With significant overcapacity in supply market we can expect consolidation. Cash rich companies would take over competition this can also result in monopoly.
  Satish N Palekar, Vice President & Head, Offshore India Operations and Support Head, L&T Hydrocarbon Engineering Limited, shares his take on the current challenges for project procurement, beating the procurement blues and what all lacks in the Indian procurement practice.
Major challenges for procurementPalekar feels that the Oil and Gas sector has been long affected by the low oil rates – sub $ 40 per barrel and the rates are not likely to revive over the next couple of years. Palekar says, “Oil and Gas sector has been long affected by the low oil rates – sub $ 40 per barrel and the rates are not likely to revive over the next couple of years. This has put the capital projects on back burner : several projects have been either shelved or put on long term hold.”
Tackling the procurement bluesPalekar recommends two approaches when it comes to taking procurement issues head on – those are: Cost control and Innovative strategies.  “This could mean a combination of – cut out flab, eliminate gold plating, close high cost production set ups or go on for cold stack, sell performance on a TCO basis, agree on staggered cost recoveries based on milestones to maintain positive cash flow etc. The organisation can look at outsourcing and actively practice risk transfer to other subcontractors etc.” He further says, “Advocacy with government institutions as a collective effort for Make in India initiatives, technology transfer mechanisms etc. are parallel approaches that can be taken up.”
Turning tides of ProcurementSpeaking about the rapid changes that are taking place in the area of procurement, Palekar says, “With significant overcapacity in supply market we can expect consolidation. Cash rich companies would take over competition this can also result in monopoly. Most set ups would see the need for productivity thrust.”
He also feels that with the coming time, the technology would be increasingly embraced to provide proper decision support in securing orders.
Priority listWhen asked about the priority list when it comes to ‘shopping’ Palekar feels that the financial due diligence of potential partners, not to overcommits costs and effective risk management. Several companies are close to bankruptcy and there is a need to have an holistic approach by supporting the prominent ones with adequate nurturing – it is equally important for EPC companies to ensure healthy competition.
Procurement scenario in IndiaHe says that professionalism, better order to pay process, the overall management, innovations and a lot more need to change. “A pure agent driven business can be counterproductive unless they do contribute technically and ensure the remote vendor connectivity as well as interfaces,” says Palekar.
Dealing with unfair practices of vendorsSpeaking about how L&T deals with unfair practices, Palekar said that the top driven leadership message, proper net-working at senior levels where the policies are properly exchanged, mutual understanding is set up, issues are resolved – all will go a long way to ensure fair trade practices. He concludes, “No compromise on performance and quality should be allowed. For commodities recommend usage of eCommerce tools, we are using ARIBA. Putting up a proper gift policy would also be essential as well as governance processes such as naming an ombudsman.