When interviewing procurement manager, the writer realizes that procurement department is facing with lots of problems including late delivery of equipment, poor quality of equipment, wr
PROBLEM IDENTIFICATION
Company background
The Vietnamese full name: Korea National Oil Corporation- VPĐH tại Vietnam
The English name: Korea National Oil Corporation - Vietnam office
Address: 10 th Floor, Diamond Plaza, 34 Le Duan Street, District 1, HCM city, Vietnam
Korea National Oil Corporation Vietnam (KNOC VN) launched its operations in Block 11-2 following the signing of a production sharing contract (PSC) in May 1992 After successfully identifying gas reserves through three exploratory wells, KNOC VN secured a tentative gas sales agreement with PetroVietnam in December 2004 to ensure a reliable distribution channel This milestone paved the way for a construction contract and subsequent development order, marking the full-scale development of Block 11-2’s energy resources.
As the sole operator, KNOC VN carries out exploration, development, and production activities in Block 11-2, approximately 320 kilometers offshore Vietnam
KNOC VN holds a 75% participating interest in the block, representing the Korean Consortium comprising LG International Corp., Daesung Industrial Co., Daewoo International Corp., Hyundai Corp., Samwhan Corp., and Seoul City Gas Co Ltd., while PetroVietnam Exploration and Production Company (PVEP) retains the remaining 25% stake.
Natural gas production from the block commenced on December 25, 2006, with operations spanning a 17-year period from 2007 to 2024 The block contains total recoverable reserves of 770 billion standard cubic feet, supported by seven active production wells Average daily output has reached up to 171 million standard cubic feet, with current daily production at approximately 108 million standard cubic feet.
KNOCVN’s first overseas operating project, featuring successful production in the Rong Doi and Rong Doi Tay fields, represents a significant milestone for both the company and Korea’s oil and gas industry This achievement highlights KNOCVN’s comprehensive involvement across all phases of exploration, development, and production—including strategic negotiations, advanced drilling operations, accurate reserve estimation, and the engineering and construction of offshore facilities—demonstrating its leadership in international energy development.
Number of employees: 164 Departments: 4 (Admin & Finance, Operations, Drilling, Sub-Surface) Procurement Team belongs to Operations Department
Procurement team has five members (one Procurement Manager and one
Sr.Procurement Officer, three Procurement Officers) take care of purchasing mechanical equipment, electrical equipment, logistic services and consumable All are generally called equipment.
Problem symptoms
To find out what are the current problems that procurement team is facing with, the writer carried out in-depth interview with Ms Giang, Procurement Manager of KNOC
Between 2013 and 2015, transportation costs from onshore to offshore in Vietnam showed a consistent upward trend, according to reviewed data Despite the unit price of transportation remaining stable, the total payable amount exceeded the approved budget, indicating inefficiencies or increased volume in offshore logistics.
Report for transportation cost of chopper
Q'ty Price Total Amount Q'ty Price Total Amount Q'ty Price Total Amount Scheduled flights 104 26,000 2,704,000 104 26,000 2,704,000 104 26,000 2,704,000
(Source: KNOC VN’s yearly report)
Late delivery of equipment is the first reason cause to cost overrun
According to the purchase order record of KNOCVN, a major concern lies in the poor quality of equipment received, as many items were refurbished rather than brand new These substandard materials have significantly shorter lifespans, making it difficult for end-users to manage operational timelines Equipment failures occur without warning and are often irreparable, leading to costly disruptions and reduced efficiency.
A third reason for the delay is the delivery of an incorrect item, as the equipment received does not match the part number specified in the purchase order This discrepancy requires additional time to process the return and wait for the correct replacement to arrive, impacting overall project timelines.
In accordance with report and information, it can be concluded that the issue of late in delivery materials and equipment is the central problem.
Problem definition and importance of the problem
Delays in construction projects are often attributed to late equipment delivery and delayed notices to proceed, as highlighted by Al-Momani Ismail et al emphasized that irregular or incorrect material deliveries during construction significantly impact productivity and contribute to cost overruns According to Flyvbjerg et al., cost overrun is defined as the discrepancy between the actual cost at project completion and the originally budgeted cost.
