How the fortunes of Essar’s Stanlow Oil Refinery are changing
Richard Stonehewer, Senior Manager at Efficio, leads the procurement team at Essar’s Stanlow Oil Refinery. He talks to Howard Sloane, Chief People Officer at Essar Oil (UK), about the major procurement transformation project currently underway and procurement’s role in helping to make Stanlow fit for the future.
Catch a flight from Manchester Airport, a train from Liverpool Lime Street station, fill up your car in the Lake District or anywhere else in north-west England, and it’s likely the fuel will have come from Essar’s Stanlow Refinery.
To the south of the Mersey Estuary near Liverpool, the former Shell refinery – one of the largest in the UK – produces 16% of the UK’s road transport fuels, including 3 billion liters of petrol, 4.4 billion liters of diesel and 2 billion liters of jet fuel every year. It has also rapidly developed its own retail estate, with 45 outlets in the UK already and plans to open 400 more over the next five years.
Shell sold the refinery to Essar Oil (UK) in August 2011, just before the 2012 and 2013 downturn in the global oil and gas market. Since then, Essar Group has invested significant capital to increase refining capability and boost output.
At the point of purchase, Stanlow was judged by Solomon Associates (which benchmarks energy companies around the world) to be among the least efficient plants in the world. Despite the significant sums invested by the new owners, management had yet to embed the deep changes to culture, motivation and core processes required to enhance operational performance and generate an acceptable return on investment. As Howard Sloane, Chief People Officer at Essar Oil (UK), says: “By 2017, it was clear that a more fundamental change program was necessary to deliver the required returns and justify further investment.”
Against this background, and with the arrival in March 2017 of new CEO and Director S. Thangapandian, Stanlow 2.0 emerged – an organizational-wide transformation program to make the plant more competitive, efficient and fit for purpose. Sloane was initially recruited to shape the change program and to then lead the significant HR aspects as Chief People Officer from 2017. “We weren’t efficient – it took us too long to do what we needed to do and labor, third-party contractor and overhead costs were too high, creating unsustainable pressure on our cost base,” he says.
“In my experience, procurement can be an effective catalyst for change,” continues Sloane. “It was clear that we could specify and shape our requirements better to drive greater value from our supply base. We also needed to get better control over the execution of our major contracts. Overall, we had to change the way our procurement processes worked and how the function worked with key business users across the site. Major changes were required to realize the potential benefits and, having previously worked with Efficio to transform procurement at Peel Ports, it was clear that they were the right partners to help define and implement the changes required.”
“It was clear that we could specify and shape our requirements better to drive greater value from our supply base. We also needed to get better control over the execution of our contracts.”
“The procurement process had become a bottleneck to change and a cause of frustration to both the procurement and operations teams across the business,” says Sloane. Procurement was taking too long and not spending enough time working with users to shape the business requirement in a proactive way. “The focus was largely on the buying process, rather than ensuring the specifications and strategy were fit for purpose.”
There were two main issues driving this disconnect: firstly, a reluctance by operators to accept change and innovation – “it’s always worked in the past, so we’ll carry on doing it this way” – and secondly, procurement drowning under volumes of low-value tactical procurement initiatives, preventing them from focusing on deeper strategic sourcing.
Sloane says: “The procurement team was very busy and working incredibly hard, with over 5,000 tenders executed a year.” However, this tactical tendering approach to procurement was inefficient and actually fragmented demand, driving a higher-than-necessary workload across the business and the supply base as a result of constantly competing for tenders. “Evidence shows we were beginning to alienate our suppliers and create delays to critical operational activities,” he says. “There was too much focus on price, without understanding total cost and little emphasis on real value.”
“The understanding of total cost is crucial in a high-value process asset like a refinery,” explains Sloane. “Any downtime caused by interruption of supply of goods or services can cost millions in lost output margin. The focus needed to shift from, ‘How do we shave a penny?’ to ‘How do we get the best total outcome, as quickly as possible, to optimize up-time?’.”
It also became clear that once contracts had been let, there were weaknesses in the ongoing contract management of the contractor on site. “We had become overly reliant on some long-term contractors and lacked some of the basic controls and process disciplines necessary to assure they delivered quality of work and continued value.
