Outsourcing, why make it a fuss?

The following is a summary based on an article by Khairul Rizal, e-procurement/cost reduction consultant and Chief Editor Oil and Gas Magazine IOG Chronicle, published by Jakarta-based daily Kompas on July 23

Supplies of goods and services for oil and gas companies through "outsourcing" mechanism has created a furor, especially among small and medium suppliers following the decision from Vico and Maxus to tender the supplies of goods and services through "outsourcing" system.

Small and medium suppliers have contended that such "outsourcing" system effectively serves as a barrier for them to participate in the bulk supplies of goods and services for oil and gas companies as the two companies have required the participants to have a capital of at least US$40 million.

They also contended that the "outsourcing" system had violated prevailing regulations, especially articles 6 and 26 of Presidential Decree No. 18/ 2000, and Pertamina's board of directors decree No. C77/ C0000/2000-so chapter IV,E,11,j on the procurement of goods and services.

Those regulations clearly stipulate that supplies of goods and services worth below Rp 50 could be pursued through direct appointment, supplies worth of between Rp 50 million and Rp 200 million should be pursued through direct selection, and supplies worth more than Rp 200 million must be pursued through tender.

The idea of outsourcing was actually to improve the efficiency in the supplies of goods and services for oil and gas companies.

State oil and gas company Pertamina has cooperated with its contractors to draft more efficient ways to grant works or supplies of goods and services to a third party. And they have come up with various ways and alternatives, including bonded warehousing, material surplus management, e-commerce/e-procurement, vendor stocking program, procard, global sourcing, outsourcing, and strategic alliances.

Thus, works or supplies of goods and services which are not critical for their operations, such as works in collecting data during exploration, drilling or maintenance works, could be handed over to a third party. This handover of works could be pursued through those various ways, including outsourcing.

The reasons behind the introduction of outsourcing system are to reduce the administrative works in the part of oil and gas companies in terms of issuing purchase orders or delivery orders, that could number thousands for one company in one year.

With the outsourcing system, such administrative works could be transferred to a third party, most likely a big company, that would later distribute or tender of the works for smaller companies.

In fact, some oil and gas companies have applied the so-called blanket order contracts, long-term contracts for repeat works -- basically similar with the outsourcing system -- that have effectively reduced costs in terms of producing purchase orders and delivery orders.

Therefore, the outsourcing system should be developed in such a way so that it would only delegate procurement administration to an independent company that -- on behalf of the operator -- would later process all supplies and works through direct appointment, direct selection and tendering in accordance with SK-077.

In this case, many of the works would still go to small and medium enterprises, and therefore, this outsourcing system is worth trying. (*)