Making SAP Work for Your

Supply Chain
Tuesday 11 September 2012
Message from Chairperson
Optimising Inventory Management
Optimising Offshore Returns Management
Oil and Gas Special Interest Group Announcement
Future Sessions
Introduction
Agenda
Time Item
9.30 9.45 Introduction- Kim Shand, Customer Relationship Manager, Absoft
9.45 10.00
Message from Chairperson Kyrre Andresen, VP Vendor Relations,
Contracts & Procurement, Dolphin Drilling
10.00 10.40
Inventory Optimisation Bjorn Harzer, SAP Oil & Gas Solution Architect,
Absoft
10.40 10.50 Coffee Break
10.50 11.30 Optimising Offshore Returns Management Tim Galloway, Absoft
11.30 11.45
SAP Oil and Gas Special Interest Group Announcement Sunniva Bjerke,
SBN Norge
11.45 11.50 Event Close
11.50 12.30 Lunch at Petroleum Museum Restaurant
About Absoft
Specialist oil and gas
consultancy
Focus on SAP
21 years in business
Global Project experience
Working in Norway for over a
decade
Norway office
End-to-end SAP consultancy
Absoft has deployed SAP into 39 countries
worldwide
EUROPE
MIDDLE EAST
AMERICAS
AFRICA
ASIA
End- to End SAP Consultancy services



SAP Consultancy
SAP Implementation
SAP Process
Improvement
SAP Support


SAP Training
SAP Data Migration
SAP Infrastructure
Reporting, Analytics &
Business Planning
Solutions


Message from Chairperson
Optimising Inventory Management
Optimising Offshore Returns Management
Oil and Gas Special Interest Group Announcement
Future Sessions
Introduction
Message from Chairperson
Kyrre Andresen, VP Vendor Relations, Contracts &
Procurement Dolphin Drilling

16 years working in supply chain
10 years with Royal Norwegian Armed Forces
6 years in Oil & Gas
Dolphin Drilling SAP gradually since 2003
Use in Supply Chain, Finance, Projects, Plant
Maintenance and HR




Aims
Informal network for Oil and Gas organisations using SAP
Share best practice use of SAP in the Supply Chain arena
Foster discussion around potential solutions for common
pain points



Our Speakers
Two topics for today

Optimising Inventory Management with SAP Bjorn
Harzer, Oil & Gas Solution Architect

Optimising Offshore Returns Management Tim
Galloway, Oil & Gas Sector Specialist


Message from Chairperson
Optimising Inventory Management
Optimising Offshore Returns Management
Oil and Gas Special Interest Group Announcement
Future Sessions
Introduction
Turning warehousing
into an effective
service
Recognise trends
Adjust stock policies
Deliver in time
Mission
Warehousing
Maintenance
Exploration
Projects
Procurement
Finance
Logistics
The elements of inventory controlling
Business Challenges Inventory Controlling
Data transformation (Excel wiz)
Adjust procedures
Prioritise & interpret data
M
o
n
i
t
o
r

&

R
e
i
t
e
r
a
t
e
!

Data collection (SAP)
Data extraction (Report?)
S
Data presentation (xls charts)
A
Step 1
B
Step 2
C
Step 3
?
Challenges:
Thousands of items
Loads of MRP
parameters
Complex calculations
No structured data
It is a time-consuming task!
Symptoms:
Increasing stock levels
Shortages on spares
Overages on spares

Data transformation (Data w/h)
Data extraction (Automatic)
Data presentation (BOBJ)
!
(A) Stock controlling Stock visibility
Measure performance of a warehouse
Measuring warehouse performance
Stock optimisation
M
o
n
i
t
o
r

&

R
e
i
t
e
r
a
t
e
!

Stock visibility
Stock classification
How can I gain visibility?
Consumables
Spares
Insurance spares
Min/Max
Performance
Questions in Inventory Controlling
Metrics
(1) Stock levels = How much have I got?
(2) Stock turnover = How quickly does stock move?
(3) Stock coverage = How long does my stock last?
(4) Stock dates = When did my stock move last?
(5) Stock count = How much did I lose?

