1. © 2008 Eventure Events. All rights reserved. Risk Assessment and Management of MRO Inventory Shane McLellan Project Leader – Business Performance & Planning SaskPower

2. Discussion topics: SaskPower –Vision, location, business, structure, and history Materials Work/Process Management Overview The MRO Inventory risk assessment process –Materials tie to PM activities –Assessment process development –Leveraging SAP Doclink to retain knowledge Summary of Current and future initiatives

3. Vision: –People and innovation... powering Saskatchewan to a bright future. is a fully integrated electric utility located in Saskatchewan supplying power to the entire province.

6. Relatively Speaking…..

7. generating facilities are strategically located: Hydroelectric – 854 MW Natural Gas – 538 MW Wind – 172 MW Coal – 1653 MW _______________________________ Subtotal – 3217 MW Independent – 454 MW _______________________________ Total – 3671 MW

8. Plant maintenance and major capital projects are required to enhance aging equipment, implement new technical processes and develop new generation solutions. These activities have a significant impact on inventory holdings.

9. Materials Overview @ PPBU SaskPower Significant $ provision for obsolete inventory > 150,000 MMRs (>95,000 with stock) –Adding ~ 6,000 per year > 120 material groups De-centralized structure for managing materials and most inventory purchasing functions

10. MRO Inventory Required For… Maintenance –Planned maintenance activities Preventive maintenance Weekly, monthly, quarterly, annual, etc. Repair –Unplanned break-fix maintenance activities As occur Operations –Consumables Used along side Maintenance and Repair or alone May or may not be on BOMs

11. Inventory Decision?... Balancing Risks Do not Stock…potential for unit outage –Public / employee safety Forced brown-outs, essential services, extreme weather –Reliability –Revenue: potential loss of generation capacity $70/MWh X MWh capacity of unit(s) Stock…potential for wasted resources –Lost capital Limited capital resources

12. Why do Inventory Assessments? Legal requirements (accounting rules) –Accurately value assets item cost $5000.00 ten years ago; no longer required; and no market value; valued at scrap value minus disposal costs Business benefits (increase productivity) –Reduce non-value-added costs: initial purchase price carrying charges physical storage administrative

13. PPBU $ Provision for Obsolete Inventory

14. …more on Business Benefits Identify obsolete materials –Recognize true inventory asset value –Utilize freed up space and resources for value added activities including: Procuring and maintaining required inventory; Regularly assessing dead stock items; Updating and managing SAP master data. Identify opportunities to reduce min/max stock levels (slow moving & costly items) Identify items that may be under stocked

15. % Dead Stock / Active Stock Is obsolete inventory identified and removed regularly? Presently, “No”; responses heard: –Too difficult! –Not enough resources! Or worse… –May need it some day. –Might be able to scavenge something from it. Careful!! –Its a slippery slope!

16. % Dead Stock / Active Stock A slippery upward slope!

17. Process Optimization So how can we optimize the management (including assessment) of MRO inventory?

18. The Materials (MM) Process Specify Source Buy Inventory Use

19. The Maintenance (PM) Process Initiate Plan Schedule Execute Complete

20. Integration of MM and PM Processes SpecifySourceBuyInventoryUse InitiatePlanCompleteExecuteSchedule

21. Plan : Specify & Source

22. Decision; Schedule : Buy

23. Plan, Execute, Complete : Use

24. SAP Functionality to Manage Inventory The Material Master Record (MMR) –Material Resource Planning (MRP) MRP Type ABC –Bill of Material (BOM) –Document Linking –Classification –Serialization

25. MRP Type – Material Resource Planning V1: min / max maintained –Slow or fast moving critical items –Fast moving non-critical items PD: required items ordered at WO release –No stock maintained –Typically not a critical item ND: maintain record for information purposes –Not currently used but may be used in the future –May have been used in the past (contains history)

26. ABC – Analysis of MRO Inventory Separating essential from non-essential –A: Essential stock items that: Are directly critical to generation of MW May be fast or slow moving (usually slow) Are typically high value (not always) –B: Non-essential stock items that: Can be ordered at WO release Typically have shorter lead times –C: Essential Stock items that: Are not directly critical to generation of MW Would significantly impact business if stock-out occurs Are fast or slow moving (usually fast) Are typically low value (not always)

27. ABC Indicator & MRP Type Classifying essential and non-essential –A: items critical to generation of MW MRP of V1 (min/max maintained) with Lot Size HB Slow or fast moving (usually slow) Typically high value (not always) –B: items can be ordered at WO release MRP of PD (no stock maintained) with Lot Size EX MRP of ND (no stock maintained) with no Lot Size –C: items not directly critical to generation of MW MRP of V1 (min/max maintained) with Lot Size HB Non-critical items used frequently (high quantity) Typically low value (not always)

28. BOMS BOMs tie Materials to Plant Maintenance

29. Document Linking in SAP

31. A Picture is Worth a Thousand Words…

32. Other Tools Spares Optimization System (SOS) –Proprietary software –Used 2000 – present to varying degrees –Comprehensive –Resource intensive –No workflow SaskPower’s Material Assessment Database (MAD) –Built in-house –Used 2006 to present –Less comprehensive than SOS –Resource friendly and fast –Newest version contains workflow Other ….

33. SaskPower’s Material Assessment Database Key Requirements of Assessment Tool –Workflow Move documents through assessment process –Integration Maintain key information including photos –Transparency Provide for easy tracking of process At SaskPower we built an assessment tool based on previous knowledge and the above identified requirements.

35. Views – Plant Contact View Choose assessments to assign

36.  One click to access the tasks in “Your Responsibility” View Views – My Responsibility View

37. Views – Other Views that are Available By Plant & Role By Plant & Owner Supervisor View Sortable View By Plant & Status

38. Material Overview

39. BOM information…

40. Used on past work orders…

41. History of material movements….

42. Link to Functional Location Structure

46. Recommendation only

48. Link Assessment to MMR in SAP

49. MAD is One of Many Current Initiatives Process Development / Improvement –SAP MM/PM (ABC, M Status, S.Proc., offset) –Sub-processes (receipts, issues, salvage…) –Block Maintenance –Training Material Risk Assessments –Controlling function / operations management Standard Supply Agreements Measures & Dashboard –Lotus Notes

50. Future MAD Plans New MMR / Change MMR Risk calculator –Factor in cost of replacement energy, MWs impacted and lead time to replace Move process to SAP Portal BI / BOb reporting

51. Goal for December 2008…

52. Risk Calculator Cost of replacement energy: $70/MWh MWs impacted: derate or outage –10 to 300 MWhs Lead time to replace –10 days to 2 years

53. SAP Portal – MAD: Assess, Create, Change Workflow and authorizations Integration of information (transactions) Transparency of assessment history

54. Boundary Dam Manager AB C D Turbine Coal Purchasing Stores Legal There Are Lots of Players… Finance PPBU

55. Power Production BPP 00010002 0003 0004 0005 Eng. Services Ops. Support HR Legal …and it gets more complicated Finance

56. Key Lessons: SAP is only as good as your data…and your management of work and process. Process is key: –Ownership required at the plant (all levels) –Effective MM/PM work/process management tools –Supported by BPP, Purchasing, Legal, etc. Opportunities exist for utilities to reap huge benefits from MRO inventory risk assessments.

57. © 2008 Eventure Events. All rights reserved. Shane McLellan Project Leader – Business Performance & Planning Power Production; SaskPower smclellan@saskpower.com