Potential causes of problem and the justification
The company is currently facing significant cost overruns, primarily due to increased transportation expenses Between 2007 and 2012, the cost of transporting equipment from onshore to offshore remained consistent annually, as the company utilized spare parts purchased alongside the main project machinery However, from 2013 to 2015, transportation costs surged each year due to the frequent use of adhoc helicopters to deliver critical equipment, which was necessitated by delays in delivery schedules.
Rosneft Vietnam, formerly TNK-BP Holding, has built a highly efficient procurement team by recruiting qualified and skilled professionals and implementing standardized procurement procedures across its global offices Leveraging strong human capital and a robust support system, the team consistently delivers operational excellence Their streamlined logistics approach minimizes reliance on ad hoc helicopters or supply boats for emergency offshore equipment transport, reflecting superior planning and resource management.
1.5 Potential causes of problem and justification
The procurement department plays a vital role in ensuring the company acquires high-quality equipment at the most cost-effective price, with timely availability to meet operational needs All equipment is sourced and delivered to the KNOC warehouse in Vung Tau City, then transported offshore to the Rong Doi Platform based on end-user requirements Regular logistics include two monthly supply boats for bulk cargo such as food and equipment, and two weekly chopper flights every Monday and Thursday for personnel and smaller items Timely delivery is essential and must align precisely with the scheduled departures of both supply boats and helicopters.
The procurement team faced operational challenges due to the reassignment of two staff members from the document control department who lacked procurement experience Their limited contributions impacted performance and failed to meet expectations Although a procurement officer was designated as the primary contact for suppliers to ensure timely equipment delivery, several purchase orders were delayed These delays stemmed from slow response times and unclear decision-making processes Vendors often encountered confusion about whom to contact, resulting in prolonged issue resolution Critical orders failed due to poor internal communication and insufficient support among team members, highlighting the need for improved coordination and procurement expertise.
Strong negotiation skills are essential for procurement professionals, as they play a critical role in resolving daily operational disputes and challenging user-defined requirements Effective negotiation ensures that procurement decisions are commercially viable and add strategic value to the organization It also serves as a key tool for conflict resolution between buyers and suppliers, fostering mutually beneficial outcomes A successful negotiator secures high-value results by trading off elements of lower relative importance Conversely, poor negotiation capabilities can lead to prolonged procurement processes, project delays, and increased costs.
Since 2013, the company has been grappling with declining oil prices, which has significantly impacted its financial resources, including the elimination of staff training budgets As a result, both new hires and existing employees lack access to essential training programs, hindering their ability to acquire critical knowledge and develop the skills needed to perform their roles effectively and contribute to organizational growth.
Employee training programs are essential in the workplace, offering valuable information, skill development, and professional growth opportunities that empower staff to meet their responsibilities effectively By investing in well-structured training and development initiatives, organizations can significantly enhance employee performance and overall productivity.
The company is used the MBO (Management by objectives) program to evaluate employees’ performance However, staff has not been received any feedback from human resource department for the result as well as salary increasing Company did not increase salary for staff by 2014
Evaluating and ranking employees within an organization is a complex process influenced by multiple performance factors, often resulting in overwhelming data To ensure fair and strategic decision-making, a robust employee assessment program must go beyond relying solely on past performance to determine salary adjustments and promotion opportunities.
Procurement plays a critical role in project success and profitability, especially in industries where each project presents unique technical complexities and uncertainties As a strategic function, procurement involves a structured sequence of decisions made by various stakeholders with distinct levels of authority The procurement process encompasses all stages—from identifying a business need and selecting a suitable supplier to ensuring the final deliverables meet expectations—making it essential for operational efficiency and long-term value creation.
Shehzad 4 stated that among the five most frequent causes of oil & gas construction project delays were identified is shortage of skilled labor Derek et al 5 explained on human capital and ways in which its effectiveness can be leveraged through procurement systems Human capital consists of the skills, competences and knowledge and creative energy that employees bring an organization
As outlined in Article 7.3 of the procurement procedure, selecting qualified bidders is a mandatory step prior to issuing inquiries to suppliers Bidders must be evaluated based on their technical expertise and financial strength Key criteria for inclusion in the Bidder List include company experience, proven track record, historical performance, financial statements, and the professional background of key personnel.
