Andrew Williams - Oniqua - CASE STUDY: Global inventory benchmarking: Leading practices for optimised inventory management
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Andrew Williams - Oniqua - CASE STUDY: Global inventory benchmarking: Leading practices for optimised inventory management

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Andrew Williams, Vice President – Business Development, Oniqua delivered this presentation at the Asset Management and Maintenance Conference. This conference addressed the effective maintenance......

Andrew Williams, Vice President – Business Development, Oniqua delivered this presentation at the Asset Management and Maintenance Conference. This conference addressed the effective maintenance strategies for a variety of private and public assets.

Find out more at http://www. Informa.com.au/assetmgmt2013

More in: Business , Technology
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  • This morning we are going to address the following six questions:.CLICK to READ ALL SIX (6) BULLETSFINALLY, (Last click) many of the questions we asked were also asked in our 2009 survey so we can compare responses over time.CLICK to Next Slide
  • CLICK: This year’s survey was a conducted by both ScottMadden AND Oniqua MRO AnalyticsCLICK: The purpose of this year’s survey was threefold:READ FROM SLIDE: SUCCESSIVE CLICKSCLICK to Next Slide
  • Since not everyone will be familiar with the organizations involved in this year’s survey, here is a snapshot ;CLICK: The Utilities Materials Management Benchmarking Consortium (or UMMBC) was initially established in 2007 by 15 leading utilities. There are 52 members today. The members voluntarily participate in various studies related to inventory management. There is no cost to join. If you participate in the study you get the report. CLICK: ScottMadden, Inc., is a general management consulting firm providing supply chain and materials management improvement support to the utility industry since 1983CLICK: Oniqua MRO Analytics a company that has been serving Mining and Oil & Gas companies for many years and has recently been making inroads into the Utility industry. They maintain a database of materials management personnel within industries not traditionally addressed by ScottMadden. Together we were able to distribute the survey to a much broader audience this year
  • This morning we are going to address the following six questions:.CLICK to READ ALL SIX (6) BULLETSFINALLY, (Last click) many of the questions we asked were also asked in our 2009 survey so we can compare responses over time.CLICK to Next Slide
  • This morning we are going to address the following six questions:.CLICK to READ ALL SIX (6) BULLETSFINALLY, (Last click) many of the questions we asked were also asked in our 2009 survey so we can compare responses over time.CLICK to Next Slide
  • Before we get started, lets review what we mean by “Inventory Optimization”CLICK: The definition used here is borrowed from the Southern Company.SIX CLICKS: READ SLIDEAs you can see, “OPTIMIZATION” implies delivering effective “results” in an “efficient” low cost manner.CLICK: It does not mean “Inventory Reduction” – Although greater efficiency can result in less inventory for the same results. I am sure this is an ongoing battle you have with your internal customers and managementCLICK to Next Slide
  • Why Focus on Inventory Optimization?Largely because Holding Inventory IS NOT FREECLICK: As you can see from this chart, Inventory levels have continued to rise steadily over the past 13 years.CLICK: While the rate of growth has slowed in the last two years, it is still exceeding the rate of inflation.CLICK: Carrying this inventory is NOT FREE. The average carrying cost at Electric & Gas Utilities is between 12% and 14.4%.CLICK: Using the lower value and applying this to FERC 154 inventory we arrive at a cost of $2.1 BILLION Dollars per year.CLICK: This is one of my favorite quotes by Bill Killingworth at MIT:“Holding inventory is a very expensive way of dealing with uncertainty” CLICK to Next Slide
  • The analytics era has arrived.Analytics leverages corporate data to derive business value.Analytics is different to business intelligence – requires a sophisticated understanding of the business combined with statistical models and optimization algorithms.Delivers the ability to make better decisions and directly change the business through a dynamic feedback loop – in the same way that an engine management system reacts to conditions to deliver greater power and efficiency.Analytics is becoming part of every day life – sports, military, weather, stock market etc. People are expecting analytics.Companies are beginning to compete on the quality of their analytics.During this presentation will cover:Analytics across industriesEnergy challengesThe Era of AnalyticsOniqua & MRO AnalyticsHow it all worksIncreasing ROA through analyticsAnalytics value cycleKey messagesAdd the sources and attribute.
