1. Implementation Session Capital Projects Supply Chain Management

2. Project Team Paul BehnkeU. S. Steel J.C. BoyersButler Manufacturing Buddy ClarkKBR Mike DeMuro / Tom KepperIntel Frank DombrowskyParsons Energy & Chemicals Jim HershauerArizona State University Mark Hodson / Allison LeerEli Lilly Jay JeanJacobs Skip LeeM. A. Mortenson Roger LongAnheuser-Busch Companies Mark Palmer, Project ManagerNIST Skip StuartBlack & Veatch Iris TommeleinUniversity of California–Berkeley Ken Walsh Arizona State University Terry ZgabayChevronTexaco

3. 1. Check Your SCM ReadinessMark Hodson 2. Identify Strategic OpportunitiesBuddy Clark 3. Assess Organization and Practices Frank Dombrowsky 4. MapPaul Behnke 5. Collect DataSkip Stuart 6. Analyze and Select AlternativesIris Tommelein 7. Implement Terry Zgabay 8. Evaluate and IterateJ.C. Boyers Panel Agenda

4. Mark Hodson What is it ? What is it ? What good is it ? What good is it ? How do I implement it ? How do I implement it ? SCM Questions

5. Supply Chain Management Supply Chain Management (SCM) is the practice of a group of companies working collaboratively in a linked chain of interrelated processes designed to best satisfy end- customer needs while rewarding all members of the chain. Mark Hodson

6. BenefitsCase Study BenefitsCase Study Improvements Improvements Project time compression 50% Design & fabrication lead time reduction25% Inventory cost savings$30M/project Craft utilization 20% - 50% Personnel reduction 25% - 60% Loss reduction 80%+ Materials lead time reduction70% Based on results from PT 172 case studies Mark Hodson SCM Benefits

7. 7 Steps CPs-Supply Chain Management Mark Hodson 1. Decide To Act 2. Assess Existing SC Organization and Practices 3. Identify Opportunities 4. Select, Map, Collect Data, and Analyze Current Supply Chain 5. Investigate Alternatives 7. Evaluate Execution and Iterate 6. Select Alternatives and Implement Selected SC Tactics

8. Buddy Clark 1. Understand: Business objectives Business objectives Core competencies Core competencies Markets/Competitors Markets/Competitors Performance indicators Performance indicators 2. Analyze Spend: Categorize Categorize Classify categories Classify categories Identify Strategic Opportunities

9. Buddy Clark 1. Understand: Business objectives Business objectives Core competencies Core competencies Markets/Competitors Markets/Competitors Performance indicators Performance indicators 2. Analyze Spend: Categorize Categorize Classify categories Classify categories $ Spend Supply Risk CriticalStrategic Buy itLeverage

10. Identify Strategic Opportunities Buddy Clark 1. Understand: Business objectives Business objectives Core competencies Core competencies Markets/Competitors Markets/Competitors Performance indicators Performance indicators 2. Analyze Spend: Categorize Categorize Classify categories Classify categories Determine market dynamics Determine market dynamics

11. Owner Competencies Owner/ Contractor/ Supplier Shared Competencies Contractor Competencies Supplier Competencies EPC SUPPLIER/ SUBCONTRACTOR OWNER Supplier/Contractor Shared Competencies Owner/Supplier Shared Competencies Owner/Contractor Shared Competencies Distribution of Competencies Buddy Clark

12. Frank Dombrowsky Project Dynamics and Change Management Project Dynamics and Change Management Uncertainty Uncertainty Constraints Constraints Complexity Complexity Organization Stove-Piping Organization Stove-Piping Balancing Project Requirements Against Production Requirements of Resources Balancing Project Requirements Against Production Requirements of Resources Corporate Initiatives Corporate Initiatives Individual Project Uniqueness Individual Project Uniqueness Requirements Planning and Demand Forecasting Requirements Planning and Demand Forecasting Organizational Challenges

13. Select Frank Dombrowsky Overall Criterion Selection Criteria Time Longest lead time Longest lead time Least reliable delivery date Least reliable delivery date On critical path for project On critical path for project Most subject to change and thus iteration Most subject to change and thus iteration and rework and rework Cost Highest relative cost (component Highest relative cost (component cost/Total Installed Cost as %) cost/Total Installed Cost as %) Relation to risk management Relation to risk management Quality Highest failure rate Highest failure rate Highest contribution to total installed cost Highest contribution to total installed cost Least reliable component Least reliable component Safety Component Commonly related to incidents Component Commonly related to incidents Installation is inherently dangerous (intuition) Installation is inherently dangerous (intuition)

14. Map Paul Behnke High Level Cross Functional Map High Level Cross Functional Map Detailed Cross Functional Map Detailed Cross Functional Map Value Stream Map Value Stream Map

15. High Level Cross Functional Map Paul Behnke

16. Detail Cross Functional Map Project Manager Structural Engineer Piping Engineer Pipe Designer Mechanica l Engineer Pipe Support Vendor Pipe Fabricator Procurement Department Supply-Chain Map of Pipe Supports Model 1 : Engineering Firm designs Pipe Supports Design Support Feasible? (e) Stress Analysis OK? (b) No Yes 10 % Yes 90 % Yes Supports Available in Catalog? (f) No Special Design or Catalog? (d) Can Supports be Relocated? (c) Yes By RJA and IDT 04/15/01 1 Contractor 2 Define Pipe Diameters and Schedules, Value Weights and Lengths 1-6 Get Preliminary Pipe Support Loads 1-4 (20 ht-1p) Get Final Pipe Support Loads 1-8 Select Vendor in Advance 1-10 Paul Behnke Route Pipe 1-1 (80-100 ht*-1p*) Locate Pipe Supports 1-2 (20ht – 1p) Identify Preliminary Pipe Support Loads 1-3 (20ht-1p) Perform Pipe Flexibility Analysis 1-5 (40-60 ht-2p) Refine Pipe Support Loads 1-7 Perform Pipe Stress Analysis 1-9 (100-120 ht-3p) Special Pipe Support Design 1-12 (3-4 days-1-p) Select From Catalog 1-11* (1 day-1p) Check Interference 1-13 (2 days – 1p) No

