Requirement Planning MRV Materials Receipt Voucher MSDS Materials Safety Data Sheet MTV Materials Transfer Voucher NCB National Competitive Bidding NCDMB Nigerian Content Development & Monitoring Board 11 NNPC Limited SCM Processes and Procedures Acronyms Full Meaning NCS Nigeria Customs Service NIPEX Nigerian Petroleum Exchange NOGICD Nigerian Oil and Gas Industry Content Development OCB Open Competitive Bidding OCTGs Oil Country Tubular Goods OEMs Original Equipment Manufacturers OPEX Operating Expense PAAR Pre-Arrival Assessment Report PFI Pro-Forma Invoice PO Purchase Order PR Purchase Requisition PST Physical Stock Taking QBS Quality Based Selection QCBS Quality and Cost-Based Selection RFP Request for Proposal RFQ Request for Quotation RT Restricted Tendering SBU Strategic Business Unit SCM Supply Chain Management SGD Single Goods Declaration SMT Senior Management Team SON-CAP Standard Organization of Nigeria Conformity Assessment Programme SPF Stock Proposal Form SSS Sole Source Selection T&E Travel and Expenses TAM Turnaround-Maintenance 12 NNPC Limited SCM Processes and Procedures Acronyms Full Meaning TOR Terms of Reference VAT Value Added Tax WHT Withholding Tax 13 NNPC Limited SCM Processes and Procedures Document Review and Approval Revision history Version Author Date Revision This document has been reviewed by: S/N Reviewer Signature Date Reviewed 1 2 3 4 5 14 NNPC Limited SCM Processes and Procedures 1.0 Introduction 1.1 Background The purpose of this manual is to set out the Supply Chain Management (SCM) policies and procedures for NNPC Limited. The manual describes the policies, guidelines and practices to be adopted in carrying out Supply Chain processes. It is designed to: • Serve as a procedural guidance for SCM staff across the Group. • Assist in providing a clear definition of job responsibilities as well as their interrelationships. • Eliminate information gaps on policies and procedures. • Ensure consistent definition and application of procedures. Specific processes and procedures contained in this manual are tailored to enable a step-by-step implementation of internal guidelines (e.g., Delegation of Financial Authorities) and external regulations (e.g., Local Content). The implementation of the policies and procedures set out in this manual will help to ensure that all entities within the Company maintain sound internal control systems. The manual defines the minimum controls expected within the Group. It also sets out the policies and directives to be followed and the reporting requirements to be complied with. The manual has been prepared to assist management and staff who are responsible for performing the supply chain management tasks in understanding: • The activities involved in planning, developing, implementing, and monitoring the procurement of goods, works and services for the Group. • The activities involved in the management of inventory of the Group in order to maintain availability of critical materials and optimize cost. • How to optimally manage the relationship between NNPC Limited and its Suppliers/Contractors. • The responsibilities of different stakeholders in the Supply Chain Management Process. • The activities involved in the documentation and reporting of Supply Chain activities for the Group. 15 NNPC Limited SCM Processes and Procedures 1.2 Structure of the Manual The manual contains a high-level Mandate, the SIPOC (Supplier-Input-ProcessesOutput-Customers) Model, and Relationship Map for the SCM Function. This is followed by 23 core chapters (processes), each of which is organised in line with the following structure: • Introduction: Gives an overview and scope of the process and sets out the key sub-processes covered. • Objectives: States the main purposes that the process intends to accomplish. • Policies: Outlines the main operating policies guiding the execution of various activities and tasks. • Procedures: Provides a detailed breakdown of the main activities in the process, including tasks, responsibilities and job aids/tools. • Input and Output Documents: Outlines the documents that serve as inputs into the process, the outputs and key reports generated. • Key Performances Indicators: Sets the performance measures used to determine the efficiency and effectiveness of the processes. • Process Flow Map: Provides a pictorial summary of the outlined procedures. 1.3 Compliance Compliance with this manual is mandatory for all users. Any significant act of noncompliance may be considered an act of misconduct. However, there may be exceptional circumstances, where it is impracticable to comply with a particular policy or procedure. In such instances, a prior written waiver will be required from the Head of the Function. The GRC function will review compliance with the provisions of this manual as part of their audit scope and procedures. Where the need arises, the GCEO is authorized to grant exceptions to the application of this policy, and thereafter seek ratification from the NNPC Limited Board. 