  • This morning we are going to address the following six questions:.CLICK to READ ALL SIX (6) BULLETSFINALLY, (Last click) many of the questions we asked were also asked in our 2009 survey so we can compare responses over time.CLICK to Next Slide
  • When we compare overall Inventory Optimization performance across all four industries an interesting pattern emerges:CLICK: Two Industries (Mining, Metals Processing & Fabrication AND Suppliers) appear to be able to achieve higher scores in both “Efficiency” and “Effectiveness”CLICK: One Industry (Oil, Gas & Petrochemicals) apparently struggles to deliver either higher Efficiency or Effectiveness scoresCLICK: And, as we mentioned earlier, Utilities report mixed performance consisting of Low Efficiency – but High EffectivenessLater in the presentation we will see that the two industries that are able to achieve BOTH efficiency AND effectiveness are also those industries who report higher adoption rates for statistical analysis and inventory optimization softwareCLICK to next page
  • The next question has to do with the methods used to determine safety stock levels.CLICK: The options in this case were: READ OPTIONS KEY:CLICK: The red horizontal bars show the combination of both BLUE and GRAY sections which means that the companies use Advanced Models of some sortI’d like to make two observations here:CLICK: The first is that the Mining & Metals industry appears to be taking the lead in adopting advanced toolsCLICK: The second is that the combined BLUE and GRAY response for Utilities grew from 15% in 2009 to 23% in 2013. It appears that UTILITIES are catching on!CLICK to Next Slide
  • MRO Analytics gives access to the ‘low hanging fruit’ of the inbound supply chain: Inventory, Procurement and Maintenance. Each of these value domains can return millions of dollars in hard savings through efficiency and can also give you the insight to appropriately defer many millions of dollars in working capital
  • This morning we are going to address the following six questions:.CLICK to READ ALL SIX (6) BULLETSFINALLY, (Last click) many of the questions we asked were also asked in our 2009 survey so we can compare responses over time.CLICK to Next Slide

Transcript

  • 1. Global Inventory Benchmarking: Leading practices for optimized inventory management
  • 2. Questions We Will Address This Morning 1. Considering the current market conditions, what are the critical areas addressed by this global benchmarking study? 2. What is driving the renewed focus on inventory optimization and its role in optimizing the maintenance, repair and operations (MRO) supply chain? 3. How important is inventory optimization – and is management really focused on it? 4. What are the key value drivers in the MRO supply chain that benefit from optimization ? 2
  • 3. Global Cross-Industry Benchmark Study – September 2013 1. What is the purpose of this study and who organized it? 2. How important is inventory optimization and is management really focused on it? 3. What inventory performance measures are used by different industries? 4. What inventory performance levels are achieved by different industries? 5. What practices are used by different industries? 6. Is there a relationship between the practices used and the results achieved? 7. Have there been any changes since 2009? 3
  • 4. About the Survey  Conducted by ScottMadden, Inc. and Oniqua MRO Analytics on behalf of the Utility Materials Management Benchmarking Consortium (UMMBC)  Purpose: 1. To provide up-to-date information regarding the application of inventory optimization practices and performance results within the utility industry 2. To compare changes in utility practice usage and performance since the prior UMMBC survey in 2009 3. To compare utility practices and results to other asset-intensive industries with similar MRO inventory environments 4
  • 5. Survey Participants All Respondents by Industry (N=157) 5
  • 6. About the Survey Organizers UMMBC 1. The UMMBC is a group of utilities who are collaborating to develop information needed to critically examine and improve ongoing warehouse and inventory management operations. Membership is open to all utilities. 2. ScottMadden, Inc., is a general management consulting firm providing supply chain and materials management solutions to the utility industry since 1983. 3. Oniqua MRO Analytics is a leading asset performance management analytics provider focused on asset intensive industries, dealing with optimizing MRO inventory. 6
  • 7. Questions We Will Address This Morning 1. Considering the current market conditions, what are the critical areas addressed by this global benchmarking study? 2. What is driving the renewed focus on inventory optimization and its role in optimizing the maintenance, repair and operations (MRO) supply chain? 3. How important is inventory optimization and is management really focused on it? 4. How is inventory performance viewed and managed by different industries? 5. What are the key value drivers that benefit from optimization in the MRO supply chain? 7
  • 8. Stakeholders are Demanding Profit Improvement Economics of one of the last functional areas industry has looked to for cost savings: – $100 production increase yields $10 profit – $100 reduction in repairs yields $100 profit – A $10 operating cost control generates the same bottom line profit as a $100 increase in production 8
