investigation of the total supply chain issues at lam son joc

HO CHI MINH CITY OPEN UNIVERSITY

UNIVERSITÉ LIBRE DE BRUXELLES
SOLVAY BRUSSELS SCHOOL OF
ECONOMICS & MANAGEMENT

MBQPM5

NGUYEN NGOC MI NH NGUYET

I N V E S TI G AT I O N O F TH E T O T AL
SU PP L Y C H AI N I S S U E S
AT LAM SON JOC

MASTER FINAL PROJECT
MAST ER IN BUSINESS QUALITY AND PERFORMANCE
MAN AGEME NT

HO C HI MINH CIT Y
(2016)


S TA T E M E N T O F O R I G I N A L I T Y
I, Nguyen Ngoc Minh Nguyet, hereby certify to be the author of this master final
project report, which was written under the mentorship of Professor Jacques
Martin. The report is submitted as part of the requirement for the award of Master
in Business Degree of Quality Performance Management, is wholly my own work
unless otherwise referenced or acknowledged.

Signature:

Print name:
Date:

Nguyen Ngoc Minh Nguyet
12 April 2016


ACKNOW LEDGEMENTS
This report has never come to be without excellent guidance and supports. I would
like to acknowledgement the helpful advices and comments of who gave me the
possibility to complete this.
First and foremost, I offer my sincerest gratitude to Professor Jacques Martin; he
has shown me the way through his knowledge and motivation while keeping me
on track in completing this report.
This report contains the views, opinions, guidance of my co-workers particular the
interview participants who provided freely of their time and though; I truly
appreciate their efforts and sincerely thank them all.
My sincere gratitude also goes to my Bosses who have shared their valuable
expertise and industry knowledge with me. I am grateful to my company for giving
the opportunities to study this program.
Especially, I would like to thank my family, my husband, and my two little sons who
encouraged and fully supported me during my studying time.


ACCEPTANCE OF FINAL PROJECT REPORT FOR DEFENSE

Mr/Ms NGUYEN NGOC MINH NGUYET’s final project report for the degree of Master in
Business Quality and Performance Management is officially accepted for defense.

On 13 April 2016

Dr. Jacques M.A. Martin
Academic Director
Master in Business Quality and Performance
Management
Solvay Brussels School of Economics and
Management – Ho Chi Minh City Open
University


TABLE OF CONTENTS
INTRODUCTIONS ............................................................................................................ 1
1.

INTRODUCTION OF THE SUBJECT ..................................................................... 1

2.

OBJECTIVES ......................................................................................................... 3

3.

METHODOLOGY ................................................................................................... 4

4.

LIMITATIONS ......................................................................................................... 6

5.

REPORT STRUCTURE.......................................................................................... 7

PART1. TOTAL SUPPLY CHAIN MANAGEMENT PROCESS AT LAM SON JOC ........... 9
CHAPTER 1: THE CONTEXT OF SUPPLY CHAIN MANAGEMENT............................. 9
1.

DEFINITION........................................................................................................ 9

2.

THE IMPORTANT OF SUPPLY CHAIN MANAGEMENT .................................. 12

CHAPTER 2: PROJECT OVERVIEW .......................................................................... 14
1.

COMPANY PROFILE ........................................................................................ 14

2.

CORPORATE CONTEXT ................................................................................. 16

3.

THE TOTAL SUPPLY CHAIN AT LAM SON JOC ............................................. 19

PART 2: THE TOTAL SUPPLY CHAIN MANAGEMENT INVESTIGATION AND
RECOMMENDATIONS ................................................................................................... 22
CHAPTER 1: THE TOTAL SUPPLY CHAIN ISSUES ANALYSIS ................................ 22
1.

SPECIFYING REQUIREMENT AND PLANNING SUPPLY ............................... 22

2.

ANALYSING SUPPLY MARKETS..................................................................... 29

3.

DEVELOPING SUPPLY STRATEGIES ............................................................ 35

4.

APPRAISING & SHORTLISTING SUPPLIERS ................................................. 41

5.

OBTAINING & SELECTING OFFERS............................................................... 49

6.

