According to Ahmed El-Mahdy, global capital purchasing leader for The Dow Chemical Company, effective procurement begins with partnering with suppliers "because this is how we can build our plans."
Partnering with suppliers and contractors is essential to Dow's success, El-Mahdy said.
Delivering projects safely, on schedule, at the right cost and with superior quality are the four elements Dow considers when evaluating any of its contracts or projects. El-Mahdy stressed that "safety and ethics" are the main two values of every business agreement Dow becomes involved with. If anything impacts those two elements negatively, "I don't think we'll be able to do business," El-Mahdy said.
"Don't get me wrong -- cost is important, too," he interjected, taking part in a panel discussion among petrochemical owners at the Industrial Procurement Forum held recently in Pasadena, Texas. "But ethics and safety are key."
El-Mahdy said successful procurement agreements require transparency among all partners.
"I'm not saying we should have open-book reviews, but at least a certain level of trust where we partner together and get to a win-win situation," he said. "If contractors are accepting a job because they just want to be there, but they are losing money, they won't be successful and we won't be successful either."
"We have to have a win-win situation," El-Mahdy reiterated. "If you fail, we will fail, the project will not be successful, and all of us will lose money one way or another."
El-Mahdy noted Dow encourages suppliers to actively promote sustainability and plastics recycling in their business plans.
"You'll see a lot of investment that we're doing to see how we can [include] recycling in our work process," El-Mahdy said.
Supplier diversity is important in Dow's procurement partnerships, El-Mahdy said. "You'll see us out there at more conferences to try to develop and integrate more suppliers and contractors in our base."
El-Mahdy said he finds it significant that research indicates that inclusion and diversity impact 29 percent of performance profit losses, "if you don't include diversity and inclusion in the portfolio."
That loss impact, he said, translates to $450 billion in the U.S. economy.
"At Dow, we are looking at that and trying to integrate in our daily processes and how we integrate suppliers and new contractors as well," he said.
Trust and communication
Joining El-Mahdy on the panel, Jake Cummins, procurement manager for the Chevron Pasadena Refinery, emphasized the importance of establishing trust and open communication with suppliers.
"Market intelligence has now given suppliers and the owners of business the ability to really understand where we are, to control profit," he said.
There's going to be risk for both the business and the supplier to develop a long-term relationship with a supplier, Cummins added. "Build that trust, and build that relationship where they feel like they have skin in the game," Cummins said.
Cummins likened the business/supplier relationship to a marriage.
"You've got to build that relationship and gain that trust. And once you establish that trust, we'll go the distance with you," he said. "If you own your failures and we own ours, we drive the supplier relationships into our business procurement. It does not always have to be the one-stop supplier engagement. We encourage our turnaround leads and our capital project managers to understand what the supplier can deliver⦠and to be OK with that upfront, with honesty, integrity and truthfulness.
"It takes time. That's not something that just happens with one engagement. It takes a little time. It's a marriage."
Long-term relationships
Margaret Martin, procurement leader at INEOS Styrolution America LLC, shared that her company rolled out its "Golden Rules of Procurement" to the entire INEOS organization a few years ago.
"From leadership down, everyone knows at what level we require bids to be done on work," she said.
When evaluating bids, "it makes a big difference," Martin said, whether suppliers are long-term contractors or people she's worked with over the years "who have signed our contracts, who have agreed to our lifesaving rules language, and who consistently have the lower TRIRs (total recordable incident rates)."
"And it shouldn't be a problem to go into a bid situation multiple times during a contract term, because if you are the incumbent supplier, you have the most competitive advantage," according to Martin. "You know the site, you know the people, and you know the work, so you should have the best advantage."
Martin specified that when INEOS engages in a bid situation, it doesn't mean the company is looking for a cheaper price. "It means that you are continuing to bring value to the site, and that doesn't always have to be price," she said.
"We have a lot of contractors that we work with who continue to have multiyear contracts, and that doesn't mean they are going down on the price every year," Martin explained. "It means that they are bringing value in different ways every year, so we can show those justifications for long-term contracts or long-term relationships in different ways. There are times when we can justify not bidding a contract by showing that the contractor has continued to bring value.
"By the same token, we want to be able to show that we are following those rules of engagement or the 'Golden Rules of Procurement' by bidding or by competitively bringing to the market, because we need to be able to bring new contractors and new partners into the business that can meet our safety requirements."
One requirement for suppliers seeking to do business with INEOS Styrolution, Martin said, is participation in ISNetworld. According to its website, ISNetworld is "an online contractor and supplier management platform of data-driven products and services that help manage risk and strengthen relationships."
"This is a global implementation that was done for all of the INEOS companies worldwide when we implemented our lifesaving rules for 2019," Martin said. "The buy-in is expensive."
The ISNetworld requirement "has cost us some very critical contractor relationships ⦠so we have needed to source additional contractors," Martin said. "We're willing to do that, because we're willing to partner with contractors that are going to be with us in the long term, that are going to make sure they are communicating down to the employee level how critical it is that they work safely and that they know what our lifesaving rules are. Those companies have those life-saving rules and they're training their employees to understand how critical it is ⦠they work safely and they go home safely."
Investing in transparency
Co-panelist David Motley, procurement lead for capital projects at Phillips 66, said the goal for his company is to have three-and five-year commitments, particularly with supplier labor services and engineering organizations.
"For materials, it's a lot longer than that," he said.
Motley shared that his company has specific processes all members of the organization must follow, "and risk and indemnity are very critical parts of what it is we do."
Phillips 66 employs labor burden buildups and requests for proposals (RFPs) to "level-set," he explained.
"It's an equalizer, right? Different companies have different costs. We get that; we understand that," Motley said. "That's where conversation comes in. When we say it's a win-win situation, it does have to be a win-win."
Suppliers are not in business to be nonprofit organizations, he said.
"They're in this business to make a profit, and I'm in this business to make a profit," Motley said.
The "commercial side" of Phillips 66's business is a critical component of that business, "but it's only a part," Motley continued, adding that safety and performance are typically the top drivers in contractor choice.
"Then we get into technical capabilities and expertise. And once you're in, you start leveraging and delivering the value," he said. "If you deliver the same value in three years, what makes you the expert? What did you do to deliver value for both your organization and for ours?"
Ultimately, Motley believes it is essential for companies to have transparency and open conversation with their suppliers.
"It's not a grudge match, and it's not a fight," he concluded. "It's not 'my way or the highway.' It's a true and honest conversation."
Thomas Brinsko, president of BIC Alliance, moderated the panel. The Industrial Procurement Forum was presented by the Economic Alliance Houston Port Region and BIC Alliance.
