LOGISTICS FOR LARGE INDUSTRIAL PROJECTS · the specific logistics of large industrial projects on several axes, to improve their performance : v Identify solutions implemented by

LOGISTICS FOR LARGE INDUSTRIAL PROJECTS

JULY 2012 : FORUM D’ÉTÉ DE

FRANÇOIS PEIGNÈS – KAREN POUJADE

PAGE 2 BENCHMARK LOGISTICS FOR LARGE PROJECTS – SYNTHESIS – JULY 2012 FORUM D’ÉTÉ

What we will share today

This presentation aims to focus on a benchmark we performed in 2011 on the logistics for large industrial projects.

Ø A few words about AREVA

Ø Target and frame of the benchmark

Ø Main results by domain of investigation Ø Synthesis and perspectives


AREVA GROUP


AREVA supplies solutions for power generation with less carbon

  World leader in nuclear power

u  A unique integrated model, from uranium mining to reactor design and related services to used nuclear fuel recycling

  A major player in renewable energies

u  A portfolio of diversified operations: offshore wind, concentrated solar power, bioenergies, hydrogen and energy storage


AREVA across the globe

About 48 000 people and a revenue of 9 B€

Current Industrial projects


BENCHMARK TARGET & FRAME


Objectives of the Benchmark

The objective of this study is to describe and analyze the characteristics of the specific logistics of large industrial projects on several axes, to improve their performance : v  Identify solutions implemented by industrial or engineering companies to

respond to specific logistics for large international industrial projects.

v  Analyze the solutions to determine the organizational, operational and financial impacts.

v  Measure the degree of outsourcing of the logistics of these major projects.

v  Define more precisely, the implemented processes for each of the 3 logistics activities - packing, transport and storage.

v  Specify the use made of logistic information systems in an internal or outsourced framework and adaptations that it might have required.

v  Highlight the elements of success of existing models and assess their reproducibility in a similar framework.

v  Outline the orientations of the management for future large international projects.


A representative panel of companies

Important activity of large industrial projects

Significant presence on international stage

Both Engineering (10) and Industrial (15) companies

with high turnover (Mean= 9B€)

Diversified origins - 9 different sectors

4 countries :

25 participating companies


Definitions and scope Large industrial projects : v  Construction of major infrastructures such as but not limited to : gas plant, refinery,

power station, nuclear power plant, cement plant, water treatment plant, pipeline, hospitals, stadium, boats, mining, aerospace program, off shore plants

v  Requiring the delivery, at least, of thousands of freight tons of equipment on the construction site during a period of several years

Logistics for projects : v  The logistics analyzed in this study is the logistics required for the building phase not for

recurring flows during exploitation or production phase of the built infrastructure.

Scope :

PACKING • Wooden crates • Packing for ODC • Packing specification • Packing Follow up • Labeling & traceability • Costing

TRANSPORT • Route survey •  Incoterms • Transport modes • Follow up &

traceability •  Interfaces • Costing

ON SITE WAREHOUSING

• Receiving •  Inventory

management • Equipment preparation • Transfer to erection • Traceability • Costing


Domains of investigation

V  THE FOLLOWING DOMAINS HAVE BEEN INVESTIGATED 1.  Scope and constraints of the international large projects 2.  Outsourcing 3.  Packing Management 4.  Transport 5.  On site Warehousing 6.  Information System 7.  Organization


MAIN RESULTS BY DOMAIN OF INVESTIGATION

SCOPE & CONSTRAINTS

ANALYSIS : MAIN ITEMS AND BEST PRACTICES

BENCHMARK LOGISTICS FOR LARGE PROJECTS – SYNTHESIS – JULY 2012 FORUM D’ÉTÉ PAGE 13

SCOPE & CONSTRAINTS

QUESTIONS

RESULTS

A COMMON VISION OF THE SCOPE AND THE ORGANIZATION

 What is the scope of supply of your reference projects ?  Does your company have an dedicated organization ?  Which main regulation do you have to take into account ?  What percentage of local sourcing is usually imposed ?

Extended project scope : Ø  Majority of EPC and Turnkey projects.

Ø  For engineering companies, maintenance is also part of the scope = EPCM.

Dedicated organization :

Ø  In order to gain in efficiency, the major part of industrials and all the engineering companies have made the choice of having a dedicated organization for projects including logistics scope.

Main identified regulation constraints : Import Custom clearance

Ø  Different levers raised to mitigate this issue :

u  Make client do customs clearance (appropriate Incoterm)

u  Rely on an experienced freight forwarder who perfectly knows local specificities

u  Realize a deep upstream study in order to anticipate and contract all issues with the freight forwarder

Imposed local sourcing:

Ø  Even if the indicated main case < 10%, the trend is difficult to qualify due to a large variability of cases depending on projects types, countries, customers’ requirements…

Ø  It can reach more than 60% for one project.

