Master's Degree Thesis
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Master’s degree thesis LOG950 Logistics Tendering in the Norwegian Petroleum Industry Author: Mariami Suarishvili Number of pages including this page: 150 Molde, 24.05.2016 Mandatory statement Each student is responsible for complying with rules and regulations that relate to examinations and to academic work in general. The purpose of the mandatory statement is to make students aware of their responsibility and the consequences of cheating. Failure to complete the statement does not excuse students from their responsibility. Please complete the mandatory statement by placing a mark in each box for statements 1-6 below. 1. I/we hereby declare that my/our paper/assignment is my/our own work, and that I/we have not used other sources or received other help than mentioned in the paper/assignment. 2. I/we hereby declare that this paper Mark each 1. Has not been used in any other exam at another box: department/university/university college 1. 2. Is not referring to the work of others without acknowledgement 2. 3. Is not referring to my/our previous work without acknowledgement 3. 4. Has acknowledged all sources of literature in the text and in the list of references 4. 5. Is not a copy, duplicate or transcript of other work 5. I am/we are aware that any breach of the above will be considered as cheating, and may result in annulment of the 3. examination and exclusion from all universities and university colleges in Norway for up to one year, according to the Act relating to Norwegian Universities and University Colleges, section 4-7 and 4-8 and Examination regulations section 14 and 15. 4. I am/we are aware that all papers/assignments may be checked for plagiarism by a software assisted plagiarism check 5. I am/we are aware that Molde University College will handle all cases of suspected cheating according to prevailing guidelines. 6. I/we are aware of the University College’s rules and regulation for using sources Publication agreement ECTS credits: 30 Supervisor: Associate Professor Per Engelseth Agreement on electronic publication of master thesis Author(s) have copyright to the thesis, including the exclusive right to publish the document (The Copyright Act §2). All theses fulfilling the requirements will be registered and published in Brage HiM, with the approval of the author(s). Theses with a confidentiality agreement will not be published. I/we hereby give Molde University College the right to, free of charge, make the thesis available for electronic publication: yes no Is there an agreement of confidentiality? yes no (A supplementary confidentiality agreement must be filled in) - If yes: Can the thesis be online published when the period of confidentiality is expired? yes no Date: 24.05.2016 Preface This thesis has been written at Molde University College, Norway, as final work of Master of Science in Logistics from January to May 2016. During this period I conducted qualitative research, namely, survey under the supervision of associate professor Per Engelseth. The survey was carried out through face-to-face interviewing and entails 11 companies. I am proud to say that during the research I travelled and interviewed all informants at their offices. This method allowed me to obtain valuable data and provide vivid evidence. Tendering has been acknowledged as an efficient method of procurement. It is especially common in public sector where public authorities have to ensure transparency. The idea behind tendering refers to ‘best value for money’. This method of procurement is widely used in the Norwegian Petroleum Industry. The thesis address the process of tendering within industry. It emphasizes key factors that influence qualification and evaluation of vendors. The thesis also reveals bidding process from vendors’ perspectives, risk management and incentives and drawbacks of tendering. Acknowledgement “Just as eating against one's will is injurious to health, so studying without a liking for it spoils the memory, and it retains nothing it takes in.” - Leonardo da Vinci First and foremost, I would like to thank my supervisor, associate professor Per Engelseth, for his guidance and support. His energy and encouragement gave me passion throughout the entire study. Second, I am grateful to all informants for their kindness and willingness to contribute to my thesis. I am lucky that I met such respondents. Without their help this study would not have been possible. My gratitude goes to Jan Borkelmans, Leading Advisor SCM Contract Establishment at Statoil. He guided and motivated me during this study. Face-to-face interviewing created trust between the respondents and I. As a result, despite high confidentiality, I was provided with data that formed a solid part of the findings. Moreover, the respondents provided additional information and comments that navigated me to more insight and analysis. Additionally, I would like to acknowledge Roy Lien, Kathrine Sorvik, Cato Gundersen and Lisbeth Varhaugvik who shared useful data and helped me for further understanding of tendering process in the Norwegian Petroleum Industry. Last but not least, my gratitude goes to my beloved family. Their encouragement and motivation gave me grit. I would like to thank my grandmother for the enormous support and leading to my mantra ‘when achieving your dreams, it is not so much what you get, as who you have become in achieving them’. In the end, many thanks to Bich Le, the best friend and study partner throughout the study program. Mariami Suarishvili Molde, May 2016 ii Summary Peter Kralijc, creator of Kralij portfolio purchasing model, in 1983 called for the procurement function to take on a larger and more strategic role in managing the supply chain. Indeed, nowadays procurement plays an important role and has been perceived as a cost center. Tendering, or as literature often refers, competitive tendering is a common method of procurement. The idea behind it stems from ‘best value for money’. This thesis sought to address tendering in the Norwegian Petroleum Industry. The study has adopted qualitative survey research that implies face-to-face interviewing companies on Norwegian Continental Shelf (NCS). The study has provided insight of tendering and post tendering process. It emphasizes qualification, evaluation and selection process of vendors. The findings showed that technical and commercial factors play a vital role in evaluation process. Moreover, evidence reveals additional drivers for choosing vendors. As petroleum industry contains high risk, risk management has been found as one of the core activities within tendering. Heath, safety and environment (HSE) and quality assurance (QA) have been found crucial within industry. The findings revealed changes in the directive rules on procurement, where Norwegian oil and gas sector are exempted from the detailed tendering rules of Directive 2004/17. This has been explored and discussed. The evidence showed that regulators conduct tendering based on three principles as transparency, equal-treatment and non-discrimination. In addition, both, demand and supply side are highly required to behave with high ethical standards while involved in tendering. Even though tendering is costly administrative procedure, findings mentions its benefits as competition among suppliers, cost savings and delivering innovative solution. Since oil and gas industry is characterized by complexity, negotiation has been found as an alternative of tendering on NCS. The thesis also looked into supply side and discussed briefly bidding process from supplier’s perspectives. The findings showed that suppliers in oil and gas industry are keen to listen to regulators and get feedback in order to improve and as a result become supplier of particular regulator. At the end of the study, theoretical and business implications have been given. The latter sought giving relevant recommendation to players within industry. Table of Contents List of Figures ..................................................................................................................... vii List of Tables...................................................................................................................... viii Chapter 1 ............................................................................................................................. 1 1. Introduction ....................................................................................................................... 1 1.1. The purpose of the study ................................................................................................ 2 1.2. Organization of the study ............................................................................................... 3 Chapter 2 ............................................................................................................................. 5 Theoretical Perspectives........................................................................................................ 5 2.1. Purchasing management................................................................................................. 5 2.2. Public Procurement ........................................................................................................ 6 2.3. Tendering ....................................................................................................................... 8 2.3.1. Tendering Process ....................................................................................................... 9 2.3.2. Incentives