NEGOTIATING ................................................................................................. 57

7.

PREPARING THE CONTRACT ........................................................................ 61

8.

MANAGING THE CONTRACT .......................................................................... 65

9.

MANAGING LOGISTIC & INVENTORY ............................................................ 70

10.

MEASURING AND EVALUATING PERFORMANCE..................................... 77

CHAPTER 2: RECOMMENDATIONS FOR IMPROVEMENTS .................................... 81
1.

MAXIMIZE LOCAL CONTENT STRATEGY ...................................................... 81

2.

DEVELOP AN E-PROCUREMENT STRATEGY ............................................... 82

3.

PROMOTE GROUP PURCHASING ................................................................. 84

4.

UTILIZE QUALITY & SUPPLY MANAGEMENT TOOLS ................................... 85

CONCLUSIONS .............................................................................................................. 92


REFERENCE .................................................................................................................. 95
APPENDIX A: LAM SON JOC - SR/PR PREPARATION WORK FLOW ......................... 98

APPENDIX B: LAM SON JOC - PURCHASING WORKFLOW ........................................ 99
APPENDIX C: LAM SON JOC - OVERALL CONTRACT STRATEGY TEMPLATE ....... 100
APPENDIX D: LAM SON JOC - PROCUREMENT FORM ............................................ 104


GLOSARY
Bbl

Barrel (1 barrel = 35 imperial gallons approximately)

CIT

Corporate Income Tax

CPM

Critical Path Method

DD

Dong Do

DO

Delivery Order

E&P

Exploration & Production

ECV

Estimated Contract Value

EPCI

Engineering Procurement Construction and Installation

EVA

Economic Value Added

FCWT

Foreign Contractor Withholding Tax

FPSO

Floating Production Storage and Offloading

H2S

Hydrogen Sulfide

LSJOC

Lam Son Joint Operating Company

MCM

Management Committee Meeting

NOC

National Oil Company

O&G

Oil & Gas Industry


PC

Petroleum Contract

PO

Purchase Order

PR

Purchase Request

PVEP

Petro Vietnam Exploration and Production

PVN

Petro Vietnam

RFP

Request for Proposal

SCM

Supply Chain Management

SoW

Scope of Work

TdC

Tender Committee

TL

Thang Long

VTSB

Vung Tau Supply Base

WHP

Wellhead Platform

WO

Word Order


L I S T O F F I G U R ES
Figure1:

Report Structure

Figure 2:

Supply Chain Management

Figure 3:

Lam Son JOC - Blocks 01/97&02/97 Location Map

Figure 4:

Lam Son JOC - Preliminary Field Layout

Figure 5:

Lam Son JOC - SWOT analysis

Figure 6:

Lam Son JOC - PESTEL Analysis

Figure 7:

Lam Son JOC - Porter Five Forces

Figure 8:

Lam Son JOC - Total Supply Chain

Figure 9:

Purchase Specification

Figure 10:

P-D-C-A Cycle

Figure 11:

Supply Positioning Model

Figure 12:

Lam Son JOC - Supply Positioning Model

Figure 13:

The Four Quadrants Items - Supply Positioning Model

Figure 14:

Life Cycle Cost Analysis

Figure 15:

Negotiation Cycle

Figure16:

Supplier Perception Model


Figure 17:

Various levels of objectives

Figure 18:

Scheduling – based on a “bottom up” process

Figure 19:

Gantt (bar) chart

Figure 20:

Lam Son JOC - Receive Flowchart

Figure 21:

PDCA Cycle

Figure 22:

Supply Position Model

Figure 23:

Risk Matrix

Figure 24:

Ishikawa Diagram

Figure 25:

Mind mapping - Summary of report


L I S T O F T A BL ES
Table 1:

Statistic of Suppliers had back for further information in 2014

Table 2:

Market survey for provision of 400 Feet Jack up Rig

Table 3:

Lam Son JOC - Supply Risk/Impact

Table 4:

Procurement Method - Advantage Vs Disadvantages

Table 5:

Ratio of Supply Strategy in using local content in 2012

Table 6:

