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AltaLink amps up reliability in the Christina Lake region

Forging partnerships with Atlantic metal manufacturers

Can oilsands operators do more with the IT supply chain?

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20 OILSANDS REVIEW | NOVEMBER 2014

ollaborative supply chain management (SCM) is gaining ground in the oilsands industry as operators learn how to yield value from new ways of dealing with suppliers.

In the 12 years since Devon Energy Corporation supply chain director Steve Bass immigrated to Canada from the United Kingdom, he has seen indifference transformed into intense interest.

“It is not a new subject today. It’s exciting where we’re at with collaboration,” he told Oilsands Review in a recent interview.

“The difference is understanding how to do it and how to yield value from it. It’s one thing to get a lot of people to talk about their collaborations, but another to talk about what collaboration needs to be. Both parties need to be putting something on the table that they wouldn’t have done before. Otherwise it’s just negotiating or a transaction.”

Bass took to the main stage of the Canadian Energy Supply Chain Forum, which took place at the BMO Centre in Calgary on October 28–30, to describe the role of collaborative SCM in the success of Jackfish 3, Devon Canada’s new US$1.3-billion steam assisted gravity drain-age (SAGD) project in the Athabasca oilsands. Jackfish 3 achieved first steam in August under budget, ahead of schedule and with a stellar safety record—hitting all the high notes of project execution.

Bass says Devon’s approach to Jackfish 3 SCM hinged on trust.

“The legacy model [of procurement] is highly transactional, though there are always exceptions. Now there’s a lot more strategic work, technical development and supplier development,” he explains.

“If we’re good at collaborating and do it right, we create trusting relationships. It’s often difficult to get there because you test each other along the way, but if we stand by the values we’ve agreed to stand by, trust develops.

It’s an outcome, something earned by dealing with difficulties along the way.”

LEARNING AS JACKFISH EXPANDSJackfish 3 expands Devon’s SAGD capacity to a total of 105,000 barrels per day, the accumula-tion of three identically sized 35,000-barrel-per-day phases. Jackfish 1 started production in 2007, followed by Jackfish 2 in 2011. First production at Jackfish 3 is expected in the third quarter of this year.

Through Phases 1 to 3, the company has used its growing experience to improve the SCM process. Bass says Devon has devoted many hours to analyzing comprehensive feedback from all parties and applying the lessons learned.

For Phase 1, Devon subcontracted engin-eering, procurement and construction man-agement, as well as project management. By Phase 2, it had developed these functions as internal capabilities.

“Jackfish 2 was a hybrid, and 3 was our first chance to fully implement that new strat-egy,” Bass says.

The new strategy included replacing dis-tributed procurement—mostly done by engin-eers—with a supply chain model where buyers and suppliers are integrated by linking their data and processes.

SCM DEVON-WIDEBass was hired partway through the Jackfish 3 project procurement process to develop a supply chain for Devon in North America. He recruited a team to supplement the com-pany’s dozen or so procurement people to cover conventional, heavy oil, thermal oil and other business areas, and he implemented SAP in keeping with recommendations that a consult-ant had given Devon.

In the last year, he has been establishing a model in Canada that creates commercial P

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you liable—and maybe suing you—is an arm’s-length, even adversarial, style,” Bass says.

“The phrase ‘long-term’ is often al-most ridiculed. It and ‘collaboration’ are overused and you can hear people sigh and frown when you start talking this way. But creating relationships is not new in the oilpatch. It goes back to the begin-ning, when you’d shake hands on a deal. Doing business is more complex now, but strong relationships are built upon trust. Sharing risk and creating value is a very successful formula for building trust, today as well as in the future.”

DEVON’S NOT ALONE:COLLABORATION GAINING FAVOURAccording to Darren Caines, execu-tive director of Alberta’s Supply Chain Management Association (SCMA), col-laboration is gaining favour in industrial project execution because companies are realizing that reducing cost alone is no longer enough to sufficiently change the bottom line.

“Today, it’s about how we derive value outside of reducing costs,” Caines says.

“Buyers engage suppliers to solve problems they can’t necessarily solve on their own with the resources they have. It helps them gain competitive advantage.”

In integrated SCM, supplier and buyer use technologies that integrate their data and link their procedures to reduce inventory levels and waste and to improve forecasting. These tools lower the costs of the competitive pro-cess and negotiation.

But the important result, Caines says, is that “the client knows the sup-plier will do the job.”

CARDS ON THE TABLEThere’s a process of education in sup-ply chain collaboration, starting with the buyer explaining expectations and what the outcome needs to be, says Matt Knight, client services senior

systems that link with technical strategies.

His team researches the market-place, defines the criteria that will sup-port good decisions and gets to know potential suppliers locally and globally. They learn what the suppliers’ needs are and build long-term relationships.

Relationship-building is the univer-sal key to creating rewarding collabora-tions, Bass says.

