(Solution) CIPS ADNOC Negotiation Assessment (PIN)

Executive Summary

The purpose of the integrative report of Corporate Award Program is to come up with a formula commercial negotiation for Abu Dhabi National Oil Company (ADNOC) UAE organisation. This is through the use of facts, data and tools used for negotiation. The spend category selected in this report is chemicals which are used in the organisation operations. The evaluation has focused on use of various tools, techniques and theories which are relevant to evaluate and propose a good negotiation plan. The  reason for identifying chemicals as the appropriate spend category is informed by their relevance in ensuring success of the organisation operations both onshore and offshore. Further, since COVID-19 pandemic emerged, considering the transformation of the oil and gas industry with new demand and supply, use of chemicals has increased to harness the organisation operations. To successfully negotiate in this area of spend, ADNOC involve various professionals, follow appropriate terms and conditions, holistic preparation and streamlined procurement and supply chain management approach. Good forecast and plan for consuming and guaranteeing oil and gas products provision for achieving their customers demands.

In line with the findings in this assessment, the obtained findings highlight that ADNOCM uses a set of steps in negotiations as guided by CIPS. These stages are preparation, opening, test, proposal, bargain, agreement and closing. In this assessment, it has also used Market Environment analysis tools which include STEEPLE, Porter’s 5 Forces analysis and SWOT. By using these tools, appropriate findings have been obtained on analysing and supplier preferencing matrix finding which note the need to harness the negotiation approaches. Also, as supported by the assigned responsibilities of PS&M, the 5 Rights of Procurement and 3P,s Triple bottom-line, appropriate acquisition of relevant skills and competency in communicating, engagements, teamwork, accountability and conflicts management is essential. The identified approaches promote successful negotiation strategy and to mitigate possible bottlenecks by use of the BATNA tool.

In line with the sourced findings in this report, the recommendations suggested are;

  • Successful restructuring of ADNOC negotiation strategy by classifying the buyers roles and to solve likely functions duplicated and to improve procurement cycle
  • Implementation of a holistic outsourcing approach for adding value in their negotiations to save costs and quality
  • Set overall specifications in terms and conditions in their contract agreement for improving procurement
  • Promote capacity to select suppliers by using data and evidence-based review on their operations

Table of Contents

1.0 Introduction. 4

1.1 Purpose of this Assessment. 4

1.2 ADNOC Organisation Background. 5

1.3 ADNOC Organisation Spend Category. 6

1.3.1 Spend Categories Identified. 7

2.0 Procurement Approach for ADNOC Evaluation. 8

2.1 RACI Stakeholders Model for ADNOC Procurement Cycle. 9

2.2 Analysis of Stakeholders. 11

3.0 Negotiation process for ADNOC Chemicals Sourcing. 13

3.1 Preparation. 14

3.1.1 SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats) 15

3.1.2 STEEPLED Analysis. 16

3.1.3 BATNA Negotiation Preparation. 16

3.1.4 Potential Negotiation Approaches. 17

3.2 Opening. 19

3.3 Testing. 20

3.4 Proposing. 20

3.4.1 4R’s Model Use in Proposing Phase. 20

3.5 Bargaining. 22

3.6 Agreement and Closing. 22

4.0 Development of Contracts. 22

5.0 Conclusions and Recommendations. 23

5.1 Conclusions 23

5.2 Recommendations. 24

References. 25

Appendices. 28

Appendix 1: ADNOC Contract Terms and Conditions. 28

Appendix 2: Creation of Right Environment. 30

Appendix 3: Kraljic Analysis Matrix. 30

Appendix 4: Procurement strategy phases. 31

Figure 1:Reasons for Negotiations/ Requirements 6

Figure 2:ADNOC PS&M Organisation Structure. 7

Figure 3:ADNOC Spend Categories 8

Figure 4:Procurement and Supply Cycle. 10

Figure 5:RACI Matrix Model 11

Figure 6:Different Stakeholders in ADNOC. 13

Figure 7:Mendelow Analysis for ADNOC Chemicals sourcing. 14

Figure 8:Negotiation phases Summary. 15

Figure 9:Summarising the negotiation process 16

Figure 10:ADNOC Sourcing of Chemicals in Oil and Gas Negotiation SWOT Analysis. 17

Figure 11:ADNOC Chemicals sourcing BATNA category. 19

Figure 12:Potential Negotiation Strategies for ADNOC Chemicals Procurement 19

Figure 13:5 Rights of Procurement 21

Figure 14:4R’s Model for ADNOC Chemicals procurement 23

Figure 15:Supplier Preferencing Matrix. 24

Table 1:Summary of ADNOC Chemicals Spend Category (Sub) 9

1.0 Introduction

In today significantly competitive business sector, commercial contracts level of success is substantially reduced. The rationale of this is evident immense flaws in managing stakeholders, costing, delivering, quality and amending/variation. According to Tripathi and Gupta (2020), working on negotiations is guided by need for pursuing active communication, relationship of stakeholders inclusive of the buyer, negotiator and advisor. The organisation need to note on the stakeholders engaged, concern issues and to define all components. Further, CIPS (2022) identify negotiation as being informed by detailed communication by the different engaged stakeholders with their main objectives and expected outcomes being to attain a mutually agreeable findings. In figure 1 summary, negotiation process need to consider a set of aspects. The aspects are costs, value, performance, conflict, problem, quality and agreement.  Additionally, for success in negotiation approach, it is identified as satisfied parties and improving performance for achieving Key Performance Indicators (KPIs) and Service Level Agreements (SLAs).

