How Strategic Procurement can deliver better outcomes in Capital Works

How strategic procurement can help deliver better

outcomes in capital worksMatthew Rae

National Supply Chain Manager

Procurement in Infrastructure and Capital Works

11-13 August 2015

APA Group, August 2015 � 2

Agenda

� About APA

� Understanding Market Conditions – including the Economic Outlook

� Opportunities to minimise Project Cost

� Pricing and Through Life Support

� Lean Procurement

� Innovative Strategies to achieve results

� What does success look like?


APA Overview (Ticker: APA AU)

Market capitalisation

ASX rank(1)

Rating

A$10.2 billion (as at 27 Feb 2015)

S&P/ASX 50

Moody’s: Baa2 (outlook Stable),

confirmed 10 Dec 2014

S&P: BBB (outlook Stable),

confirmed 10 Dec 2014

Assets owned/ operated Over $12 billion(1)

Gas transmission

14,744(2) km transmission pipelines

Underground & LNG gas storage

Gas distribution

27,100 km gas network pipelines

1.3 million gas consumers

Other energy infrastructure

585 MW power generation

244 km HV electricity transmission

Gas processing plants

Employees More than 1,600

Australia’s largest gas pipeline owner by pipeline

length, capacity and volume

(1) Does not include QCLNG Pipeline – financial close pending

(2) Includes QCLNG Pipeline (543 km) – financial close pending

Does not include Eastern Goldfields Pipeline (292 km)– under construction


Reducing the organisations’ exposure to risk by

understanding market conditions and working to

support local industry


Understanding market conditions – Economic Outlook

– In the last decade Australia has doubled its total economic production to $1.5 trillion

– Over the last decade the Asian economic expansion has fuelled an unprecedented level of

demand in our mining sector. The IMF forecasts that Asia will contribute 42 % of global output by

2019

– Mining has made a significant contribution but it’s the services sector that actually makes up the

bulk of Australia’s economy……with Construction only 8%

– The $A had depreciated as avg price of commodity exports has fallen

– Against the green back, the currency has fallen from US$1.10 to US$0.74

– It is believed a lower $A would help rebalance the economy



Source: Economic and Political Overview 2015, Committee for Economic Develop of Australia

– Gross Domestic Product (GDP) has remained below average for 2015 and looks like staying that way.

– Overall growth in other (non minding) sectors has improved but remains below average (3.5%)

– Resources investment has now been declining for 18 months, but expected to worsen



– Labour market conditions are poor

– Gradual increase in the unemployment rate to more than 6 per cent currently.

– The unemployment rate is expected to rise to around 6.5 per cent this year before declining

gradually.

– Inflation will not be a focus for some time

– Disinflationary pressure, spare capacity & lower commodity prices will continue to dampen inflation

– Inflation to sit between 2-3% for foreseeable future

– Australian interest rates remain attractive to foreign investors

– RBA cutting cash rates to historical lows – remaining at 2% as announced last week


Understanding market conditions

� Demand and supply drivers

� Map the competitive landscape

� Make vs. Buy – what are your organisations core capabilities - are they changing?

� How attractive are you as a customer?

� Who supplies your major competitors? Why?

� Understanding supplier economics and investment/business drivers

� Trends, innovations & key market insights

� Identify supply risks for critical goods & services


Mitigating exposure to risk

� Are the market conditions right for this Capital Project to proceed?

� Business Continuity Plans in response to changes in market conditions

� Hedging against exchange rate movements

� Managing moves in key market indices e.g. sharp decline in oil prices since

mid 2014

� Understanding and capitalising on competition for Capital Works Projects

� Diversification

� Allocation of risk (where viable) from customer to contractor


Reducing exposure to risk……through supporting local industry

� Its not just a government initiative

� Localised labour is of critical importance to many organisations

– Not just during construction but post commissioning

– Reactive maintenance

– Reciprocal Trade

� Materials

– Local supply, storage, consumables, fabrication works

� Other Local Infrastructure and Service Industry


Opportunities for strategic procurement to help

minimise overall project cost


� More than just a tendered price, focus should be on TCO over the life of the asset

– cradle to grave

� Includes:

– planning and design

– construction and acquisition

– maintenance/renewal

– depreciation and cost of finance

� TCO expands the narrow confines of price to a vast field of opportunities

� Price is not only different from cost, in fact it is merely one element of cost

What is Project Cost?

Anyone can get a low price.

The object of good business is to attain the lowest TCO.


� The cost of construction has steadied over the last few years

� Regardless of the current market conditions procurement can assist to minimise project cost

in many different ways – both pre and post mobilization and commissioning

– “Back to back” with the commercial deal

– A tight specification

– Clever design and standardised building practices

– Risk and Reward

– Procurement of Long-lead items

– Contractor Model and Selection

– Planning and Scheduling

Opportunities to minimse overall project cost


� The ugly auntie at the BBQ no one wants to speak to !!

� Plays an important role in aligning key players

� Pricing strategy impact directly drives project cost

� Contract Management and performance against KPI’s

� Managing any variations and or disputes as they arise

� Management of payment schedule in accordance with agreed terms

� Any rework performed at no additional cost

� Conducting Post Implementation Reviews

Opportunities to minimse overall project cost

- post mobilisation and commissioning


Introducing innovative strategies and creating a lean

procurement department to achieve

successful results in your capital projects


� Continuously improving and rationalising procurement and supplier management in order

to :

– Avoid non-value adding activities

– Minimize Transactions

– Reduce the Total Cost of Ownership

– Improve performance through more efficient practices

– Better satisfy stakeholders

– Streamlining the Contractor and Supply base

Lean procurement….means ??

Lean procurement means…….

providing optimal value to both internal and

external customersGordon S, President of Value Chain Group, Oct 17, 2013


Innovative Strategies to achieve results

� New Procurement Models

� Development of generic Scopes of Work

� Forward Procurement Planning/Procurement Dashboard

� Automation & simplification of process to reduce lead times

� Supplier Prequalification and Compliance

� Post Implementation Reviews

Don’t keep doing the same thing………

and expect a different result !!


Procurement Process – High level alignment to Project Management Methodology


Forward Procurement Planning/Procurement Project Dashboard

� How are Capital Projects tracking overall?

� How are Capital Projects tracking by state?

� Where are the bottlenecks?

� Is procurement performing?

� Procurement Benefits Realisation

� Comments Log

� Performance against previous month

EXAMPLE ONLY


What does success look like?

� The company and indeed procurement looking beyond the activity associated with an

individual project

� Consolidation through Standardisation – “Cookie Cutter Projects”

� Aggregating and Managing Demand

� Dedicated capital-procurement strategy that considers supply market, company

capability, and the requirements for capital projects

� High-performing cross-functional teams


� Early engagement is the key to successful Capital Projects

� Understand the market conditions in which you are operating

� Spend your companies money as if it were your own

� Anyone can get a lower price, the object of good business is to reduce the

TCO

� Successful Capital Project Procurement is not a set and forget

Some key takeaways…

Future vision happens……as a result of what we to today


For further information contact

Matthew Rae

National Supply Chain Manager

Tel: +61 8 8113 9130

E-mail: [email protected]

or visit APA’s website

www.apa.com.au

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How Strategic Procurement can deliver better outcomes in Capital Works