Supply chain management in project

1. January 18, 2018
Mukesh Doshi
B.E. – Production
Foundation Diploma – CIPS, UK
PGDMM – IIMM, Bangalore
1
Supply Chain Management -
Projects

2. Content
2
 Project Terminology
 Challenges and Factors Deciding Success of a Project
 Supply Chain Management: Critical Function
 Functional Role During Project Stages
 Outsourcing of Services (Contracting): Major Project Driver
 Structuring and Management of Service Contract
 Supply Chain Organization Structure
 Use of Technology
 Best Practices
 Case Study

3. Project Terminology
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4. 4
Defining Project
Temporary
Endeavour
Unique End
product/
service
Every project has finite
/specified duration
Prototype of a machine with
new design / concept
Invention of new drug
Re-engineering of Business
Processes
Refinery built on turnkey basis

5. Unique set of coordinated activities that has:
 Finite life span
 Specified amount of resources
 Measurable deliverables
 Organization structure for managing project and to meet
specified objectives
5
Other Definitions

6. Offshore Platform
6
Township
Building
Project
Power Plant

7. Project Network
Example
7

8. 8
May have several start
points, but only one end
Distinct / unique end
product
Involves capital expenditure
Very large number of
activities with complex
inter-relations
Uncertainties, risk and
dynamism inherent to
project sector
Long term impact on future
of organization (sometimes,
a game changer)
Many first time / non –
repetitive activities
Longer time frames,
impact of delays far
reaching
Large outlays, spend now,
and benefits in future
Typical Characteristics

9. Order of magnitude for one large project
Example: Project: Reliance Jamnagar Refinery Phase 2
• Duration: 2005 to 2008
• Cost: USD 6.3 Billion
• Concrete used: 1.9 Million Cubic Meter
• Piping: 4 Million Meter
• Major Equipment: 4400
• Workers: 80,000
• Engineers: 2800
• Engineering and supply documents: 200,000
9

10. Challenges and Factors Deciding
Success of a Project
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11. 11
Quality, Health, Safety and
Environment Issues
Adequacy of Skills withNewly Created Project Team
Confict of Interests
Authority and Time Availablefor Making Decisions
Very Large Outlays, HugeConsequences of Delays
Uncertainties, Surprises,Changes, Lack of Clarity
Inadequate Resources /
Contingencies

12. 12
Inadequate
Resources /
Contingencies
• Efficient Project
Management
• Optimum utilization
of funds
Uncertainties,
Surprises, Changes,
Lack of Clarity
• Strong Document
Management
• Appropriate Project
Processes
• Dynamic Change
Management
• Adequate Clarity of
End Result
Very Large Outlays,
Huge Consequences
of Delays
• Robust Planning
• Efficient Review and
Control
Mechanisms
• Real Time Risks
Management

13. 13
Authority and
Time Available
for Making
Decisions
• Maximum
Delegation of
Authority to
Project Team
• Management
Decision Making
Ability
• Swifter Decision
Making Process
Confict of
Interests
• Commitment
and Support
from the Top
Management
• Team Spirit
Adequacy of
Skills with
Newly Created
Project Team
• Competent and
Experienced
Project Manager
and Functional
Leads
Quality, Health,
Safety and
Environment
Issues
• Commitment to
QHSE Plan at All
Levels

14. Supply Chain Management -
Critical Function
14

15. Perception of Internal Customer
15

16. Perception of Supply Chain
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17. • 50 to 80 % of total project cost
• Includes very high risk areas causing project delays and cost
overruns
• Large and diverse scope many first time and customized buying
activities
• Complex multi-modal logistics across borders
• Very high dependence on multiple suppliers
17

18. Functional Role During Project
Stages
18
Budgeting phase Planning Phase Execution Phase

19. Budgeting phase
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• Early Involvement is Key to Success
• Ownership of Cost and Time Estimates
• Invoke Support from Strategic Suppliers for Packages and Service
Contracts
• Enter in to ‘Back to Back’ Arrangements
• Broad Planning for ‘Critical Material List’
• Identify Major Supply Chain Risks / Mitigation Plan / Costs
• Finalize / Renew Call Off Agreements
• Broad Cash Flow for Supply Chain
• Broad Supply Chain Organization Chart

20. Planning Phase
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• Formulate Project Supply Chain Strategies (component or
package, lease or buy, local or international, approved or new
source, etc.)
• Prepare Approved Suppliers List
• Draw Out Project Specific Supply Chain Procedure
• Prepare Materials Control Chart / Logistics Plan / Cash Flow
• Establish Micro level Plan for Critical Material list
• Detailed Supply Chain Risk Management Plan
• Finalize Project Supply Chain Organization

21. Execution Phase
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• Fast Track Ordering of Critical Materials List
• Finalize Back to Back Orders for Strategic Supplies
• Continuously Look for Cost Savings
• Maximize Savings on Leverage Items (consolidate)
• Invoke Call Off Agreements / Suppliers Managed Inventories for
Non-Critical Materials
• Frequent Review of Materials Tracking List with Project Team
• Track Contract Progress / Manage Variations and Claims
• Corrective Actions ( Cancellation / New Orders / Cost of Crashing)
• Procurement Related Cash Flow Management
• Full and Final Settlement of Major Supply / Service Order
• Invoke Buy Back Arrangements With Suppliers

22. Outsourcing of Services
(Contracting) : Major Project
Driver
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23. 23
Reasons why services are largely
outsourced
Reducing and controlling project costs
For enhancing
capability
Gaining access to
diverse
capabilities /
expertise
Reducing capital
costs
Freeing internal
resources for other
projects
Improving focus on
project
Agility, fexibility,
ease of managing
changes

