Supplier and Contractor Relationships
Rosneft is one of the largest consumers of goods, works and services among Russian private and state-owned companies. The annual spend by the Company (Rosneft and Group Subsidiaries) on externally procured goods, works and services amounted to RUB 2.6 trln.
The Company has persistently high need for goods, works and services, which is a powerful growth driver for the Russian economy.
The Company’s success is therefore largely underpinned by long-term relationships with suppliers and contractors. Long-term contracts provide an important foundation for building long-lasting relationships. In 2019, long-term contracts accounted for over 70% of the Company’s production programme.
Placing long-term orders facilitates stable development of the oil and gas industry, the machine building industry, the maintenance services market, help create jobs in all industries and drive innovation.
The Company keeps implementing the category management in procurement, including by leveraging category/procurement strategy as its key enabler.
In 2019, Rosneft developed and adopted 18 category/procurement strategies as part of its continued efforts to increase the share of its needs covered by category/procurement strategies. The business plan for 2020 provides for 48% of its needs to be covered by existing strategies.
As part of its work to implement the category management in procurement and develop a framework for long-term qualification of reliable counterparties, the Company systematically reviewed all inventories, which helped identify key expensive and critical inventories based on the materiality, importance for business and procurement frequency.
Rosneft applied common definitions and approaches to harmonise and organise qualifications and requirements, and introduce basic criteria for all inventories as well as specific criteria and individual requirements for certain product types as the case may be.
To establish long-standing relationships with suppliers, the Company’s internal regulations provide for long-term (up to 18 months) accreditation which helps considerably reduce costs incurred by potential suppliers participating in procurement procedures. Suppliers may obtain accreditation both prior to and in the course of procurement procedures.
As a vertically integrated holding company, Rosneft relies on the consolidated procurement of goods, works and services for the Group Subsidiaries with a view to enhancing its procurement efficiency, all in line with recommendations of the federal executive bodies. Rosneft’s procurement is centralised at 59.4%, including 49.3% handled by the Head Office and 10.1% sourced regionally.
When choosing suppliers and contractors, the Company adheres to the principles of openness, competitiveness, reasonableness, effectiveness, and non-discrimination. These principles are set forth in the applicable Russian laws (specifically Federal Law No. 223-FZ on Procurement of Goods, Works and Services by Certain Types of Legal Entities dated 18 July 2011) and laid down in the Regulations on Procurement of Goods, Works and Services binding on both the Company and the Group Subsidiaries.
To ensure procurement transparency, increased competition and equal access for market participants, the Company manages its procurement procedures electronically via TEK-Torg’s electronic trading platform. The Company conducts virtually all competitive procurement procedures electronically.
Rosneft achieves maximum transparency by publishing its procurement plans, information on procurement procedures and their outcomes, as well as on contracts awarded and performed (information on over 99% of the Company’s procurement procedures is made publicly available on the Internet).
To increase procurement transparency via TEK-Torg’s electronic trading platform (Rosneft’s section), in 2019 the Company and the Group Subsidiaries initiated more than 102 thousand procurement procedures with a total initial (maximum) value of RUB 2.1 trln and over 203 thousand suppliers registered (cumulatively since the platform's inception).
To enhance transparency and efficiency of minor procurement (worth below RUB 500 thousand), TEK-Torg’s electronic trading platform launched Corporate Internet Shop. It helps boost, control and streamline the Company’s internal business processes as well as those of the Group Subsidiaries leading to shorter times, lower operating costs and lower procurement prices due to a better competitive environment. As a result, the Company managed to attract new counterparties (mostly small and medium-sized enterprises (SMEs)). The Corporate Internet Shop has more than 14 thousand suppliers registered, including over 10 thousand SMEs. In 2019, the Company published more than 29 thousand procurement procedures with completed procurement worth over RUB 2 bln.
The Company is committed to promoting cooperation with SMEs. Rosneft consistently implements initiatives prescribed by the Russian Government to provide SMEs with a wider access to its procurement procedures. The Company met the target for the share of procurement from SMEs as stipulated by Resolution of the RF Government No. 1352 dated 11 December 2014. In 2019, the total value of contracts made between Rosneft and SMEs (including those made by the Group Subsidiaries on behalf of Rosneft), including payments due in 2019, amounted to RUB 16.3 bln, with RUB 4.1 bln worth of contracts awarded as a result of direct procurement from SMEs.
It is worth noting that SMEs account for over 76% of potential suppliers accredited with Rosneft.
The Company continues with the Import Substitution and Equipment Localisation Programme for Rosneft’s Needs for 2019–2021 with an outlook for 2028. The Regulations on Procurement of Goods, Works and Services provide for the Company’s right to prioritise Russian-made goods, works and services where and as required by the applicable laws.
The Company is setting up a Shared Service Centre with a view to centralising and pipelining routine procurement operations and category management functions. Starting from 2019, regional inventory management and quality control functions have been transferred to the Shared Service Centre in line with the approved approach.
The Company engaged both experienced experts and young specialists to form a talent pool for the Centre. The Company partnered with the Samara State Technical University, Samara’s flagship in higher education, to develop a training course in Procurement Chain Management for the Oil and Gas Industry seeking to attract and teach young professionals.
As part of the Rosneft–2022 Strategy, the Company is establishing a blockchain-based framework for engagement with its suppliers. During the first half of 2019, Rosneft developed and approved target business processes, a roadmap for the implementation of a supplier engagement framework, a project schedule and an IT prototype.
The Company successfully robotised its accounting and inventory management processes. Rosneft relies on automation tools to unlock resources previously engaged in routine and algorithm-driven operations so as to:
- refocus its employees on more sophisticated tasks
- mitigate risks of errors (human factor) while managing big data
- exponentially accelerate routine operations supporting a 24/7 continuous workflow. The Company seeks to further develop robotic technologies.