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Say the words Supplier Relationship Management (SRM), or Customer Relationship Management (CRM) to most people and they immediately think of technology (software applications). While I have no intention of offending the companies that market SRM [and CRM] technologies, the successful management of upstream and downstream relationships to create supply chain advantages rests not on technology, but on people! More specifically on two things:
- The design and implementation of those processes that require close, on-going relationships between buyers and suppliers; and
- The people who execute them.
Technology is an enabler, not the solution as evidenced by the fact that leading enterprises began implementing SRM practices such as supplier performance scorecards, strategic sourcing, and information exchange long before ERP systems, eProcurement systems, and other software applications became the rage.
For example, the Toyota Production System (TPS), which organizes manufacturing and logistics for the automobile manufacturer, including interaction with suppliers and customers was developed between 1948 and 1975. Even in today’s technology enabled world, there are still companies that successfully integrate, collaborate, and build strong relationships with suppliers to the benefit of both parties and the end customer without the assistance of technology other than phones, emails, and spreadsheets.
Are their interactions as efficient as they might be with technology? Probably not, but they get the job done and generate financial results. I know this to be true as some of these organizations have been my clients.
According to the APICS Dictionary, 14th edition, SRM is:
A comprehensive approach to managing an enterprise’s interactions with the organizations that supply the goods and services the enterprise uses. The goal of SRM is to streamline and make more effective the processes between an enterprise and its suppliers.
APICS materials also highlight that a focus on continuous improvement by both the enterprise and its suppliers is at the core of SRM, which along with the pursuit of collaborative joint objectives and sharing of innovative ideas can result in the achievement of common goals profitably.
If SRM is synonymous with technology, why the reference to streamlining processes and continuous improvement – concepts long associated with process improvement and the elimination of waste/redundancy from processes and the breaking down of communication barriers and functional silos? Just think about James Champy and Michael Hammer’s book Reengineering the Corporation: A Manifesto for Business Revolution which focused on process design and was first published in 1993, when ERP and other integrated systems were in their infancy stage of development and when SRM solutions weren’t even a thought. While technology can speed the rate at which communications take place, the guidelines around what is communicated, when it is communicated, to whom it is communicated, and how it is used are established as a result of process and the people executing the process.
In addition to robust, dynamic processes, SRM requires organizations to have employees with a combination of strategic, tactical, negotiation, communication, and leadership skill sets as well as a broader understanding of the end-to-end supply chain, strategies, cost drivers, and levers that can be pulled to affect cost, quality, and speed. Further, SRM has resulted in organizational redesign and redefinition of jobs and performance objectives highlighting the importance of people in SRM.
Don’t get me wrong, technology can and does play a valuable role in SRM, but SRM is neither dependent on technology nor is it equivalent to technology. Instead SRM is the combination of processes and people both of which can in turn be supported by technological capabilities.
The movement of broken rock or “muck” is critical in an underground mining operation. A large portion of mine design is based around getting the muck from the blast area to the surface. This intricate design involves many different methods including LHD (Load Haul Dump) machines, haul trucks, shaft skips, railcars, conveyors, and gravity fed muck passes. In many cases, all of the mentioned methods may be used in conjunction to form the muck system of an underground mine.
The objective of this muck system is to bring an inherently heavy substance (solid rock/ore), upwards in most cases, with as little effort as possible. Regardless of the methods your underground mine is utilizing to bring the muck to the surface, there are typically a limited number of routes to the surface because of the capital expenditure involved in creating exit points. As a result of this, there is a large impact to operations if one of these routes becomes blocked. A blockage may occur for several reasons: critical equipment failure, path blockage by other equipment, or pure congestion in the area. When this situation occurs, depending on where it occurs in the muck system, the muck will eventually back up to the source or where the mining activity is happening. A critical delay known as being “muck bound” occurs when blasting activities must cease to take place because there is nowhere to put the muck. The miners may be allocated to another location; however, that specific location will remain idle until the blockage is corrected. If this situation occurs in a high-grade area of the mine, it can be very costly to operations. With most other methods of moving muck relying only on proper maintenance and operation, the mobile LHD and haul truck operations provide a variable link between the active mining area and the muck system (below).
