Applying LEAN

TO NONMANUFACTURING

SUPPLY CHAIN

Purchase Order to Pay

Optimization

Elm Valle, Pride International, Process Improvement Lead

• Introduction

•

| Our World is Getting Deeper

Agenda

Company Overviews

PRIDE INTERNATIONAL

Headquartered in Houston, Texas, Pride International,

Inc. is one of the world's largest offshore drilling

contractors. Pride provides contract drilling and

related services to oil and gas companies

worldwide.

With approximately 4,000 employees, Pride offers a

multinational workforce with offices in the United

States, Angola, Brazil, and Saudi Arabia. We have

positioned our fleet in some of the world's largest

and most active exploration and production

basins. In 2010, Pride had $1.5 billion in

revenues.

Our fleet and operations currently consists of the

following:

5 Deepwater drillships

2 Deepwater drillships under construction

6 Deepwater Semisubmersible

6 Midwater Semisubmersible

7 Jackups

2 Managed deepwater units

UHY ADVISORS

Headquartered in Houston, Texas, Pride International,

Inc. is one of the world's largest offshore drilling

contractors. Pride provides contract drilling and

related services to oil and gas companies

worldwide.

With approximately 4,000 employees, Pride offers a

multinational workforce with offices in the United

States, Angola, Brazil, and Saudi Arabia. We have

positioned our fleet in some of the world's largest

and most active exploration and production

basins. In 2010, Pride had $1.5 billion in

revenues.

Our fleet and operations currently consists of the

following:

5 Deepwater drillships

2 Deepwater drillships under construction

6 Deepwater Semisubmersible

6 Midwater Semisubmersible

7 Jackups

2 Managed deepwater units

The Background (timeline)

Brought on as a Consultant for Pride International – to “Fix”

their Received Not Voucher backlog.

Hired on Full Time as the Process Improvement Lead

Myriad of Opportunities in the Procure to Pay Process

Enlisted Aid from UHY Advisors

Requested Full Blown Project to be initiated

The Challenge

Oil & Gas Company

Non Manufacturing

Vague or No Documentation of Processes / Procedures

Siloed Work

No Process Improvement Culture or Experience

Strategy Overview

PDCA

Plan

Do

Check

Act

DMAIC

Define

Measure

Analyze

Improve

Control

Control

ACTION

What is the

problem?

How are we

doing?

Fix It

Hold & Sustain

Gains

Project Mgmt

• Identify

Opportunities

• Scope Project

• Analyze the

Process

• Define Outcomes

• Prioritize

• Refine

• Implement

• Measure Outcomes

• Acknowledge

Plan, Do, Check, Act

Identify Problem Statement / Challenges

Benchmark against Industry & Best Practice

Acquire Support from Leadership

Validate and Continue Data Gathering

Define Current State & Metrics

Create Key Performance Indicators

Evangelize and Socialize at all levels

Create Future State

Document the Future State – Process Maps

Pilot and Validate

Implement the Future State

Activity

Requirements Gathering

Planning & Analysis

Design

Workshop

Develop Future State

Pilot

Implement & Monitor

2010

APRJAN FEB MAR

2011

JUL AUG SEP OCT NOV DEC

Note: Business Gathering was over a span of 1 year prior to Project

Timeline

Marketing Strategy

Understand Agree Document

Problem Statement - Cost

Pride International: $30/ Invoice

In 2009, Pride had an opportunity to save over $8MM in prompt pay discounts.

Actual Prompt Pay Discount Taken: $0.00

The 30% rework cost Pride additional $50 per invoice

In 2009, Pride’s First Pass Yield for Purchase Order to Pay transactions was 70%.

CategoryAnnualized 2010 Invoices

to be Processed

PSC 16,432

Brazil 67,627

Angola 9,830

All Others 41,455

TOTAL 144,070

15% of Purchase Orders are Cancelled

20% go through Change Order process

32% of PO Receipt fell into OS&D

20% of All Invoices Lost

Clearly Defined Process Map or Procedures did not exist

Lack of SOP’s or Desktop Procedures Transaction Oriented (Firefighting)

Problem Statement - Waste

Lacking Knowledge or Culture for Process Improvement / LEAN / Six Sigma

20% Re-Work Rate

Additional Costs

PO MgmtPO

ApprovalPublish

POReceive Material

Invoice Receive

Voucher PO

Pay

PO

Requisition

Queue

Understand Agree Document

Overall Cycle Time - Inefficiency

2 Days

Days a

Req sits.

Metrics are in “average” days.

7 Days

Conversion of

Req to PO

15 Days

Time to Approve & Publish 90 Days

Time Supplier

receives

approval to

Pride

receives

material at

K&N

24 Days

Supplier’s

Date of

Invoice vs.

Invoice

Received

Date logged

in E1

15 Days

Invoice

Received

Date vs. Date

Vouchered

7 Days

Lead Time for

Batching

Process &

Physical

Payment

Total Average Cycle Time = 160 Days

First Pass Yield = 70%

| Our World is Getting Deeper

Scope of Project

PO Mgmt

POApproval

Publish PO

Receive Material

Invoice Receive

Voucher PO

Pay

PO

Level 1 Process Steps are denoted “LX.0”

L1.0 L2.0 L3.0 L4.0 L5.0 L6.0 L7.0

PO

Mgm

t

•Manual

•Auto

•Portal

•Change

•Cancel

•Blanket?

