Absoft SAP Oil & Gas Supply Chain Forum 11Sep 2012

Making SAP Work for Your Supply Chain

Tuesday 11 September 2012

Message from Chairperson

Optimising Inventory Management

Optimising Offshore Returns Management

Oil and Gas Special Interest Group Announcement

Future Sessions

Introduction

Agenda

Time Item

9.30 – 9.45 Introduction- Kim Shand, Customer Relationship Manager, Absoft

9.45 – 10.00 Message from Chairperson – Kyrre Andresen, VP Vendor Relations,

Contracts & Procurement, Dolphin Drilling

10.00 – 10.40 Inventory Optimisation – Bjorn Harzer, SAP Oil & Gas Solution Architect,

Absoft

10.40 – 10.50 Coffee Break

10.50 – 11.30 Optimising Offshore Returns Management – Tim Galloway, Absoft

11.30 – 11.45 SAP Oil and Gas Special Interest Group Announcement – Sunniva Bjerke,

SBN Norge

11.45 – 11.50 Event Close

11.50 – 12.30 Lunch at Petroleum Museum Restaurant

About Absoft

Specialist oil and gas

consultancy

Focus on SAP

21 years in business

Global Project experience

Working in Norway for over a

decade

Norway office

End-to-end SAP consultancy

Absoft has deployed SAP into 39 countries

worldwide…

• EUROPE

• MIDDLE EAST

• AMERICAS

• AFRICA

• ASIA

End- to End SAP Consultancy services

SAP Consultancy

SAP Implementation

SAP Process

Improvement

SAP Support

SAP Training

SAP Data Migration

SAP Infrastructure

Reporting, Analytics &

Business Planning

Solutions





Future Sessions

Introduction


Kyrre Andresen, VP Vendor Relations, Contracts &

Procurement Dolphin Drilling

16 years working in supply chain

• 10 years with Royal Norwegian Armed Forces

• 6 years in Oil & Gas

Dolphin Drilling – SAP gradually since 2003

Use in Supply Chain, Finance, Projects, Plant

Maintenance and HR

Aims

Informal network for Oil and Gas organisations using SAP

Share best practice use of SAP in the Supply Chain arena

Foster discussion around potential solutions for common

pain points

Our Speakers

Two topics for today…

Optimising Inventory Management with SAP – Bjorn

Harzer, Oil & Gas Solution Architect

Optimising Offshore Returns Management – Tim

Galloway, Oil & Gas Sector Specialist





Future Sessions

Introduction

Turning warehousing

into an effective

service

Recognise trends

Adjust stock policies

Deliver in time

Mission

Warehousing

Maintenance

Exploration

Projects

Procurement

Finance

Logistics

The elements of inventory controlling

Business Challenges – Inventory Controlling

Data transformation (Excel wiz)

Adjust procedures

Prioritise & interpret data

Monitor

&

Reitera

te!

Data collection (SAP)

Data extraction (Report?)

S

Data presentation (xls charts)

A • Step 1

B • Step 2

C • Step 3

?

Challenges:

Thousands of items

Loads of MRP

parameters

Complex calculations

No structured data

It is a time-consuming task!

Symptoms:

Increasing stock levels

Shortages on spares

Overages on spares

Data transformation (Data w/h)

Data extraction (Automatic)

Data presentation (BOBJ)

!

(A) Stock controlling – Stock visibility

“Measure performance of a warehouse”

Measuring warehouse performance

Stock optimisation

Monitor

&

Reitera

te!

Stock visibility

Stock classification

How can I gain visibility?

Consumables

Spares

Insurance spares

Min/Max

Performance

Questions in Inventory Controlling

Metrics

(1) Stock levels = How much have I got?

(2) Stock turnover = How quickly does stock move?

(3) Stock coverage = How long does my stock last?

(4) Stock dates = When did my stock move last?

(5) Stock count = How much did I lose?

(1) Stock levels

Definition?

Measured in quantity or value by period

How to read it?

The stock value describes the stock balance sheet – note that some stock in the

warehouse is deemed a financial asset and is therefore only captured as a quantity.

Identify trends, influences and impacts on stock balance sheet

How much have I got?

e.g. “Stock

reduction effort”

(2) Demand

Definition?

Expressed as “demand” or “demand value” being the consumption by period.

Average demand/demand value = Consumption / Occurrences by period.

How to read it?

The demand/demand value allows to identify high turnover or high value materials in

the warehouse. It allows classifying into fast and slow movers.

Identify potential dead materials / identify increase in usage / … by trending

0

1

2

3

4

5

6

2012.01 2012.02 2012.03 2012.04 2012.05 2012.06

Consumption pattern

Total

Average

How quickly does stock move?

(3) Stock coverage

Definition?