This link in the process can provide a source of opportunity or, if not managed properly, a major source of delay. It is a given that each active mining area will eventually require the assistance of this mobile team to come and take some of their broken rock away and thus, leaving them room to break more. As the breaking (blasting) of rock is arguably the most value added activity in a mine, it is in operations’ best interest to service the mining crew to the highest quality. This is accomplished by providing the miners with as much material as required, when needed, and removing all roadblocks so that the mining cycle can function at an optimal level. Given this great demand on the muck system to keep up with mining activities without allowing a backup of rock anywhere in the process, how does a mine with limited resources deploy these in the most effective manner day in and day out? The challenge of deploying a fixed level of resources effectively with the precision and flexibility to respond quickly to changes in the landscape is amplified greatly in larger mines. Due to the fact that larger operations typically share numerous resources across a vast number of working areas, changing a plan mid-shift can have a significant impact on other areas of the operation. Developing a distance chart could be one of the most valuable tools for your supervisors to use in conjunction with their own level of experience. Here is an example of a distance chart:
For each active mucking area, it outlines the optimal number of trucks that should be deployed to meet the demand of the mining crew. An important element to understand is the concept of optimal in this equation. The first requirement is that we meet the demand of the mining crew. The second requirement is that we meet this demand at the lowest possible cost because these resources could be required elsewhere. Your formula must take into account the following information: Forecasted Demand – How much rock is the mining crew planning to break? Congestion Factor in the Area – How much traffic, aside from mucking activity, is typically present at the location? Distance – What is the one-way distance from the loading location or mining area to the drop point feeding the muck system? Average Truck Cycle Time – Once a truck is loaded, how long will it take to drive to its dump point, dump the rock, and return? Average Truck Load Time – How long does it take for your LHD loader to fill one haul truck? Current Inventory – How much rock has the mining crew broken since last being “mucked” out? With all of these variables known, a distance chart can be created. When planning daily assignments, a distance chart can be very useful to determine the optimal ratio of trucks to LHD machines. This will allow for any excess resources to be allocated to other crews that are short, other areas of the mine, or other job functions. The use of this tool will not tell your crews where to go, but how many resources will be needed once there.
Obtaining the actual Inventory level can be one of the more challenging pieces of information to obtain. This information must be as real-time as possible and accurate. The actual inventory levels along with site priorities will be the guiding force on what locations will require “mucking” assistance. Distance charting, if used properly, can allow the muck system in a mine to rapidly allocate the right amount of resources to the areas that will yield the most benefit. In an industry where the misallocation of such expensive resources can be so costly, the opportunities to gain are equally as considerable. Distance charting is one of the many useful tools that will encourage opportunity seeking decision-making within your company from the front line supervisor level.
Having excellent On-Stream Time is the bread and butter of any processing plant or other facility that produces chemicals, power, pulp, etc. Effective maintenance practices minimize downtime by focusing and coordinating preventive and corrective maintenance activities. There is however another entire category of downtime; that is the downtime driven by Turnarounds. Paul Harker, Senior Operations Manager with USCCG, explains the best approach to Turnarounds below.
The objective of a Turnaround (TA) is to complete all essential maintenance work required to ensure that the area runs reliably for an entire production campaign. This must be done while keeping the TA duration as short as possible to minimize the loss of production.
Turnarounds exist for two reasons:
- There are some maintenance activities that can only take place completely and safely when the plant is down.
- A correctly scoped Turnaround, executed in the minimum time required, prevents unplanned down events that ultimately cause greater total downtime.
Without a comprehensive approach to turnarounds, an organization exposes itself to a number of issues:
- There may be no annual Turnaround Plan:
- The timing to conduct a TA is determined by an individual
- There are no future Turnarounds scheduled
- The work scope of any given TA may be focused on the problem asset(s), but is easily and artificially inflated by, ‘What can we get done while it is down?’ Rather than by, ‘What must be done to ensure reliability?’
- The ability to report & manage TA costs and duration is cumbersome and incomplete. In some situations, the final cost is only known weeks or months later when all the invoices are in.
- Costs and duration over-runs are frequent.
- There is often an intense scrambling to get everything done in the last few hours or days, whereas in a well-managed outage the final stages are typically calmer. This is because most of the work is already completed, with only a few critical activities left.
Due to the complex mix of parts, equipment, and contractors involved there is a great deal of scrambling required to execute the event. Some common stumbling blocks include:
- The TA planning process is not launched and stabilized early enough to be effective.
- The essential work scope is not formally defined and agreed, resulting in some important work being left out, in favor of less significant work that is clearly defined and ready to go.
- The critical path is determined and managed subjectively.
- An individual must manually coordinate the timeline of internal and outside resources.
