Big petrochemical companies face many challenges arising across various dimensions such as controls, compliance, and monitoring. Issues vary from inadequate expenditure oversight, lack of performance metrics, absence of a vendor management office (VMO), and ineffective supplier management practices. Other problems are related to contract management and governance and issues related to synchronization and platform disparities.
Organizational structures may also be rigid and not flexible enough for change management. To address this, compliance should be conducted as a priority and monitored regularly. Technological gaps encompass manual processes, underutilized integration, and absence of automation. Reporting challenges persist in spend classification and dashboards. Maturity assessments are important, because they assess the current processes against the best-in-class processes and prioritize the gaps, which are strategically important. These assessments are later used to give an implementation road map for the solutions proposed.
Avasant’s Approach
Avasant conducts a maturity assessment of the current state with data collection and interview data. It prioritized the gaps and developed the implementation road map. The steps included:
a) Data collection and interviews: Collection and review of data from various sources of processes, policy, etc. Interview of all relevant functions.
b) Maturity assessment: Assessing the level of development or sophistication in specific areas.
c) Current state assessment: Evaluating existing conditions and practices within the organization.
d) Gap prioritization: Finding deficiencies and prioritizing them based on importance.
e) Implementation road map: Plan outlining steps to address identified gaps and achieve desired improvements.
Industry Insights
In the US, the petrochemical industry is strong, supported by steady demand across various sectors. Market insights reveal ongoing growth propelled by infrastructure projects, consumer goods manufacturing, and automotive needs. Procurement strategies emphasize supply chain resilience, sustainability, and cost efficiency. Industry giants prioritize research and development to improve products and operations, staying ahead amidst evolving regulations and technological advancements.
Maturity Assessment
This tool is used to measure the maturity level of an organization in a specific area. It helps to find the current state of the organization and the gaps that need to be addressed to reach the desired future state. It is tailored to the project requirements and gives custom made solutions to a client’s problem.
| No. | Focus Area | Definition | Elements |
| 1 | Procurement and Sourcing Strategy | Strategic plans for acquiring goods and services efficiently while optimizing costs and supplier relationships. | Policy, Procedures & Process |
| Procedures & Process | |||
| Category Strategy | |||
| 2 | Contract Management and Governance | Monitoring and enforcing agreements to ensure compliance, mitigate risks, and maximize value creation. | Contracting Process |
| Contract Lifecycle Management | |||
| Relationship Management | |||
| Contract Templates | |||
| 3 | Risk Management | Identifying, assessing, and mitigating potential threats to business operations, finances, and reputation. | Supplier Assessment |
| Risk Mitigation | |||
| 4 | Organization Structure | Framework defining roles, responsibilities, and relationships within a company to facilitate effective decision-making and operations. | Organization Design |
| Talent Development | |||
| Organization Change Management | |||
| 5 | Technology Capabilities | Tools and systems enabling automation, data analytics, and digital transformation to enhance procurement processes and performance. | Internal Integration |
| Process Automation | |||
| Data Analytics & Visualization |
Gap Prioritization
Another tool, the Impact Priority matrix, serves as a strategic tool to prioritize gaps found after the maturity assessment. It involves plotting each identified gap based on two key factors: its impact on business objectives and the effort required for resolution.
High-impact, low-effort gaps are considered top priorities for immediate action. These issues significantly affect achieving business objectives but can be resolved relatively quickly and with minimal resources. Addressing these gaps promptly can lead to quick wins and immediate improvements in performance.
On the other hand, low-impact, high-effort gaps are deprioritized. While these gaps may require substantial resources and effort to address, they have a relatively minor impact on overall business objectives. It may be more strategic to allocate resources elsewhere or address these gaps over a longer time frame as part of a broader improvement strategy.
By visually mapping out these gaps on the matrix, organizations can effectively guide resource allocation and strategic decision-making. It provides clarity on which issues should be tackled first to drive the most significant impact on business outcomes, ensuring efficient use of resources and maximizing the effectiveness of improvement initiatives.
Conclusion
Assessment of the procurement function of a big petrochemical company, using a maturity assessment framework, is typically done for five focus areas: procurement and sourcing strategy, contract management and governance, risk management, organization structure, and technology capabilities. Common gaps and opportunities for improvement in the focus areas revolves around proper metrics and visualization of reports.
The organization should be adaptive and have a well-defined RACI matrix with a clear description of roles and responsibilities. Big organizations should have a VMO and have supplier management programs to assess them regularly. Platforms should be integrated, automated, and synchronized with the latest technology. Compliance with the statutory body should be met and proper audits conducted regularly. Contract management and governance should be met. Risk should be identified at the earliest time and reported to the top management for quick resolution. The procurement and sourcing strategy should have proper policies, procedures, and processes in place. There should be cross collaboration among all related functions such as supply chain, procurement operations, legal, and finance to streamline the process. Reports using this methodology can help petrochemical companies to address growth, challenges, and future trends for betterment of the company.
By Snehasis Dutta, Associate Consultant