DEDICATED ORGANIZATION

SCOPE

REGULATIONS

LOCAL CONTENT

OUTSOURCING LOGIC


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OUTSOURCING LOGIC

BENCHMARK LOGISTICS FOR LARGE PROJECTS – SYNTHESIS – JULY 2012 FORUM D’ÉTÉ

QUESTIONS

RESULTS

OUTSOURCING STRATEGY BASED ON HISTORICAL REASONS

 What is the most common outsourcing model for logistics ?  What is the impact on the total logistics costs calculation ?

 What is the impact on the performance of projects (service level OTIF, …) ?

Outsourcing choice : Ø  For industrial companies, outsourcing choice

results from the nature of the project and historical reasons, but no prior cost optimization study.

Ø  Transport is systematically outsourced.

Ø  Packing is mostly subcontracted.

Ø  Warehousing is mainly not outsourced and kept inside company’s activity because :

u  Lack of trust in LP’s know-how u  It is considered as a critical erection

phase Positive impacts :

Ø  Mostly raised by Engineering companies and few industrials too:

u  Better logistics structure : accurate specs u  Benefits of LPs experience in various

sectors u  Cost variabilization and productivity

Negative impacts :

Ø  Mostly raised by industrials

u  Too much driven by cost indicators and not operational performance

u  Comparing with internal, lost of flexibility and availability of service

u  Project knowledge

OUTSOURCED ACTIVITIES

PERFORMANCE IMPACT

COST IMPACT

PACKING MANAGEMENT


PACKING MANAGEMENT


QUESTIONS

RESULTS

IN EUROPE, PACKING MAINLY SUBCONTRACTED TO SPECIALIZED PACKERS

 Is the management of the packing outsourced (scope of responsibility) ?

 What importance do you grant to the packing activity for your projects ?

 What is the invoicing mode for the packing of standard wooden crates ?

Ø  ONLY FEW PARTICIPANTS (13%) HAVE SUBCONTRACTED PACKING AND TRANSPORT TO THE SAME LOGISTICS PROVIDER

Ø  IN MOST OF THE CASES, PACKING IS SUBCONTRACTED EITHER TO EQUIPMENT SUPPLIERS (43%) OR TO SPECIALIZED PACKERS (52%)

Main raised reasons for subcontracting packing to equipment suppliers (packed purchases) :

u  Sourcing made worldwide : too difficult to centralize packing

u  Packing not identified as a critical part u  Suppliers’ product knowledge

Main raised reasons for subcontracting packing to specialized packers (unpacked purchases) :

u  Better control of packing specs u  Costs reduction thanks to globalization of

the volumes to be packed u  Ability to reduce transport and storage

costs by optimizing the design of the packing

u  In the US, packing is under LP scope. Packing role :

Ø  Mainly to secure transport

Ø  Potential lever for a few participants : u  Improvement of traceability u  Face difficult storage conditions on site

(lack of space, longer storage period…) When packing subcontracted to specialized packer :

Ø  Packing is mainly charged per square meter of wood (outer surface of the crates).

Ø  The weight and volume need also to be taken into account, mostly for ODC.

SCOPE OF RESPONSIBILITY

PACKING ROLE INVOICING MODE

TRANSPORT


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TRANSPORT


QUESTIONS

RESULTS

COMPANIES KEEP THE CONTROL OF THEIR SHIPMENTS

 Which incoterms are mostly used for purchasing and for sale contracts ?

 With what type of transport service providers do you contract mostly ?  In general, which segmentation do you choose for your contracts ?  What is the cost structure for transport ?

Shipped Freight tons : Ø  For Industrials mostly between 10K and 20K

FRT. Ø  For Engineering mostly between 50K and 100K

FRT. Door to Door Scope to secure the Logistics chain :

Ø  DDU/DAP mostly used for sale contracts by all companies in the frame of large projects.

Ø  FCA factory (or EXW) mostly used by all participants for purchasing orders.

Specific freight-forwarders projects-oriented :

Ø  Almost every participant work with freight forwarders dedicated for projects.

u  The range of skills offered (tailored solutions, ODC know-how, multimodal bookings…) is a requirement for managing projects.

One contract per project:

Ø  Major trend is to globalize transport and have one contract per project.

Ø  The use of one single specialist in projects (worldwide network) reduces interfaces.

Cost structure :

Ø  Fixed rates are usually agreed per : FRT, km, container, all-in…

Ø  Main exclusion for surcharges :

u  Gasoil : BAF mostly applied VATOS u  Currency : Formula for CAF deviations

DDU/DAP FCA

LP TYPES

SALES CONTRAC

T

PURCHASING ORDERS

SEGMENTATION

COST STRUCTUR

E

ON SITE WAREHOUSING



ON SITE WAREHOUSING

QUESTIONS

RESULTS

ON SITE WAREHOUSING HARDLY NOT OUTSOURCED BUT VARIABLE PERFORMANCE

 Who manages the warehousing activity today ?  What use is made of the WH at the end of the project ?  What about specific WH design and WH performance ?

