The dot.com revolution is spreading rapidly in the oil and gas industry with websites for everything from licence trading (uklift.co.uk) to buying petrol station forecourt equipment (petrolplaza.com). For the upstream industry in the CRINE era the key development is the growth of e-procurement portals and the potential they offer for significant cost savings, initially for catalogue items but ultimately for more sophisticated contract negotiation. In a matter of months rather than years, much procurement will be conducted through open sites such as marketsite.net, mySAP.com, PetroCosm.com or the more specialist wellbid.com. or through internal e-procurement systems such as those operated by BPAmoco and Schlumberger.
The dream for those with their eyes on the bottom line is to achieve cost savings which Andersen Consulting has estimated at 5 % overall. BP Amoco has reported savings of up to 25% on some standard items. These savings are achieved by more efficient purchasing - finding the cheapest supplier, aggregating orders across the organisation - and the reduced administrative costs of automated buying. For sellers, these systems offer the chance to advertise your products cheaply to many potential new customers and to reduce your own administrative overhead.
However, in the heat of the revolution, that dream can be a nightmare for those having to choose between the claims of numerous portals, some of which are yet to be launched. Will they live up to their propaganda? Some issues to bear in mind when deciding whether to sign up are:
Buyer
- how do I know who I'm buying from and whether they are reputable?
- what security controls are there to protect my data?
- what will it cost to implement in time and money and what are the ongoing costs?
- integration - can I link it into our various accounting and ERP/MM systems?
- quality of content - is it current, consistent, comprehensive?
- scaleability - can my small suppliers afford to use it - they cost me the most to administer?
- can I tailor approval mechanisms to the level of purchases?
- can I apply my standard purchase conditions and if not, what are the risks?
- have my main suppliers signed up yet?
Seller
- how do I know who I'm giving information to and that they are legitimate?
- can I apply varying levels of security to different types of information?
- what will it cost to implement in time and money and what are the ongoing costs?
- can my buyers integrate it with their existing accounting and purchase systems?
- scaleability - can it easily be expanded to add new value added services?
- will it integrate with my accounting system?
- can I have different prices for different customers?
- can I ensure my terms and conditions apply?
- can I control who/where my customers are?
- if I've backed the wrong side, what are my switching costs going to be?
Once you have decided which portal or portals to join, what should you be thinking about when reviewing your terms and conditions for use on line?
- The battle of the forms - are your terms and conditions properly incorporated?
- Have you made it clear at what point this contract is going to become binding? The postal rule probably applies to on-line communications but which act constitutes acceptance? What is the status of your order acknowledgment?
- Proper law and jurisdiction - are you confident your choice will be respected? Have you checked the overriding laws of your major markets?
- Have you made it clear if there are territories to which you will not supply?
- Are your exclusions and limitations of liability drafted for the on-line world - what warranties do you give regarding your on-line catalogue?
- Have you imposed restrictions on re-use of the information in the on-line catalogue?
E-procurement offers an enormous opportunity to the industry to increase efficiency and reduce costs. However, once again, traditional legal principles are having to be adapted to new circumstances. The importance of getting the fundamentals right cannot be overstated.
For more information on thsi topic, please contact Judith Aldersey-Williams at jalw@cms-cmck.com.or on (+44) (0)1224 622002