(1) Stock levels
Definition?
Measured in quantity or value by period
How to read it?
The stock value describes the stock balance sheet note that some stock in the
warehouse is deemed a financial asset and is therefore only captured as a quantity.
Identify trends, influences and impacts on stock balance sheet
How much have I got?
e.g. Stock
reduction effort
(2) Demand
Definition?
Expressed as demand or demand value being the consumption by period.
Average demand/demand value = Consumption / Occurrences by period.
How to read it?
The demand/demand value allows to identify high turnover or high value materials in
the warehouse. It allows classifying into fast and slow movers.
Identify potential dead materials / identify increase in usage / by trending

0
1
2
3
4
5
6
2012.01 2012.02 2012.03 2012.04 2012.05 2012.06
Consumption pattern
Total
Average
How quickly does stock move?
(3) Stock coverage
Definition?
Stock coverage = Stock on hand / Average demand by period
How to read it?
Expresses how long current stock in warehouse will last if no further receipt (from
vendor) happens based on average demand or average demand value
Helps prevent potential stock out situations
Helps stock controller to adjust minimum stock levels for materials
How long does my stock last?
(4) Dates
Definition?
Last Goods movement / Goods issue / Goods receipt
How to read it?
Identify potential dead stock / excess stock
When did my stock move?
Material Last movement
100021 01/09/2007
100023 04/05/2011
100029 06/07/2012
100030 01/09/2009
100031 21/12/2011
Older than 3 years
Potentially dead stock?
Again, why are we interested?
What to do with this?
Measure success and outcome of improvement projects
objectively.
Stock holding
Stock balance sheet reduction > 10%
Stock value usage increase > 100%
Stock movements
Stock turnover (month) increase > 20%
Stock coverage reduction > 20%
(without impact on operations)
(B) Stock segmentation
How can we manage stock levels
effectively?
Understanding my materials in stock
Stock optimization
M
o
n
i
t
o
r

&

R
e
i
t
e
r
a
t
e
!

Stock visibility
Stock segmentation
How can I prioritise?
Consumables
Spares
Insurance spares
Min/Max
Performance
The ABC of stock optimisation
(1) Segmentation of inventory
Assign a ABCD to each material based on demand value.
(2) Criticality analysis
Promote ABCD class for materials based on criticality in
maintenance and by lead time analysis.
(3) Profiling materials
Consumable or spare?
(4) Stock policies / Service levels
Define the risk of a stock out situation.
(5) Suggest stock levels
Applied statistics to help the stock controller.
(6) Review materials
Working it.
S
e
g
m
e
n
t
a
t
i
o
n