Lam Son JOC – Procurement Thresholds

Table 7:

Detailed technical evaluation criteria for the provision of pigging

Table 8:

Supplier Capability Ratings

Table 9:

Lam Son JOC - Warehouse stock taken 2014

Table 10:

Lam Son JOC - Action plan for warehouse improvement 2014

Table 11:

Fuel Consumption rate

Table 12:

E-Procurement Vs Manual Time

Table 13:

Balance Score Card Performance Measurement

Table 14:

Risk Matrix


1

INTRODUCTIONS

1. INTRODUCTION OF THE SUBJECT
This is my master final project report for the award of my Master Decree in
Business Quality and Performance Management Program in 2015.
The starting point for this report was provided by challenges encountered by my
Company in the oil price-plumping situation. The depressed price of oil has
spurred a new wave of break-even point in the energy exploration & production oil
and gas Companies. When the crude oil price is around US$100, all exploration
and production oil & gas Companies try to drill as fast as they could. Now when
the prices have down to around USD$35, the companies are focus on efficient by
getting the most petroleum for the less amount of money.
Which the current plumping of oil price, an effective supply chain management will

become more and more important than ever.
The oil and gas industry has been considered as large capital investment.
Managing the complexity of major capital projects in the industry is really
challenging. The shareholders of such projects will expect greater efficiencies from
the supply chain management of the organization. Shareholders are demanding
improved return on investment, reduced risk while schedules and budgets are tight
and safety is crucial, therefore, an effective supply chain management is the key
success factor for the exploration and production oil and gas projects.


2

My report presents my investigation of all the main issues occurs through the total
supply chain process of Lam Son Joint Operating Company - an exploration and
production oil and gas Company, then, give recommendations to improve the
effectiveness and efficiency of the supply chain management. The report tries to
incorporate many different aspects of supply chain management that can be
further develop to a framework for the proposed supply chain process for a same
structure exploration and production Operators in Vietnam.
Now, Lam Son JOC is in production phase when almost all significant operation
activities need to be planned in advance. Timely deliveries, inventory of the
equipments and services are a vital requirement for the supply chain function as
the output of one activity is the input for the second phase of activity. The total
supply chain management system is an integration system in the organization. To
improve the current supply chain process in Lam Son JOC we need to have a
basic understanding of Lam Son JOC’s supply chain process by describing,
highlighting, and analyzing the issues of each stage that would make us have an
overall picture for all the issues that the Company is facing now. Moreover, based
on that, recommendations to solve for better improvement of the system will be
presented accordingly.

3

2. OBJECTIVES
The aim of the paper focuses on investigation and analyzing the total supply chain
process of Lam Son JOC to make suggestion for improvement of effectiveness
and efficiency of the current total supply chain as to promote the competitiveness
of Lam Son JOC through the more success process management.
The report aims to assist to select appropriate improvements in each stage of the
total supply chain process. The recommendation was developed based upon the
issues findings through the investigation. The major objectives of this report are:
ü An overview of Lam Son JOC’ total supply chain process.
ü Identify main challenges/issues that the Company is facing now.
ü Study the challenges/issues and recommend the most appropriate solution
in order to address the challenges/issues highlighted.
Having a competitive supply chain management could let the Company:
ü Minimize of material procurement.
ü Maximize of manufacturing capacity.
ü Meet production numbers.
ü Respond quickly to market opportunity.
.


4

3. METHODOLOGY
The report methodology was based on both primary data and secondary data. The
author divides the project step by step to investigate and analysis the issues of
each stage of the company's total supply chain process.

The primary data will be collected from the casual interviews were conducted with
key personnel throughout the organization during breaks and free time.
According to Hussey (1997), interviews are methods of acquiring and collecting
data through face to face or voice to voice interactive dialogues in order to
discover the opinions or feelings of people on certain subject. The un-structured
interviews were conducted in the Company to investigate the current issues of the
company. Un-structured interviews were used because this type of interview is
allowed people to answer more on their thought than the standardized interview.
The issues were developed and analyzed from these interviews. These interviews
served to collect the different opinions on the status of the problems and help to
develop solutions through that. In line with the objectives, the interview questions
were generally designed towards achieving the objectives. Among the questions
put forward during the interview are categories but not limited to the issues of total
supply chain process.
The secondary data will be gathered through literature in order to identify the
problems, databases, journals, newsletters etc., seminar papers and the internet
to gathering all the figures, facts to gain the understanding of the identified
problems.


