1. Differences between the Procurement Process of BP and OAP
Predominantly, BP requires two types of supplies: operational and administrative. As a global corporation, the company has different purchasing strategies according to its demographic and geographical operations. For example, in Angola, the company uses the Tender or Single Source Award strategy. In contrast, BP uses multiple sourcing strategies in Azerbaijan, Georgia, and Turkey (BP Plc, 2016). The IT support is obtained from IBM, Cisco, TCS, Accenture, and SAP (Glick, 2009). A practical and successful strategy for BP is outsourcing some of its operations to other companies (Cross, 1995).
Water supply management is another essential procurement activity for BP. The company utilizes sole-sourcing contracts as the primary strategy for obtaining its supply of water. BP directly purchases water from freshwater catchments in Kirwan, Australia, through government associations, agreements, and negotiations (BP Plc, 2016).
On the other hand, the Oil and Pipelines Agency (OPA) uses competitive bidding for purchasing from its suppliers. Representatives of the purchasing department within the organisation actively engage in promoting competition. An advantageous pricing policy is ensured by soliciting bids from a minimum of three vendors, whereby the board accepts only the lowest responsible offer. The board has the authority to refuse all the requests if none is satisfactory, and it cannot divide the contract equally among two bidders if the bids are equal. When determining the lowest responsible bidder, the financial situation, organizational efficiency, equipment, and capacity of the bidders are also considered (The Oil and Pipelines Agency, 2015).
As evident in the above, there are apparent differences in the purchasing processes between BP and OPA. However, it is essential to note that the procurement process of BP is diversified and shaped to the needs of local conditions. On the contrary, the procurement processes followed by OAP is generalized and usually results in a lower cost due to the competition among the bidders. However, the local business environment may increase the price for OAP.
2. Management System in BP
The main purpose of using different techniques to manage resources in the organisations is to reduce the wastage from production and increase the business’s overall productivity (Wang and Wang, 2014). Like most production-oriented businesses, BP facilitates the production management system to ensure the minimum wastage of resources and increased production process speed. The most commonly used management systems in organization nowadays are TQM, JIT, Six Sigma, Continuous Improvement etc. BP, however, implements the most widely used management system, continuous improvement, to capitalise the maximum value from the available resources at a minimum cost (BP Plc, 2016; Kumar and Markeset, 2007).
2.1 Advantages of Continuous Improvement Process
The oil and gas industry is highly competitive due to the limited natural resources and standardization of price in the international market. Since one of the main determinants of the competition is operational efficiency, most companies implement continuous improvement management systems to increase efficiency and reduce wastage. This management system is most useful when the firms compete on the cost of production rather than the price. The continuous improvement system involves integrating both the upstream and downstream business segments and aims to increase operational efficiency by eliminating waste and non-value-added activities (Grier, 2013).
According to the company website, BP has successfully reduced the wastage by 41% in 2013 compared to the base year 2008. Nitrogen Oxides emission was reduced by 34%, along with 12% Volatile Organic Compounds, 6% Carbon dioxide, 40% Methane (BP, 2016). On the other hand, the upstream unit production cost was reduced by 20% in 2015 compared to the base year 2013 due to the facilitation of a continuous improvement management system. The improvement process in the upstream segment has resulted in 95% plant reliability, including the strategically important UK North Sea Plant. 94.7% refining availability is also a notable outcome of the continuous improvement process and a significantly important factor for the increasing profitability of BP (BP Plc, 2016).
The use of technology is the main key resource to implement the continuous improvement process in BP. The company invested $418mm in research and development to innovate more efficient upstream and downstream operations (BP Plc, 2016).
2.2 Disadvantages of Continuous Advantage Process
Continuous improvement is considered one of the most widely used management systems in industries like technology and energy (Grier, 2013). But in recent days, the effectiveness of this management system has been questioned by management professionals. One of the main reasons behind such doubt regarding the efficacy of continuous improvement is the constant fall of Japanese technological products in the international market. But this doesn’t necessarily mean that the ongoing improvement process is entirely useless; rather, the value that has been created for different companies by this particular management system surpasses the value created by other management systems (Ashkenas, 2012).