O
p
t
i
m
i
s
a
t
i
o
n

(1) ABCD classification
B middle 15% value
A top 80% value
C bottom 5% value
D no usage
B middle 15%
of all materials
A Top 5%
C bottom 80%
of all materials
D no usage
ABC = Demand value of last
12 months, sorted top-down
5% of materials make up
80% of balance sheet
Which material first?
Minimum effort with maximum return
(2) Identify priority in Maintenance
24 hours 14 days 2 months
14 days 2 months 3 months
2 months
6 months
3 months
3 months
6 months
6 months
Stock
policy
Demand
value
Equipment
criticality
Spare
BOMS
Insurance
spares
Lead times
Is it critical spare?
Recognise oil & gas specifics and promote critical
spares, which usually have no/infreqeuent
consumption
Need one version of truth, i.e., PM data in SAP
Spares
Component
Equipment
Mud
pump
Motor
O-ring Shaft
Valve
Impact
criticality
Installed
systems
Long lead
items
(3) Profiling materials consumption pattern
Consumable
Lower
bandwidt
h
Upper
bandwidt
h
Constant turnover
in bandwidth
Average
consumption
Spare
Flat demand
with peaks
Lower
bandwidt
h
Upper
bandwidt
h
Average
consumption
Decide
statistical
method for
suggesting
stock levels
How does
the material
behave?
Segmentation Example
Material Demand value ABC analysis ABC Cumulative ABC classification
10011 200,000.00 88.83% 100.00% A
10012 9,100.00 4.04% 11.17% B
10013 6,920.00 3.07% 7.13% B
10014 3,722.94 1.65% 4.06% C
10015 2,700.00 1.20% 2.40% C
10016 1,180.00 0.52% 1.20% C
10017 600.00 0.27% 0.68% C
10018 550.00 0.24% 0.41% C
10019 400.00 0.18% 0.17% C
10020 300.00 0.13% -0.01% D
10021 2.00 0.00% -0.14% D
10022 0.00 0.00% -0.14% D
10023 0.00 0.00% -0.14% D
10024 0.00 0.00% -0.14% D
10025 0.00 0.00% -0.14% D
10026 0.00 0.00% -0.14% D
10027 0.00 0.00% -0.14% D
10028 0.00 0.00% -0.14% D
10029 0.00 0.00% -0.14% D
10030 0.00 0.00% -0.14% D
10031 0.00 0.00% -0.14% D
10032 0.00 0.00% -0.14% D
10033 -40.00 -0.02% -0.14% D
10034 -279.00 -0.12% -0.12% D
Total 225,155.94 100.00%
Promote by
Long Lead
Promote
critical
spares

Promote
insurance
spares
Demand
value = 0 for
insurance
spares!
(C) Stock optimisation
How to suggest stock levels?
Stock optimising
Stock optimisation
M
o
n
i
t
o
r

&

R
e
i
t
e
r
a
t
e
!

