|Sustainable Development Goals|
OPPORTUNITIES AND CHALLENGES
PTT manages its supply chain sustainably through PTT Group sustainable procurement and supplier management policies, which take into account business risks and opportunities with suppliers. It encompasses environmental, social, and governance issues. PTT's procurement is currently conducted in accordance to the Procurement Act and Government Procurement Act of 2017. The Act states that procurements and contracts issued from government agencies must provide the highest level of benefit for the agency in addition to focusing on transparency, effectiveness and traceability. Furthermore, another procurement challenge is the support for the government's Thailand 4.0 policy to propel the industry through advances in technology, creativity and innovation, which enhances business operations with flexibility and speed. This policy is combined with PTT's strategy, which focuses on the continuous development of work processes through utilization of digital technology and supply chain management, to increase operational efficiency and effectiveness amidst changing trends.
Supply Chain ManagementGRI 102-9
PTT focuses on effective supply chain management in order to prevent and mitigate supplier environment, society, and governance risks that may affect stakeholder's trust in PTT's business operations. Furthermore, PTT aims to improve and continuously develop the internal supply chain management in order to ensure prompt responsiveness to business context and changing environment.
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 needs comprise hydrocarbon products, or raw materials used in the production process. The latter products have high transaction value, and comprise of raw material for refinery, and are related to international trades in association with crude oil and other petroleum products.
PTT SUPPLIER SUSTAINABLE CODE OF CONDUCT
PTT has established Supplier Sustainable Code of Conduct, covering direction and scope 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 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.
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:
- Suppliers' ESG (Environment, Social and Governance) Risk; and
- Buyers' Risks that may impact PTT's operations, such as PTT's high spending/high volume purchasing, or non-substitutable products or services.
Results of PTT’s risk assessment for products and services have impacts on different supplier group management and supplier management. There are three levels categorized, as follows.
|SUPPLIER GROUP’S MANAGEMENT LEVEL||DEFINITION||MANAGEMENT STRATEGY||MANAGEMENT TOOLS|
|1. Critical/Strategic||Critical supplier groups 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 reputation.
||Foster long-term relations and common strengths in business operations to enhance mutual capacity and create added value||
|2. Key||Key Supplier groups 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.||
|3. Manage / Routine||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 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. This includes monitoring of BCM plans from external agencies ensuring management is effective and suitable to the circumstance.
To reduce risks of energy shortage in the country, PTT has applied the BCM principles and continuously participated in emergency response drills as planned with the Ministry of Energy on an annual basis. In 2019, rehearsal contingency plans for potential unrest in the Middle East, which could impose risks towards crude oil import disruptions to Thailand, were conducted. This operation increases readiness to prevent and resolve the country's potential fuel shortage problem. In 2020, PTT participated in the provincial energy emergency response plan which simulates the event of a severe earthquake in Lampang Province and disrupted Mae Moh Power Plant’s electricity generation capabilities to supply electricity to the 5 northern provinces. This simulation included the rehearsal of the process plan, executive orders and reporting on situation mitigation and guidelines in providing news to the media. The rehearsal event also includes a failure scenario caused by land subsidence where the Common Header, a gas mixing equipment installed to combine designated quality gas from the Gulf of Thailand and LNG in Rayong Province, malfunctions.
The above scenario has implications for the natural gas and petrochemical value chain, where PTT has links to the Ministry of Energy's Emergency, Continuity Management Center and several business groups including the PTT Oil and Retail Business Public Company Limited. This scenario strengthens the understanding of the crisis management process and communication with stakeholders including various management aspects to ensure that PTT can continue its business and ensure energy security for the country while protecting stakeholder interests and operating business sustainably
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, and cultivate good relationships between suppliers and PTT. This measure includes building suppliers' awareness on PTT's corporate sustainability position.
PTT has standards for selecting, assessing and auditing suppliers in a fair and transparent manner and focuses on 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, and industrial standards. In addition, sustainability criteria for supplier selection include business integrity, social responsibility, human rights, safety, and environmental management. 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.
