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E-commerce standards - and senior management

Monday, November 21, 2011

PIDX London conference report: how do you get senior executives interested in electronic commerce standards?

'Let me give you a hint about senior executives,' said Christina De Luca, VP procurement and supply chain management, BP. 'They hate to feel really stupid, and talking about [e-commerce standards] really makes them feel stupid.'

She was speaking at the 2011 Autumn meeting of PIDX (Petroleum Industry Data Exchange), the oil and gas e-commerce standards body, in London on October 6, expressing her personal opinions of senior managers in general.

'They like adding value to a conversation. When they DON'T understand what you're talking about they can't add anything, and often they choose not to engage.'

Data standards is a hard subject. 'My mind glazes over. she said.

In order to get senior management interested in data standards, you need to be able to explain what value they get from them.

'If [you say], 'we're going to have good quality data', I can't take that to the board. Senior managers want to know, 'What's it got to do to my cash flow position?' These are the decisions which allow business leaders to compare any investment. Unless standards bodies put the message in the language of business, it's very hard.'

'Many firms struggle to make the business case, even just in their own firm.'

'Over my career I've moved from a very technical background to a business perspective. I've got knowledge of the field you are experts in.'

'You need to help me articulate what the standard is all about. What would adoption of the standard mean? What are the implications to my firm? How will it impact my business? What value does it bring?'

'There's a language that is used in this field that communicates to individuals in the field but doesn't communicate to a business person.'

'We have to call everything the same thing. I understand [the benefits of doing that].

'The people [in PIDX] see the value proposition, and also see the beauty of it - a simplified way of communication. And there is value associated with the elimination of duplication.'

Ms de Luca also questioned how focused PIDX is on business need. 'In PIDX there are 200 standards. It's a lot of work and a lot of standards. Are we working on those items of standardisation that are of value to business?

She challenged the PIDX Executive not to focus on problems that interest PIDX technical professionals, but to work on solving the problems that will create most value for our firms and the industry.

Ms de Luca is sceptical about whether PIDX had created a global standard, and if it isn't, whether or not the effort will work.

'We have to recognise the fundamental shift that has occurred in the industry. Oil majors used to be the standard setters of the industry, but they're not today. It's Chinese, Russian firms. More and more they are developing the capability to move out on their own. They will dominate the industry in years to come.'

'If I was dominating the industry I would expect to set the standards of the industry.'

And if Chinese or Russian companies were setting the standards, would they choose the same standards which PIDX has taken, or would they do it differently? 'Chinese are more conservative than Western firms,' she said. 'They have tremendous scale'.

[note: PIDX recently made its first visit to China, see below]

BP's master data

The subject of master data 'tends to be fairly dry,' said Steve Mitchell, who looks after master data management in BP's downstream procurement department.

'Data is particularly important in procurement, so you know what you buy and who you buy it from,' he said. 'We find a lot of duplicates, when people are buying something more than once and not aware of it.'

But 'master data management by itself doesn't actually create any value. It's like joining a gym; you have to start using it to get the benefits.'

BP initiated a master data management scheme for its Rotterdam refinery in 2007. Now the company has 47,000 vendors and 220,000 materials in its downstream master data.

One of the keys to master data is reducing the amount of data which is entered in 'free text' - the more drop down lists people use, the easier it is to organise the data they generate.

Nobody wants to select an item from a drop down list of thousands of items, so to make it easier, BP describes items with a noun + modifier. So if you want a gate valve, first you select 'valve' from a list of 850 nouns, then you select 'gate' from a list of 475 qualifiers. Similar for 'air filter', you select filter first, then air.

Items can have more attributes (for example size) which don't all need to be entered into the form.

Staff often struggle with the idea that everybody in the company has to use the same language, he said. 'This is the difficulty of getting the nomenclature right.'

It is increasingly important to look at the quality of the data. If it's low quality is not going to be used.

It is also important that people keep the data fields complete. Otherwise it's like if you have one record which said a person has a tattoo, and the other one doesn't have anything in the 'tattoo' field, you don't know if they are duplicates or not.