Stock visibility
Stock classification
How do I suggest stock levels
based on facts?
Consumables
Spares
Insurance spares
Min/Max
Performance
Spares
Component
Equipment
Mud
pump
Motor
O-ring Shaft
Valve
(4) Define Stock Policy / Service Level
24 hours 14 days 2 months
14 days 2 months 3 months
2 months
6 months
3 months
3 months
6 months
6 months
Stock
policy
Stock
controlling
Equipment
criticality
Spare
BOMS
Insurance
spares
Lead times
How much should I keep in stock?
Objective response of how much should be kept in
stock based on usage history & criticality.
ABC classification Service Level Months
A 99.90% 12/12
B 91.67% 11/12
C 75.00% 9/12
D 50.00% No stock
Cycle count
2x year
1x year
every 2 years
not applicable
Long lead
items
(5) Stock optimising How does it work?
Warning!
Dark arts
(5.1) Suggest stock levels for consumables
Period Usage Quantity
2011.07 10.0 EA
2011.08 15.0 EA
2011.09 12.0 EA
2011.10 11.0 EA
2011.11 9.0 EA
2011.12 10.0 EA
2012.01 10.0 EA
2012.02 15.0 EA
2012.03 12.0 EA
2012.04 11.0 EA
2012.05 9.0 EA
2012.06 10.0 EA
Total usage = Sum of usage quantity 134.00 EA
Average (AVG) = Sum of usage quantity / number of months 11.17 EA / Month
Standard Deviation (STDEV) = Square root [ Sum { usage - average }^2 } / (number of months - 1) ] 2.04 EA
Desired reorder frequency = Parameter set by Procurement, e.g. once per month 1 Month
Lead time = Average or worst case lead time, set by procurement 20 days
Lead time = Average or worst case lead time, set by procurement 0.67 months
A B C D
Service level (SL) = likelihood expressing how often to avoid a stock out situation 99.90% 91.67% 75.00% 50.00%
Service factor (SF) = norms inverse (Service Level) 3.09 1.38 0.67 0.00
Safety stock level (SSL) = lead time * standard deviation * service factor (in months) 4.2 1.9 0.9 0.0
Reorder point (RP) = lead time * average consumption (in months) 7.4 7.4 7.4
Minimum stock level (MIN) = safety stock level + reorder point 12 9 8 0
Reorder quantity (ROQ) = desired reorder frequency * average consumption (in months) 11.2 11.2 11.2
Maximum stock level (MAX) = minimum stock level + reqorder quantity 23 20 20 0
Averages & Deviation
Procurement input
Usage history
Service levels
(5.2) Suggest stock levels for consumables
Reorder
point
Safety
stock level
Higher
consumption
Longer
lead
ROP = average lead time
* average consumption
SSL = standard deviation
* average lead time
* service factor
ROQ = desired reorder frequency
* average consumption
Desired reorder
frequency
Reorder
quantity
Average
Lead time
MAX =
SSL + ROQ
MIN =
SSL + ROP
Period Usage Quantity
2011.07 0.0 EA
2011.08 0.0 EA
2011.09 0.0 EA
2011.10 0.0 EA
2011.11 0.0 EA
2011.12 0.0 EA
2012.01 5.0 EA
2012.02 1.0 EA
2012.03 0.0 EA
2012.04 0.0 EA
2012.05 0.0 EA
2012.06 0.0 EA
Total usage = Sum of usage quantity 6.00 EA
Average (AVG) = Sum of usage quantity / number of months 0.50 EA / Month
A B C D
Service level (SL) = likelihood expressing how often to avoid a stock out situation 99.90% 91.67% 75.00% 50.00%
Minimum stock level (MIN) = Percentile of Usages of last 12 months for service level 5.0 EA 1.3 EA 0.0 EA 0.0 EA
Maximum stock level (MAX) = Coverage for Total of usages of last 12 months 6.0 EA 6.0 EA 6.0 EA 0.0 EA
(5.1) Suggest stock levels for spares
Averages
Usages
Service levels
(5.2) Suggest stock levels for spares
Spare
Minimum for B =
coverage for 11
months out of year =
Service level = 91.7%
Minimum for A
= coverage for 12
months out of year =
Service level 99.9%
Maximum = coverage
for whole demand in
year
Minimum for C =
coverage for 9 months
out of year = Service
level = 75.0%
MAX
MIN B
MIN A
MIN C
(5) Stock optimizing How does it work?
You
survived!
(5) Review it! Industrialise!
Reviewing:
Review materials on a
frequent basis
Review materials
by demand value
by criticality
by actual/proposed
stock levels
Understand consumption
patterns
Understand integration to
Maintenance and
Procurement
Assign a review date or
review status to the material.
Segmentation (ABCD)
Usage history
Policies / Service levels
Criticality analysis
Propose stock levels
Consumption profiles
Review by traffic light
Demand value
Criticality
Current/Proposed SL
24 hours 14 days 2 months
14 days 2 months 3 months
2 months
6 months
3 months
3 months
6 months
6 months
Consumable
or Spare?
Procurement
Lead time +
Reorder
frequency
Current /
Proposed MRP
parameters
Adjust materials
ABC classification Service Level Months
A 99.90% 12/12
B 91.67% 11/12
C 75.00% 9/12
D 50.00% No stock
Effective and repeatable
stock optimisation
M
o
n
i
t
o
r

&

R
e
i
t
e
r
a
t
e
!