Stock coverage = Stock on hand / Average demand by period

How to read it?

Expresses how long current stock in warehouse will last if no further receipt (from

vendor) happens – based on average demand or average demand value

Helps prevent potential stock out situations

Helps stock controller to adjust minimum stock levels for materials

How long does my stock last?

(4) Dates

Definition?

Last Goods movement / Goods issue / Goods receipt

How to read it?

Identify potential dead stock / excess stock

When did my stock move?

Material Last movement

100021 01/09/2007

100023 04/05/2011

100029 06/07/2012

100030 01/09/2009

100031 21/12/2011

“Older than 3 years”

Potentially dead stock?

Again, why are we interested?

What to do with this?

Measure success and outcome of improvement projects

objectively.

Stock holding

Stock balance sheet reduction > 10%

Stock value usage increase > 100%

Stock movements

Stock turnover (month) increase > 20%

Stock coverage reduction > 20%

(without impact on operations)

(B) Stock segmentation

“How can we manage stock levels

effectively?”

Understanding my materials in stock

Stock optimization

Monitor

&

Reitera

te!

Stock visibility

Stock segmentation

How can I prioritise?

Consumables

Spares

Insurance spares

Min/Max

Performance

The ABC of stock optimisation

(1) Segmentation of inventory

Assign a ABCD to each material based on demand value.

(2) Criticality analysis

Promote ABCD class for materials based on criticality in

maintenance and by lead time analysis.

(3) Profiling materials

Consumable or spare?

(4) Stock policies / Service levels

Define the risk of a stock out situation.

(5) Suggest stock levels

Applied statistics to help the stock controller.

(6) Review materials

Working it.

Seg

men

tati

on

O

pti

mis

ati

on

(1) ABCD classification

B – middle 15% value

A – top 80% value

C – bottom 5% value

D – no usage

B – middle 15%

of all materials

A – Top 5%

C – bottom 80%

of all materials

D – no usage

ABC = Demand value of last

12 months, sorted top-down 5% of materials make up

80% of balance sheet

Which material first?

Minimum effort with maximum return

(2) Identify priority in Maintenance

24 hours 14 days 2 months

14 days 2 months 3 months

2 months

6 months

3 months

3 months

6 months

6 months

Stock policy

Demand value

Equipment criticality

Spare BOMS

Insurance spares

Lead times

Is it critical spare?

Recognise oil & gas specifics and promote critical

spares, which usually have no/infreqeuent

consumption

Need one version of truth, i.e., PM data in SAP

Spares

Component

Equipment Mud pump

Motor

O-ring Shaft

Valve

Impact

criticality

Installed

systems

Long lead

items

(3) Profiling materials – consumption pattern

Consumable

Lower

bandwidt

h

Upper

bandwidt

h

Constant turnover

in bandwidth

Average

consumption

Spare Flat demand

with peaks

Lower

bandwidt

h

Upper

bandwidt

h

Average

consumption

Decide

statistical

method for

suggesting

stock levels

How does

the material

behave?

Segmentation – Example

Material Demand value ABC analysis ABC Cumulative ABC classification

10011 £200,000.00 88.83% 100.00% A

10012 £9,100.00 4.04% 11.17% B

10013 £6,920.00 3.07% 7.13% B

10014 £3,722.94 1.65% 4.06% C

10015 £2,700.00 1.20% 2.40% C

10016 £1,180.00 0.52% 1.20% C

10017 £600.00 0.27% 0.68% C

10018 £550.00 0.24% 0.41% C

10019 £400.00 0.18% 0.17% C

10020 £300.00 0.13% -0.01% D

10021 £2.00 0.00% -0.14% D

10022 £0.00 0.00% -0.14% D

10023 £0.00 0.00% -0.14% D

10024 £0.00 0.00% -0.14% D

10025 £0.00 0.00% -0.14% D

10026 £0.00 0.00% -0.14% D

10027 £0.00 0.00% -0.14% D

10028 £0.00 0.00% -0.14% D

10029 £0.00 0.00% -0.14% D

10030 £0.00 0.00% -0.14% D

10031 £0.00 0.00% -0.14% D

10032 £0.00 0.00% -0.14% D

10033 -£40.00 -0.02% -0.14% D

10034 -£279.00 -0.12% -0.12% D

Total £225,155.94 100.00%

Promote by

Long Lead

Promote

critical

spares

Promote

insurance

spares Demand

value = 0 for

insurance

spares!

(C) Stock optimisation

“How to suggest stock levels?”

Stock optimising

Stock optimisation

Monitor

&

Reitera

te!

Stock visibility

Stock classification

How do I suggest stock levels

based on facts?

