Arturo Herníquez
Chief Procurement Officer
View from the Top

PEMEX’s Centralized Procurement Model

Mon, 09/01/2014 - 12:35

After studying different procurement models of oil companies across several countries, PEMEX decided to centralize its procurement processes. The decentralized model PEMEX was previously following involved 120 different purchasing units operating through approximately 30,000 procurement contracts. According to Arturo Henríquez Autrey, Chief Procurement Officer of PEMEX, economies of scale were not achieved under the decentralized model, due to the missing aggregation of demand and a lack of standardization. “It became crystal clear that, in order for PEMEX to be efficient and competitive in a newly open industry, the procurement process had to be changed. The shift to a centralized procurement model allows PEMEX to standardize processes, improve purchasing power, enhance efficiency, improve the transparency of procurement processes, and ensure a unified interpretation of the applicable laws,” says Henríquez Autrey, who was appointed to his current position at the beginning of 2014 to formally start the centralization of PEMEX’s procurement procedures.

Although the secondary legislation establishes that all projects shall meet a 25% national content requirement by 2025, PEMEX will be able to choose its suppliers based on value rather than cost variables in a free market context. Henríquez Autrey says that PEMEX’s commitment to supplier development, possibly combined with a public trust that will be created for national supplier development under the proposed secondary laws, will boost the competencies of suppliers and foment the creation of jobs and infrastructure. He also notes that the division in charge of supplier relations will be a great vehicle in making sure providers, technologies, and products satisfy PEMEX’s quality demands.

A category management strategy will be implemented to create value for PEMEX. “Most oil and gas companies nowadays operate through category management PEMEX will soon get on board with this as well,” says Henríquez Autrey. He explains that this method did not yet exist at PEMEX mainly because of a lack of visibility. “It is hard to know what goods and services PEMEX buys because there is no standardized homologation; given this mayhem, suppliers cannot possibly know what categories PEMEX uses.” Once more visibility is achieved, the company will be able to apply a category management approach to bring further clarity to its reformed procurement strategy.”

The traditional procurement methods pose a serious problem in Henríquez Autrey’s opinion, because there are no procurement specialists in any of PEMEX’s subsidiaries. “Even if operators work on platforms, they are not specialists in the procurement of platforms. However, they are the ones writing technical specifications and deciding which platforms tobuy. The subsidiary then proceeds to do market research based on the written technical specifications, followed by an economic analysis to match budgets. Nevertheless, the purchasing power of these budgets is diminished because of the inability to create economies of scale. All of this, which happens for 30,000 contracts each year, will disappear with proper category management,” says Henríquez Autrey. “Category managers will be responsible for 80% of PEMEX’s procurement by value, making the procurement process more efficient and well-guided. The category management strategy is based on the creation teams of specialists who know their sector in depth. They have the latest information on the top-tier companies, the latest technologies, current market conditions, and what the pricing structure is,” details Henríquez Autrey. These teams will be in constant communication with the end user, making sure that they are aware of its needs and demands. Being knowledgeable authorities in their respective fields, the category experts will be able to advise end users on specific products.

The streamlining of PEMEX’s procurement process is driven internally but the company intends that this evolution permeates all the way down to its suppliers. Henríquez Autrey says the secondary laws should address this through contractual regimes. At the moment, public servants rely on the PEMEX Law and the Law of Public Works. Officials do not know which legislative body has authority over the different procurement processes, resulting in bottlenecks and other unnecessary bureaucratic procedures. “While other companies take two months to decide on a US$300 million platform, it takes us up to a year for PEMEX to complete the approval cycle. This has to change,” stresses Henríquez Autrey. For the PEMEX CPO, streamlining should also happen at the execution level, even when concerning public tenders. “The fact that purchasing is now going to be done through the central procurement office, and the fact that economic and market analysis will be taken away from the user, should streamline processes,” says Henríquez Autrey. While he is aware that PEMEX’s bad procurement habits are not going to disappear overnight, he is confident that slowly making the procurement processes efficient will improve the company’s future direction.