1.4 Users This manual applies to all sub-functional areas in the Supply Chain Function. It also applies to other functions (e.g., Finance, Legal, Corporate Planning & Strategy, Corporate Communications, etc.) as reflected in the Relationship Map. 16 NNPC Limited SCM Processes and Procedures 1.5 Updates to the Manual It is intended that this manual will be updated every two years, unless there is a specific requirement for an immediate revision in line with changes in NNPC Limited’s business. Such updates will be duly communicated to all relevant departments and units. It is instructive to note that the scope of processes addressed in this manual covers the important areas selected by NNPC management. Accordingly, it is anticipated that additional policies and procedures may be identified and incorporated in the future. In addition, the manual has been developed largely around the existing level of adoption of the company’s Enterprise Resource Planning System and will need to be further refined as its usage is optimised and deepened in the future. 17 NNPC Limited SCM Process and Procedures NNPC Limited SCM Processes and Procedures 19 NNPC Limited SCM Process and Procedures NNPC Limited SCM Process and Procedures 2.0 Plan Procurement The Plan Procurement process defines the policies, procedures for creating Procurement Plan -a description of the estimated procurement, value, time schedule, method of procurement, packages/lots. Objectives The objectives of this process are to: Harmonize individual procurement plans of Business Units to harness economies of scale. Develop a plan to guide the activities of the Procurement Teams/ Tenders Committees in the course of the year. Align budget with procurement needs and provide a basis to track compliance. • • • 2.1 Plan Procurement Policies S/N Description 1. Annual Procurement Plan There shall be an Annual Procurement Plan with the corresponding Budget for each financial year. The annual procurement plan shall reflect all foreseeable procurement items required for the budget year. 2. Approach to Pre-Budget Procurement Planning There shall be a pre-budget approved and post-budget approved procurement plan. By the second quarter of each year, in consultation with the relevant functional areas of the business, a pre-budget approved Procurement Plan of the upcoming year shall be developed by: a. Conducting a needs assessment and evaluation. b. Identifying the goods, works or services required. c. Carrying appropriate market and statistical surveys and on that basis prepare an analysis of the cost implications of the proposed procurement. d. Aggregating its requirements whenever possible, both in NNPC Limited and across its related businesses to obtain economy of scale and reduce procurement cost. e. Prescribing any method for effecting the procurement subject to the necessary authorisation thresholds defined in the Delegation of Financial Authority. NNPC Limited SCM Processes and Procedures 2.1 3. Plan Procurement Policies Approach to Post-Budget Procurement Planning Based on an approved budget and in consultation with relevant functional areas, a post-budget approved Procurement Plan shall be developed as an update to the pre-budget approved Procurement Plan, to aid efficient procurement implementation. 4. Content of a Procurement Plan At a minimum, a Procurement Plan shall reflect: a. A description/ specification of the goods works or service. b. Quantity or definite deliverables. c. The owner of the contract, i.e., the designation of the contract holder, Department. d. The proposed procurement method (Open Competitive or Restrictive Tendering (Selective, Single Sourcing/ Direct Purchase, etc.)). e. Vendors, if already determined through: i. Single sourcing / direct purchase. ii. The procurement is on repeat order. iii. For procurement that are carried over from previous years, in which case the vendors were already determined. f. In-house estimate gotten from the pricing intelligence or as worked out total. g. Reasons for the chosen contracting strategy. h. Estimated timeline for the procurement. 5. Procurement Planning Committee A Procurement Planning Committee shall be established with representation (at a minimum) from various functions in the business: Functions Expected Inputs Procurement Team Provide overall committee leadership and guidance on the preparation and implementation of the Procurement Plan. Head of SCM shall chair this committee and be responsible for ensuring that the committee carries out its duties in accordance with the stipulated NNPC policies. Key Business Units Provide unit perspective on the objectives, basis for suggested mode of procurement, profile of target 22 NNPC Limited SCM Processes and Procedures 2.1 Plan Procurement Policies vendors and key considerations of the procurement need. Finance & Accounts Legal Subject Matter Experts {When Necessary) 6. Provide a guidance based on approved budget and cashflow (local and foreign currency) implications of procurement plan and timing. Provide legal guidance on the effort that will be required for contract development and if external resourcing will be required. This optional requirement depends on the nature and size of the procurements. The Procurement Team in liaison with the relevant Business Units will determine this need. Role of Procurement Planning Committee The role of the Procurement Planning Committee shall include the following: a. Prepare the needs assessment and evaluation. b. Identify the goods. works or services required. c. Carry out appropriate market and statistical surveys and on that basis prepare an analysis of the cost implications of the proposed procurement. d. Aggregate requirements whenever possible, both within and between NNPC Limited and its subsidiaries. to obtain economy of scale and reduce procurement cost. e. Integrate each subsidiaries' procurement expenditure into its yearly budget. f. Prescribe any method for effecting the procurement subject to the necessary approval. 