Consumables

Spares

Insurance spares

Min/Max

Performance

Spares

Component

Equipment Mud pump

Motor

O-ring Shaft

Valve

(4) Define Stock Policy / Service Level



2 months

6 months

3 months

3 months

6 months

6 months

Stock policy

Stock controlling

Equipment criticality

Spare BOMS

Insurance spares

Lead times

How much should I keep in stock?

Objective response of how much should be kept in

stock – based on usage history & criticality.

ABC classification Service Level Months

A 99.90% 12/12

B 91.67% 11/12

C 75.00% 9/12

D 50.00% No stock

Cycle count

2x year

1x year

every 2 years

not applicable

Long lead

items

(5) Stock optimising – How does it work?

Warning!

Dark arts

(5.1) Suggest stock levels – for consumables

Period Usage Quantity

2011.07 10.0 EA

2011.08 15.0 EA

2011.09 12.0 EA

2011.10 11.0 EA

2011.11 9.0 EA

2011.12 10.0 EA

2012.01 10.0 EA

2012.02 15.0 EA

2012.03 12.0 EA

2012.04 11.0 EA

2012.05 9.0 EA

2012.06 10.0 EA

Total usage = Sum of usage quantity 134.00 EA

Average (AVG) = Sum of usage quantity / number of months 11.17 EA / Month

Standard Deviation (STDEV) = Square root [ Sum { usage - average } 2̂ } / (number of months - 1) ] 2.04 EA

Desired reorder frequency = Parameter set by Procurement, e.g. once per month 1 Month

Lead time = Average or worst case lead time, set by procurement 20 days

Lead time = Average or worst case lead time, set by procurement 0.67 months

A B C D

Service level (SL) = likelihood expressing how often to avoid a stock out situation 99.90% 91.67% 75.00% 50.00%

Service factor (SF) = norms inverse (Service Level) 3.09 1.38 0.67 0.00

Safety stock level (SSL) = lead time * standard deviation * service factor (in months) 4.2 1.9 0.9 0.0

Reorder point (RP) = lead time * average consumption (in months) 7.4 7.4 7.4

Minimum stock level (MIN) = safety stock level + reorder point 12 9 8 0

Reorder quantity (ROQ) = desired reorder frequency * average consumption (in months) 11.2 11.2 11.2

Maximum stock level (MAX) = minimum stock level + reqorder quantity 23 20 20 0

Averages & Deviation

Procurement input

Usage history

Service levels

(5.2) Suggest stock levels – for consumables

Reorder

point

Safety

stock level

Higher

consumption

Longer

lead

ROP = average lead time

* average consumption

SSL = standard deviation

* average lead time

* service factor

ROQ = desired reorder frequency

* average consumption

Desired reorder

frequency

Reorder

quantity

Average

Lead time

MAX =

SSL + ROQ

MIN =

SSL + ROP

Period Usage Quantity

2011.07 0.0 EA

2011.08 0.0 EA

2011.09 0.0 EA

2011.10 0.0 EA

2011.11 0.0 EA

2011.12 0.0 EA

2012.01 5.0 EA

2012.02 1.0 EA

2012.03 0.0 EA

2012.04 0.0 EA

2012.05 0.0 EA

2012.06 0.0 EA

Total usage = Sum of usage quantity 6.00 EA

Average (AVG) = Sum of usage quantity / number of months 0.50 EA / Month

A B C D

Service level (SL) = likelihood expressing how often to avoid a stock out situation 99.90% 91.67% 75.00% 50.00%

Minimum stock level (MIN) = Percentile of Usages of last 12 months for service level 5.0 EA 1.3 EA 0.0 EA 0.0 EA

Maximum stock level (MAX) = Coverage for Total of usages of last 12 months 6.0 EA 6.0 EA 6.0 EA 0.0 EA

(5.1) Suggest stock levels – for spares

Averages

Usages

Service levels

(5.2) Suggest stock levels – for spares

Spare

Minimum for B =

coverage for 11

months out of year =

Service level = 91.7%

Minimum for A

= coverage for 12

months out of year =

Service level 99.9%

Maximum = coverage

for whole demand in

year

Minimum for C =

coverage for 9 months

out of year = Service

level = 75.0%

MAX

MIN B

MIN A

MIN C

(5) Stock optimizing – How does it work?

You

survived!

(5) Review it! Industrialise!

Reviewing:

Review materials on a

frequent basis

Review materials

by demand value

by criticality

by actual/proposed

stock levels

Understand consumption

patterns

Understand integration to

Maintenance and

Procurement

Assign a review date or

review status to the material.

Segmentation (ABCD)

Usage history

Policies / Service levels

Criticality analysis

Propose stock levels

Consumption profiles

Review by traffic light • Demand value

• Criticality

• Current/Proposed SL



2 months

6 months

3 months

3 months

6 months

6 months

Consumable

or Spare?

