Innovation Title :
Redefining Procurement as an Innovative and Collaborative Centre of Excellence for best in class Sourcing SolutionInnovation ID :
SAPI170004Relevant Focal Theme:
Market Interactions and Contributions leading to Innovative Procurement solutionsUse of ICT for Procurement Management and Useful Management InformationInnovative Procurement and Contract management solutions for Challenging and Fragile Environments
Proposer Details
Proposer Name:
Mr S K ChowdhuryProposer Designation:
Head – Integrated Support Function, Central Procurement Organisation, HPCLProposer Official Address:
Challenge Addressed:
Hindustan Petroleum Corporation Limited (HPCL) is a Government of India Enterprise, a Forbes 2000 and Global Fortune 500 company with a turnover of around Rs 1,97,000 Crores (US$ 30 Billion) as on year 2016. The Annual procurement spend at HPCL stands at an average of Rs 10500 Crores (1.5 Billion US$). HPCL follows Strategic business Unit (SBU) model for managing its Business and has its sourcing done from within the SBUs, Refineries units individual, thus a disaggregated function spread across several units handing Individual Sourcing requirement independently. Procurement per say used to operate as more of transactional, process oriented function with limited focus on strategic, category concept. With globalization catching up and increased competition in business eroding bottom lines, organizations worldwide have started focusing on Procurement as one of the strategic lever to extract significant benefits across multiple dimensions. HPCL being in the forefront of innovation among the Oil Public Sector Unit (PSU) in India also identified procurement as a focus area for value engineering through complete transformation in its procurement model. PROJECT VIVARTAN, A transformation project was thus launched with the aim to redefine HPCL Procurement as an innovative and collaborative center of excellence for best in class sourcing services. For an established PSU like HPCL which operated within the framework of Public Procurement policy (PPP) of Government of India, the transformation was major challenge. Following are the gist of major challenges needed to be addressed, 1. Distributed spend – Lack of specification standardization and Item codification poses a challenge in consolidation of purchases across organization. Multiple codes for Vendors across business units poses impediment for placement of single Order across Corporation and tracking of Vendor Performance. 2. Capability Building – Procurement was never developed as a Cadre as such with sourcing done at multiple locations. Strategic sourcing requires trained and certified professional with adequate domain knowledge. 3. The Apprehension of individual business units with embedded Procurement Units of losing control over the function. Hence, confident building measures through workshops and structured processes to ensure effective change management without effecting ongoing procurement activities for a smooth transition. 4. Cumbersome Process – The Procurement Manuals was modified and upgraded to suit the changed environment, Standard Operating Procedure (SOP) manual to be introduced, the entire process needs to be seamlessly switched over to complete E-platform model which is paperless, secure, transparent. 5. PSU Limitations: to be worked within the framework of PPP, Public Tender limits the flexibility and level of collaboration with Vendors. Further policies such no long term contract, No negotiation Beyond Lowest bidder cripples the effort of collaborative approach and forces corporation to maintain Arm’s length relationship with Vendor. Indirect spend which are the norms in private entities are strict No-No in PSU setup. 6. Socio-Economic obligations: As per Public Procurement Policy (PPP), Annual 20 % sourcing to be met from Micro and Small Enterprises (MSE) sector out of which 4 % Schedule Cast/Schedule Tribes (SC/ST) Vendors to be complied with which limits competition as the sector is still
Impacts:
The Management focus on the project was clearly evident when an exclusive cross functional Project team was formed with members chosen from SBUS, Refineries, Zones, Regions, plants, Terminals, Legal, Finance and headed by the level of Executive director as a Project Head. Reputed Multinational Consulting Firm, M/s AT Kearney (ATK) was engaged as a project consultants. The scope of the Project divided in to 2 phases, Phase 1: As Is Study: The study on past procurement data, Interviews, meetings, discussions, workshops with stakeholders were instrumental in getting the clearer picture on existing procurement landscape and improvement areas, with global benchmarking in best in class companies excelled in procurement field. The outcome was a real eye-opener which showed highly dis-aggregated spend and transaction oriented processes at HPCL with limited focus on strategic, category focus leading to sub optimal procurement efficiency and effectiveness. Design: Basis “AS-IS Assessment” learning, the design road map was laid down starting with visioning exercise where CPO Vision/Mission statement, Logo for the project “VIVARTAN” were finalised. Comprehensive approach was adopted in designing with sourcing spectrum where strategically divided in to several category buckets with clear transition road map into CPO folds in different waves. Phase II: With requisite Manpower positioned, the pilot categories identified were taken up for implementation with Handholding of consultants. Category centric sourcing and contracting approach was adopted with the introduction of Category Management Concept. Finalised the Strategy for each category after in-depth market research, study on global best practices. Following were the Major innovative approaches adopted and major Impact, 1. Establishing Cost Estimation cell as Centre of Excellence: Introduction of Price banding for Categories historical witnessed Vendor Cartel threat has proved to be a master stroke. Structured bottom up cost estimation method adopted to arrive at should costing and the Price Banding which allowed vendor to quote within the band. Apart from breaking the threat of Vendor Cartel, saving up to 10 % over bench mark were witnessed over historical in initial tenders itself. 2. Standardize the Purchase Specifications as part of Uniform Item Codification project. As a prerequisite for consolidation of requirement across the Corporation, Unique 1.5 Lac Items Codes were created in a structured, standardized format by the Item codification team. Further, this initiative completely eliminated the uncertainties / queries from Vendors on specification, enabled Accurate Annual Procurement planning, provide accurate inputs for analytics, support business Intelligence. 3. Category based sourcing strategy: Drawn basis Past procurement data, Annual procurement plan, detailed supplier market assessment, profiling were instrumental in achieving a tangible saving of approx. 10 %. The redrawn specifications and consolidated larger volume could attract Global Vendor Participation with increased outreach. 4. End to end state of the art E-platform: Robust, Transparent, Paperless digital system for entire procure to pay module contributed in reduction cycle time by 35-40 % while promoting the green initiative of the Corporation. 5. Rationalization of Vendor database and unique Vendor code: Made the tracking of project progress easier, also simplified the process of Vendor Performance evaluation.
