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Analysis

PEMEX Overhauls the Way It Deals With Suppliers

Wed, 01/21/2015 - 14:24

Even before the Energy Reform was announced, PEMEX already had ambitious procurement plans in mind. These were meant to streamline processes, increase efficiency, and help PEMEX save money. Now that oil prices have plummeted, an effective procurement strategy will certainly help the NOC in turbulent times. The creation of the Corporate Directorate of Procurement and Supply (DCPA) is a crucial step in PEMEX’s transformation into a competitive enterprise and will be an important tool to face the challenges posed by the opening of the market. Arturo Henríquez, Chief Procurement Officer of PEMEX, explains that this new direction will allow for an agile, efficient, and flexible procurement and acquisition model to be implemented in all of the NOC’s areas. PEMEX used to sign approximately 30,000 contracts every year for services and the acquisition of equipment, which resulted in expenses of approximately US$30 billion. These figures highlight the importance of a centralized procurement model. Henríquez says that applying international standards and best practices is already making a difference. In fact, PEMEX has estimated savings of US$1.5 billion in four years from efficiencies created by the new procurement division.

In addition to standardizing processes, DCPA will foster transparency and innovation. The new division will be backed up by a large database, which will include over 9,500 registered suppliers and service providers. This database will serve as a preliminary step in pre-selecting suppliers so PEMEX can gain a better understanding of its suppliers and contractors, as well as their attributes and track records. “PEMEX has allied with institutions such as IMSS, Infonavit, Tax Administration Services (SAT), and the Treasury to be completely aware of our providers’ status in meeting their fiscal and labor obligations,” comments Henríquez. Providers included in the Directory of Approved Suppliers have been carefully investigated and evaluated, so PEMEX can rest assured about the quality of these suppliers, which offer products and services for exploration, drilling, production, and refining, among others. Before registering, suppliers have to undergo a thorough selection process in which legal, administrative, technical, and financial requirements are examined. The ultimate goal is to establish solid commercial relationships with the most reliable suppliers. Companies must have at least one year of operations before registering.

Once a provider is registered, PEMEX will use a ratings system to keep track of the best suppliers and to keep them informed about their performance and possible areas of improvement in order to strengthen the business relationship. Suppliers are rated every four months in four categories: price, compliance with delivery times, quality, which includes successful inspections and customer complaints, and customer service. Each criterion has an assigned value, resulting in a total grading of 100%. Suppliers which rank at 80% or higher are considered for future tenders and procurement processes. “The performance evaluation factor will be very relevant. Suppliers that meet their obligations and contribute to PEMEX will benefit and the company will continue to do business with them. Those that are not meeting our standards will be either left out or urged to improve their service,” tells Henríquez. He warns that the fact that a company ranks well on the aforementioned criteria does not mean it will have preferential access to supplier development. “We need to become more integrated, which entails being more fluid with PEMEX’s supplier base. The company needs to focus on integrating the supply side. There are companies that have been selling to PEMEX for 25 years but, in every single procurement process, they have to start from scratch. This highlights a serious lack of planning. We need to make long-term plans and collaborate with companies that can manage projects for at least five years. In the end, this process diminishes risk for both sides and saves time and money.”

In spite of the fact that this model has so far yielded efficient results and follows international practices, Fluvio Ruíz Alarcón, Professional Board Member of PEMEX Petrochemicals, believes the relationship of PEMEX and its suppliers is a subject that should be discussed by the company’s board. He believes that the overhaul of supplier relations should be addressed on a case-by-case basis. “There is a need to evaluate each case because every situation will have its particularities, so details will matter. The key variables will be the segment and areas in which suppliers partake.” He also mentions the national content provisions because he believes these will play a significant role. “We still have to wait and see up to what point the government will get involved through national content policy and to what extent this will remain only as a discursive aspect of public policy. This is hard to anticipate at this point because so much will vary depending on the circumstances. The context in which each supplier collaborates with PEMEX will diverge.”