To enhance suppliers' satisfaction, and bolster good relations between suppliers and PTT Group, PTT organized Supplier Seminar annually. The key objective is to communicate targets, policy, directions and business approach. This approach also provides opportunities for the exchange of knowledge and opinions between suppliers and PTT. There is a satisfaction survey for suppliers regarding procurement and contract management post-process completion, as well as termination of contract. The feedback here will be used for improvement and development of business sustainably.
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, and industrial standards. In addition, sustainability criteria for supplier selection include business integrity, social responsibility, human rights, safety, and environmental management. 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.
To enhance suppliers' satisfaction, and bolster good relations between suppliers and PTT Group, PTT organized Supplier Seminar annually. The key objective is to communicate targets, policy, directions and business approach. This also provides opportunity for exchange of knowledge and opinions between suppliers and PTT. There are satisfaction surveys for suppliers regarding procurement and contract management post-process completion, as well as termination of contract. The feedback here will be used for improvement and development of business sustainably
BUSINESS UNIT LEVEL
PTT's supply chain management strategy for hydrocarbon products and LPG procurement focuses on receiving the correct product quality and quantity that is on-time, safe, and environmentally friendly, through a transparent and traceable process from both the PTT side and suppliers' sides. In addition, PTT supports added value creation for hydrocarbon products and LPG products in the PTT Group's supply chain.
Additionally, stipulations on environmental and social sustainability, volumes and delivery periods are included in all of PTT's short-term and long-term contracts with refinery group 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.
Auditing and Assessment of Suppliers
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 ISO9001, ISO14001, and ISO45001.
PTT has been continuously assessed and audited supplier since 2016. In 2020, there was an assessment for 10 high-risk suppliers on economic, social and environmental risks, conducted in tandem with annual spending analysis. PTT has performed according to the Group’s assessment plan at 100% completion of annual work plan. Results of ESG performance assessment reveals that there are 10 assessed suppliers meeting PTT’s criteria, scoring over or equal to 2.5 points out of 4.
*Remark: ESG Sustainable Merchant Assessment Criteria has a full score of 4. Suppliers must earn a score greater than or equal to 2.5 to qualify.
SSHE MANAGEMENT SYSTEM FOR SUPPLIERS AND CONTRACTORS
PTT has developed SSHE management system for suppliers and contractors alike, serving as a guiding approach for performance control and management. The key components are as follows.
- 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 initiatives 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.
Furthermore, PTT Group’s Operational Excellence encompasses Management of Contractor and Supplier. This ensures that good and services that suppliers and contractors deliver strictly meet the contracts, policy, standards and business objectives that PTT establishes. The approach ensures responsiveness and economic competitiveness. There is also the efforts to ensure there is sufficient inventory to support business operations.
- Setting targets to mitigate accidents in logistics. PTT aims to reduce the number of major logistic accidents to zero by 2020. PTT produced a management guideline regarding product logistics, adopting IVMS (In-Vehicle Monitoring System. It is a system connecting CTV and GPS, which can be used to help address and control drivers' behaviors, ensuring safe driving. The system collects and analyses statistics related to logistics accidents, ensuring investigation of all accidents from cars and trucks alike to identify real cause. This helps stipulation of prevention approach against future cases, in communication and training regarding PTT Group's Logistic Management Approach to relevant parties for implementation. There are defensive driving trainings provided.
- Producing PTT safety Management Manual to be the approach for control and management of contractors' safety within PTT's operation site.