“The way some of these contracts had been set up meant they really needed close management, as all the risks and liabilities sat with Essar. The contractors were contractually obliged to finish on time, but the incentive was ineffective compared to the additional profit to be gained from spinning the job out for a few extra weeks.” Sloane says: “We were leaking so much value during the life of the contract because nobody was owning, measuring and feeding that back to the business, learning from it and holding people to account.”
Benchmarking showed there was a ‘Stanlow premium’, whereby contractors had become used to charging higher rates to the former Shell operation and the same long-term relationships had transferred unchallenged to Essar. Sloane continues: “We value the great service and business knowledge that can come from long-term relationships, but sometimes complacency can creep in. We needed to shake things up a bit and introduce some new thinking and healthy competitive tension.”
“We brought Efficio in to help us quantify all the opportunities, identify what needed fixing, and create a powerful case for change, with a detailed transformation plan and business case,” he explains. The first step was to gather and analyze all third-party expenditure, then systematically assess the commercial strategy in the major spend categories, understand the business priorities, and critique the existing process, policy and approach.
The resulting business case provided a significant return on investment and, importantly, would act as a facilitator for change across the wider operations, forcing Essar to re-evaluate its business requirements, standards, contractual models and contract management approaches.
“We partnered with Efficio to deliver the transformation, and, six months on, considerable progress has been made – not just in terms of savings delivery, but in respect of the more fundamental changes to how we operate, how procurement works with users to shape business requirements, and the sourcing strategies we deploy,” says Sloane.
“Our guiding philosophy at Essar is: ‘One team, one goal’ – and this applies not just to how we work with our internal customers, but how we work as one team with Efficio.
“Our guiding philosophy at Essar is: ‘One team, one goal’ – and this applies not just to how we work with our internal customers, but how we work as one team with Efficio.”
“Efficio has provided experienced functional leadership. All employees share a single office space and operate in integrated teams, with senior Efficio consultants acting as mentors and helping to get the most out of Essar staff’s strong technical knowledge.
“Efficio has developed a comprehensive training and development program to help build the long-term capability of the procurement team. In addition, we have deployed their eFlow platform to help us manage our procurement transformation more effectively by tracking projects and savings delivery and bringing complete transparency to all expenditure.
“We are leveraging the opportunities available from applying new technologies, raising our game in both our procurement and operations functions, and modernizing what we do,” says Sloane. “We now have complete spend visibility across the business – it is amazing the change in behavior that can be gained by visibility and accountability.
“We are leveraging the opportunities available from applying new technologies, raising our game in both our procurement and operations functions, and modernizing what we do...”
“Most impressive are perhaps the results that have been achieved when processes have been re-engineered, and procurement and operations have come together as one team to solve the problem and define the solution – “changing what and how we do it” – rather than just focusing on the buying process. In one major plant refurbishment, the teams shaved days off the up-time to go live, which for us means millions of dollars saved.
“This approach plays a fundamental role in wider organizational change at Stanlow,” continues Sloane. “Refining engineering and technology isn’t going to change majorly, so our behaviors and our approach to how we run our support processes, how we embrace innovation and how we work together as teams is key to driving efficiency. Changing the organizational DNA is what Stanlow 2.0 is about,” Sloane says.
“For me, this is largely about behavior. You can teach all the technical stuff, but if you haven’t got the right behaviors or approach, then it’s always going to be difficult. We’ve had to make several changes to the leadership across the business, as change always starts and ends with the top. I believe we now have a clear vision, a strong change program, inspiring leadership, and the full engagement of a motivated workforce.”
Stanlow 2.0 is already driving greater efficiencies, and the procurement partnership with Efficio is transforming the company’s approach to procurement and helping the existing Essar team perform. “Sometimes the informal anecdotes are the best bellwether of change. The partner of one of the Stanlow procurement team leaders recently told the HR team that this particular employee has never come to work as excited, energized or enthused as they do now. That’s great feedback on the approach taken and the new clarity of procurement vision.”
Sloane concludes: “So far, savings are significant and on track, and some core processes have been improved, but there is still work to be done. Procurement should be seen as a smart, challenging process with teams working together to get the best outcome for the business – not as a necessary control measure or barrier to business success. To achieve this, we need a procurement function that is agile in thought and behavior, approaching things in a proactive manner, challenging the business in a positive way and helping us hold the supply base accountable for delivering quality work, on-time, every time.”