It is important to be aware that manufacturers can have two items with different sizes and the same part number, he said.

When it comes to convincing staff, the best way to do it is to keep track of the stock (inventory) which you no longer have to keep, and the purchasing you've avoided, as a result of the master data system, here is some real value, he said.

Mr Mitchell said that he tells suppliers that he expects them to provide high quality data. 'But we don't normally get it,' he said.

PIDX news

There are now 100 oil companies worldwide using PIDX, said Bill Le Sage, chairman of the PIDX board. One international oil company has now processed 6 billion dollars of spend through electronic invoices using the standard this year.

Another oil company managed to reduce its procurement department from 115 to 12 from using the standard, with personnel redeployed elsewhere.

PIDX has groups developing new standards for cataloguing, downstream, and regulatory reporting.

PIDX plans to develop a standard for service contracts. '80 per cent of spend in oil and gas is on services,' said Paul Meyer, chairman of the PIDX Dictionary and Cataloguing committee. 'But we've very inadequate in controlling the spend. Services are the elephant in the room.'

PIDX also wants to measure adoption of the standard, said Dave Wallis, chair of the PIDX marketing committee. 'We're in the process of developing metrics now.'

The aim is to get to the point where people don't notice that they're using the standard, said Dave Wallis. Take for example the USB memory stick or the pdf standard. 'You didn't notice it, everybody can use it,' he said.

'Our ambition is to be global, we are trying to establish regional sub groups,' said Anthony Aming, president of PIDX and enterprise business and applications architect with Baker Hughes. 'We are looking for a PIDX volunteer to set up PIDX's Western hemisphere events.'

PIDX had very recently made its first high level visit (4 PIDX Executives) to Beijing and PIDX had been well received, with requests made for follow-up visits to further investigate PIDX standards, he said.

PIDX wants to develop partnerships with like-minded organisations such as Energistics, and develop a succession plan for its executive positions.

Since the re-launch in May 2011, there have been many new companies join, notably Statoil has joined as member, he said.

8over8 - contracts software

Northern Ireland company 8over8 is seeing a growing business selling software tools to help oil and gas companies manage their contracts, said Richie Anderson, product manager.

'Major capital projects are the lifeblood of the oil and gas industry,' he said. 'There are many stakeholders. There's always big pressure to deliver on time and budget.'

Projects around the world are getting bigger and bigger, and the bigger the projects are, the bigger risk something can go wrong, and the bigger the impact if it goes wrong, he said.

'The mega projects are managed by geographically disparate teams. There's an increased regulatory burden around the world with requests for local and social content. There can be unstable geopolitical situations and a risk of natural disasters.'

'Major capital projects, like Shell's floating LNG project in Australia, are larger, need extensive financing, have compressed project timescales and are technically more challenging,' he said.

Oil majors can spend 90 per cent of their total capital expenditures in contracts, he said.

The average cost overrun of new rig projects has been estimated at 35 per cent, or 20-30 per cent for FPSO construction projects, he said.

Delays can have wider reaching consequences, such as damage to reputation and delays to other projects.

But at the same time, project managers can have a terrible time trying to understand what is going on. 'It's not uncommon to have to put together a monthly report based on 450 spreadsheets,' he said.

'The nightmare scenario is when you get asked 'why have we received an invoice from a contractor'. The contractor says 'one of your field engineers hand wrote the instruction'. The project control department says, 'we don't have any contingency budget'.'

8 over 8 provides the 'PROCON' software tool to help manage contracts.

You can keep track of the contract variations, when a contractor asks to change the original terms of contract. You need people to know what has been agreed, and also keep track of how many times different contractors want to change the terms of their contract. Perhaps he is winning the contract by bidding with terms he can't deliver, and then changing the terms later.

PROCON provides an online tool which all suppliers can communicate through.

You can sort out the contract variations, so just view the variations which had a financial impact.

You can see how much you're agreed to pay and how much you've spent on a contract.'

There is a 'contract performance dashboard', tracking the average time contractors take to respond to communications.

Associated Companies
» PIDX International
» BP
» 8 Over 8

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