REINFORCING TRANSPARENCY THROUGHOUT SUPPLY CHAIN
PTT disclosed corporate procurement information on a monthly basis, accessible to the public. This is in alignment with PTT's Transparency & Sustainability strategy, aspiring to be a transparent company. PTT complies with the Committee's announcement regarding official information, stipulating state enterprise' results of procurement consideration must be available publicly according to Section 9 (8) of Official Information Act, B.E. 2540. PTT has also signed in Memorandum of Understanding (MOU) regarding Anti-Corruption Efforts, between National Anti-Corruption Commission (NACC), State Enterprise Policy Office (SEPO) and State Enterprise Department. This was in recognition and in support for national strategy in anti-corruption efforts, Anti-Corruption Act, relevant governmental policies, including anti-corruption prevention and mitigation action plans. For instance, procurement projects for fiscal year 2020 with a budget of 1,000 million baht or more, or a construction project with a budget of 500 million baht or more, such as the Wang Noi gas booster station project and the 5th onshore natural gas pipeline project, are subject to a project proposal process sent to the Comptroller General's Department for consideration to participate in the anti-corruption cooperation program for public procurement. Furthermore, PTT has proceeded with implementing the Integrity Pact in accordance with the criteria stipulated by the announcement of the Anti-Corruption Cooperation Committee (NACC) to show PTT’s intention to operate with transparency.
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.
Progress Against PlanGRI 308-1, GRI 414-1
|Plan||2020 Target||2020 Performance||Long-term Targets|
|Critical/Strategic suppliers’ onsite sustainability performance audit||Assess 100% of targeted Critical/Strategic good and service suppliers||
Assessed 10 other good and service suppliers, which is equivalent to 100% of targeted Critical suppliers
|Conduct procurement sustainably according to ISO 20400||
Integrate sustainability into joint procurement processes among PTT Group companies in accordance with the Sustainable Procurement Guidelines (ISO20400) in at least 3 workgroups
Implemented sustainability integration into the joint procurement process among PTT Group companies in accordance with the Sustainable Procurement Guidelines (ISO20400) in 3 work groups as follows:
Joint procurement between PTT Group can be carried out in accordance with the ISO20400 guidelines and in accordance to specified work plans
|Procurement of goods and services with mutual sourcing needs within the PTT Group.||Procurement of products and services together with companies in the PTT Group with the goal of creating added value by 15% of the spending value||Procurement of goods and services together with companies in the PTT Group created added value by 25.13% of the spending value||Procurement of products and services together with companies in the PTT Group with the goal of creating added value by 18% of the spending value|
|Supplier’s satisfaction towards PTT’s performance in communicating PTT’s operation direction and procurement system via supplier seminars||Satisfaction score of 4.5 from 5.0||Satisfaction score of 4.34 out of 5.0. Due to the Coronavirus 2019 Disease outbreak situation, the event was delivered online. This measure, which prevented close interaction among suppliers, and online system technical issues had an effect towards supplier satisfaction.||Satisfaction score of 4.5 from 5.0|
100% of new suppliers were selected based on the Operational Sustainability Vendor Assessment Criteria (Environment, Social and Governance: ESG).
|100% of suppliers with PTT contracts valued 2 million baht or more and / or operations that may have an impact towards safety and the environment, including suppliers wishing to register with PTT, have endorsed their acknowledgment and intention to comply with the PTT Supplier Sustainable Code of Conduct.|
Local Product and Service Procurement
Major Transportation Accidents Reduction
Long-Term Target: Reduce major accidents from transportation to zero in 2023
Supplier Satisfaction in Joint Work Operations with the Procurement Department
Analysis of Procurement Costs between 2017 and 2020
Number of Suppliers (cases)
|Critical Tier-1 Supplier||26|
|Non Tier-1 Critical Supplier||6|
Procurement Value (billion Baht)
|110.088 billion Baht|
PTT has announced policies for environmentally friendly procurement (PTT Green Procurement) in line with the government's policy. Suppliers which have been selected from the bidding process reports information on designated green products in their operations to PTT through the PTT Vendor Management system, a system developed to support environmentally friendly procurement of goods and services. The system collects information on PTT's green procurement volume (Green Spending) from suppliers. In 2020, there were 39 contracts relating to the procurement of environmentally friendly goods and services, with a total procurement value of 68 million baht.