As discussed earlier, the oil and gas industry is highly competitive since the resources are limited, and the competition is determined by the operational efficiency of the companies. The continuous improvement process, since it integrates all the components of the organization to improve the overall productivity of the organization, often creates an imbalance among the organizational resources as one size continuous improvement would not fit all the business segments. Another disadvantage of this management system is that it always considers the improvement of business components but in a highly competitive industry like oil and gas where the companies compete on cost of production, investing resources on a component that could bring low return would not be profitable in the long run (Ashkenas, 2016).
BP, fortunately, has not been thoroughly exposed to the negative impacts of the continuous improvement process. One primary reason behind such a favourable position of BP is that the company emphasizes the constant improvement of the production process rather than considering the modification for the organization as a whole (Kaplan and Mikes, 2012).
2.3 Identification of the Current Management System in BP
The facilitation of continuous improvement as a management system in BP is grounded on the intense competitiveness of the industry and some recent devastating accidents that put red marks in the company’s brand image. The international markets are usually dominated by local companies, and BP has to optimise the existing available resources to survive in the industry (Kumar and Markeset, 2007). The continuous improvement gives the company scopes to maximise resource utilisation and minimise costs (Grier, 2013). Other management systems like QMS and TQM are not suitable for upstream oil business since these systems are focused on the quality of the products rather than the increased operational efficiency. Six Sigma or lean production techniques are sometimes used in the oil and gas industry, but BP picked the continuous improvement system since it can potentially benefit the business by maximizing resource utilisation (Wang and Wang, 2014).
2.4 Recommendation for Change in the Management System
P’s current management system with one or more systems can potentially benefit the company in the long run. The facilitation of JIT, Six Sigma or TQM and the continuous improvement system would enhance the business’s productivity by focusing individually on each segment and applying a suitable management system for the respective segments.
As BP has recognised the prices of oil per barrel are the lowest in a decade, it has forecasted a lower turnover until 2035. BP has forecasted a massive surge in renewable energy (Chestney, 2016). Therefore, utilising the Just-In-Time management process would add strength to its pre-existing armoury as it would free up a lot of capital. This management process has been proven very effective in reducing costs in inventory management throughout the manufacturing industry.
Facilitation of the six sigma process would be beneficial for BP as the company faces issues such as platform disasters. In such instances, the DFSS (Design for Six Sigma) and FMEA (Failure Mode Effect Analysis) can be highly beneficial as these methods help the managers to analyse different factors related to disaster management (Barrett, 2015).
Appropriate implementation of the TQM system within the organisation and its culture would evade the possibilities of disasters such as the incident in the Gulf of Mexico. They would limit the capacity for any manager to cut corners. As MEJRI and DE WOLF (2013) have noted that the oil and gas industry has failed to implement the TQM system within the organisations, TQM implementation in potential markets like Silicon Valley would be profitable.
References
Ashkenas, R. (2012). It’s Time to Rethink Continuous Improvement. Harvard Business Review, 5(1).
Barrett, D. (2015). U.S., BP Finalizes $20.8 Billion Deepwater Oil Spill Settlement. [online] WSJ. Available at: http://www.wsj.com/articles/u-s-says-20-8-billion-bp-spill-settlement-finalized-1444058619 [Accessed 4 Jun. 2016].
BP Plc, (2016). Strategic Report 2015. Strategic Report. London: BP Plc.
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Chestney, N. (2016). Renewables to grow faster than forecast to 2035: BP. [online] Reuters. Available at: http://www.reuters.com/article/us-bp-outlook-renewables-idUSKCN0VJ1SO [Accessed 4 Jun. 2016].
Glick, B. (2009). BP signs another software outsourcing deal. [online] Computing. Available at: http://www.computing.co.uk/ctg/news/1829411/bp-signs-software-outsourcing-deal [Accessed 4 Jun. 2016].
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Kaplan, R. and Mikes, A. (2012). Managing Risks: A New Framework. Harvard Business Review, 6(1).
Kumar, R. and Markeset, T. (2007). Development of performance‐based service strategies for the oil and gas industry: a case study. Jnl of Bus & Indus Marketing, 22(4), pp.272-280.
MEJRI, M. and DE WOLF, D. (2013). Crisis Management: Lessons Learnt from the BP Deepwater Horizon Spill Oil. BMS, 4(2), p.67.
The Oil and Pipelines Agency, (2015). The Oil and Pipelines Agency Account 2014-15. London: The National Audit Office.
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