7. Quarterly Review of Procurement Plan On a quarterly basis, there shall be a review of compliance of procurement requests with the Procurement Plan. The Report shall identify opportunities for improvement and highlight any developments that impact other procurement activities in the course of the year. 23 NNPC Limited SCM Processes and Procedures 2.2 Plan Procurement Procedures S/N Responsible Party Description Job Aid 1. SCM (N-4/5) By the second quarter of each year Email Reach out to all budget holders to prepare plan for procurement for the upcoming financial year for submission by a stated deadline. Note: The procurement Plan template will also be shared to guide submissions and ease consolidation. 2. Business Unit Procurement Planning Committee Based on guiding template, prepare prebudget Procurement Plan for Business Unit and forward to Business Head for review and approval. Email 3. Business (N3) Review, update (or request for updates) and approve the Procurement Plan as required and forward to the SCM N4/5 Email Unit Note: • • • • 4. SCM (N-3) Each unit carries out assessment and evaluation of their needs for upcoming year based on their projected activities. Itemize the requirements in form of goods, works and services for actualizing the above objective. Compile a list of all known goods, works and services needed to achieve the set objectives. Specify quantities and preferred timing for the goods, works and services where applicable. On receipt of Business Unit Procurement Plans Setup a Procurement Planning Committee to review and consolidate the Procurement 24 NNPC Limited SCM Processes and Procedures 2.2 Plan Procurement Procedures Plans aggregating services, goods and works where necessary. 5. Procurement Planning Committee Review and consolidate Business Unit Procurement Plans. Excel Note: Procurement Planning Committee shall also: • • Identify goods, works and services that are similar in nature or can be handled together. Aggregate requirements where possible, within the departments and sections for each Business Unit. 6. SCM (N4) Based on inputs from Procurement Planning Committee, prepare a consolidated Procurement Plan, update as required and forward for review and approval. Excel 7. SCM (N/2) For pre-budget approved Procurement Plan Email Review Procurement Plan, approve as required and forward to CP&S for planning and inclusion in the budget. 8. 9. NNPC Senior Management Team (SMT) For post-budget approved Procurement Plan SCM (N4) On a Quarterly Basis Review and approve in line with budget and circulate to Business Units and SCM. ERP Review compliance with the Procurement Plan, identify opportunities for 25 NNPC Limited SCM Processes and Procedures 2.2 Plan Procurement Procedures improvement and recommend adoption of lessons learnt. 10. SCM (N/3) future Review Procurement Plan Compliance Report, update as required and approve recommendations for adoption in subsequent quarters. To Purchase Requisition Process 2.3 Plan Procurement Input & Output Documents Document Description Type Frequency Source Recipient 1. Business Plan Input As required Planning Department / CP&S Procurement Planning Committee/ SCM 2. Approved Budget Input As required SMT / Finance Procurement Planning Committee 3. Procurement Plan Output As required Procurement Planning Committee • • SCM N-4 • • S/N 4. Procurement Plan Compliance Report Output As required • • • SCM Team Tenders Committee CP&S SMT SCM Team Tenders Committee Business Head 26 NNPC Limited SCM Processes and Procedures 2.4 Plan Procurement Key Performance Indicators Performance Measure Basis of Measurement Timeframe Target 1. Timeliness of developing the Procurement Plan Latest date for approval of annual procurement plan. Annual 1 month prior to commencem ent of annual budget program. 2. Quality of the Procurement Plan Number of material errors, and omissions in the Procurement Plan. As required Zero error 3. Compliance to the Procurement Plan % Compliance with procurement plan during review period. Quarterly 100% S/N 27 NNPC Limited SCM Processes and Procedures 28 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 NNPC Limited SCM Processes and Procedures 4.0 Purchase Requisition This refers to the process through which procurement needs are initiated and approved by the sponsoring Business Unit for progression along the procurement process chain. This process includes the review and approval of a requisition to be converted to a purchase order. It covers both automated approval workflow and manual approvals that are conducted primarily by the business partner. This includes considerations on approval decisions such as threshold amounts and preferred vendors. Objectives The objectives of the process are to ensure: • Commitment of resources for procurement needs are duly reviewed and approved to ensure compliance with the Budget and Procurement Plan. • Provision of key information required to guide subsequent procurement-related activities. 