- There is frequent interference or disconnects between crafts, and in some situations the crafts even have their own plans developed in isolation.
- Significant time is lost waiting for shared equipment to become available.
- The benefit of Key Activities being completed early is invariably lost due to the inability to reschedule with simplicity. As a result, all delays to critical activities translate directly to outage duration increases.
- Float is not readily visible in the schedule resulting in a less effective focus of attention and resources.
- Informal documents are used to pre-identify and track the status of the parts that need to be purchased for a TA.
To avoid these issues and to actively manage the balance between speed and effectiveness, a comprehensive system must define a closed loop. The loop needs to contain tools & techniques that fit into the following categories: Strategic Planning, Detailed Planning, Follow-Up, Execution, and Progress Monitoring.
The illustration below depicts the Stages for managing Turnarounds. Each of the categories has been given a color code to make it easier to visualize which elements of the system fit into each category.
(Click image to enlarge)
1. Strategic Planning
The strategic elements of planning for Turnarounds exist to ensure that its activities will drive results. The results need to be consistent with the organization’s production and financial objectives. It is surprising how quickly complex activities like Turnarounds can develop a life of their own and stray from what the organization intended.
The Strategic Planning elements include:
- Annual Campaign Plan
- Define the Turnaround Objective and Essential Work Scope
- Work Breakdown Structure (WBS)
- Overall Turnaround Network
- Detailed Turnaround Budget Estimates & Budget Approval
2. Detailed Planning
This is where the bulk of the planning activities take place. In order to make effective use of the tools and techniques to implemented, there must be resources put in place that have the authority to draw together the needed information and to call the appropriate planning and updating sessions. If these resources and the processes they are pursuing are not given the full support of the management team, you will find that the Turnaround will miss one or more of its reliability, schedule, or cost objectives.
The Detailed Planning elements include:
- Detailed Activities List
- Detailed Network Plan
- Resource/Staffing Level
- Turnaround Schedule (Timing)
- Job Scope Specifications
- Parts/Materials Planning
Execution is where the rubber hits the road in any operating system. For Turnarounds, that includes: ramping down the operation, getting the maintenance work completed, and ramping back up. It also involves follow through on all of the detailed plans by getting work orders written, contractors aligned, work packets put together, materials acquired & staged, etc.
Managing the elements within the Execution category include:
- Produce Control Sheets
- Work Order Entry
- Contractor Engagement Process
- Work Packets
- Work Permits
- Parts/Material Tracking
- Part Kitting & Staging
- Execute Work (Operations, Maintenance, Engineering/HSE&S)
Close Follow-Up is the key to the successful completion of the TA activities. It is also a basic management skill that cannot be over-emphasized. Follow-Up is the periodic review of the status of a work assignment to determine if we remain on-schedule or if some execution problem has arisen. It is essential to give good assignments with specific expectations for follow-up to be effective. This is as equally true for contractors as it is for our own people.
The Follow-Up elements include:
- Update Network & Schedule
- Complete Time Sheets
- Close Work Orders
5. Progress Monitoring
Progress Monitoring is the last of the system categories. It differs from Follow-Up in that we are monitoring the progress to improve our turnarounds, as opposed to executing the current TA. The elements here are designed to capture how successful we were against our cost, schedule, and reliability objectives. Are we getting better at these over time?
The Progress Monitoring elements include:
- Report Against Budget
- Post-Mortem & Archive
The tools and processes outlined above are designed to actively manage the balance between the speed and the effectiveness of Turnarounds.
Recently, I reached out to one of our most charismatic team members, Charlie Payne, and got him to tell me a little bit about his approach to new projects and, more specifically, his work in the food and beverage industry. Charlie is a Senior Operations Manager at USCCG, and has played an integral role in the development of our strategies and training programs since he came on board in 1990. He has years of experience in various industries including Food & Beverage, Mining, Oil & Gas, Life Sciences, and Manufacturing. Charlie’s innovative solutions and ability to build strong client relationships are the foundation for his long record of successfully completed projects. Here’s what he had to say:
When I start a new project, I certainly like to get face to face as soon as possible so we can get a sense of each other, understand the issues, and decide if we might be a fit. Usually, a half-day on site is enough to see if we want to do a more detailed two-week analysis where we’ll come in with a team and put together a business case and answer three questions:
- Is USCCG the right group to help drive results with this client – do we hit their team right?
- Are the issues we see addressable by USCCG in a timeline that makes sense? Is their management team open to change?