Procurement

Lead time +

Reorder

frequency

Current /

Proposed MRP

parameters

Adjust materials

ABC classification Service Level Months

A 99.90% 12/12

B 91.67% 11/12

C 75.00% 9/12

D 50.00% No stock

Effective and repeatable

stock optimisation

Monitor

&

Reitera

te!

Take away message!

Stock optimisation never stops!

It is an iterative cycle, because projects (upgrade, commission,

decomission) phase in and out equipments / spares

(D) Management reporting

“Impact on other business areas?”

Enterprise dashboard – balance score card

Stock level Downtime

Keeping balance

between major

indicators across the

business

Overall ops performance Right material / right price / right

quality / in time / first time

Lead time

Procurement

Operations Inventory

(E) Conclusion

“One version of the truth”

Summary

(F) Demo

Optimising Inventory Management – Questions?





Future Sessions

Introduction

Setting the Scene

Measures of an effective supply chain

Quality Efficiency Transparency Cost

Pressures on Supply Chain

Supply chain

OLF Estimates 6% rise in

operating costs per annum

Ageing Asset Infrastructure

Increasingly complex projects

Development of Unconventional

oil and gas

Supplier Portfolio

Corporate Control

Life with SAP

Customers

CENTRAL REPOSITORY

Health & Safety

HR

Technology & Logistics

CFO

COO

Project Engineer

Project Manager

Subcontractors

National Governments

Projects

Attract, develop and retain talent more effectively

while making them more productive

Human Resource Management

Improve visibility to

reduce operational

and financial risk

Gain visibility and

control of financial data

Comply with all financial,

environmental, and

governmental regulations

Corporate Services

Leverage technology to

strengthen relationships

with owners, customers,

subcontractors and

suppliers

Logistics

Improve productivity and safety, and

avoid legal liability -- with less cost

Asset Management

Deploy the right resources, crews, and

assets to the right projects at the right time

Maximize productivity and

profitability of project

resources, including

materials, equipment and

labor

Project Management

???

But the companies here already have SAP …. And many

of the challenges remain!

?

Focus on Offshore Returns

Demand Approve Procure Expedite Receipt Onshore

Ship Receipt Offshore

Return Ship Receipt Onshore

Process

Planning Scheduling Execution Confirmation Closure

Process Overview

Maintenance/Project

Supply Chain Mobilisation

Supply Chain De-Mobilisation

Why focus on Offshore Returns?

Return Ship Receipt Onshore

Process Closure

Stock Usage Equipment

Utilisation

Cost Recovery

from

Scrap/Resale

Stock Balance

Sheet

Equipment De-

Mob Time

Returns not

Processed

Symptoms of Inefficient Offshore Returns

Quality

Goods Not Available

Scrapping Good

Equipment

Efficiency

Difficulty 3-Way Matching

High Administrative

Time

Transparency

Lack of Visibility on

Rentals

Missing Identification

on Equipment

Cost

High Hire Charges

Increasing Stock

Balance Sheet

Returns will always exist

Planning Scheduling Execution Confirmation Closure

The Industry is job/project oriented

Focus on “getting the job done”

Standard Industry Cost constraints

don’t apply

Materials &

Equipments

Example: Backload

Offshore

technician

Offshore /

Drilling

materials

controller

Vessel

operator

Backload

onshore Drilling

vessel

Understanding the Process

Who “owns” the Process?

Where is the return going?

Why is the Return happening?

What should happen to it next?

Typical Destination for Return

Vendor

Vendor equipment

Repair

Disposal

Rental demob

Warehouse

Storage

Temporary storage

Surplus / Clarification

Typical Surplus/Clarification Scenarios

Reuse

Re-integration to stock with min/max level

Transfer to another project

Reduce

Adjustment of min/max stock level – stock optimisation

Return to vendor for credit / consignment

Sale to JV partners or market place

Recycle

Scrap value recovery

Disposal

Optimising Returns

Optimising Offshore Returns (Repairs, Rentals)

• Update Procedures

• SAP Process

• Training Materials

• Knowledge Management

• Responsibilities

• Data

• Business Enablement

• Support

• KPI Monitoring

• Continuous Improvement

• Handover Procedures

• Decision Trees

• Work Instructions

• Workflow

• Ownership

• Surplus

• Destination

• Causes of Returns

Analyse Design

Build Run

Typical Delivered Business Objectives

Stock Usage Equipment

Utilisation

Cost Recovery

from

Scrap/Resale

Stock Balance

Sheet

Equipment

De-Mob Time Returns not

Processed 10%

90% 5%

5% 20%


Announcement

• SAP Oil and Gas Special Interest Group - Sunniva

Bjerke, SBN Norge

Thank You