Sustainability

Supply Chain Management

Sustainability

Supply Chain Management

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. 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 Supplier Sustainable Code of Conduct

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


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:

  • Suppliers' ESG (Environment, Social and Governance) Risk, and
  • Suppliers' Risks that may impact PTT's operations, such as PTT's high spending/high volume purchasing, or non-substitutable products or services.

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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:

Supplier GroupDefinitionManagement StrategyManagement Tools
1.Critical/Strategic 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 reputation. 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
2.Key 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
3.Manage 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 and environment

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 minimize risk of energy scarcity, PTT unfailingly applies BCM principles. In 2018, Black Swan trainings have been executed in simulation form. There were also desktop training simulating situations affecting natural gas and petrochemical value chains. Crisis Management and Business Continuity Centers of various business units are connected. This facilitates greater understanding in crisis management, stakeholder communication, and other aspects of management to ensure PTT Group's capability in continuous business operations. Similarly, the arrangement substantiates alignment to the mission in protecting stakeholders' benefits, and in operating business sustainably. Following structural adjustment by transferring oil retail business and shares of relevant companies to PTT Oil and Retail Business Public Company Limited, rooms for improvements regarding operations during crisis have been identified. This improvement will enhance efficiency. Memorandum of Understanding (MOU) has been signed to ensure collaborated effort in crisis management.


Supplier Management

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.


Corporate Level

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 is 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.


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

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 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.

Additionally, 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 /B100are 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


SSHE Management System for Suppliers and Contractors

  • 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, 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

  • Setting targets to mitigate accidents in logistics. PTT aims to reduce the number of major logistic accidents to 0 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 analyzes 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 defense 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 Pride 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.

Notably, PTT is annually assessed for its information disclosure. The information on procurement, supplier selection criteria, and the top 5 largest procurement projects of the year is disclosed.


Collaboration in Supply Chain

PTT aims to continuously develop procurement process, having recognized opportunities through collaborations. Having become part of Group Integrated Supply Chain Management and Optimization (GISMO) with refinery in PTT Group, such as Thai Oil Public Company (Limited), PTT Global Chemical Public Company (Limited), and IRPC Public Company Limited, has enable PTT to increase its competitiveness and foster its synergy in petroleum supply chain. This helps reduce initial investment, increasing benefits to PTT Group. The participation also helps in the development of production process that is environmentally friend, emitting reduced carbon dioxide emission for PTT Group and its subsidiaries simultaneously.

GISMO comprises of 3 smaller-scale projects as follows:
  • Petrochemicals and Refining Integrated Supply Chain Management (PRISM): Collaboration between refinery and petrochemical companies under PTT Group, maximizing values for supply chain through information exchange. This helps extrapolate technology and innovation further.
  • Group Logistics Management (GLM): Logistics management to prepare for fundamental utility infrastructure in recognition of imminent growth. Management capacity is built through collaboration under PTT Group, which helps reduce cost and build on added-value. Additionally, this helps minimizing environmental and social impacts through sustainable management, as well as reinforcing the competitiveness capacity both at national and international scale. PTT is therefore ready for changing circumstances, and is able to maintain course to achieve Operational Excellence in Logistics at Regional level. Currently, the project has been made into a permanent function.
  • Supply Chain Optimization (SCO): Optimizing benefits to oil supply chain. There is a working guideline covering cost reduction, collaboration for understanding, to supply chain management. Currently, the project has been made into a permanent function, 'Value Chain Optimization (VCO)'. Its operation will be expanded to cover more of PTT's business.

Local Procurement

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.




Performance

Progress Against Plan

Plan2018 Target2018 Accomplishments2019 Target
On-Site Audits Conduct on-site audits on 13 hydrocarbon suppliers and 100% audits on critical indirect procurement supplier

Assessed 100% of non-hydrocarbon suppliers in critical supplier group

Assessment of hydrocarbon suppliers will be conducted in the second half of 2018 under PTTOR. Therefore, no assessment was conducted by PTT in 2018.

Assess 100% of non-hydrocarbon suppliers in critical supplier group

PTT does not have a target in assessing hydrocarbon suppliers, as PTT no longer operate in oil business.