  • 9. Defining “Inventory Optimization” For our purposes, we borrowed the definition adopted by the US utility Southern Company. The goal of “Inventory Optimization” is to have: – The right materials, . . . [specifications, work orders, bills of material, etc.] – In the right numbers, . . [inventory levels, safety stock levels, etc.] – At the right location, . . . [warehouse, storeroom, job site, etc.] – At the right time, and . . [demand forecasts, lead times, need dates, etc.] – At the right cost . . . [acquisition cost, inventory value, carrying cost, etc.] – It is not just about inventory “reduction”. 9
  • 10. Why Focus on Inventory Optimization? – Inventory levels continue to grow. – Inventory carrying costs at utilities range from 12.0% to 14.4% per annum. – FERC 154 Inventory – All Reporting Utilities in the U.S. 7.0 % 8.2 % At 12%, holding inventory costs ratepayers $2.1 billion every year! 3.5% “Holding inventory is a very expensive way of dealing with uncertainty” Bill Killingworth, MIT 10
  • 11. Business Performance is a System 11
  • 12. Manage Your Decision-Making “ Some companies have built their very businesses on their ability to collect, analyze and act on data. Every company can learn from what these firms do.” Competing on Analytics, Thomas H Davenport analytics: “. . . the extensive use of data, statistical and quantitative analysis, explanatory and predictive models, and fact-based management to drive decisions and actions.” Uncovering the realities that lie behind the data is what business analytics is all about. Precisely because they are hidden to the casual observer, they lend competitive advantages to the organizations that discover and implement them first. Today‟s business landscape has therefore changed in ways that put analytics “have-nots” at a substantial disadvantage relative to analytics “haves.” 2000 ERP system “Automobile Engine” Analytics as a strategic capability Deloitte 12 2006 Business Intelligence “Dashboard” 2012 Analytics “Engine Management System”
  • 13. Manage Your Decision Making 13
  • 14. Questions We Will Address This Morning 1. Considering the current market conditions, what are the critical areas addressed by this global benchmarking study? 2. What is driving the renewed focus on inventory optimization and its role in optimizing the maintenance, repair and operations (MRO) supply chain? 3. How important is inventory optimization – and is management really focused on it? 4. What are the key value drivers that benefit from optimization in the MRO supply chain? 14
  • 15. Comparing Performance Across Industries  The Mining, MP&F and Suppliers & Support Services industries are able to deliver both inventory efficiency AND effectiveness. Suppliers & Support Services Efficiency  Oil, Gas & Petrochemicals apparently struggle to do either. Mining, Metals Processing & Fabrication Oil, Gas & Petrochemicals Electric & Gas Utilities  Utility performance is mixed. Effectiveness 15
  • 16. Policy & Process Methods Used to Determine Safety Stock Levels  The Mining, MP&F and Suppliers have moved the fastest in adopting advanced statistical models.  The percentage of Utilities adopting advanced statistical models has grown from 15% in 2009 to 23% in 2013. (N=143) 16
  • 17. Manage Your Business Performance  Analytics gives you visibility into the inbound supply chain to make validated and tested optimization decisions that increase asset uptime, reliability, throughput and performance.  Importantly, these saving are not just “red-pen” reductions, but highly targeted to get the optimal levels of investment in the right areas, minimizing the opportunity cost of production losses. 17
  • 18. Manage Your Business Procurement Analyze plant failures / costs Maintenance Reduce stock out Increase uptime Improve PM effectiveness Inventory Reduce materials inventory Optimize inventory service level Reduce stock out Reduce inventory waste Reduce materials inventory Decrease risk Decrease labor costs Increase Production & Revenue Decrease Operating Costs Decrease material costs Decrease Working Capital Improve supplier performance Initiative Reduce the cost of procurement Impact Operational Benefit 18 Financial Benefit Increase ROI
  • 19. Manage Your Business Performance Technology Enablers for Asset-Intensive Organizations 19
  • 20. Manage Your Inventory Service level:  Cost  Not all items are critical; need a meaningful profile of criticality, and then invest in most critical items  Criticality is a key to “sweating your assets”. Service level drift:  Usage change  Supplier performance  Risk profile 20
  • 21. Manage Your Inventory  Inventory Performance Visibility – Track overall inventory performance to balance inventory investment with risk – Inventory segmentation gives a foundation ranking mechanism for a structured inventory management methodology  Optimize Consumable and Critical Spares Levels – Advanced optimization algorithms with „work queue‟ driven alerts – Increase service levels, reduce costs and „management by exception‟  Obsolete and Surplus Stock Disposal – Identifies items no longer required by the business for re-sale or disposal to reduce inventory items and reduce costs  Material Master Data Standardization – Standardized & accurate codification, eliminates duplicates and expedites searches 21
  • 22. Manage your Supply Multi-criteria supplier performance ranking 22