Except for Oil and gas or some Energy Projects, WH size is between 5000 and 10000 sq meters.

Warehousing is mainly kept inside the company, in particular for industrial companies: Ø  No need for an additional player as

warehousing part is limited. Ø  Remote locations for projects with no existing

logistics structures near the site. Ø  Warehousing seen as critical to meet erection

schedule. Ø  Many participants think that LPs do not have

currently the skills (projects’ culture). The type of structure will define the use at the end:

Ø  Sold the warehouse to client is the first practice

Ø  Temporary structures are dismantled (re-used)

The global positive performance recovers a big disparity

Ø  Specific design is mostly done by engineering

Ø  Volume and nature of activity and processes which can be very different

Ø  Processes remain very manual.

Orientation

Ø  No sufficient practice and knowledge within industrial companies -> Outsourcing ?

Ø  Significant investment internally made by engineering companies.

MANAGEMENT

SPECIFIC DESIGN MADE

WAREHOUSING PERFORMANCE

FINAL USE OF WAREHOUSE

INFORMATION SYSTEM


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INFORMATION SYSTEM


RESULTS

QUESTIONS

TO BE SIMPLIFIED AND BETTER INTEGRATED

 Do you have a complete project management software ?  What is your assessment of the quality of the logistics data ?  What is your assessment of the quality of the interfaces between IS

tools ?  Do you mostly use LP’s software ?

All Engineering companies well equipped Lack of integrated tool for most industrials

Insufficient quality of logistics data:

Ø  Logistics needs not taken into account by design and purchasing.

Ø  No commitment of suppliers at an early stage.

Ø  Changes of design (new dimensions ) not communicated to logistics

Interfaces considered mainly positive for engineering companies because they have most integrated tools. Mainly negative assessment for industrial companies Ø  Multiplicity of tools which cover partially the

needs. Ø  Lack of links and data sharing.

Ø  Same data may be recorded several times.

Ø  Wide use of Excel files to administrate interfaces.

Little use of LP software in projects business :

Ø  Although presented by most LP as an important asset in their offered services, LP IT Tools are little used by their clients

Ø  Main raised reasons :

u  No need for additional tools (engineering) u  Avoid too much dependency to LP u  Too expensive to develop interfaces

Lack of KPI for 3 domains

USE OF COMPLETE SOFTWARE 80% of engineering

companies but only 33% of industrials

DATA QUALITY

QUALITY OF INTERFACES USE OF LP’S SOFTWARES

ORGANIZATION


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ORGANIZATION


QUESTIONS

RESULTS

GENERAL CENTRALIZATION OF EXPERIENCED LOGISTICS TEAMS

 Is the management of your logistics for projects centralized ?  What is your assessment of the existing operational interface ?

 Does AEO certification apply to your company or your logistics providers ?

Logistics centralized but at different levels : Ø  A central logistics team provides mostly the

logistics procedures and negotiates contracts Ø  For operations, responsibilities can be shared

with local logistics teams closer to project and client

Ø  Pressure from projects to get dedicated logistics people but raised issues :

u  Logistics know-how more difficult to share

u  No possible smoothing of logistics workload

u  Logistics people “used” for other tasks Quality of internal operational interfaces :

Ø  Very much linked to the position of logistics in the organization and its involvement

Ø  Even in a demanding environment, positive feedback when there is a constant communication with project team

Ø  When little integration, logistics undergoes the decisions of the project manager which vary according to his understanding / awareness in the logistic stakes

Ä  Function of supply chains managers helps to improve the internal interfaces

Ä  Industrials more concerned than Engineering companies to launch AEO program

CENTRALIZATION

INTERFACE WITH ENTITIES

AEO PROGRESS


BENCHMARK SYNTHESIS


When comparing Engineering and Industrial Profiles

STAKES STAKES

Higher stakes and maturity for Engineering companies

Industrials Engineering


AS A SYNTHESIS : What are the main improvements ?

v  Design to logistics : include logistics constraints at the design phase

v  Added-value of globalizing packing and transport under the same LP

scope

v  Improve warehousing practices and associated tools

v  Reinforce traceability and consistence of codification on the whole

chain

v  Improve quality of logistics data

v  Enhance IT tools : simple but integrating the whole chain

v  Involvement of logistics at each phase of the project to better

anticipate

THANK YOU FOR YOUR ATTENTION

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LOGISTICS FOR LARGE INDUSTRIAL PROJECTS · the specific logistics of large industrial projects on several axes, to improve their performance : v Identify solutions implemented by