“You have to say what you’re going to do and do what you say. Be consist-ent with behaviours and values. We hold each other accountable in a collabora-tive relationship. The traditional model of buying and contracting, holding

2007: JACKFISH 135,000 barrels per dayContractor EPCM and project management

2011: JACKFISH 235,000 barrels per dayHybrid contractor and internal EPCMand project management

2014: JACKFISH 335,000 barrels per dayInternal EPCM and project management

Jackfish evolution

Elements of integrated SCMRecord detailed analysis of feed-

back from all parties and apply lessons learned

Understand that the edge in negoti-ating comes from truly understand-ing the supplier

Start with more information sharing: being transparent is a small risk in the big picture

Replace distrib-uted procurement model with sup-ply chain system

where owner and suppliers are linked in data and

processes

Understand that an effective supply

chain does more than reduce costs,

it creates value

Share risktogether

Be consistentwith behaviour

and values

Hold each other accountable in a collaborative

relationship

Research the marketplace, get to know the potential

suppliers locally and globally, and understand their

business and motivations

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22 OILSANDS REVIEW | NOVEMBER 2014

director for Productivity Alberta, a coach-ing program for small- to medium-sized manufacturers that was spun off from the provincial government.

Knight prefers the phrase “value net-work” over “supply chain” because it describes a system of partners who share similar values and business strategies and are committed to working together to achieve a thoroughly discussed goal.

“The whole RFP process is broken; it doesn’t build trust,” Knight says. “[A value network] is more of an interviewing process. When you know your require-ments, you interview supplier partners and say, ‘Here’s our vision and here’s our commitment to you,’ so it’s a mutual commitment over time to sharing risk and rewards.”

Like Bass, Knight says the system starts on a foundation of collaboration and trust.

“You talk about values, have face-to-face meetings and look for things that are going to provide a win-win scenario. It could be with the same partners you normally work with, but you start with a lot more information-sharing, opening up and putting your cards on the table.”

It takes time and may well feel less efficient, but, Knight says, “Sharing in-formation will increase accuracy in plan-ning and scheduling, and the supplier won’t have change orders at the end of the project. It increases efficiencies dur-ing the execution of the project.”

BEING TRANSPARENT: THE RIGHT RISK TO TAKEBass is insistent about the need to make the upfront investment in creating suc-cess for Devon’s suppliers.

“If it’s only a success for Devon, you’re likely to miss a lot in creating the project and create issues and claims at the back end,” he says. “You would upset a lot of people who didn’t have a chance to succeed.”

To that end, Knight says, suppliers have to be transparent about their P

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capacity and capabilities. “Being trans-parent is a smaller risk than not being able to deliver the value they committed to.” It also opens the door for the buyer to provide required training.

IT’S ALL IN THE INTERPLAYBass is particularly impressed at the commitment Devon employees made to mentoring local contractors doing business on the Jackfish 3 project. They helped suppliers set up systems and paperwork, coached them on logis-tics, construction and project manage-ment, and trained them in environment, health and safety requirements.

The result? Jackfish 3 is “a great success for local communities. They have now proven to be commercially successful and have developed a robust [workforce]. It’s very rewarding.”

What’s crucial is the interplay be-tween companies.

“The supply chain brings the part-ners together and creates the under-standing of how we’re going to succeed in this project,” Bass says.

Not only do the buyer’s people contribute their ideas, often the suppliers have the next great idea or technology.

“[Suppliers] have everything we would need in creating a successful business if only we would listen to

them,” Bass says. “They have good business people with great ideas; they’re developing products and ser-vices. Sometimes their business model lags behind their change and ideas. It’s about understanding the supplier, how they make money, where they want to be.”

UNDERSTANDING POWER IN THE MARKETPLACEInevitably, power enters the picture. Sometimes the buyer is dramatically larger than the supplier, and sometimes the reverse is true.

“Understanding power in the marketplace is one of the big lessons,” Bass says.

“To be successful against larger companies, I need to create competitive

forces in the marketplace. Without competition, powerful suppliers will just take it or leave it. I have to find an edge to negotiate, otherwise we’re just limiting the risk.”

Bass says it comes back to under-standing the supplier.

“We need to understand their motives and objectives. We’re at-tempting to have an influence. The way we work, we will sit with a very large U.S. or European company and share with them the collabora-tive nature of the way we want to do business. We should not appear to be weak—we’re going to manage risks and rewards—and we also have expectations for how they manage their subcontractors, their strategy in their supply chain.”

Using an integrated approach to its supply chain on the Jackfish 3 project, Devon was able to bring in the facility under budget, on schedule and with a “spotless” safety record.

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Representatives from Devon Canada will outline in detail their approach to integrated supply chain management at the Canadian

Energy Supply Chain Forum on Wednesday, October 29. For more information or to register, please visit supplychainforum.ca.

24 OILSANDS REVIEW | NOVEMBER 2014

Mile One Centre, St. John’s, Newfoundland & Labrador

GETTING THE EDGE IN NEGOTIATING“The edge in negotiating flows from truly understanding what the supplier would get out of dealing with Devon,” Bass says.

“Most of our suppliers have initiatives developing technology, a market presence and solutions. Devon has a history of innovating in technical processes and in the way we do business. We bring information about where we’re innovating that would add value to their business and make them see how it adds more value than just a transaction.

“If we can find partners for the long-term journey, we can create something special. We can manage risk together, share learnings, knowledge and ob-servations of what’s going on in the marketplace. That can yield a reward-ing relationship.” P

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