Figure 1:Reasons for Negotiations/ Requirements

1.1 Purpose of this Assessment

In this assessment, a detailed background on coming up with a formal commercial negotiation plan for ADNOC organisation has been developed. As part of the analysis provided and approach selection, main facts, strategies and data from ADNOC desk research has been obtained. The different elements which have been used in this report evaluation entail costs overruns, quality levels and ethics as part of the terms and conditions as illustrated in appendix 1. Also, the timeline of delivery, communication practices and stakeholders relations has equally been put into account. For achieving the report purpose, a set of tools and theories have been used including Mendelow’s Matrix, Kraljic Matrix, 3P’s Bottom-line and more have been used. Also, tools for evaluating the oil and gas sector market environment have similarly been used. Informed by this assessment findings, a set of recommendations have been developed which are relevant for ADNOC successful implementation of their negotiation approaches.

1.2 ADNOC Organisation Background

ADNOC organisation has been operating in UAE, Middle East and global oil and gas sector in the past 50 years. It occupies the number one position in the UAE oil and gas sector with immense fleet sizes and the regional initial provider of integrating their drilling services provision (ADNOC, 2021). Its operations entails linking the upstream value chain, facilitation of ADNOC with a chance to increase their overall oil production of approximately 5 million barrels every day and to increase by 2030. In its refineries, the organisation is recorded to be producing upto 40 million metric tons of high-quality refined oil and gas products offered to global markets. The organisation leverages on a high-level capability to refine upto 922,000 barrels of crude oil and to condensate every day to form various products. The categories include liquefied petroleum gas, Naphtha, Gasoline, Jet fuel, diesel, base oil and petrochemical feedstock (ADNOC, 2022).

For ADNOC to leverage on achievement of Vision 2030 for UAE, green practices by lowering greenhouse gas emissions (GHG) level by upto 25% by 2030, the organisation intend to expand their strategy for Carbon Capture, Utilising and Storage (CCUS) with 500% capacity. This is by leveraging on procuring high-level chemicals. Also, in current COVID-19 pandemic, interruptions in the supply chain and delivery, achieving value for money has been instrumental. The chemicals are supposed to be of intense quality, lowered risks from the competitor’s ability to seizure opportunities available. Hence, the chemicals spend category selected in this assessment is critical for ADNOC. For the organisation procurement department, it is comprise of various levels which guide the organisation towards appropriate application of terms and conditions. The main values of ADNOC PS&M entail being competence in tendering process, managing all stakeholders and leveraging on iSourcing. Since COVID-19 emerged, there has been a transition to holistic adoption of technology in their operations (see figure 2);

Figure 2:ADNOC PS&M Organisation Structure

1.3 ADNOC Organisation Spend Category

ADNOC categories of spend are grouped into 3 main segments. These segments are summarised in figure 3 and are comprised of direct materials, indirect materials and services.

Direct Materials– As evidenced in Njualem and Smith (2018], this include the day to day facilitators of the organisation. These include facilitating employees, safety measures against COVID-19 pandemic, chemicals and packaging materials.

Indirect Materials- This entail spare parts of their automobiles, the fuel and services maintenance.

Services– These are all the logistics categories and other outsourced facilitation of the organisation operations successfully.

Figure 3:ADNOC Spend Categories

Most critically, for all the spend categories (see figure 3), the different stakeholders relations impact their practice, policy developed and procedure pursued, risks faced and set of obstacles which affect quality and efficiency of provision of products and services to meet their entire end-user preference.

1.3.1 Spend Categories Identified

In figure 3 summary, spend categories identified impact on value driving in procurement and supply management strategy. According to Chen et al.  (2018], as part of differentiation of the different categories, this harness capacity to narrow down the focus and ensuring entire categories are differentiation of the different categories and their prominence. While working in ADNOC organisation, this entail the working hard with the entire PS&M department to facilitate sourcing and delivering the Chemicals spend category. For this entire spend category, in 2021 only, the organisation spent AED50 Million to procure the chemicals. Through an active evaluation of ADNOC spend category, as shown in table 1, there are various categories of chemicals. This highlight their importance and need to establish various policies.

Table 1: Summary of ADNOC Chemicals Spend Category (Sub)

Table 1:Summary of ADNOC Chemicals Spend Category (Sub)

ADNOC Category/Sub-Categories of SpendSourcing Suppliers/VendorsExample of their Subcategories
Drilling chemicalsLocal and international manufacturersFibers, suspension, clay control and biocides, polymers surface modifiers
Processing of oil and gasLocal and international manufacturersCellulose ether, polyacrulate
Preservation of oil and gasLocal and international manufacturersLignite, starch and derivatives, guar gum
Fluid additivesLocal and international manufacturersPolyamines, tannins

2.0 Procurement Approach for ADNOC Evaluation

For success in ADNOC procurement strategy, a set of steps are used to guarantee quality and on-time provision of products and services as guided by buyer specification. In line with CIPS (2022a], procurement cycle is relevant to describe the various phases and noting phase-wise initiative influencing process efficiency. A major requirement is to embrace competent procurement team and ensure objectives attainment. For figure 4 procurement cycle, from the start, organisation requirements are defined with specification identified. This step also ensure organisation………….

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