KNOCVN's procurement process lacks a standardized and strategic supplier evaluation system, relying heavily on individual procurement officers' personal experience Supplier selection is often based on familiarity or historical purchase records, rather than objective performance metrics This approach results in limited oversight of critical factors such as product quality, delivery timelines, and overall supplier reliability, hindering procurement efficiency and transparency.
The procurement process at KNOC VN begins with purchase requisitions initiated by offshore or onshore engineers, detailing essential material information such as quantity, specifications, and required delivery dates Each requisition typically identifies the manufacturer or brand, except for standard items where this may be omitted Upon receipt, the procurement officer solicits quotations from suppliers, followed by a technical evaluation conducted by engineers if necessary, and a price comparison by the procurement team The final purchase order is awarded to the supplier offering the lowest cost while meeting all technical requirements.
Frequent low-value purchase requisitions from end-users have led procurement officers to send multiple small inquiries to major suppliers, who often overlook such orders due to their limited profitability and high workload This fragmented approach results in suppliers refusing to accept penalty clauses, further complicating procurement Consequently, procurement officers sometimes resort to placing orders with trading companies, unaware that these intermediaries typically lack inventory and only source items after receiving confirmed purchase orders, causing delays and inefficiencies in the supply chain.
ALTERNALTIVE SOLUTION
Solutions
The company is currently experiencing cost overruns in offshore transportation due to staff qualifications and inefficient procurement procedures To address this issue, implementing targeted training programs for employees, maintaining adequate equipment inventory, and establishing a transparent supplier selection and performance evaluation process for procurement staff are essential strategies for cost optimization and operational efficiency.
Solution comparison
Training staff Stock equipment Provide process
- To increase competitiveness for firms through raising skill levels
- To enhance the ability of employees to perform their jobs at peak level
- Available to use at any time
- To control the production capacity
- To select the right supplier
- To build a good relationship with supplier
Every item needs to be available at
On job training by Sr Procurement Officer /
- Professional development courses from oversea centers warehouse using for one replacement
Timing Every year Every year 3 months
Solution selection
To effectively address the company's challenges, implementing a robust supplier selection and performance evaluation process is essential This strategic approach enables the identification of supplier strengths and weaknesses, facilitating better management and collaboration Additionally, it supports continuous monitoring of daily operations, ensuring consistent quality and efficiency across the supply chain.
Outsourcing has emerged as a strategic process that enhances a firm's competitive advantage by allowing organizations to concentrate on their core competencies Increasingly, companies delegate non-core functions to external suppliers, who now play a critical role in product development, including the design of new products, sub-assemblies, and component parts.
Effective supplier selection requires a strategic, long-term approach that goes beyond price considerations According to Hotabe et al., key factors such as supplier competency, service quality control, transaction cost drivers, brand image, and country-specific characteristics play a critical role in evaluating supplier performance Businesses should assess suppliers holistically, factoring in quality, organizational structure, and relationship dynamics to ensure optimal decision-making and sustainable partnerships.
Shenhar et al 12 suggested that adopting effectiveness measures will more often lead to project success, by relating success to long-term impacts to the business.
Solution details
Qualifying and selecting new suppliers method
In today’s fiercely competitive global economy, businesses must not only strengthen relationships with existing suppliers but also actively seek new ones to remain resilient and cost-effective New suppliers can offer superior capabilities or structural cost advantages, such as lower labor expenses or favorable trade regulations Additionally, relying solely on current suppliers poses risks, as they may face rising costs or go out of business Expanding the supplier base enhances competition, mitigates supply chain disruptions, and supports strategic goals like supplier diversity—making supplier diversification a critical component of sustainable procurement strategy.
Production delays caused by parts shortages and recalls of defective products from noncompliant suppliers have led to significant financial losses for buyer firms, including millions in warranty expenses, recall costs, and inventory disruptions These issues have also severely damaged brand reputation and undermined future sales opportunities, highlighting the critical need for robust supplier compliance and quality control in the manufacturing process.
Lopez 13 stated that supplier selection is one of the most crucial components of the purchasing function of a firm It becomes a strategic decision when the purchasing organization attempts to establish a long-term and win-win business relationship with its suppliers In order to select the right supplier, comprehensive and configurable metrics for supplier selection must be outlined early in the process Depend on each industry, the supplier selection criteria is being considered
The proposed Supplier Portfolio Management model aligns with the company’s corporate and procurement strategies by integrating top-level policies to create a strategic framework for supplier selection and empowerment It consolidates similar project requirements into compelling business packages, enabling supplier evaluation based not only on price and quality but also on long-term strategic partnerships The model categorizes outsourced items using the 80/20 Pareto principle: 80% of non-critical, low-cost items are procured through traditional methods, while the remaining 20% are selected through advanced portfolio methodologies that emphasize strategic alignment with corporate objectives.