4.1 Purchase Requisition Policies S/N Description 1. Compliance with Procurement Plan To initiate the procurement requisition process, every request shall be assessed based on the approved annual procurement plan and corresponding budget for each financial year. This is to ensure that resources are available to undertake the requests and if not, extra budgetary approvals would be required where applicable. 2. Delegation of Procurement Authority As detailed in the delegation of authority (DOA) and delegation of financial authority (DFA) manuals, all requests shall be treated according to the corresponding approval limits and thresholds for budgetary control purposes at NNPC Limited and its subsidiaries (where applicable). 3. Purchase Requisition Approval Every requisition shall be reviewed by the immediate supervisor of the person making the requisition in addition to the approval by the budget owner. 36 NNPC Limited SCM Processes and Procedures 4.1 Purchase Requisition Policies S/N Description 4. Prohibition of Purchase Requisition Splitting No transaction may be split to circumvent the approval limits of this DFA. Multiple Purchase Requisitions and Orders will be considered as one transaction where: The transactions are of similar nature over a closely related time period. Purchase Requisitions are from the same Business Unit and are for the same or similar equipment/projects. It is the primary responsibility of the originating department to ensure that the requisitioned expenditure is within the procurement plan, is in the best interest of the company and complies with the procurement policies and procedures. 5. Contracting Limits by type of Tendering – NNPC Limited Approving Competitive Single source Contract Authority Tendering ($) ($) Variation* NNPC Limited >$100m >$8m Unlimited Board Level 1 Tenders Committee (Company >$8m, <=$100m >$4m, <=$8m 15% Tender Committee) Level 2 Tenders Committee (Directorate <=$8m <=$4m Not Applicable Tender Committee) Level 1 (CEO) <=$1m <=$0.5m 15% Approval Limits for Expenditure – NNPC Limited Approving General and Significant CAPEX Authority Admin Recurring Expenses OPEX**** NNPC Unlimited** Not Unlimited** Limited Applicable** Board Emergency* ** Unlimited** 37 NNPC Limited SCM Processes and Procedures 4.1 Purchase Requisition Policies S/N Description Level 1 (CEO) Level 2 (GED equivalent) >$8m, <=$100m <=$8m Unlimited** Not Applicable** >$8m, <=$100m <=$8m $0.25m Not Applicable** The Contracting Limits by type of Tendering and Approval Limits for Expenditure for the subsidiaries are detailed in the Delegation of Financial Authority manual. 4.2 Purchase Requisition Procedures S/N Responsible Party Description Job Aid User Department (N5/6) Initiate Procurement Request (PR) indicating intended purpose of procurement/ scope, cost estimate & other relevant documents and forward to Supervising Officer (N-4/5). Email & PR Template 1. Note: Relevant documents could include budget item, product description, inventory levels etc. 2. User Department (N4/5) Verify the request and forward to User Department Head (N-2/3) for approval. Email Note: Review request in order to: Assess value to the organization. Ensure project is not replicated and there is no ongoing project expected to deliver the same objectives. Establish unavailability of in-house capacity to address the need. Ensure requisitioning is in the Annual Procurement Plan and Budget. 38 NNPC Limited SCM Processes and Procedures 4.2 Purchase Requisition Procedures S/N Responsible Party Description Job Aid Where procurement request is not included in the procurement plan, go to step 3. Where procurement request is included in the procurement plan, go to step 6. 3. User Department (N2/3) Where procurement request is included in the procurement plan not Email 4. User Department (N1) Review appropriateness of request and approve exceptional requisition (as required) in consultation with SCM and Budget and forward decision to N-2/3. Email 5. User Department (N2/3) Receive the approved exceptional requisition and provide treatment guidance to (N-4/5). Email 6. User Department (N2/3) Where procurement request is included in Email the procurement plan Develop a Business Case for the unplanned procurement request and escalate to N-1 for approval. Approve request, and forward approval notification to User Department (N-4/5). Where Procurement Request is related to a subsisting Call Off/ Framework Agreement, go to Call Off Process. Where Procurement Request is NOT related to subsisting Call Off/ Framework Agreement, go to step 7. 