Lean thinking in EPC Projects November, 2014

Outline Characteristics of EPC industry Lean and its traditional connotations Lean in a new light: Essence and example The basic questions

The traditional approach is to look outside to find reasons why EPC Projects exceed timelines and bleed profits Often cited reasons Controls Long drawn projects - 2 to 4 years Each project is different - business model, customer, location, risks No right of way, clearances not obtained, fronts not available Local influences - weather, culture, political climate, access and logistics, skills, unionized work force Client pays for material supplied to site, that does not get installed Customer’s inability ability to pay Many hand-offs – internal / external Customer urging to “go slow” Many opportunities for problems to be hidden behind externalities Scope Schedule Cost Quality

Lean Construction: Most often understood as a project site level waste elimination approach Tools stored far away from the workmen Poor communication systems (e.g., operators move to get instructions) Equipment and practices not ergonomically designed Material transported to the working area several weeks in advance Threading more reinforcement bars than required Unbalanced activities (e.g., many workers wait until some others finish their activity) Workmen waiting as reinforcement material is not available when required Overall work delayed as design drawings are not available from client Tying reinforcement multiple times due to improper tying the 1st time Assembling formwork material in the incorrect sequence Changing activity plans because of wrong interpretation of design drawings Unidentified and mixed materials Storage areas not marked clearly Excess stored material prone to damage The benefits of waste elimination seem obvious… … but do we see profits at the business level from such initiatives? Reinforcement material handed off multiple times Use of slow speed tower cranes` Confusing work instructions Multiple versions of daily activity plans

We used Lean thinking to evolve an operating strategy for timely and profitable execution for an EPC business Proposal, Bidding and Contracting Procurement Construction / Installation Commissioning & Testing Planning & Mobilization Engineering Earlier: Entire project is one big batch Now: Finish one “work unit” at a time Entire project with some conventional milestones – material delivered, tonnes of pouring, tonnes of fabrication 1 5 2 3 4 Finish all engineering for the project in shot Place all procurement orders at once Make erection schedule for the entire project Engage contractors for the whole project Break project into “invoicable” work units Sign off delivery sequence of work units with client Each work unit has its EPC plan Finish one work unit and move to next one End result End result Poor profitability and delay Timely and Profitable delivery

Once the operating strategy was in place, local process changes were introduced using Lean principles Quantity release mechanism Introduction of Quantity release calendar Full kitting for Invoicable work units Lot/project wise Production Project wise full kitting Packaging& forwarding Weekly invoicing Engg Introduced Concept of AMT (Area management Teams) OEE (Overall equipment effectiveness) Process x Process Y

Earlier: Transportation lags demand Now: Transportation meets demand We used lean thinking in construction for demand levelling resulting in reduced operating costs Earlier: Transportation lags demand Now: Transportation meets demand Factory Demand based To Work Front Daily Milk run Factory To Yard To Work Front Higher Logistics Cost Lower Utilization of trucks Material non availability 40% lower Logistics Cost Higher Utilization of trucks 90% + Material availability Demand Fluctuations Supply strategy to meet demand at site

Next we adopted a manpower levelling strategy to improve productivity and reduce waste at project site Earlier Bottleneck Manual unloadingManual unloading Manual segregationManual segregation Threading Shifting Fixing 1 Fixing 2 Fixing 3 Fixing 4 x6 x10 x12 x4 x25 x60 x50 x12 Now: Resource balanced & Waste eliminated Manual unloadingManual unloading Manual segregationManual segregation Threading Shifting Fixing 1 Fixing 2 Fixing 3 Fixing 4 x6 x4 x25 x60 x130 x12 Productivity increase by 60% and manpower reduction by 9% through resource balancing & eliminating waste at each stage

Lean applied at both strategic and local levels leads to breakthrough results Factory- OEE Complete utilization of factory capacities 40% increase in throughput Qty release from Sites to Supply Chain as per invoicable work units Supply Chain delivering right material for the work units at the right time Quantity Release Lot-wise production Manufacturing cycle time of invoicable work units reduced to 30% Production and dispatch of kits required for work units Kits for invoicable work units Reduction in manpower at stores by 90% Immediate issue of material to subcontractor in kit form Erection cycle time of work units reduced by 30% Lean Logistics 40% lower Logistics Cost Higher Utilization of trucks 90% + Material availability Resource balanced Execution Labour Productivity Improvement Reduction in Construction Cycle time

…Through what deliverables Processes introduced for transparency, coordination and execution discipline – not relying only on mindset change What was done… …Through what deliverables Open interaction and consultation among all stakeholders Eliminated “wishful thinking” about target quantity and dates. No imposition of targets that cannot be achieved. Process for site build order consolidation and prioritisation for factory supplies Adherence to time schedule for releasing quantities – build orders, procurement orders, manufacturing raw materials SOP for quantity release Responsibility and action-by dates Documented Qty Release process Activity timeline with dependencies

Lean thinking in EPC: a few basic questions to answer What is our invoicable work unit? What is our “EPC factory” - structure and processes that deliver the work unit profitably and on time? How are the drawing requisitions, vendor POs, build order quantity releases, manufacturing quantity releases aligned to the schedule for delivering the invoicable work units? How do we enable front-line people to solve everyday site problems (e.g. resource sharing) at their level? How do we set up local level processes / systems for resolution (e.g. resource levelling, site skill development centre)?