Effective supplier evaluation requires clear performance criteria, especially when sourcing items not traditionally offered by suppliers To ensure optimal procurement decisions, management mandates that supplier selection only proceeds after a comprehensive review of all relevant criteria by the purchasing team.
Supplier selection criteria include the following:
‐ Engineering and manufacturing technical competence
‐ Management of its own suppliers
‐ Ability to work with the customer
Teng 14 stated that there are a number of approaches being used to assist the supplier performance evaluation Four commonly-used traditional methods stated in several studies are categorical method, weighted-point method, cost ratio approach and dimensional analysis model, analytic hierarchy process (AHP)
The Analytic Hierarchy Process (AHP) model was chosen for its proven ability to meet organizational objectives by effectively handling complex decision-making scenarios Unlike homogeneous evaluation methods, AHP recognizes the varying importance of each criterion and structures them into a hierarchical framework This systematic and flexible approach enables clear identification of key elements within multifaceted problems To assess supplier performance, the model incorporates a conceptual framework based on four primary criteria—quality, delivery, service, and flexibility—along with eighteen supporting sub-criteria, ensuring a comprehensive and data-driven evaluation process.
The Analytic Hierarchy Process (AHP) is a structured and flexible decision-making tool that simplifies complex problems by organizing them into a hierarchical framework At the top level lies the overall objective, followed by criteria and sub-criteria at intermediate levels, and alternatives at the lowest level By conducting pairwise comparisons among criteria, AHP determines their relative importance, allowing for the calculation of weighted priorities These weights can then be applied to develop an effective supplier evaluation system, as demonstrated by Ordoobadi et al.
Identifying relevant evaluation criteria is the cornerstone of an effective supplier performance evaluation process These criteria directly influence how supplier capabilities, reliability, and overall value are assessed Key performance indicators such as quality, delivery, cost efficiency, and compliance play a major role in determining supplier effectiveness and long-term partnership potential.
Supplier performance evaluation goes beyond price and quality, requiring a multi-criteria approach to effectively meet organizational goals While quality remains a top priority for customer satisfaction, other critical attributes must also be considered To ensure strategic alignment, buying companies should identify evaluation criteria that reflect their objectives and operational needs It is essential to establish metrics that are objectively relevant across all levels of the organization, enabling a comprehensive and effective supplier assessment process.
Main- criteria Sub-criteria Description
Quality of product Supplied goods comply with specifications with no defect Quality of packaging/packing
Supplied goods are carefully packed with packaging designed for safe transportation and storage, accompanied by all required supporting documents and materials to ensure smooth processing Timely delivery is prioritized, with goods consistently arriving at the specified destination as scheduled.
Delivery accuracy Goods are delivered accurately with no missing or Non-splitting delivery Goods are delivered in large lot and with no
Supplier informs in advance if the delivery schedule is not as planned
Shipping document is issued correctly and accurately
Supplier promptly arranges replacement delivery if defect or discrepancy is found Service Responsiveness to request for quotation
Supplier promptly submits quotation after receiving a request for quotation
Responsiveness to Supplier quickly responses back when
Information sharing Supplier willingly supports and shares information, e.g Quality of sales person Salesperson is knowledgeable about the goods and accurately and courteously to support company’s Communication systems
Supplier has good and reliable communication system, e.g email system, document tracking
Inventory availability Supplier always has inventory on-hand to fulfill customer’s demand
The supplier consistently maintains sufficient inventory to ensure prompt order fulfillment, demonstrating a strong capacity to respond to customer needs With flexible order customization options, the supplier can tailor products to meet specific client requirements Additionally, the supplier shows a willingness to negotiate pricing and delivery schedules, offering competitive and adaptable solutions for diverse business demands.
