PTT focuses on effective supply chain management in order to prevent and mitigate supplier environment, society, and governance risks that may impact stakeholder’s trust in PTT’s business operations. Supply chain management can be classified into 2 levels: corporate and business. The corporate level is responsible for general products and services procurement, as well as governance and creating added values to companies in the Group. At the business unit level, products are procured according to each business unit’s needs. These comprises hydrocarbon products, or raw materials used in the production process. The latter products have high transaction value, and comprise raw material for refinery; with relation to international trades in association with crude oil and other hydrocarbon-based products. PTT Group founded the Supply Chain’s Environmental, Social, and Governance Management Program to increase supply chain effectiveness.
PTT Supplier Sustainable Code of Conduct (SSCoC)
PTT has established Supplier Sustainable Code of Conduct, covering direction and scope in consistent with relevant regulations and requirements. It encompasses Code of Business Ethics, social responsibility, occupational health and safety, and environmental management. The document is available in both Thai and English. It is applicable to all suppliers whose contract is at least 2 million baht, and/or those whose operations may potentially impact safety and the environment. This includes supplier interested in registering as on the vendor list of PTT’s suppliers. PTT has set a strategy to support and manage suppliers, enabling communication of good working direction, guidance, and knowledge with regards to suppliers’ sustainable procurement guideline. This can be achieved through various channels, such as the Supplier Relationship Management (SRM) Seminar and the corporate website.
For additional information, please visit: PTT Supplier Sustainable Code of Conduct
Supplier Risk Assessment
PTT’s management structure for suppliers and contractors ensures stringent management of suppliers’ risks. This ensures prevention and mitigation of impacts to PTT’s business. PTT evaluates the risks of its major supplier groups, in accordance with PTT Vendor List, by considering 2 dimensions:
(1) Suppliers’ ESG (Environment, Social and Governance) Risk, and
(2) Suppliers’ Risks that may impact PTT’s operations, such as PTT’s high spending/high volume purchasing, or non-substitutable products or services.
Figure 1: Risk Assessment for PTT Products and Services Supplier Groups
The level of supplier risk is the factor determining different management approach for supplier groups, and supplier management strategies. There are 3 classifications, as follows:
Suppliers in the Critical / Strategic Group are those whose operational activities pose high risks and high impacts to both the suppliers and surrounding communities, resulting in extreme impacts to the buyer (PTT) both in terms of business and organizational
||Foster long-term relations and common strengths in business operations to enhance mutual capacity and create added value.
• PTT Supplier Sustainable Code of Conduct
• Specific Terms of Reference (TOR) on business ethics, social responsibility, occupational safety and environment for the Strategic supplier group.
• Sustainability Performance Assessment
• Suppliers’ Sustainability Auditing
• Supplier Relations Management
• Supplier capacity building
Key Suppliers are those whose business activities and products extend to potential impacts on consumers, which have high impacts to the buyer, both in terms of business and reputation.
||Foster long-term relations to control spending and risks, and maintain competitiveness level.
||• PTT Supplier Sustainable Code of Conduct |
• General Terms of Reference (TOR) on business ethics, social responsibility, occupational safety and environment
• Supplier Relations Management
Manage Suppliers are those whose activities focus primarily on operations, with potential impacts on surrounding areas or communities, and medium risks to PTT as the buyer.
||Maintain relations through performance results, and manage risks and spending according to customer needs
||• PTT Supplier Sustainable Code of Conduct |
• General Terms of Reference (TOR) on business ethics, social responsibility, occupational safety andenvironment
PTT Group implements PTT Group Emergency and Crisis Management Plan and Business Continuity Management (BCM) in order to manage risks across its supply chain. The Emergency Crisis and BCM Portal monitors the overall management. In addition, PTT collaborates with internal and external agencies to organize a simulation for BCM plan on an annual basis; PTT defines the management plan post- incident, and transition back to pre-incidence level.
To minimize the risk of energy scarcity and handle the demand and supply uncertainty, PTT has implemented the BCM for sourcing hydrocarbon products through various measures, for instance, enacting a policy of retaining hydrdocarbon reserves in higher quantity than required by law, entering short-term and long-term procurement contracts with PTT Group suppliers, and entering SWAP Product agreements with external partners and suppliers. PTT crisis practice during 3rd quarter of 2017 revealed that facility was accounted to the major weak point and has already resolved by responsible organization.
PTT sets supplier management measures in order to ensure compliance of supplier’s conduct with the required standards, as well as the supplier’s capacity to meet the increasing demands for products, achieve targets, maintain product quality, cultivate good relationships between suppliers and PTT. This includes building suppliers’ awareness on PTT’s corporate sustainability position.