5

Since the scope of the report was limited only to investigate and develop a more
effective supply chain management process for Lam Son JOC. Nevertheless, the
report has provided a basic platform to launch further research into develop a
framework of supply chain management for the contractors who work in
exploration and production oil and gas industry in Vietnam with the same structure
oil field as Lam Son JOC.
This report will utilize data and information that is either publicly available or not
deemed to be confidential to Lam Son JOC. The recommendations were designed

and developed through the interviews, from literature and the real analysis,
understanding of the author while working in the organization. The mind mapping
diagram was also used and truly a useful tool for the author to generate and
structure the ideas during writing this report.


6

4. LIMITATIONS
There are some limitations in the data collection as a limited number of references
on the topic and some data is confidential data of the Company that the author
could not show in the report that made difficult in doing the analyzing.
The author has no deep knowledge in technical aspect. Therefore, the analysis
and the recommendations are only specifying on general management aspect.
The report will only cover the investigation of the total supply chain management
process of Lam Son Joint Operating Company – an exploration and production oil
& gas Company.
To leverage the limitation, a further development of the report could be used as
the general framework for supply chain management of the E&P oil and gas
operators in Vietnam.
The author only provide the analysis and recommendations for improve the current
highlighted issues/challenges with the limitation of detailed action plan as it could
be develop in the future report for a detailed execution plan.


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5. REPORT STRUCTURE
The report is structured as below chart:

Figure1: Report Structure
ü Introduction:
o Introduce the report, the purpose of the report, methodology, and
limitations.
ü Part 1:
o A general introduction to Lam Son JOC as a company and the
project owner.
o An overview of the corporate context and the total supply chain
process of the Company.
ü Part 2:


8

o Investigate the total supply chain process of Lam Son JOC; address
the issues on the current challenges of the process.
o Findings from this part will become the foundation of the
development

of

the

research

framework

and

proposed

recommendation for the improvement
ü Conclusions
o Summary of the investigation for what can be done in the future to
improve the supply chain management based on the highlighted
issued.


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PART1. TO TAL SUPPLY CHAIN MANAGEMEN T PROCESS
AT LAM SON JOC
To understand the total supply chain of Lam Son JOC, the author would like to
have an overall picture of the supply chain management context, the company
profile, and its process.

CHAPTER 1: THE CONTEXT OF SUPPLY CHAIN MANAGEMENT
Describe the concept of supply chain management and have an overview of its
process.

1. DEFINITION
Based on Wikipedia, the term "Supply Chain Management" entered the public
domain when Keith Oliver, a consultant at Booz Allen Hamilton, used it in an
interview for the Financial Times in 1982. The term was slow to take hold. It
gained currency in the mid-1990s, when a flurry of articles and books came out on
the subject. In the late 1990s, it rose to prominence as a management buzzword,
and operations managers began to use it in their titles with increasing regularity.
According to Joel Sutherland, the board chair of the Council of Supply Chain
Management that there are a hundreds of definitions of SCM. He said, “Logistics is
part of the supply chain process as the Earth is part of the universe”. The

comment accepted definition of supply chain management:


10

ü The management of upstream and downstream value-added flows of
materials, final goods, and related information among suppliers, company,
resellers, and final consumers.
ü The systematic, strategic coordination of traditional business functions and
tactics across all business functions within a particular company and across
businesses within the supply chain, for the purposes of improving the longterm performance of the individual companies and the supply chain as a
whole. (Mentzer, J.T.; et al. (2001)
ü A customer-focused definition is given by Hines (2004): "Supply chain
strategies require a total systems view of the links in the chain that work
together efficiently to create customer satisfaction at the end point of
delivery to the consumer. As a consequence, costs must be lowered
throughout the chain by driving out unnecessary expenses, movements,
and handling. The main focus is turned to efficiency and added value, or the
end-user's perception of value. Efficiency must be increased, and
bottlenecks removed. The measurement of performance focuses on total
system efficiency and the equitable monetary reward distribution to those
within the supply chain. The supply chain system must be responsive to
customer requirements."
ü The integration of key business processes across the supply chain for the
purpose of creating value for customers and stakeholders. (Lambert, 2008)
ü According to the Council of Supply Chain Management Professionals
(CSCMP), SCM encompasses the planning and management of all
activities involved in sourcing, procurement, conversion, and logistics

11

management. It also includes coordination and collaboration with channel
partners, which may be suppliers, intermediaries, third-party service
providers, or customers. SCM integrates supply and demand management
within and across companies. More recently, the loosely coupled, selforganizing network of businesses that cooperate to provide product and
service offerings has been called the Extended Enterprise.
Use of the phrase “supply chain” has become widespread. According to Ohio
State University’s 2004 career pattern survey in logistics, 27% of the respondents
had the words “supply chain” in their title. Academics have written extensively on
the subject, but their definitions have at times been unclear or evasive. Moreover,
senior management is increasingly aware of the important of SCM.
Among these definitions, the author would like to choose one of the most
applicable definitions of the term SCM in the oil & gas industry from International
Trade Center:
“SCM is defined is a process of getting goods and services from the
supplier to the point of production on time and within budget in order to minimize
the total life-cycle cost to the organization”

Figure 2: Supply Chain Management
Source: Institute for Supply Management


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2. THE IMPORTANT OF SUPPLY CHAIN MANAGEMENT
Supply chain management involves optimizing your operations to maximize both
speed and efficiency. Speed is important because customers value fast service.
Increasing speed, however, can cause costs escalation, so maximizing efficiency
is equally important. The most effective supply chain delivers products as fast and

as cheaply as possible without sacrificing quality.
SCM creates competitive advantages by lowering your prices is a standard way to
compete other businesses, but that is not always feasible. For example, the cost of
doing business limits how low you can drop the prices without going into the
break-even point. SCM provides a way to develop a competitive advantage
without having to lower the prices. For instance, by developing a more efficient
supply chain, Company can deliver orders faster to customers. All else being
equal, customers will choose the company that meets their needs fastest, giving a
competitive advantage in the industry where the company is working at.
Efficient supply-chain management has other cost benefits. Eliminating redundant
steps, for example, saves salary costs by ensuring workers do not waste time on
unnecessary procedures. A more efficient supply chain also increases your
negotiating power with partner businesses, such as suppliers and retailers, which
also stand to benefit from doing business faster.
Large impact on financial results: the benefits of SCM translate to improvements in
revenue, cost and assets. Since economic value added (EVA) captures all of


13

these in one metric, it can be said that the primary benefit of SCM is an
improvement in EVA.
The primary goal of every oil and gas company is to find and produce oil.
However, it has become more challenging in regards to the environments and
locations and the respective trade lanes. Therefore, an effective supply chain
solution have to be applied in order to find the best way from the reservoir to the
refinery and to keep the supply chains as smooth and visible as possible. It gets
more and more important for oil and gas companies to manage and oversee their
supply chains in an effective manner in order to reduce cost as well as to enhance
and guarantee efficient operations.

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CHAPTER 2: PROJECT OVERVIEW
To understand the SCM of LSJOC, the author would like to have an overall picture
of the Company profile and its SCM process.

1. COMPANY PROFILE
Lam Son Joint Operating Company (Lam Son JOC) was established following a
Petroleum Contract being signed between Petro Vietnam Exploration and
Production Company and PETRONAS Carigali Overseas Sdn. Bhd. on 7 January
2003, providing for LSJOC to conduct petroleum exploration within Blocks 01/97 &
02/97 in the Cuu Long basin, offshore southern Vietnam.

Figure 3: Lam Son JOC - Blocks 01/97&02/97 Location Map
Source: Petroleum Contract – Block 01/02-97 Offshore Vietnam