•Emergency?

PO

Appro

val

•Initial

•Changes

•AFE

•Non-Capital AE

•Budget Mgmt

Publish P

O •Manual

•Portal

•EDI

• Supplier Acknowledgement R

eceiv

e M

ate

rial

•K&N Process

•Pride Process

•Recon

•PO Status/Ship In

voic

e R

eceiv

ed

•Indexing

•Accruals

Voucher

PO •Voucher Log

•Normal

•3 Way Match

•No Match

•No Invoice

•No PO

Pay P

O

•Batching

•Approving

•Releasing

•Confirmation

• Direct Objectives:

Cycle Times – Reduce Cycle Times in the P2P process

First Pass Yield – Reduce rework or recycle of work (70%)

Streamline – Remove unnecessary steps or steps that can be

consolidated

• Indirect Objectives:

Reduced Costs (Rework of $300K)

Import Export Compliance

Increased Efficiencies (Lowest Credit Rating DnBi among

Competitors)

Meet Commercial Obligations (55% On Time Pay)

Improve Savings (2% Prompt Pay Discount $8MM)

Aligned with Internal Controls & Policies

| Our World is Getting Deeper

Project Objectives

| Our World is Getting Deeper

•Example Map

•Session Work

•Consolidation

Day 1-Current State

•Example VSM

•Session Work

•Consolidation

Days 2,3-

Value Stream

• Session Work

• Internal Controls

• Consolidation

Days 4,5-

Future State

Obje

ctives

Understand Agree Document

Spir

itTim

eline

Off-Site Workshop

| Our World is Getting Deeper

Service Team Maturity Model

Characteristics of the business process at each maturation

level include:

1. Initial

Initial learning phase for the team is determined.

Formal documented processes may not exist.

2. Repeatable

Informal, ad-hoc paths of communication are established.

A certain level of repeatability is attained.

3. Defined

Processes are well defined, documented, and standardized.

Repeatability and consistency is more commonplace.

4. Predictable

Integrated service management is present (e.g. quality controls, audit controls, preventive measures).

Focus is on measuring and communicating processes at the business level.

5. OPTIMIZING (targeted goal for a service department)

Departmental efficiencies are gained through refined processes.

Errors are almost non-existent.

Initial

Repeatable

Defined

Predictable

Optimizing

| Our World is Getting Deeper

Identify Value/Waste

Using the

Current State

Map. Identify

activities within

the process that

can be

“improved”.

Level 1

Level 2

Level 3

| Our World is Getting Deeper

Current State Result Mapping

Current State Mapping & Analysis

Value Stream Analysis Results

Minimize

Non-Value Add

Required A

ctivity

Eliminate

Improve

Monitor

Value Add

Non-R

equired

Activity

AUTOMATE

Required as checks due to number of exceptions

Required due to immature processes

Required due to lack of closed processes

Required due to lack of communication

Required due to lack of policy enforcement

Total Activities Identified - 120

Required/Value Add 42%

Non Required/Value Add 0%

Required/Non Value Add 53%

Non Required/Non Value Add 6%

Total of 173 Improvements were identified to support our Process Maps and

Future State.

Shared Ownership with split responsibilities for Voucher Log and Received

Not Vouchered.

Training! Training! Training! Lack of knowledge/ enforcement on Policies

and Procedures has caused delays in the process or rework.

Poke Yoke – Error Proofing on front end rather than mid-stream checks and

reviews.

Close the Loop – Understand and own the process.

Ongoing Project Discovery

Policy Requirements – Integration into new SOP

Desktop Manual – Complete End to End

Process Maps – 23 New Process Maps

Sarbanes-Oxley 404 – New Controls & Integration

Training Requirements – Process / Technology

Pride Platform – Training Guides

The Test Pilot

Three Buyers / 2 Expeditors / 2 Accounts Payables

Random population of Purchase Orders

Track them against old metrics

Period of One Month

KPI Improvements

Comparison to YTD 2010 vs. 2011 YTD Running JAN FEB

P2P Metric % Improvement % Improvement

REQ to PO Time (Days) 30% 15%

Approval Time (Days) 67% 57%

Supplier Shipment Time (Days) 51% 47%

Invoice Date vs. Received Invoice Date (Days) 79% 79%

Received Invoice Date to Voucher (Days) 80% 80%

Total Cycle Time % Improvement % Improvement

First Pass Yield [No Change PO, No Voucher Log] 37% 36%

Received Not Vouchered (in Millions) 60% 56%

Voucher Log (in Millions) 50% 67%

KPI Description % Improvement % Improvement

Line Items on Purchase Order that has uses a GIM number 2% 1%

Items in GIM that has classification data required for Export 39% 42%

Total Average Days Passed % Improvement % Improvement

NO Touch PO [Auto PO] 100% 100%

PO's with 3 Bids - exclud. Auto PO 60% 43%

| Our World is Getting Deeper

Instill the Culture

Current State

Future State

Q1 - Work Plan &

Implementation

Q2 - Work Plan &

ImplementationQ3 - Work Plan

& Implementation