PTT PTT has standards for selecting, assessing and auditing suppliers in a fair and transparent manner in terms of the supplier’s ability to secure business operations and respond to PTT’s needs. PTT uses a pre-qualification questionnaire (PQ) to evaluate each supplier’s potential in various aspects including service readiness, production rate, transportation, safety, occupational health, environmental aspects, and industrial standards. Qualified suppliers will be included in the PTT Approved Vendor List (AVL). Suppliers must be able to operate according to the PTT Supplier Sustainable Code of Conduct. The management of AVL is under the supervision of the AVL Committee and the working committee. Supplier performance is further assured through additional specifications stipulated in the Terms of Reference (TOR) prepared for all procurement assignments.
In addition, to manage risks incurred from product delivery, PTT has stipulated certain conditions in the TOR to ensure that the supplier’s operations are conducted in compliance with relevant regulations and contracts agreed, especially those involving safety, occupational health and environmental risk. The Risk Assessment for Contractor SSHE Management program has been developed to select potential contractors. Suppliers, whose assessment scores are lower than the required level, will be disqualified.
Business Unit Level
PTT’s supply chain management strategy for hydrocarbon products, LPG, and biofuel procurement focuses on receiving the correct product quality and quantity that is on-time, safe, and environmentally-friendly, through a transparent and traceable process both from PTT and suppliers’ sides. In addition, PTT supports added value creation for hydrocarbon products, LPG and biofuel products in the PTT Group’s supply chain.
In addition, stipulations on environmental and social sustainability, volumes and delivery periods are included in all of PTT’s short-term and long-term contracts with refineries and biofuel suppliers. The requirements related to environmental and social practice and criteria for performance excellence are defined in each contract based on the Supplier Sustainable Code of Conduct. ESG factors are used to assess the minimum level of quality and quantity of both existing and new contracts according to the strategic supply chain management plans, consisting of quality, economic, environmental, safety, occupational health, and community aspects.
Supplier Assessment and Audit
PTT has in place supplier assessment and audit programs to manage risks, define mitigation plans, and evaluate performance based on jointly developed mitigation plans. Assessments take into consideration quality/quantity/safety in production and delivery, PTT’s basic requirements, and minimum requirements in labor and environmental laws and management standards such as ISO 9001, ISO 14001, and OHSAS 18001.
For refinery suppliers, PTT organizes a monthly meeting with critical suppliers through the Supply Coordination Committee, and conducts site visits to carry out customer satisfaction surveys in order to improve the delivery of hydrocarbon products. If ESG risks do occur, PTT and suppliers jointly identify the cause of issues, work out a resolution, as well as evaluate the results of the mitigation efforts.
In addition,PTT conducts supplier audits for the refinery group and Ethanol/B100 factories, covering criteria such as quality of products and services, work process and delivery, environmental healthand safety at work, adherence to the PTT Supplier Sustainable Code of Conduct, transportation of products and services, and social and environmental impact from work processes. Mitigation measures are developed for areas within the production plant, storage, and distribution point. Relevant PTT functions including procurement planning, operation, quality control, and QSHE, conduct on-site visits to the refineries and Ethanol/B100 factories as defined in the annual audit plan.
Site audits will rotate in order to ensure a comprehensive reach of the audits. The refineries and factories are required to improve their performance within the required timeline and update their improvements to PTT. Results of supplier audits will be presented to the PTT QSHE Steering Committee meeting. PTT performed a refinery supplier audits and a third party additional audits arrangement within timeframe to increase standard measures performance and to align with PTT’s transparency policy. To accomplish this, PTT has monthly meeting to follow up issues that can promptly resolved the rising concerns.
For the International Trading Business Unit, PTT uses the register counterparties process to screen the list of suppliers and establish PTT’s Counterparty List. The suppliers must adhere to the PTT Group Ship Vetting Standard, which assesses suppliers’ ESG performance based on marine vessel safety standards as defined the Ship Inspection Report Program (SIRE) of the Oil Companies International Marine Forum (OCIMF). This enables PTT to manage the risks of oil spills that could cause major impacts on the marine environment and business operations. Accordingly, all PTT’s counterparties qualified the Ship Inspection Report Program requirements in 2017. PTT has also joined Oil Spill Response Limited (OSRL) to receive support in the case of an oil spill at sea incident, and to reduce the subsequent impacts on the environment and local communities..