Supplier evaluation typically involves a structured and rigorous process using formal surveys designed to assess key performance metrics To ensure effectiveness, a supplier survey must be comprehensive, covering all critical evaluation and selection categories Objectivity is essential, which can be achieved through a well-defined scoring system that clarifies the meaning of each value on the measurement scale Additionally, the reliability of survey items and measurement scales plays a crucial role in producing consistent and accurate results.
Supplier performance evaluations should be conducted annually by year-end to ensure consistent quality and reliability The results must be communicated to all procurement officers to guide decision-making and streamline the processing of future orders.
Many recurring delivery issues stem from vague specifications and poor supplier selection Additionally, the lack of systematic supplier evaluation allows underperforming vendors to remain in the supply chain, leading to repeated disruptions and inefficiencies.
ACTION PLAN
To ensure supplier reliability and optimize procurement outcomes, it's essential to establish a shared understanding of improvement opportunities and consistently monitor purchasing implementation Applying a structured supplier selection and performance evaluation process fosters mutual clarity between buyers and sellers For maximum impact, this program should be launched without delay.
According to the current company’s financial status, the program will be drafted by
Sr Procurement officer with reviewed and commented by Procurement Manager The timeline is as below:
No Description Person In charge Date
1 Draft the process of supplier selection and performance evaluation process
2 Review and comment Procurement Manager 21 April 2017
1 How long have you been working for this organization?
I have been working for this organization for ten years
2 How many staff in your department?
Our team has five members including me (one manager, one senior procurement officer, three procurement officers)
3 How long have they been working for this organization?
All of them have been working for this organization for more than 8 years
4 Do they have experience/background of procurement works before joining your department?
Four team members bring diverse expertise to the department: two were recruited from oil and gas trading companies, offering strong industry knowledge and professional experience, while the other two transitioned from the controller team after over three years of service Although all are well-versed in the oil and gas sector, they currently face a learning curve in procurement operations due to limited prior exposure.
5 Can you describe the function of procurement department?
The Procurement team plays a critical role in supporting rig operations by sourcing essential materials, equipment, and services The procurement process begins immediately after receiving an approved purchase requisition and continues through goods receipt and final payment to suppliers, ensuring operational efficiency and cost-effective resource management.
6 How do you manage your staff for effective purchasing decision?
Procurement operations are categorized into four key areas: mechanical, electrical, logistics, and consumables Each procurement officer is assigned a specific category, ensuring focused expertise and accountability From initial requisition to final delivery, officers manage the entire procurement process, maintaining efficiency and consistency across all stages.
7 What would you feel about their working behavior?
They are polite They follow the company policy, go to work ontime
8 Do they well communicate with other teams?
Poor communication within a team often stems from personality conflicts, leading to excessive discussions and delays in task execution A lack of essential communication skills can hinder effective delegation and productivity Common signs of weak communication include unclear team direction, frequent disagreements, and internal conflict, all of which disrupt collaboration and goal achievement.
9 Do they have good communication and relationship with suppliers?
In general, they have good communication with supplier but they need to build good communication and relationship with key supplier
10 Do they try their best to meet the deadline?
They work hard but sometime unable to meet the deadline, for example the deadline of goods receipt for rig maintenance
11 What made they worked hard to meet the goal? How about salary increasing
Promotion Company did not increase salary by 2014 due to oil price deceasing
12 What could they do differently to help your department better perform?
Some team members demonstrate strong initiative and actively seek solutions when problems arise, showcasing their commitment to effective problem-solving However, others struggle with task management and tend to rely solely on vendor updates, merely reporting issues without taking proactive steps to resolve them.
13 What are the personal development areas in which they need to improve?
They need to improve the working skills such as negotiation skill, information technology skill, and the most importance is problem solving skill
14 Are there any problem / conflict between procurement with other team?
Workplace conflicts often arise from differences in professional approaches or personal traits For instance, an employer may be highly detail-oriented and prefer a step-by-step process, while an employee might favor a more creative, collaborative style On a personal level, contrasting temperaments—such as a reserved employer and a more expressive employee—can lead to misunderstandings, as their reactions to situations may differ significantly.