24. 24
Importance of outsourcing activity
Significant
costs
Complexities due
to
interdependence
Contract
management crucial
to project success
Legal Angle
Challenges in
communication
/interfacing

25. Few examples of services outsourced:
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• Detailed Engineering Services
• Project Management Consultancy Services
• Expediting Services
• Inspection Services
• Erection and Commissioning Services
• Site works (civil, mechanical, electrical, instrumentation etc.)
Contracts
• Logistics Services
• Setting up and Managing Site Accommodations / Facilities

26. Structuring and Management of
Service Contracts
26

27. Contracting Scenarios:
• Project owner undertake works with in-house resources
• Project owner outsources most works to many specialized
contractors
• Project owner awards work to single contractor (turnkey contract)
Types of Contract:
• Cost Plus Fee Contract
• Measurable contracts (Time and Material OR Unit Price contracts)
• Lump sum Contract (Fixed Price Contract)
• Turnkey Contracts (EPC Contract)
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28. Points for Consideration in Framing & Management of Service
Contracts
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• Clarity in scope of work (Battery limits, quantum, client
obligations: extremely critical for lump sum contract)
• Clear specifications for supply and services to be delivered
• Clarity in contractual terms (Standard (like FIDIC) or tailor made
format)
• Mechanism for monitoring and approval of variations
• Factoring local regulations / conditions
• Deployment Plan (histogram) of manpower, construction
equipment , other required resources
• Applicable mode of measurement (example carpet area, or built
up area)
• Responsibility for stores management, material reconciliations
(Free Issue Materials)

29. Points for Consideration in Framing & Management of Service
Contracts
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• Monitoring of progress and corrective actions
• Mechanism to admit extra claims (for extra work /Idle time /
extended stay etc.), if admissible
• Mechanism to record counter claims
• Assigning single point contact and responsible person to address
concerns
• Provision for Dispute Resolution
• Specifying applicable jurisdiction
• Liquidated Damages
• Performance Guarantees
• Applicable Taxes and duties

30. Supply Chain Organization
Structure
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31. Project
Manager
Engineering
Lead
Supply
Chain Lead
Buyer-
Materials
Buyer-
Services
Expediter
Logistics
Coordinator
Material
Controller
Constructio
n Lead
Project
Controls
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Head of Supply
Chain

32. • Matrix structure found to be most suitable
• Supply Chain Lead reports to head of procurement, as well as to
the project manager of assigned project
• Matrix structure combines functional expertise and operational
accountability
• This also empowers project manager who is responsible for
timely completion of project within budget.
• Supply Chain lead must be a great team player with leadership
qualities
• Buyers (Materials / Services), expediters, logistics coordinators,
materials controllers are part of supply chain function.
• Team spirit and versatility important factor in selection of team
member
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33. Use of Technology
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34. Use of Technology
• Use of suitable ERP system must for large projects
• Many project companies use separate software for Design and
Engineering, Planning, Document Control etc.
• Industry specific software integrating above are developed.
• Complete Supply Chain Cycle, starting from publishing RFQ can be
performed on ERP system
• Integration of supplier / contractors to ERP system.
• Electronic work fow for approvals of ordering decisions extremely
helpful
• RFID (Radio Frequency Identification) / Bar Coding being used for
material control
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35. Best Practices
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36. 36
 Early involvement (at bidding /
budgeting stage)
 End to end responsibility
 Involvement of project team in
ordering decisions
 Delegation of authority for swift
decision making
 Development of specialized
buying expertise
 Training and competency
building
 Industry specific ERPs (like
AVEVA/ EPICOR/ Use of
Technology
 Back to back arrangement
for critical supplies /
contracts
 Rigorous supplier /
contractor assessment and
monitoring of supplies
 End to end responsibility of
supply chain function within
project
s
Best Practices
 Early involvement (at
bidding / budgeting stage)
 End to end responsibility
 Involvement of project team
in ordering decisions
 Delegation of authority for
swift decision making

37. Case Study
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38. Oil Storage Terminal
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39. Case Study: Cost savings by optimizing
specification / quantity consolidation
• Overview:
▫ Construction of Oil Storage terminals.
▫ Approximately 18000 M.T. Steel Plates (6 mm to 38 mm
thickness) were required for construction of Oil Storage
Terminals on Turnkey Basis.
▫ Detailed engineering was scheduled to take 16 weeks to finalize
all thickness and quantities progressively.
▫ Tank fabrication work must start within 4 weeks of project start
date.
▫ Steel plates was single major bulk item having saving potential.
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40. • Approach :
▫ During discussion with project team, buyer realized that jacking
method of construction required lower thickness (6 and 8 mm)
plates first. Higher thickness plates may be delivered later.
▫ Engineering manager explained that theoretical thickness is
calculated and then next higher standard thickness is selected.
Also, that 6 and 8 thick plate can be ordered immediately.
▫ Buyer negotiated with steel mills willing to book order based on
total approximate tonnage and tentative thickness. Require final
thickness couple of weeks prior to rolling. Also, mills agree to
roll non standard thickness if individual thickness tonnage is
higher.
▫ Buyer ordered smaller thickness plates(15% of total tonnage)
from local stockist and remaining higher thickness plates from
mill.
40

41. • Result:
▫ Reduction of tonnage due to non standard thickness and
competitive price from mill for larger consolidated quantity
resulted in net 8% savings on major line item in project cost
sheet. Also, deliveries were made as per project requirement.
• Conclusion:
▫ Consolidation of quantities and optimization of specification can
result in bigger savings.
▫ By out of box thinking and by working beyond departmental
boundaries, supply chain function can add value.
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42. THANK YOU