PTT and the PTT Group place great emphasis on reducing risks in sourcing of goods / services and building confidence in services provided to suppliers in addition to propelling the PTT Group towards sustainable procurement practices according to international standards. In 2020, PTT has passed the verification of sustainable procurement practices, ISO20400: 2017 Sustainable Procurement, from the ISO Certification Institute (SorRor.) in the scope of joint procurement of products and services within the PTT Group companies. Additionally, in 2020, PTT has started experimenting with implementing ISO20400: 2017 standards with products and services procurement from 3 workgroups from companies within PTT Group companies.
PTT Procurement Governance
PTT gives great importance in ensuring procurement is economical, transparent, effective and traceable in order to reassure all stakeholder groups. A Procurement Management Working Team was appointed to monitor and handle aspects relevant to parcel delivery and commercial non-hydrocarbon procurement. The focus is on ensuring compliance according to the laws, regulations, requirements, criteria and relevant process. Furthermore, Procurement Management Working Team also provides consultation on delivery and non-hydrocarbon commercial procurement process. This enables sharing and learning opportunities in the organization, allowing collaboration to improve procurement’s process effectiveness.
Procurement Officers’ Capacity Building
PTT and PTT flagship companies have reviewed and planned vocational employees’ development annually. This promotes employees’ working capacity ensuring their readiness for organization’s shift effectively and strengthens the working potential of employees in effective supporting roles during organizational change. This initiative focuses on empowering employees with capabilities to apply information technology systems to proficient procurement work under the Digital Procurement program, a program developed by PTT to systemize the procurement process of goods and services, increase flexibility and reduce working time. The system ultimately enables greater efficiency and productivity in employee work operations.
Digital Procurement Project
PTT introduces improved procurement technology, processes and procedures from the preparation of the internal procurement database, preparation of purchase requests, preparation of requirements, vendor selection, preparation of orders and contracts, contract management, acceptance inspection, billing, payment, including supplier performance assessments and PTT supplier procurement process satisfaction feedback. In 2020, PTT has adapted procurement technologies and processes relating to suppliers on the Procurement Website, a channel to access information for suppliers and interested parties, by integrating business opportunities information on the PTT website www.pttplc.com and the PTT Vendor Management system together. This improvement better facilitates and increase the satisfaction of suppliers in conducting business operations with PTT. Furthermore, suppliers can place a contract and banking guarantee through the PTT Electronic Bank Guarantee (PTT e-BG) system which is backed by blockchain technology. The operation time required from collateral preparation until PTT receives the collateral takes only 1 day. In the case of returning collateral via the PTT e-BG system, an electronic bank guarantee system via blockchain, is implemented and the duration required for completion is also 1 day. As a result, suppliers require less transaction time and have increase business opportunities while both PTT and suppliers benefit from the increased contract management efficiency.
Communication of Operations to Stakeholders
To enable the exchange of information and knowledge between PTT and suppliers and the development of supplier potential and readiness to support PTT in terms of environment, society and governance matters, continuity in business operation, PTT has organized an annual supplier seminar. In 2020, the 3 events organized consists of 1 general overview event and 2 business unit events. These events were organized mainly via an online platform through the use of teleconference technology while the onsite event introduced social distancing. The general overview event took place at the PTT head office and delivered communication regarding the direction of PTT's business operations in accordance with good corporate governance principles, risk management, and Governance Risk and Compliance (GRC) whereby PTT has had zero corruption grievances and provides appropriate and easily accessible complaints channels. PTT has been a member of Thailand’s Private Sector Collective Action Coalition Against Corruption (CAC) since 2014. There have also been communications regarding human rights in the supply chain which consists of 6 human rights issues related to PTT Group's business operations as follows: 1. Labor rights; which includes the right to proper working conditions, freedom of association and negotiation, voluntary labor and safe and hygienic working conditions, and the prohibition of forced labor, child labor, discrimination, harassment, sexual harassment and human trafficking 2. Community rights 3. Security and safety 4. Environment 5. Consumer rights and 6. Corporate governance. PTT expects suppliers to formulate sustainability policies, which covers human rights issues, and that these policies be replicated by other suppliers in order to promote and continuously raise the level of their respective sustainable supply chain management to that of international standards. PTT has also communicated and provided knowledge regarding the new procurement system under the Digital Procurement project relating to suppliers in an effort to assist suppliers in carrying out transactions with PTT effectively. In terms of communication to business units, a supplier seminar was held for suppliers operating in the Rayong Gas Separation Plant area as a means to communicate the development of operational processes that meet supplier expectations. PTT has also organized seminars for suppliers of the natural gas distribution pipeline in conjunction with the natural gas lines for vehicles to communicate developments in PTT supplier vehicle registration (Approved Vendor List: AVL) and requirements for the registration of equipment pertinent to the natural gas distribution pipeline (NGR Approved Equipment and Material List: NGR AEML). Additional activities include the communication of overall business direction of the natural gas line and opportunities to exchange ideas and information regarding new business opportunities in order to improve and develop a systematic operation. These events strengthen the relationship between suppliers and PTT, which will lead to further sustainable growth as business partners.
