Turnaround and Project Procurement: Pt. 4
This is the forth and last in a series of blogs on turnaround and project procurement using SAP. To start with the first post, click here.
In the first post we looked at the challenges facing the turnaround and capital project supply chain. In the second post we looked at how to transform a typical turnaround and project supply chain away from free text material requisitions and onto cataloged material masters.
In the third post we compared Plant Stock with Project Stock and compared the strengths and weaknesses of each.
In this final post we will wrap-up the discussion on turnaround and project procurement in SAP; and list the 3 maturity models so you can see where your company fits.
To summarize, SAP works very well with routine maintenance material procurement. Equipment BOM's include the material master numbers and the quantities of all materials associated with a scheduled maintenance activity.
But when it comes to turnaround or major project procurement, that approach doesn't work so well. SAP cannot store text purchases as inventory and assumes that the material is installed immediately upon goods receipt.
The solution is to use stock material masters - even for 'one-off' purchases, and to implement business processes that support the creation of new material masters in a timely manner.
Let's take a look at the negative impacts of poor turnaround and project procurement process.
Typical issues we see are:
- materials go missing
- excess in surplus stock
- wrong materials ordered
- project delays through wrong materials
- no visibility of project inventory in system
- reliance on spreadsheets and databases
- disconnect between work order and inventory
- no ability to handle scope changes
The benefits of a closed-loop turnaround and project procurement process include:
- elimination of surplus stock
- reduced material issues
- material re-usability from turnaround to turnaround
- transparency throughout supply chain lifecycle
- elimination of spreadsheets and third party tracking tools
- compliance with accounting standards
- scope change control capability
We can categorize the procurement process maturity into three basic levels:
Least Mature
- reliance on free text materials
- use of spreadsheets and third party applications to track project materials
- missing materials, material errors and surplus stock are common
- reliance on a few heroic individuals who manage to keep the turnaround progressing
- no ability to move scope from one event to another
Moderate Maturity
- some use of cataloged material masters
- customized SAP inventory tracking system connecting work order demand with warehouse supply
- some use of dedicated turnaround BOM's
- turnaround planning integration (Excel / homegrown database)
- limited scope change control capability
Most Mature
- exclusive use of stock materials
- full use of project stock
- turnaround inventory management (virtual or physical storage location)
- integrated turnaround planning application
- full scope change control capability
From a cost benefit perspective, a mature turnaround procurement management process will save 1% of your annual turnaround budget
So for a large COG (Chemical Oil & Gas) corporation with a $1BN annual budget, that equates to $10 Million a year
Even if you were to reinvest half the savings ito further turnaround management improvement, its still a great payback
We recommend adding turnaround and project procurement integration as a development item within an overall system integration improvement roadmap
Companies can save upward of 5% annualized cost savings. For a COG with a $1BN annual turnaround budget, that's $50M every year. Such cost savings do not exist anywhere else!
Please feel free to use the comments to provide feedback or ask any questions related to turnaround or project procurement planning.