- Is there a viable business case? Usually we strive for a 2 to 4 return on the project costs, depending on the scope of the project. Generally, a bigger scope means a bigger return.
If the business case makes sense, then I like to go in to project mode quickly – the consistency of the team we use is important to us and a lot easier than having an extended decision process that means I need to acquaint a new team to the client.
As a Senior Operations Manager, I am responsible for delivering the results of the project and managing the partnership we have with our client. Working with the bench strength we have in our consultants – full time USCCG employees, many of whom I have worked with for years – can often make the projects successful and fun. To have fun with the client and my team is a key success factor for me.
I have worked with all types of clients, and I enjoy working in the food & beverage industry because it’s unlike other business sectors due to of the variability. In food processing, the input can often be so variable – size, quality, quantity – it can often make us wonder why we try to manage the process at all, when we are out of control right from the start! If you can’t affect the input, then in my opinion, it makes it even more important to control what you can – usually the process within the plant walls.
We’re certainly not making widgets and it’s not as precise as manufacturing. When dealing with nature we can be affected by harvest size, variations in bird or hog size, droughts, so you never know what you’re going to get. Combine that with a work force made up of a multitude of cultures, languages, and literacy skills and you have challenges getting consistency into the process. After 24 years and many businesses, the hardest position I have ever seen is to be a supervisor in further processing in a cold plant.
My work in the food & beverage industry has certainly been across the spectrum from large privately held to co-op, slaughter facilities to further processing. Lately, I’ve seen an increase in organic clients, as well as those expanding heavily overseas and wanting to right size their facilities.
The fierce competition and amalgamation from emerging markets are part of why our food and beverage clients look to us for opportunities to improve their processes to stay ahead of their competitors.
When we engage clients in this industry, we work across a number of fronts – from production plants with a focus on yield, throughput, and productivity – OEE type metrics, installing a Management Operating System (MOS) in the plant to bring consistency between shifts, lines, and plants.
Bringing in our LINCS Business Intelligence solution to allow for the key metrics to be known in a timely manner helps us focus management on the items they need to address in getting the performance they need. More recently, we’ve worked on reducing cost with a focus on the purchasing department and the spend on packaging materials, bringing great benefits to our food & beverage clients.
I believe good management practices are applicable across all industries and our solutions for our food & beverage clients can and have proven to be successful for various other clients.
A colleague was relating a conversation he had with a CFO of a $1 billion business, he was talking about how the company reduced waste in manufacturing by 12%, the CFO then added, “… but what we really need next is a way to reduce the cost of the materials and services we buy”.
He was talking my language! He was talking about Supplier Relationship Management, or SRM.
SRM applies to both direct purchases i.e., materials used in manufacturing products and providing services (e.g., parts) and indirect costs such as uniforms, insurance, catalogs, or waste hauling. Even Freight is a great opportunity to reduce indirect costs in your supply chain! Often these costs have not been managed holistically, and offer a significant opportunity to save. SRM can be a complicated process but I’ve tried to break it into the following five-steps:
- Create Visibility. You need an enterprise-wide view of all spending separated into categories. This lets you see where the money is being spent and prioritize them to address in the Supplier Relationship Management process.
- Understand your Supply Chain and the Supply Market. You need to know and understand your available supplier options in order to reduce cost.
- Engage Your Organization. It’s a team effort to determine what supply chain spend reduction strategy would be most effective with each category. Create cross-functional teams that include operations, procurement, quality, engineering, and finance in the development of the category strategy.
- Provide the Resources. Dedicate the necessary manpower to implement the SRM process. This is key; the process falls apart if you cannot dedicate the resources to making the strategies happen.
- Monitor and Measure. Develop the dashboards and metrics to allow you to measure the results and monitor them over the long-term to ensure continuous savings.
A common misconception about Supplier Relationship Management is that it is simply about finding alternate suppliers with a lower cost. While this could be one of your strategies, it goes beyond that. Consider not only cost, but improvements in delivery, quality, service, etc. You may be pleasantly surprised to find a new supplier that provides all those and more at a lower cost.
Also, be sure to look at your product offering. Have you engineered unnecessary complexity into it? Are there a proliferation of SKUs resulting in more POs and excessive inventory? Re-examine your requirements and you may find easy savings.
Keep in mind that a good SRM program can typically deliver cost reductions from 8% – 30% or more, often in a very short period of time!