7. Divisional Head (N-4/5) Where Procurement Request is NOT related to subsisting Call Off/ Framework Agreement Email Receive approved request and send along with any relevant documents to User Department (N-5/6). 39 NNPC Limited SCM Processes and Procedures 4.2 Purchase Requisition Procedures S/N Responsible Party Description Job Aid User Department (N5/6) Based on approved request and documents received, create Purchase Requisition (all relevant documents shall be attached in ERP) and workflow to the SCM (N-3/4). ERP 8. Go to Determine Procurement Method 4.3 Purchase Requisition Input & Output Documents S/N Document Description Type Frequency Source Recipient 1. Procurement Plan Input As required SCM (N-2/3) SCM (N-3/4) Input/Output As required 2. Approved procurement request User Department User Department (N-5/6) Purchase Request Output 3. (N-3/4) As required User Department (N-5/6) SCM (N-3/4) 4.4 Purchase Requisition Key Performance Indicators S/N Performance Measure Basis of Measurement Timeframe Target Latest date for completion of the request process As required 3 days 1. Timeliness of request process Procurement alignment Compliance with Procurement Plan As required 100% 2. Plan 40 NNPC Limited SCM Processes and Procedures 41 NNPC Limited SCM Processes and Procedures 5.0 Determine Procurement Method This section covers all activities involved in the purchase and contracting of goods and works. The term goods apply generally to all materials, furniture, fixtures, raw material, spares, machinery, equipment, industrial plant, office supplies and equipment, IT equipment, and other commodities. While works are related to engineering and related works (civil, mechanical etc.); this includes new construction of structures of all kinds, renovations, extensions, and repairs. The objectives of the Determine Procurement Method process are to: • • • Ensure the procurement of goods and works is fair, unbiased, consistent and delivers value (quality, cost and risk) to NNPC Limited. Ensure an efficient and effective process that meets the expectations of the various stakeholders. Ensure compliance with the Nigerian Oil and Gas Industry Content Development (NOGICD) Act, 2010 and supports the development of local supplier capacity. 5.1 Determine Procurement Method Policies S/N Description 1. Procurement Mode Based on the estimated value of the procurement, type and timing of procurement need, a determination of the mode of procurement shall be proposed by the Business Department and validated by Supply Chain Management. In the event both unit heads do not align on the mode of procurement, it shall be escalated to the relevant reporting line for a decision. The determined mode of procurement shall guide subsequent activities in the processing of the procurement requisition. 42 NNPC Limited SCM Processes and Procedures 5.1 S/N Determine Procurement Method Policies Description S/N Mode Basis See Policy Reference below for more details a. Competitive The preferred mode of procurement in many instances because it gives the business the opportunity to drive value for money. 2, 3, 4, 5, 6 b. Sole / Single Sourcing This applies for purchasing via a single source on the grounds of urgency or the proprietary /specialized nature of goods and/or services to be procured. 7 c. Emergency This applies when the objective of the procurement will be defeated if it follows competitive or sole/single sourcing. There are additional criteria that define an emergency procurement. Details listed in Emergency Procurement Process. 8 d. Call-Off Items relate to procurement needs covered by an existing Framework Arrangement / Agreement. Typical examples include IT equipment & office consumables category as defined by the Supply Chain function. e. Reverse Auction Price is the only key differentiator in the procurement category and the Supply Chain function has 9 43 NNPC Limited SCM Processes and Procedures 5.1 S/N Determine Procurement Method Policies Description identified the procurement category for Reverse Auction. f. 2. P-cards Unplanned and urgent official expenditure for small items where it’s not convenient to follow the typical procurement modes. 10 Competitive Bidding This is the procedure for purchasing goods through a competitive process. The type of competitive bidding will be determined by value, nature, and complexity of supply. Types of competitive bids include: a. Open Competitive bidding (International and National): This entails sending out an invitation to tender with detailed asset specifications and requirements stating the deadline and mode of submission. To eliminate unwanted bids, NNPC would define criteria and requirements so that quality bids are attracted to the competition. b. Restricted Tendering: For restricted tendering, the supplier shall be invited to compete in the tender. The competition is limited to certain select suppliers instead of being open to all suppliers in the market. These suppliers are those who are known by their track record to be suitable for a contract of that size, nature and complexity required. The purpose of this process is to invite only high-quality bids from suppliers who have the capabilities to deliver a project. c. Selective Bidding