Take away message!
Stock optimisation never stops!
It is an iterative cycle, because projects (upgrade, commission,
decomission) phase in and out equipments / spares
(D) Management reporting
Impact on other business areas?
Enterprise dashboard balance score card
Stock level
Downtime
Keeping balance
between major
indicators across the
business
Overall ops performance
Right material / right price / right
quality / in time / first time
Lead time
Procurement
Operations Inventory
(E) Conclusion
One version of the truth
Summary
(F) Demo
Optimising Inventory Management Questions?
Message from Chairperson
Optimising Inventory Management
Optimising Offshore Returns Management
Oil and Gas Special Interest Group Announcement
Future Sessions
Introduction
Setting the Scene
Measures of an effective supply chain
Quality Efficiency Transparency Cost
Pressures on Supply Chain
Supply
chain
OLF Estimates
6% rise in
operating costs
per annum
Ageing Asset
Infrastructure
Increasingly
complex
projects
Development of
Unconventional
oil and gas
Supplier
Portfolio
Corporate
Control
Life with SAP
Customers
CENTRAL
REPOSITORY
Health &
Safety
HR
Technology
& Logistics
CFO
COO
Project Engineer
Project Manager
Subcontractors
National
Governments
Projects
Attract, develop and retain talent more effectively
while making them more productive
Human Resource Management
Improve visibility to
reduce operational
and financial risk
Gain visibility and
control of financial data
Comply with all financial,
environmental, and
governmental regulations
Corporate Services
Leverage technology to
strengthen relationships
with owners, customers,
subcontractors and
suppliers

Logistics
Improve productivity and safety, and
avoid legal liability -- with less cost
Asset Management
Deploy the right resources, crews, and
assets to the right projects at the right time
Maximize productivity and
profitability of project
resources, including
materials, equipment and
labor
Project Management
???
But the companies here already have SAP . And many
of the challenges remain!

?
Focus on Offshore Returns
Demand Approve Procure Expedite
Receipt
Onshore
Ship
Receipt
Offshore
Return Ship
Receipt
Onshore
Process
Planning Scheduling Execution Confirmation Closure
Process Overview
Maintenance/Project
Supply Chain Mobilisation
Supply Chain De-Mobilisation
Why focus on Offshore Returns?
Return Ship
Receipt
Onshore
Process Closure
Stock Usage
Equipment
Utilisation
Cost Recovery
from
Scrap/Resale
Stock Balance
Sheet
Equipment De-
Mob Time
Returns not
Processed
Symptoms of Inefficient Offshore Returns
Quality
Goods Not
Available
Scrapping
Good
Equipment
Efficiency
Difficulty 3-
Way Matching
High
Administrative
Time
Transparency
Lack of
Visibility on
Rentals
Missing
Identification
on Equipment
Cost
High Hire
Charges
Increasing
Stock
Balance
Sheet
Returns will always exist
Planning Scheduling Execution Confirmation Closure
The Industry is job/project oriented

Focus on getting the job done

Standard Industry Cost constraints
dont apply

Materials &
Equipments
Example: Backload
Offshore
technician
Offshore /
Drilling
materials
controller
Vessel
operator
Backload
onshore
Drilling
vessel
Understanding the Process
Who owns the Process?
Where is the return going?
Why is the Return happening?
What should happen to it next?

Typical Destination for Return
Vendor
Vendor equipment
Repair
Disposal
Rental demob
Warehouse
Storage
Temporary storage
Surplus / Clarification
Typical Surplus/Clarification Scenarios
Reuse
Re-integration to stock with min/max level
Transfer to another project
Reduce
Adjustment of min/max stock level stock optimisation
Return to vendor for credit / consignment
Sale to JV partners or market place
Recycle
Scrap value recovery
Disposal
Optimising Returns
Optimising Offshore Returns (Repairs, Rentals)
Update
Procedures
SAP Process
Training Materials
Knowledge
Management
Responsibilities

Data
Business
Enablement
Support
KPI Monitoring
Continuous
Improvement

Handover
Procedures
Decision Trees
Work Instructions
Workflow
Ownership
Surplus
Destination
Causes of Returns
Analyse Design
Build Run
Typical Delivered Business Objectives
Stock Usage
Equipment
Utilisation
Cost Recovery
from
Scrap/Resale
Stock Balance
Sheet
Equipment
De-Mob Time
Returns not
Processed
10%
90%
5%
5% 20%
Optimising Offshore Returns Management
Announcement
SAP Oil and Gas Special Interest Group - Sunniva
Bjerke, SBN Norge
Thank You