© 2008 Eventure Events. All rights reserved.

Risk Assessment and Managementof MRO Inventory

Shane McLellanProject Leader – Business Performance & Planning

SaskPower

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

• 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.

Relatively Speaking…..

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

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.

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

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

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

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

PPBU $ Provision for Obsolete Inventory

…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

% 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!

% Dead Stock / Active Stock

• A slippery upward slope!

Process Optimization

• So how can we optimize the management (including assessment) of MRO inventory?

The Materials (MM) Process

Specify

Source

Buy

Inventory

Use

The Maintenance (PM) Process

Initiate

Plan

Schedule

Execute

Complete

Integration ofMM and PM Processes

Specify Source Buy Inventory Use

Initiate Plan CompleteExecuteSchedule

Plan : Specify & Source

Decision; Schedule : Buy

Plan, Execute, Complete : Use

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

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)

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)

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)

BOMS

BOMs tie Materials to Plant Maintenance

Document Linking in SAP

Document Linking in SAP

A Picture is Worth a Thousand Words…

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 ….

SaskPower’sMaterial 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.

Slow Moving Material Assessment ProcessA

gent

Age

nt’s

Sup

.P

lant

Con

tact

Pur

chas

eD

ept.

MM

/PM

BP

P

ASSESS ?

REVIEW

MANAGE

APPROVE

Maintain orDispose

Y

Y

DESIGN

N

COMPLETE

REPORT

ASSIGN

N

N

Views – Plant Contact View

• Choose assessments to assign

One click to access the tasks in “Your Responsibility” View

Views – My Responsibility View

Views – Other Views that are Available

• By Plant & Role

• By Plant & Owner

• Supervisor View

• Sortable View

• By Plant & Status

Material Overview

BOM information…

Used on past work orders…

History of material movements….

Link to Functional Location Structure

Recommendation only

Link Assessment to MMR in SAP

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

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

New / Change Material Request Assessment Process

RE

QU

ES

TM

AN

AG

EM

EN

TP

UR

CH

AS

ED

EP

T.

ASSESS ?

REVIEW

Approve

MAINTAIN

Y

CLARIFY

MM

/PM

NOTIFY

NOTIFY

N

Goal for December 2008…

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

SAP Portal – MAD:Assess, Create, Change

• Workflow and authorizations

• Integration of information (transactions)

• Transparency of assessment history

Boundary Dam

ManagerA B

C

D

TurbineCoal

Purchasing

Stores

Legal

There Are Lots of Players…

Finance PPBU

Power Production

BPP0001 0002

0003

0004

0005Eng. Services

Ops. Support

HR

Legal

…and it gets more complicated

Finance

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.

© 2008 Eventure Events. All rights reserved.

Shane McLellanProject Leader – Business Performance & Planning

Power Production; SaskPowersmclellan@saskpower.com