FIT Service Specialty: Improving Materials Management

Why Perform a Materials Management Assessment?

Materials inventory represents 6% to 10% of revenues for many refinery operations. While this has been historically acceptable, industry leaders are discovering that it represents a significant opportunity for increased efficiency and cash. Through diligent effort, several companies have succeeded in reducing their materials inventory to below 5% of sales in 2003, among them Exxon (4%) and ChevronTexaco (2%). By improving their material management processes, these companies literally freed billions of dollars of cash for their bottom line. Our assessment focuses on identifying actionable opportunities to improve the company-wide performance of materials management to create significant new value for our clients.

We provide a comprehensive assessment of the company’s procurement and inventory management effectiveness and develop a clear picture of the size and scope of the financial savings feasible. In addition to the target business processes, we review contributing aspects, such as maintenance and reliability practices, and lead times, which frequently drive inventory levels.

Our team takes a broad, selective view across the company’s procurement and inventory management processes. Our methodology allows us to rapidly:

• Assess and identify improvement initiatives at individual plants
• Assess and identify opportunities where solutions can be leveraged across multiple sites
• Assess opportunities for improvement
• Evaluate current practices, operating priorities and organization
• Review the enabling technology and performance results
• Seek isolated best practices that may be shared, or areas where new operating standards and procedures are required

Our approach is based on a proven methodology for discovering supply chain value, developed and refined extensively at a major international consulting firm. The result of our assessment will be two high-impact deliverables:

• Improvement opportunities & initiatives across your corporate procurement and inventory management processes
• A framework that prioritizes the improvement opportunities identified based on the high- level value propositions, business priorities, and implementation readiness.

A typical initial plant assessment takes less than one week start to finish. Our focus is on the drivers, enablers and core processes that define a successful materials management program.

The plant assessment can be one component of a larger, more comprehensive initiative to improve company-wide performance. An example of a more comprehensive initiative is depicted below. The duration of tasks is approximate, since plant size and current programs will determine the actual timeline.

We will start by rapidly establishing where the company’s primary inventory investments reside, the organizations and processes involved, and business objectives driving their decisions. We will assess the target processes at each site where key operating decisions are made, along with the enabling technologies, organizations and operating policies that impact their performance. Our assessments will be based on a detailed electronic questionnaire pre-administered remotely so that the consulting team will have the necessary information prior to each site visit. A compilation of survey responses across all corporate sites will yield important insights for operations improvements ranging from best practice adoption to process centralization. Based on the survey responses, our site visits will be highly targeted investigations of particular issues and opportunities.

Site investigations will reveal performance issues, potential improvements, cross-site synergies, and potential enablers. These may include:

• Opportunities to reduce inventories by reducing lead time
• Comparisons across cost centers to identify best practices
• Opportunities to streamline, simplify and automate
• Opportunities to increase purchasing leverage, reduce costs and price variation
• Improvements in inventory planning and scheduling, etc.
• Opportunities to reduce inventory by increasing planning and scheduling of maintenance activities
• Opportunities to reduce inventory by increasing reliability efforts

Based on the opportunities surfaced, we will collaborate with management to develop the high level value propositions, prioritize the initiatives to develop a high impact program of actionable initiatives within existing resource constraints.

Audit results enable management to clearly identify where and how new value can be created through improved materials management practices. Clients can expect to:

1. Identify areas of opportunity and improvement
2. Estimate the economic value of the proposed improvements. The value comes from decreased inventory, establishing best practices and other realized improvement areas recognized in the assessment.
3. Develop an actionable approach to resource, implement and manage the portfolio of improvement opportunities.