Turnaround and Project Procurement: Pt. 2

This is the second in a series of blogs on turnaround and project procurement using SAP. To read the first post, click Turnaround and Project Procurement

ERP systems like SAP have all the process steps needed for cradle to grave management of the turnaround supply chain process, but the problem is that it takes focus and discipline to realize it.
Whilst it would seem obvious for companies to improve their turnaround and capital project supply chain processes, the problem is that most companies don't know how to get started.
In the end it requires the planning and supply chain departments to undergo some transformation. Employee lead planners need to be trained to use material masters for all purchases, and taught how to request a new material or extend an existing one.
Contract planners will likely still use text lists but a material coordinator embedded in the warehouse must then perform the assignment to a material master.

If you are wondering why the material master is such an important document, its a good question. The answer lies in the design and functionality of SAP.
Unfortunately, any free text or non-stock material masters, once purchased and delivered, result in the immediate expensing of that material to the project or turnaround that is consuming it.

So for a long-lead material planned 18 months before a major turnaround event that is being delivered 4 months prior, as far as SAP is concerned that material was installed the day it was delivered.
Reality is different and that material or equipment item is sitting in a warehouse or laydown yard for 4 months, along with other turnaround materials.
It's a similar story with capital project materials. Accountants don't like this process either as they are supposed to hold these costs on the inventory general ledger account, yet the project has already paid for it.

The crucial point here is that if you want to hold turnaround and capital project material in inventory, you will need to create or assign a stock material master. Even for one-time use cases.
This statement is too much for a lot of companies who don't see the point in discarding so much master data, but the reality is a single use material master can be created in one minute, and designed in such a way that they can be re-used in the years to come.
The benefits of doing this outweigh the costs by a huge margin.

Now a lot of companies would rather invest in a custom solution to track expensed materials via a custom material staging system, either inside SAP or outside.
And while such solutions do a decent job of bringing warehouse visibility to expensed materials, they encourage the accumulation of surplus materials because the developers never close the loop with the work order status, allowing orders to be closed while surplus materials remain inside the tracking tool.
This might not sound like a big deal, but I have personally witnessed examples where major energy companies have held multi-million, and even billion dollar inventories of surplus stock. Materials that will never see a project again, yet are held for posterity.

The most common reason for avoiding the move to material masters for all turnaround and project procurement is the need to add a material coordinator position to the staff.
It is bizarre to me just how difficult it is for sites to add a single headcount in such a critical position, yet corporate has unlimited headless chickens running around doing nothing of value.
I have heard multiple reasons, but at the end of the day the position is of such criticality that it should be the first assignment a plant makes after the plant manager.
Considering a single day's lost production owing to a turnaround material error can cost upwards of five million dollars at a large chemical plant or refinery. That is enough to cover the cost of the material coordinator for 2 decades.

Committing to the process of exclusively using material masters, and committing to the material coordinator role require the company to also commit to the need for a rapid material extension and creation process.
Material extension is the process of extending a material that already exists in one plant, to another plant. This should be your first step, before adding new materials.
In most cases the material will already exist at another site, especially if you have carefully designed your material master process for maximized reuse.
But if the material does not exist and needs to be created, that process needs to take no longer than 24 hours. Not working hours but calendar hours. Meaning if a Planner submits a request at 8am on a Monday, that material master is available no later than 8am by Tuesday.
A simple web form with a single approval step and six or seven fields is all that is required. Tie-in a couple of workflow emails and its done. Super simple and very quick.
In the next posting we will look at the 2 different ways to handle turnaround and project inventory inside SAP, and help you make the right decision for your unique situation.