Global Inventory Benchmarking: Leading practices for optimized inventory management
2
Questions We Will Address This Morning
1. Considering the current market conditions, what are the critical areas addressed by this global benchmarking study?
2. What is driving the renewed focus on inventory optimization and its role in optimizing the maintenance, repair and operations (MRO) supply chain?
3. How important is inventory optimization – and is management really focused on it?
4. What are the key value drivers in the MRO supply chain that benefit from optimization ?
3
Global Cross-Industry Benchmark Study – September 2013
1. What is the purpose of this study and who organized it?
2. How important is inventory optimization and is management really focused on it?
3. What inventory performance measures are used by different industries?
4. What inventory performance levels are achieved by different industries?
5. What practices are used by different industries?
6. Is there a relationship between the practices used and the results achieved?
7. Have there been any changes since 2009?
4
About the Survey
Conducted by ScottMadden, Inc. and Oniqua MRO Analytics on behalf of the Utility Materials Management Benchmarking Consortium (UMMBC)
Purpose:1. To provide up-to-date information regarding the application of inventory optimization
practices and performance results within the utility industry2. To compare changes in utility practice usage and performance since the prior
UMMBC survey in 20093. To compare utility practices and results to other asset-intensive industries with similar
MRO inventory environments
5
Survey Participants
All Respondents by Industry (N=157)
6
About the Survey Organizers
1. The UMMBC is a group of utilities who are collaborating to develop information needed to critically examine and improve ongoing warehouse and inventory management operations. Membership is open to all utilities.
2. ScottMadden, Inc., is a general management consulting firm providing supply chain and materials management solutions to the utility industry since 1983.
3. Oniqua MRO Analytics is a leading asset performance management analytics provider focused on asset intensive industries, dealing with optimizing MRO inventory.
UMMBC
7
Questions We Will Address This Morning
1. Considering the current market conditions, what are the critical areas addressed by this global benchmarking study?
2. What is driving the renewed focus on inventory optimization and its role in optimizing the maintenance, repair and operations (MRO) supply chain?
3. How important is inventory optimization and is management really focused on it?
4. How is inventory performance viewed and managed by different industries?
5. What are the key value drivers that benefit from optimization in the MRO supply chain?
8
Stakeholders are Demanding Profit Improvement
Economics of one of the last functional areas industry has looked to for cost savings:
– $100 production increase yields $10 profit
– $100 reduction in repairs yields $100 profit
– A $10 operating cost control generates the same bottom line profit asa $100 increase in production
9
Defining “Inventory Optimization”
For our purposes, we borrowed the definition adopted by the US utility Southern Company. The goal of “Inventory Optimization” is to have:
– The right materials, . . . [specifications, work orders, bills of material, etc.]
– In the right numbers, . . [inventory levels, safety stock levels, etc.]
– At the right location, . . . [warehouse, storeroom, job site, etc.]
– At the right time, and . . [demand forecasts, lead times, need dates, etc.]
– At the right cost . . . [acquisition cost, inventory value, carrying cost, etc.]
– It is not just about inventory “reduction”.
10
Why Focus on Inventory Optimization?
– Inventory levels continue to grow.
– Inventory carrying costs at utilities range from 12.0% to 14.4% per annum.
– At 12%, holding inventory costs ratepayers $2.1 billion every year!
3.5%
8.2 %7.0 %
FERC 154 Inventory – All Reporting Utilities in the U.S.
“Holding inventory is a very expensive way of dealing with uncertainty” Bill Killingworth, MIT
12
Manage Your Decision-Making
Some companies have built their very businesses on their ability to collect, analyze and act on data. Every company can learn from what these firms do.
Competing on Analytics, Thomas H Davenport
analytics: “. . . the extensive use of data, statistical and quantitative analysis, explanatory and predictive models, and fact-based management to drive decisions and actions.”
Today’s business landscape has therefore changed in ways that put analytics “have-nots” at a substantial disadvantagerelative to analytics “haves.”