“Trade Value for Value– If you are not putting in more than you’re taking out, you are either a thief or a mooch. I don’t want to be either.” –Paul Harker
Paul Harker is a Senior Operations Manager at USCCG and has been with the firm since 1988. He has been among the leaders within USCCG in developing our Inventory Management and Sales & Operations Planning processes. Paul has conducted approximately 160 implementations in projects for over 75 clients located in the US, Canada, Mexico, Denmark, Italy, Germany, Taiwan, and China. Despite his busy schedule, he was kind enough to let me ask a few questions about his recent work with clients in the chemical industry, and I’m excited to share Paul’s insights with all of you.
Chemicals is a broad industry, what types of clients do you work with most often?
In terms of process types, our work has been with Continuous and Batch Processing facilities. The Continuous Processing facilities conduct production campaigns, often lasting many months on a single product. The Batch Processing facilities manufacture discrete batches of various products in self-contained loops of vessels.
The product types range from pharmaceuticals, surfactants, and amines to petrochemicals. Their uses range from industrial applications to additives enhancing our medicines, our food, and even our beer.
How is this industry different from other business sectors?
Chemical manufacturing is extremely capital intensive and frequently requires high research and development costs. This industry is stringently regulated on product specifications, sanitation, environmental impact, and employee and public safety. The high cost of entry makes the competitive landscape relatively stable and the operating margins can be quite attractive.
What kinds of issues are your current clients facing?
Because of the capital invested and the margin opportunities, it is critically important that the On-Stream Time of their plants remains very high. Obviously, if they are not producing, they are not making any money. The percentage of On-Stream Time typically needs to be in the mid to high 90% range.
In addition to being On-Stream, the processes within the facilities need to be operating at or near their Rated Capacity. It does our clients little good if they have 98% On-Stream Time, but are only running at 10% of their Rated Capacity. Both indices need to be impacted in order to elevate the output of the plant.
For some clients, the largest erosion of On-Stream Time takes place during their planned Turnarounds (sometimes referred to as Shutdowns). These are periods when the plant is taken down in order to complete maintenance tasks or process improvements that cannot take place while the facility is running. These Turnarounds may occur annually and require two or more weeks to complete. Keeping these as effective and as short as possible are of huge value.
Other clients may have their Turnarounds well managed, but have smaller bites taken out of their On-Stream Time by thinly managed Down Days. A Down Day is a generic term for when a plant goes down due to an unplanned event, or for a planned maintenance or construction task. The duration may be a few hours or a day or two, but are still referred to as Down Days. Although smaller bites, these also need to be well managed in order to get the maximum value in the shortest amount of time
These facilities are tremendously complex and, even with state of the art Distributed Control Systems (DCS), there are typically thousands of steps required to start-up, run, and ramp-down the plant. Well defined and linked procedures are necessary to safely and effectively operate. This is particularly important as the industry expands and the experienced work force approaches retirement.
Virtually all of these clients face an ever-increasing number of regulations and regulatory bodies. The amount of data required concerning the process, equipment configuration and condition, and maintenance task definition and recording has been growing exponentially. This places more requirements on all levels of the organization as well as on the Information Technology infrastructure and support.
What kinds of solutions and benefits can you bring to your clients?
We can have an impact on On-Stream Time by managing Turnaround (TA) events and Down Days (DD) differently. To knock a few days off of an annual TA we have developed a Turnaround Management Operating System that is a comprehensive, closed-loop system that contains the tools, procedures, and practices to manage the balance between the speed and the effectiveness of TAs. We can get more out of DDs by enhancing the use of the Computerized Maintenance Management Operating System (CMMS), overlaying additional planning steps, and restructuring the responsibilities within the planning and materials groups.
We can also have an impact on the Rated Capacity through shifting the maintenance organizations from a Response Centric approach to a Reliability Centric approach. A plant that runs reliably spends more time at or near the rated capacity. This often means building a Reliability Function with dedicated planners and crafts persons. Within that function, we place inspections, lubrication routes, and Preventive Maintenance tasks as well as Down Day and Turnaround events. Additionally, this often requires conducting Failure Mode and Effect Analysis (FMEA) in order to define the correct work plan and frequency for each piece of equipment. Through the years, we have developed a number of templates that dramatically speed up this otherwise daunting task.
Are there any other industries that could benefit from some of the solutions implemented at your clients’ sites?
Any continuous flow manufacturing facility could benefit from these approach elements. Food processing, pharmaceuticals, pulp and paper, petrochemical production and transmission, waste water treatment, and power plants all come to mind.