17. Info from Route Pipe Locate Pipe Supports Analyze Pipe Stress Design Pipe Support Check Loads and Interference Reinforce Structure (incl. New Details) Issue Pipe Support Details for Fab Advise Suppliers Analyze Eng.Firm Select Supplier and Send Info Prepare Pipe Support Drawings Total Queue Time = Total Processing Time = Total Time in System = 41.3-50.9 Duration (hrs) % 96.3% 3.7% 100.0% 2-2.5 m-hrs0.5 m-hrs 1.8-2.3 m-hrs 0.5-1.0 m-hrs3.5 m-hrs 3.5- 6 m-hrs1m-hrs1- 2 m-hrs0.4- 0.6 m-hrs 2-5 m-hrs Approve Drawings Fabricate 1-2 m-hrs 0.1- 0.5 m-hrs 24 m-hrs Total Duration = 29 -33 weeks Hours per week = 40 hrs. Total Time in System = 1160 - 1320 hrs 1160-1320 1118.7-1269.1 8 weeks2-3 weeks 2-4 weeks1 week 2-3 weeks 10 weeks6-8 weeks Supports Ready to Ship Notes: 1. All duration's are per unit of support (m-hrs = man hours). 2. Values in RED color were assumed by RJA. The number of man-hrs for the fabrication and delivery activity was assumed as 24 m-hrs/suport. The queue values are so big that this assumption won’t affect the final result. Deliver Supports On Site Value Stream Map Paul Behnke

18. Collect Data Written internal documents Written internal documents Secondary information sources Secondary information sources Web pages (public and private) Web pages (public and private) Interviews Interviews Questionnaires Questionnaires Participation Participation Observation Observation Skip Stuart Effective ways to collect data Effective ways to collect data Decide what data to collect Decide what data to collect

19. Select Supplier Est. Reqts. Price+Detail. Check Loads +Interference ± 5 mh± 1 mh± 9 mh Design Pipe Supports Design Piping Syst. ± 2 weeks± 1 week± 8 weeks ± 1 mh± 2 mh± 6 mh Prep. Supp. Drawings ± 3 weeks± 6 weeks ± 2 mh± 24 mh Fabricate Approve Drawings ± 13 weeks Lead Time ± 33 weeks Map and Compress SC Lead Time for Pipe Supports (1) Involve Supplier Early in Design (2) Standardize Supports (3) Use EDI + Standardize Processes

20. Check Loads & Interf. ± 5 mh± 1 mh± 9 mh Design Pipe Supports Design Piping Syst. ± 6 weeks Engineer and Supplier Collaborate ± 6 weeks ± 24 mh Fabricate ± 13 weeks New Lead Time ± 25 weeks Map and Compress SC Lead Time for Pipe Supports ± 7 mh Iris Tommelein

21. Analyze Stress ± 2-2.5 mh± 0.5 mh± 1.8-2.3 mh Locate Supports Route Pipe ± 8 weeks Computer Tools for SCM: Example Simulation Iris Tommelein

22. Simulation

23. Implement Terry Zgabay Implement Supply Chain Changes A. Develop Deployment Plan Direction / scope Direction / scope Stakeholder engagement and support Stakeholder engagement and support Competency development and behavior shaping Competency development and behavior shaping Metrics Metrics Planning and modifications Planning and modifications Resourcing Resourcing B. Develop Operating Plan Responsibilities Responsibilities Competency assurances Competency assurances Stakeholder engagement Stakeholder engagement Organization and systems Organization and systems Monitoring Monitoring C. Get Agreement to Implement D. Deploy and Operate E. Monitor Progress and Results

24. Implement Terry Zgabay Things to Do: Allow adequate time Allow adequate time Move at proper pace Move at proper pace Address highest priorities first Address highest priorities first Start with areas open to change Start with areas open to change Map internal processes before mapping SC Map internal processes before mapping SC Get executive commitment and involvement Get executive commitment and involvement

25. Implement Terry Zgabay Areas on Which to Focus Tools During Implementation: Behavior analysis and shaping Behavior analysis and shaping Gap analysis (DCOM) Gap analysis (DCOM) Communication Communication Planning Planning Performance measurement Performance measurement Stakeholder analysis Stakeholder analysis Sustainability check Sustainability check

26. Evaluate and Iterate J.C. Boyers How do you evaluate success ? How do you evaluate success ? What has the improvement been ? What has the improvement been ? What are the next opportunities ? What are the next opportunities ? How do you maintain progress in SCM ? How do you maintain progress in SCM ?

27. Evaluate and Iterate Metrics are units of measure such as cost [expressed in $], cycle time [expressed in days or hours] that quantify performance or results of a process. Metrics J.C. Boyers

28. Metrics Desired Outcomes Results Metrics Deviations Process Metrics Total Installed Cost (TIC) Reduction Landed Cost TIC – for mat- erials installed Payment timing Liquidated Damages Labor, material, freight surcharges Scrap expenses ECO Cost Labor Cost Material Overhead Cost per Dollar Material Expenditure Warranty costs J.C. Boyers

29. SCM Questions Mark Hodson What is it ? What is it ? What good is it ? What good is it ? How do I implement it ? How do I implement it ?

30. Supply Chain Management Implementation Session Mark Hodson Questions and Answers