PTT Group Joint Procurement
Executives and staff from the procurement department of PTT and 27 PTT Group companies participated in the workshop seminar to enhance joint procurement processes within the PTT Group and allow continuous strengthening and cohesive strategic direction. The outcome of this effort will include opportunities to supply quality products and services at reasonable prices, reduce costs for the PTT group and manage procurement risks to support continuous business growth. Furthermore, this allows the exchange of knowledge and operation methods according to the sustainable procurement framework, provides opportunities for participation in good relationship and networking activities between various recruiting departments within in PTT Group. Some examples of this exchange included learning the villagers’ way of life and methods to support community products.
Natural Gas: NG Procurement
PTT's natural gas procurement is divided into 6 steps, which are:
1) The procurement details and requirements are defined and adheres to customer requirements, legal requirements, requirements regarding operations and gas pipeline system connections and PTT requirements.
2) The selection process for suppliers/ partners proceeds in accordance with the criteria for assessment according to PTT requirements and pertinent requirements relating to PTT's strategy, which takes into account efficiency and overall supplier/ partner potential.
3) The communication of requirements and procurement criteria including the preparation of the natural gas purchase agreement takes place with the natural gas sellers (Gas deliverer)/ partner.
4) The performance of suppliers/ partners is controlled through contract management of natural gas purchases.
5) The development of suppliers/ partners occurs through the exchange of knowledge during monthly Operation Meeting, training and seminars which increases communication channels. During such meetings, the needs, expectations and complaints about gas quality problems are discussed in order to attain solutions which adhere to customer needs.
6) The performance evaluation takes place after each delivery and monthly for supplier / partner assessment of serviceability. If the assessment reveals substandard performance or abnormalities, the supplier/ partner is informed and requested to improve performance. The delivery capacity will be assessed in terms of reliability for the previous year. These measures enable the formulation of a natural gas supply plan which includes contingency planning in case the deliverer/ partner is unable to process the delivery.
Liquefied Natural Gas: LNG Procurement
PTT's liquefied natural gas supply (LNG) contracts materialize in either one of two forms: long-term contracts and short-term (Spot) contracts. The procurement process begins with defining the supply details and requirements which adhere to the customer's stated quantity and requirements, legal requirements, LNG Terminal Service Requirements (TPA Code) and PTT regulations / requirements. Sequentially, a supplier selection process takes place in accordance to PTT evaluation criteria and related requirements including efficiency and overall supplier potential. The next process pertains to contract negotiation whereby supplier operations are controlled through contract management and evaluations upon each delivery. The supplier will be notified to improve performance if the assessment results are lower than that of specified standards.
These procedures allow for the fulfillment of LNG procurement missions and strategy. In addition to taking into account energy security for the country, preparations for competition increase after LNG business liberalization must proceed in a parallel manner. There must be appropriate risk management measures for the procurement and management of the LNG Portfolio in order to determine the right cost structure through both long-term and short-term procurement (Spot) contracts to meet the country's gas demand.