Analytics as a strategic capability Deloitte
“”
2000ERP system
“Automobile Engine”
2006
Business Intelligence
“Dashboard”
2012
Analytics
“Engine Management System”
Uncovering the realities that lie behind the data is what business analytics is all about. Precisely because they are hidden to the casual observer, they lend competitive advantages to the organizations that discover and implement them first.
13
Manage Your Decision Making
14
Questions We Will Address This Morning
1. Considering the current market conditions, what are the critical areas addressed by this global benchmarking study?
2. What is driving the renewed focus on inventory optimization and its role in optimizing the maintenance, repair and operations (MRO) supply chain?
3. How important is inventory optimization – and is management really focused on it?
4. What are the key value drivers that benefit from optimization in the MRO supply chain?
15
Comparing Performance Across Industries
The Mining, MP&F and Suppliers & Support Services industries are able to deliver both inventory efficiency AND effectiveness.
Oil, Gas & Petrochemicals apparently struggle to do either.
Utility performance is mixed.
E
ffic
ien
cy
Effectiveness
Mining, Metals Processing & Fabrication
Suppliers & Support Services
Electric & Gas Utilities
Oil, Gas & Petrochemicals
16
Policy & Process
The Mining, MP&F and Suppliers have moved the fastest in adopting advanced statistical models.
The percentage of Utilities adopting advanced statistical models has grown from 15% in 2009 to 23% in 2013.
(N=143)
Methods Used to Determine Safety Stock Levels
17
Manage Your Business Performance
Analytics gives you visibility into the inbound supply chain to make validated and tested optimization decisions that increase asset uptime, reliability, throughput and performance.
Importantly, these saving are not just “red-pen” reductions, but highly targeted to get the optimal levels of investment in the right areas, minimizing the opportunity cost of production losses.
18
Manage Your Business
Maintenance InventoryProcurement
Initiative Impact Operational Benefit Financial Benefit
Increase ROIDecrease Operating
Costs
Decrease Working Capital
Increase Production& Revenue
Reduce stock out
Improve supplier performance
Reduce inventory waste
Optimize inventory service
level
Analyze plant failures / costs
Improve PM effectiveness
Reduce the cost of procurement
Reduce materials inventory
Reduce stock out
Reduce materials inventory
Increase uptime
Decrease risk
Decrease labor costs
Decrease material costs
19
Technology Enablers for Asset-Intensive Organizations
Manage Your Business Performance
20
Manage Your Inventory
Service level: Cost Not all items are critical; need
a meaningful profile of criticality, and then invest in most critical items
Criticality is a key to “sweating your assets”.
Service level drift: Usage change Supplier performance Risk profile
21
Manage Your Inventory
Inventory Performance Visibility– Track overall inventory performance to balance inventory investment with risk– Inventory segmentation gives a foundation ranking mechanism for a structured
inventory management methodology Optimize Consumable and Critical Spares Levels
– Advanced optimization algorithms with ‘work queue’ driven alerts– Increase service levels, reduce costs and ‘management by exception’
Obsolete and Surplus Stock Disposal– Identifies items no longer required by the business for re-sale or disposal to
reduce inventory items and reduce costs Material Master Data Standardization
– Standardized & accurate codification, eliminates duplicates and expedites searches
22
Multi-criteria supplier performance ranking
Manage your Supply
23
Questions We Will Address This Morning
1. Considering the current market conditions, what are the critical areas addressed by this global benchmarking study?
2. What is driving the renewed focus on Inventory Optimization and its role in optimizing the Maintenance, Repair Operations (MRO) Supply Chain