SSHE Management System for Suppliers and Contractors
PTT developed the SSHE Management System (SSHE MS) for suppliers and contractors as guidance for controlling and managing operations. The system includes the following elements:
- The integration of SSHE screening criteria into procurement procedures;
- The identification and assessment of SSHE-related risks that may arise from contractors, and the specification of SSHE responsibilities, approaches for control and operations, and the reporting of the contractors’ SSHE performance as required
- Development of initiative to improve contractors’ SSHE performance during turnarounds, provide contractor SSHE performance evaluation system during main practices, SSHE training to contractors whose tasks involve specific risks, and establish SSHE suggestion system for contractors;
- Communication of SSHE expectations to contractors through various channels in order to cultivate awareness, improve the performance of contractors as well as to build contractor capabilities to respond to PTT needs; and
- Provision of support to contractors to improve SSHE performance to meet the standards expected by PTT.
In addition, PTT established specific approaches to manage supplier and contractor risks, including:
- Target setting for controlling accidents from vehicles and transport to reduce the major transport accidents to zero by 2020, and establishment of the PTT Group Road Safety Management Guidelines. The guideline specifies approaches including random checks on logistics trucks; use of IVMS (In-Vehicle Monitoring System) technology, which is connected to closed-circuit cameras and GPS systems to monitor driver behavior and collect statistics to analyze causes of accidents involving logistics trucks; investigation of all major accident cases involving vehicles and logistics truck to determine root causes and to prevent such accidents from re-occurring; and communication and organization of training on PTT Group’s Road Safety Management Guidelines in order to inform and encourage safe practices by relevant parties, such as Defensive Driving courses.
- Development of PTT Contractors Safety Management Manual as an approach to control and manage the safety of contractors working in PTT’s operational areas.
Promoting Supply Chain Transparency
In responding to PTT Pride Strategy of becoming a transparent company, PTT publicly discloses its procurement information in compliance monthly with the Official Information Act, B.E. 2540 (1997) under Section 9 (8) – a State Agency shall make available the procurement information for public inspection. Furthermore, PTT has signed an agreement with the Office of the National Anti-Corruption Commission (NACC), the State Enterprise Policy Office, and state agencies to successfully promote national anti-corruption strategy, anti-corruption measures, relevant policy from the government, and anti-corruption plan.
PTT’s performance for corporate information disclosure is monitored and assessed on an annual basis. As a result PTT has improved its procurement information disclosure by disclosing the criteria for supplier selection and information for the top 5 high value procurements.
Cooperation in the Supply Chain
PTT aims to improve procurement processes through the PTT Group Integrated Supply Chain Management and Optimization (GISMO) project with refineries in PTT Group, including Thai Oil Plc., PTT Global Chemical Plc., and IRPC Plc. to increase the competitiveness and synergy across the petroleum supply chain – reducing capital investments and creating added value for PTT Group. In addition, the project also leads to the development of environmentally-friendly processes and the reduction of carbon dioxide emissions of PTT and PTT Group companies.GISMO consists of 3 sub-projects including:
- Petrochemicals and Refining Integrated Supply Chain Management (PRISM): Maximizing the value of the supply chain through cooperation between petrochemical and refinery companies in PT T Group, by exchanging information and inspiring developments in technology and innovation.
- Group Logistics Management (GLM): Managing logistics for group asset readiness to respond to future growth; building capacity through group-wide collaboration to reduce capital investments and create added value; reducing social and environmental impacts through group sustainability, and increasing group intelligence at the national and international level to respond to changing conditions – leading to best practices in logistics at the regional level. Presently, the project has been transformed into a permanent department, the PTT Group Logistics Management Department.
- Supply Chain Optimization (SCO): Supporting benefits for the oil supply chain through operational approaches that reduce capital investments and cooperation to enhance understanding of supply chain management. Presently, the project has also become a permanent department, the Value Chain Optimization (VCO) that expands its operational scope to cover PTT business units.
In addition, the Operational Excellence (OPEX) project aims to strengthen the synergy amongst PTT Group through sharing of best practices in management, covering 12 areas, including Reliability and Asset Integrity, Operations, and Value Chain Management. The OPEX project is deployed and applied to PTT Group companies to allow them to analyze and plan streamlined work processes across the entire company. For instance, the sharing of best practices from the Gas Separation Plant on business continuity to ensure that no unplanned interruptions to processes lead to losses in business opportunities and also create value added to other PTT Group companies.
PTT supports local procurement and service (within Thailand) and encourages the procurement of goods from operational areas in order to provide economic, employment, and income generation support for the locals with the advantage of lower costs and faster transportation. As a result of PTT’s commitment to building long-term relationships with the communities where it operates, the organization gains each community’s license to operate. Moreover, PTT also encourages suppliers to operate with care and responsibility toward society and local communities and to support procurement within the local area in order to lower the cost of goods and support the local community.