15 Do you provide any professional training course to your department for the last three years?
Before that the company yearly offered training course to staff but for the last two years the training was no more offered due to oil price is going down
16 Do you have procurement procedure or procurement strategy?
We have procurement procedure It is now version 3.0 applying from year of 2011 upto now
17 How many members are involved within procurement process? Who is contact point?
It is including engineer, procurement officer, legal, import-export officer, account, warehouse controller Procurement officer is the contact point for dealing with other teams and vendor The process of one order will be started from offshore engineer or onshore will create purchase requisition, procurement officer will take care for quotation from vendors, clarify technical issues as well as commercial issues with vendors, purchase order signed, materials / equipment is delivered to warehouse, make the payment to vendor
18 How many suppliers you have on the list? Are they local or oversea? Are they manufacturers or trading companies?
We have a thousand of suppliers They are local vendors, oversea vendors, manufacturers, trading companies
19 How many purchase orders your team issued for a year? Are they ontime delivered?
It is around one thousand purchases orders for both local orders and oversea orders
20 Can you let me know the minimum purchase order value as well as maximum purchase order amount?
It is around 100 USD up to 3,000,000 USD
21 Did you apply liquids damaged for late delivery order?
The liquids damaged rate is one percent (1%) per day and up to maximum of ten percent (10%) of purchase order
22 Does your supplier agree to apply liquid damaged for late delivery?
It is very hard to negotiate with vendor for applying liquids damaged specially for the orders with small amount
23 How long usually takes place for an order to be completed?
It is around six weeks from purchase requisition approved to purchase order approved The delivery time or lead time is relied on quotation of supplier
24 Is it enough time for supplier to response to your request? Did they ask to extend the deadline?
We set the timeline for supplier to response within one week Sometime they asked to extend for more time
25 How fast the supplier responses to your request?
One day, two days or two weeks It is depended on their available and the order value
26 Is the supplier willing to support you in urgency issues?
It depend on what case
27 Does the supplier ask for price increasing with a valid reason?
Yes, they asked for pricing increasing but sometime without a reason
28 Is there any process for identifying critical supply categories?
29 How often you do KPI for suppliers?
We have never been done it
30 Do you think Procurement have significant impact on company?
Effective procurement of materials and services plays a critical role in enhancing a company's competitive advantage High-quality inputs directly influence operational efficiency, product quality, and output volume Inefficient procurement processes can lead to increased input costs and reduced production capacity, ultimately impacting overall business performance.
31 What are the most difficult issues in your department now?
Facing increasing pressure from headquarters to implement cost-saving measures, our organization is challenged by the rising and unpredictable expenses of materials, equipment, and transportation At the same time, our staff requires enhanced training to maintain operational efficiency, yet we are constrained by the absence of a dedicated training budget.
APPENDIX B: TERMS AND CONDITIONS OF PURCHASE
1 ACKNOWLEDGMENT AND ACCEPTANCE OF ORDER
The Terms and Conditions of this Purchase Order shall apply to the purchase of goods, materials, items, products, components or services (hereinafter referred to as
"Materials") described on the face of this Purchase Order All exhibits, attachments, technical specifications, drawings, notes, instructions, or information referenced in the Purchase Order are incorporated herein by reference These Terms and Conditions control unless they are specifically varied by the terms on the face of this Purchase Order This Purchase Order shall otherwise supersede all prior agreements and understandings written or oral
The Vendor shall supply and deliver to Buyer the Materials in the manner and in the quantities stipulated on the face of this Purchase Order
Unless otherwise specified in the Seller’s quotation, all delivery and completion timelines commence from the Effective Date and are considered binding commitments In the event of a delay, the Seller must promptly inform the Buyer of the cause and provide an estimated revised delivery date for mutual agreement If the Buyer consents to the late delivery, the Seller shall incur liquidated damages of 1% per day, capped at 10% of the total value of the delayed goods, which will be deducted from the Buyer’s payment.
If the Seller experiences delays or is unable to fulfill contractual obligations due to the Buyer’s actions or negligence—such as failing to provide necessary specifications, detailed drawings, or other essential information—the delivery timeline and Contract Price will be adjusted to reflect the impact.
If the Buyer delays delivery through action, omission, or request, or fails to take delivery after being notified that the Goods are ready for dispatch, the Seller may store the Goods at the Buyer’s expense Once stored, delivery is considered complete, the risk transfers to the Buyer, and payment to the Seller becomes due.
Until delivery as outlined in the Purchase Order, all Materials remain under the Vendor’s risk Ownership and liability transfer to the Buyer upon delivery, unless an alternative agreement is specified in the Purchase Order.