Selection of the Technical Framework Contract to Avoid Supply Failures of Oil Country Tubular Goods

Abstract

To meet the demands of Oil Country Tubular Goods (OCTG) in PTEP, the company made a Long-Term Contract – Call Off Order (LTC-COO) with several OCTG manufacturers/suppliers in Indonesia. Since 2021, there have been two significant problems related to the supply of OCTG. First, two contractors in WA 6 could not fulfil the tubing demand totaling 10,581 joints with a value of USD 2,850,839. The second is four contracts LTC-COO at PTEP could not supply for 2022 needs, worth USD 28,579,436. The problems above are closely related to the price increase of global OCTG price. The proposed price increase could not be approved. As a result, contractors are unwilling to meet supply demand at the original contract price. Long Term Contracts are not fully effective if dealing with fluctuating material prices. The contract failed to supply the needs of OCTG as expected initially. In the end, six LTC-COO contracts had to be terminated early, with an unrealizable value of USD 33,982,587. The company is in critical because it does not have a contract to meet the OCTG demands. This study aims to find the best alternative to solve the OCTG supply failure problem. Several methods and analysis tools are used to simplify the study. BPMN, price, and risk analysis are used for business situation analysis. To determine the root cause using the Current Realty Tree method. Furthermore, for selecting the best alternative solutions using the Analytic Hierarchy Process (AHP). Based on the research that has been done, the best alternative solution to overcome OCTG supply failure in PTEP is using a Technical Framework Contract (TFC) as a contract model for providing OCTG. TFC has main advantages: it binds a minimum of two contractors in a technical aspect and has flexible prices following market prices. The price is formed when there is an OCTG request. With these advantages, the TFC OCTG contract will resist to supplier failure, price increases, and open other optimization opportunities in inventory management. The TFC contract is expected to be effective in overcoming OCTG supply failures.