3. How important is inventory optimization and is management really focused on it?
4. What are the key value drivers in the MRO supply chain that benefit from optimization ?
24
Manage your Business Performance
25
Capability Benefits
Analyses asset performanceIdentifies asset improvement opportunitiesCompare metrics across the enterprise
Improved equipment up-timeReduced production, environmental and safety riskReduced waste
Analyse total cost of ownership over the lifecycleAssist with asset replacement decisions
Improved cost control and forecastingBalanced capital and maintenance expenditures
Rapidly identifies and analyses failure trends.Less break-downsReduced repair costs
Rigorous, multi-facetted criticality assessment Identify and manage riskPrioritise resource allocation
Optimising equipment
performance to
maximize productivity and revenue
Manage your Business Performance
26
Capability Benefits
Track maintenance performance metricsMaintenance activity costing analysis
Assess maintenance improvement initiativesIdentify sub-optimal resource allocation
Ensure consistent and complete maintenance activitiesStandardise and refine tasks and frequenciesIdentify ineffective maintenance activities
Optimised allocation of maintenance resources across equipment typesImproved PM effectiveness and reduced costs
Provides comprehensive budget analysisCreates an optimised maintenance budget
Improved maintenance programs and resource allocationMaximised asset availability
Develop accurate and complete BOMsEnhanced materials planning and availabilityReduced obsolescence
Standardize, analyze and
optimize maintenance
activities
Manage your Business Performance
27
Capability Benefits
Track overall inventory performanceInventory segmentation
Balance inventory investment with riskStructured inventory methodology
Advanced optimisation algorithmsAlerting work queues
Increased service levels, reduced costsManagement by exception
Identifies items no longer required by the business for re-sale or disposal
Reduced inventory itemsReduced costs
Implements agreed encoding standards across the entire catalog
Standardised and accurate descriptionsDuplicates eliminatedFaster catalog searching
Determining MRO stock
levels should be a science,
not an art
Manage your Business Performance
28
Capability Benefits
Segment suppliers according to their importance to the business
Align supplier relationships with the businessImproved utilisation of staff resources targeting identified risk and value-add
Multi-criteria supplier score-cardsAutomatic performance tracking and alerts
Improved supplier delivery performanceReduced stock outs and inventory Identify and improve poor performance
Supplier accreditationSupplier intelligence and relationship management
Reduced supply risk Improved communications and relationships
Develop vendor and service data specification/taxonomy
Provides Supply Chain professionals with complete vendor data taxonomyImproved supply management efficiency
Create value through
aligning your supplier
relationships
Manage your Business Performance
29
What Successes Have Companies Achieved?
30
Client Success Story – Oniqua Analytics Solution
Profile: ActewAGL is Australia's first multi-utility to offer electricity, natural gas, water and wastewater services; Oracle environment.
Project: After successful implementation and use of Oniqua Analytics - Inventory and Procurement over many years, ActewAGL upgraded their legacy system to Oniqua Analytics Solution in 2008.
Outcome: “With Oniqua, we reduced our spares inventory by 50%, increased our DIFOT [delivery in-full on-time] by 25% for our strategic inventory suppliers, and decreased late deliveries by 23% for strategic inventory.”
Murray Elton Supply Chain Improvement Manager, ActewAGL
Photographs courtesy of client web site
Case Study: Utilities
31
Case Study: Oil & Gas
3rd largest energy company in the world; 4th largestcompany in the world; 1 of 6 oil and gas "super majors”
Active in all areas of oil and gas: exploration, production, refining, distribution, petrochemicals, power generation, renewables
Oil exploration, extraction and refining facility locatedNorth Slope, Alaska
Inventory value of US$159 million, comprising89,000 SKUs at commencement
Inventory levels for 3,300 SKUs increased tomitigate stock-out risk
US$12.3 million savings identified afterreviewing 46% of inventory
Break even achieved within 6 months of installationand project commencement
32
Case Study: Global Oil & Gas
3rd largest integrated energy company inthe US; 5th largest refiner in the world
Reduced MRO working capital by10% within6 months for Alaskan site
Lowered inventory levels by at least 10% ineach of the last 3 years
ROI exceeds 400% Based on the results of Alaska site and
desire to centralize on common platform, Global implementation of Oniqua follows
successful implementations in Alaska, Indonesia and UK/Norway, which delivered 10’s of $$ millions in savings.“The ROI from investment in MRO Analytics , based on the operational
results to date, is expected to exceed 400%.” “Making Working Capital Work – A Case Study”, AMR Research, March 2009
33
Contacts
www.oniqua.com
Andrew Williams VP Business Development Asia [email protected]: +61 7 3369 5506M: +61 427 585 080