Central to development: Pemex’s procurement reform

DCPA is part of the modernisation and restructuring process of Pemex following Mexico’s energy reform passed in August 2014. The centralised procurement unit allows Pemex to optimise its purchasing power and have more agility and transparency in public bids. It also helps develop standardised and streamlined processes that will create greater capital spending efficiency.

These processes are important to the future success of Pemex as it enters a competitive oil and gas environment for the first time in more than seven decades. The reform was not the reason for the creation of the DCPA, however it has provided additional motivation to implement changes.

What progress has been made on speeding up the integration process?

The transfer of the procurement responsibilities of Pemex’s four major subsidiaries – exploration and production, gas, refining and petrochemicals – was completed in September 2014. We took more than 100 purchasing and procurement units that were dispersed throughout the company’s affiliations and then centralised procurement.

This was a huge hurdle given that Pemex’s yearly spending on procurement ranges from between $25 billion and $30 billion, and the company signs an average of 30,000 contracts per year.

When you have four subsidiaries that conduct business in distinct manners, it is difficult to monitor how much they spend, as they have a tendency to conduct their activities from a business unit standpoint. By building common strategies, our goal is to consolidate the total purchasing power of subsidiaries and convert that into economies of scale and aggregate demand.

Restructuring such an unsynchronised system represented an enormous task, as it involved bringing the 3,000 employees spread across four different Pemex subsidiary procurement divisions, and a further 2,000 indirectly associated with procurement, into the management of the DCPA.

How will the DCPA improve Pemex’s supplier relations?

The centralised procurement services unit enables us to connect all the suppliers with the right departments within the company’s framework, while at the same time exposing the necessary pool of technologies to assist decision-making. Prior to the DCPA’s formation, suppliers were forced to invest significant time and resources in attracting the appropriate personnel within Pemex’s procurement branches. Ultimately, the company lost out on opportunities to access the necessary goods and services to execute projects.

In 2014, we are developing a supplier evaluation programme that will register, classify and evaluate the company’s supplier base. Not only will this allow us to be a conduit to suppliers, but we will also make sure that we strengthen our ties with those suppliers who are reliable.

In the first quarter of 2015 we plan to register 800 of our suppliers to the new system, which constitutes about 90 percent of Pemex’s expected supplier base.

What kind of spending patterns will DCPA implement to avoid unnecessary expenses?

Our goal is to modernise the way Pemex spends its money. The key benefit provided by the centralised procurement system is strategic sourcing through category management, which helps us to understand and control spending, establishes categories of spending and identifies strategies based on those categories to optimise procurement.

By analysis Pemex’s supplier base, market trends and technical aspects we will be able to determine whether to purchase, lease or rent the products we need within each category.

In 2013 alone, Pemex’s drilling department spent around $5.6 billion on leases, services and equipment purchases. Our drilling services and well completion department has generated the second highest spending figure with $3.4 billion.

In order to make these purchasing practices more efficient, we created a category comprised of everyone related to the sourcing of drilling equipment from field technicians to purchase administrators. All the procurement personnel that were brought in became professional buyers with an understanding of the best practices and tendencies in procurement behaviour. They are able to anticipate the drivers of emerging trends, technologies and processes, including the global flow of raw materials.

In 2014, we established our first six categories – drilling equipment, vessels, well services and completion, pipes, installation and offshore maintenance, and exploratory testing. We are still in the early stages of this development, whereas other oil and gas companies, such as Bogota-based Ecopetrol and Norway’s Statoil have 38 and 71 different procurement categories, respectively.

By 2018, the company aims to increase its number of categories and make sure that all of the introduced changes have been institutionalised.

Have any of Pemex’s divisions proven more difficult to centralise procurement than others?

The complexity will come in the future as we directly take over the procurement activities. It is simple to say that we centralised Pemex’s procurement, but we have to remember that purchasing between Pemex’s subsidiaries was organised in a different manner.

For instance, it may present more of a hurdle to restructure the procurement of refining than exploration and production, which is more structured in the way it procures.

There are more than 12,000 refining contracts, but they only represent 10 percent of Pemex’s procurement with regards to total spending. We see huge opportunities in revitalising the refining department’s procurement division and optimising the purchasing power of Pemex’s six refineries – Tula, Salina Cruz, Salamanca, Madero, Minatitlan and Reynosa – by introducing centralised purchasing strategies.