  • 23. Questions We Will Address This Morning 1. Considering the current market conditions, what are the critical areas addressed by this global benchmarking study? 2. What is driving the renewed focus on Inventory Optimization and its role in optimizing the Maintenance, Repair Operations (MRO) Supply Chain 3. How important is inventory optimization and is management really focused on it? 4. What are the key value drivers in the MRO supply chain that benefit from optimization ? 23
  • 24. Manage your Business Performance 24
  • 25. Manage your Business Performance Optimising equipment performance to maximize productivity and revenue Capability Benefits Analyses asset performance Identifies asset improvement opportunities Compare metrics across the enterprise Improved equipment up-time Reduced production, environmental and safety risk Reduced waste Analyse total cost of ownership over the lifecycle Assist with asset replacement decisions Improved cost control and forecasting Balanced capital and maintenance expenditures Rapidly identifies and analyses failure trends. Less break-downs Reduced repair costs Rigorous, multi-facetted criticality assessment Identify and manage risk Prioritise resource allocation 25
  • 26. Manage your Business Performance Standardize, analyze and optimize maintenance activities Capability Benefits Track maintenance performance metrics Maintenance activity costing analysis Assess maintenance improvement initiatives Identify sub-optimal resource allocation Ensure consistent and complete maintenance activities Standardise and refine tasks and frequencies Identify ineffective maintenance activities Optimised allocation of maintenance resources across equipment types Improved PM effectiveness and reduced costs Provides comprehensive budget analysis Creates an optimised maintenance budget Improved maintenance programs and resource allocation Maximised asset availability Develop accurate and complete BOMs Enhanced materials planning and availability Reduced obsolescence 26
  • 27. Manage your Business Performance Capability Benefits Track overall inventory performance Inventory segmentation Balance inventory investment with risk Structured inventory methodology Advanced optimisation algorithms Alerting work queues Increased service levels, reduced costs Management by exception Identifies items no longer required by the business for re-sale or disposal Reduced inventory items Reduced costs Implements agreed encoding standards across the entire catalog Standardised and accurate descriptions Duplicates eliminated Faster catalog searching 27 Determining MRO stock levels should be a science, not an art
  • 28. Manage your Business Performance Create value through aligning your supplier relationships Capability Benefits Segment suppliers according to their importance to the business Align supplier relationships with the business Improved utilisation of staff resources targeting identified risk and value-add Multi-criteria supplier score-cards Automatic performance tracking and alerts Improved supplier delivery performance Reduced stock outs and inventory Identify and improve poor performance Supplier accreditation Supplier intelligence and relationship management Reduced supply risk Improved communications and relationships Develop vendor and service data specification/taxonomy Provides Supply Chain professionals with complete vendor data taxonomy Improved supply management efficiency 28
  • 29. What Successes Have Companies Achieved? 29
  • 30. Case Study: Utilities Profile: ActewAGL is Australia's first multi-utility to offer electricity, natural gas, water and wastewater services; Oracle environment. Project: After successful implementation and use of Oniqua Analytics Inventory and Procurement over many years, ActewAGL Client Success Story – Oniqua Analyticstheir legacy system to Oniqua Analytics Solution in upgraded Solution 2008. Outcome: “With Oniqua, we reduced our spares inventory by 50%, increased our DIFOT [delivery in-full on-time] by 25% for our strategic inventory suppliers, and decreased late deliveries by 23% for strategic inventory.” Murray Elton Supply Chain Improvement Manager, ActewAGL Photographs courtesy of client web site 30
  • 31. Case Study: Oil & Gas  3rd largest energy company in the world; 4th largest company in the world; 1 of 6 oil and gas "super majors”  Active in all areas of oil and gas: exploration, production, refining, distribution, petrochemicals, power generation, renewables  Oil exploration, extraction and refining facility located North Slope, Alaska  Inventory value of US$159 million, comprising 89,000 SKUs at commencement  Inventory levels for 3,300 SKUs increased to mitigate stock-out risk  US$12.3 million savings identified after reviewing 46% of inventory  Break even achieved within 6 months of installation and project commencement 31
  • 32. Case Study: Global Oil & Gas  3rd largest integrated energy company in the US; 5th largest refiner in the world  Reduced MRO working capital by10% within 6 months for Alaskan site  Lowered inventory levels by at least 10% in each of the last 3 years  ROI exceeds 400%  Based on the results of Alaska site and desire to centralize on common platform,  Global implementation of Oniqua follows successful implementations in Alaska, Indonesia and UK/Norway, which delivered 10‟s of $$ millions in savings. “The ROI from investment in MRO Analytics , based on the operational results to date, is expected to exceed 400%.” “Making Working Capital Work – A Case Study”, AMR Research, March 2009 32
  • 33. Contacts www.oniqua.com Andrew Williams VP Business Development Asia Pacific andrew.williams@oniqua.com P: +61 7 3369 5506 M: +61 427 585 080 33