Lessons Learned:
Following were the Lessons learnt as a result of successful implementation of Central Procurement, 1. Investing time and leveraging global best practices in developing robust procurement Category strategy at the planning stage would be a good starting point. Category Profiling and supplier market assessments are the two most important ingredients for development of Category Strategy document which is a key for rest of Procurement processes. 2. Collaborating with Vendors at an early stage of procurement can help better understand the supplier Market dynamics, Vendor base, available option and alternatives etc. The Pre Tender Meets started at HPCL CPO was instrumental in getting crucial inputs which helps in firming up the Specifications, Terms and conditions apart from developing right Category strategy which can solicit improved Vendor Response and better value for money spent. 70 % increased Vendor Response in CPO tenders in its inception year itself is a true testimonials of how right collaboration at early stage of procurement can benefit an organization. 3. The enhanced end to end procure to pay E-platform with technologically advanced features such as reverse auction, E-collection and refund of Tender Fee/Deposits, E-chartering etc complemented the process efficiency in total. The benefits are clearly evident in terms of reduced Tender cycle time of 30 %, Increase in number registered Vendor, Tangible savings accrued etc, all for the period of 2015-16 as compared to historical. The E-platform developed internally by HPCL IS team with top end security features, one of the first among the Indian PSUs also able to instill greater confidence among the bidders by being transparent in transactions while being environment friendly and promoting transparency. 4. The Certification Program on Capability building thru United Nation development Program and certified by CIPS (Chartered Institute of Procurement and Supply, UK) on public procurement Level 2 and Level 3 have helped the CPO team to develop as a procurement cadre of certified professionals with complete knowledge about best practices in public procurement at global level and could leverage the same at CPO to derive the benefits at crucial junctures. 5. Strong Management Focus and Support is important factor for success of any project of this magnitude. The Management commitment towards the project was etched in every step such as quick formation of CPO project team headed by Executive Director, engaging world renowned consultants, M/s A T Kearney for the project, formation of Steering committee of higher management for periodic project progress and providing quick policy decisions which played a vital role in completion of project as per the schedule.
Level of Innovation:
Innovation has been the hallmark of this project and was instrumental in achieving the end objective, value creation from the supply base. Following were select Innovative approaches, Tools and Techniques which were used in the project which contributed to the success of the project: Category Strategy: Basis the past spend pattern, Suppliers profile, Market Analysis and global trend in best in class companies, the HPCL spend is categorized into different buckets. Category Managers who are in charge of Category are trained in drawing apt category strategy basis past trend, pre tender meets, Supplier Market Analysis etc. Innovative short time / long time strategy such as Change is share of business, Global Tenders, Developing alternative Specification/Material, Life Cycle Costing, Costing Based net Value realization were introduced. Cost Estimation cell as Centre of Excellence and Price Banding: Introduced as an innovative tool to break the Vendor Cartel under select categories, CPO could use this tool very effectively for getting the competitive price from the bidders at the markets which have historically seen high quotes as results of cartel. Bottom up Cost Estimation method was followed by the newly formed Cost Estimation cell which can successfully defended the cost elements against claims from vendor on cost elements. Reverse Auction: The online tender platform was strengthened with additional features such as Reverse auction, online collection and refund of tender fee/Deposits/Retention money etc to make it an end to end online solution. With higher business volume at stake as a results of consolidation, reverse auction saw a stiff competition among the bidders resulting in very competitive rates are being finalised and huge saving to the corporation. Specification standardization and Uniform Item Codification: Legacy Procurement being handled at Decentralized environment. Uniformity in specification being the prerequisite for functioning of CPO for consolidation of requirement / spend analysis, uniform item codification project was executed wherein more than 1 million past procurement data were scrutinized, cleansed, standardized to obtain 1.5 Lacs Unique specifications with Items codes in Master data format with the help of domain experts as external consultants. The results were exponential rise in Vendor response, easier procurement planning, higher visibility, reduction in Inventory holding etc. Vendor Data Base Rationalization: HPCL Vendor Database had around 2 Lac Vendor Codes most of them Duplicates created in decentralized environment by different business units. The Vendor Management team of CPO initiated the activity of cleansing of Vendor base to come out with 96000 unique Vendor codes to facilitate consolidated order placement, Vendor performance evaluation and tracking. The vendor registration portal was restructured further make it simpler, completely paperless and faster processing of applications. Capability Building: Building suitable capability among the workforce is one of the pre requisites for any organization to be successful. The Certification course conducted by United Nation Development Program (Chartered institute of Procurement and Supply, UK) CIPS Level II and Level III Certification in Public Procurement for all CPO personal was the step taken to create the pool of certified professionals in the field of procurement.
