Contracting and procurement
All facets of Shell’s businesses — from the design and construction of industrial facilities to the sale of products and services to the retail customer — rely on supply chains for goods and services. Shell spends around $40 billion per year through these supply chains. P&T’s full accountability for all procurement and its clear line-of-sight to third-party spend have helped to extract more value from those dollars. In 2019, 58% of Shell’s third-party spend was externally benchmarked as “most competitive”. P&T’s ambition is to increase spending in the "most competitive" category to 80% over the next few years.
P&T has been systematic in its approach. Firstly, it drives for simpler specifications that widen the choice of suppliers and open the possibility of volume discounts. Secondly, it optimises demand levels so that there is no surplus or shortfall of inventory. And lastly, it finds ways to lower costs. A company-wide purchasing system, for example, provides the platform for further cost improvements through digitalisation.
P&T’s portfolio of highly competitive long-term contracts locks in favourable price conditions that protect Shell from inflationary pressure. We also keep pressing for standardisation and cross-industry commoditisation of modules as this drives down costs. Finally, we are looking to establish deeper, more strategic relationships with our most important suppliers.
A clear example of how P&T is transforming supply chains involves the building of new retail sites in India. The site-construction supply chain there has been re-engineered so that more than 90% of the work is actually done off-site, in a factory. The prefabricated modules produced in the factory are then put together at the retail site in a single day, and a week later the shop is ready for business. The end-to-end construction time has been shortened from 70 to 22 days. Safety exposure of the construction crew is reduced by two-thirds, and the costs are reduced by more than half for maintenance and by a quarter for construction. This modular approach to retail site construction might be replicated by P&T in other countries with high economic growth rates, such as Indonesia and Mexico.