Value creation through Hydrocarbon Supply Chain Management

65 million baht was generated by managing supply chain to add value, increasing customer satisfaction and reducing environmental impacts

1,102 million baht was generated by managing hydrocarbon supply chain and 315 million Baht from non-hydrocarbon suppliers to add value, increasing customer satisfaction and reducing environmental impacts

175 million Baht to be generated by managing non-hydrocarbon suppliers to add value, increasing customer satisfaction and reducing environmental impacts. This is because Oil business unit has been segregated.

PTT Group Strategic Sourcing Increased in value by 5% of product and service spending from a collectively procurement to create added value and synergy within PTT Group Increased in value by 12.75% of product and service spending from a collectively procurement Increase in value by 12% of product and service spending from a collectively procurement
Non-Hydrocarbon Suppliers
Satisfaction rate in 2018 at 85% 86% 87%

Local Procurement

2016201720182019
Target 95% › 95% › 95% › 98%
Performance 95% 95% 98%

Reduce Major Accidents from Transportation

Long-Term Target: Reduce major accidents from transportation to zero in 2023

2016201720182019
Target 0.05 times per 1 million KM 0.05 times per 1 million KM 0.05 times per 1 million KM 0.05 times per 1 million KM
Performance 0.07 times per 1 million KM 0.05 times per 1 million KM 0.04 times per 1 million KM

Supplier Satisfaction in Working with Procurement Functions

2016201720182019
Target 85% 85% 85% 85%
Performance 87.03% 83.96% 85.84%

Procurement Spending


Tier 1 Suppliers

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Procurement Spending (Thousand Million Baht)

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The Fatty Acid Methyl Ester Biodiesel (B100) Inventory Management

In 2018, PTT encouraged supply chain sustainability through supporting national alternative energy policy by managing the Fatty Acid Methyl Ester Biodiesel (B100) inventory to maintain palm oil market stability and minimize impacts on raw material overstock. These could sustainably drive supplier forward with PTT and correspond to PTT Pride and Treasure vision

Logistics improvement for U-TA-PAO

PTT has developed the capacity in transportation via support from PTTGC Distillery in transporting jet fuel to U-Ta-Pao Airport. This is in replacement to transportation of fuel tanks from Lum Lookka, Pathumtani. The arrangement helps reduce the cost of transportation and enhance the effectiveness of logistics management. PTT is able to be responsive to requirements downstream. Following the project implementation, the cost o transportation was reduced by approximately 21 million Baht per year.


Sustainable Material Sourcing

PTT demonstrated its commitment to sustainable materials sourcing in alignment with the public sector's efforts, by developing a Sustainable Procurement Requirements Manual encompassing 23 procurement classifications. The Manual supports various departments in systematically applying environmental requirements accurately and appropriately, along with disseminating knowledge and understanding on environmentally-friendly procurement to suppliers and employees. This includes organizing seminars for suppliers, communicating examples of environmental requirements and knowledge sharing on different types of eco-labels. As of 2018, PTT has promoted and driven Amazon's Roasting Plant, which is under a PTT Subsidiary; as well as promoting suppliers to operate in compliance with Green Industry by Department of Industrial Works. The number totals to 10 companies.


PTT Procurement Management

PTT prioritizes the efforts to ensure procurement management is transparent, efficient and effective, to foster all stakeholder group's trust. In 208, Procurement Management Committee (PTTMC) appoints Procurement Management Audit Committee (PTTPMAC) to monitor and review process relevant to packaging procurement and non-hydrocarbon commercial procurement. The Committee ensure process is fully in compliance with related regulations, laws, rules, criteria and other aligned process. Additionally, PTTPMAC also provided consultation regarding procurement practice for packaging and nonhydrocarbons. This creates opportunity for knowledge exchange within the organization, resulting in collaboration to improve procurement's effectiveness and maintain standardization. This makes it possible for PTT to achieve the path to become an organization of transparency according to the strategy 'PTT Pride & Treasure of Thailand.'


Procurement Officer Capacity Building

PTT and PTT Group companies reviewed and planned employee capacity building programs throughout the year to train procurement staff to respond to organizational changes effectively. In 2018, PTT announced the use of the PTT Group Sustainable Procurement and Supplier Management Policy and Sustainability Performance Assessment Form to procurement staff, relevant departments, and suppliers. PTT further trained procurement officers on skills to effectively and easily use the work system that was recently developed to support organizational procurement process and management. This allows for shorter duration spent, and a more systematic and effortless approach. It also enables employees to work more efficiently and effectively overall.