Replicability:
Following were the Innovative approaches which if replicated in the Public or private sector sure to bring in tremendous value in terms increased quality, reduced purchase cycle time, increase saving and discipline in procurement processes. 1. Standardization of Specification and Uniform codification for purchase items for ease of Consolidation and visibility across the company, lowering inventory holding Cost. Standardization also enables Business Intelligence to throw accurate past data which help deriving timely right business decisions. 2. Unique Vendor Codification for consolidated order placement for requirements across the corporation, Easier data retrievable and Performance measurement. 3. Robust end to end E-Procurement Platform encapsulating the entire procure to pay activity. The E-platform which is transparent, secure with rich features such as Reverse Auction, E-collection/refund of EMD/Tender fee etc will also boost green initiative. 4. Establish Cost Estimation Cell as Centre of Excellence for establishing the bench mark cost Estimation. Price banding through bottom up costing method to break the Vendor Cartel threat for high spend items with limited supplier base and similar market. Leverage strength 5. Developing robust Category strategy basis in depth supplier market assessment for high spend items leveraging strength areas. Innovative approaches such as change in share of business, Look for alternative for items in a long run, alternative material etc were few of the strategies successfully tried which resulted in considerable value generation in CPO tenders. 6. Capability building among procurement personnel to create a pool of certified professionals with thorough exposure in public procurement and global outlook
Other Background:
1. Through innovative initiatives launched as part of CPO formation, the corporation could achieve the tangible saving of approx. 10 % over bench mark price which was a remarkable achievement in its very first year of coming into existence. 2. The Achievement of CPO was also recognised in international level with “Transformation of Central Procurement in HPCL” was shortlisted at World Procurement leader awards as one of the 10 innovative projects in Procurement held at London in May 2016 under public Sector Category. The Shortlist of award category has been enclosed as attachment. 3. Further “Transformation of Central Procurement in HPCL” was adjudged as winner of highly commended Asia Pacific Procurement Leader award under “Transformation” Category. The award was bestowed on HPCL during annual Asia Pacific Procurement Leader conference held at Singapore during November 2-3, 2016. The Photographs of award trophy has been enclosed as attachment along with winners supplement. 4. The procurement manual was re-written after taking feedbacks from all stake holders through various workshops, SOP manual for Procurement which has RACI (Responsible/Accountable/Consulted/Informed) matrix all positions, SLA (Service Level Agreement) for processes, again one of the first in the Industry was launched, Change management workshops were held where all stakeholders were briefed about this transformation and mutual end benefits of this process. 5. The stake holders, mostly the business associates (Vendors) were found to be very positive about this transformation. It is clearly evident from their testimonials which indicates the positive changes the transformation has brought such as Standardized specifications for better understanding, consolidation, End to End E-platform. Enclosed are some testimonials from major Vendors. 6. Vendors were also ecstatic about the online grievance re-dressel mechanism with Independent External Monitor (IEM) appointed by Ministry as head for query resolution. As collaborative approach towards this transformation, CPO project team had also convened an All India Vendor Meet to explain Vendor about HPCL plan about this transformation and approach. This was done in addition to periodic Vendor meets done at various zones. 7. As 20 % of HPCL procurement needs to be sourced from MSE vendors as per Government of India directive, HPCL has taken up initiative to increase the number of registered MSE vendors through various initiatives such as advertisements, updating the Vendor database etc to ensure sufficient competition in MSE procurement tenders. 8. The entire List of HPCL contract award is also displayed in the HPCL as well as public procurement portal which is a testimony in itself towards HPCL transparency.
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