A Proposed Case Study by

Rohan Rath

PRELIMINARY STATISTICS AND ENGINEERING-ECONOMY ANALYSIS FOR

WELSPUN PIPES INCORPORATED

I. Various problems in the current operations at Welspun Pipes

1. Evolving Energy-Economy + Competition

2. Keystone XL lag & future implications

3. HSAW & ERW Modus Operandi

II. Data & how to manhandle it

III. Reliability

IV. Experimentation with distributions

V. Optimization

RUNNING AHEAD FOR A MINUTE

A conference held by the EIA on June 17th boasted “more than 900 thought leaders from industry, government, and academia”

with “a record level of attendees in the conference's 6-year history.” An excerpt from the website lists the top discussions

from the conference:

Global Natural Gas Outlook

Renewable, Storage, and Grid Integration

World Hydrocarbon Resources

Alternatives to Oil in Transportation

U.S. Natural Gas Production Growth and its Implications

Coal and Nuclear: World and Domestic Outlook

U.S. Oil Production Growth and its Implications

CLEAR SIGNS OF MOVEMENT

Buffet snags BNSF

HEAVY FUELS ECONOMY & BOOMING COMPETITION

KEYSTONE XL

Helical welds with Complex Cross-Sectional Geometry – good or bad?

PROPRIETARY TECHNOLOGY BACKFIRE

Difficult to parameterize with volume/areaDifficult to assign metric-weight to Pipe! Why?

HSAW Production Process

Source: Welspun Pipes Incorporated: HSAW Production

COST AND EFFICIENCY MODEL

Large Diamter Pipe Business

VARIABLES

Steel Grade X-70 X-80

Pipe Diameter 24" 30" 36" 42" 48" 54" 60"

Wall Thickness The following wall thicknesses could be associated with any of the diameters mentioned above

MM 8.00 10.90 11.91 13.08 14.40 15.70 16.61 19.00 22.20Inches 0.315 0.429 0.469 0.515 0.567 0.618 0.654 0.748 0.874

Typical pipe length 76 Feet However take 24 Meters for the sake of modelling

Typical Costs

X-70 grade $850.00 per metric ton X-70 steel means steel which will have a minimum strength of not less than 70,000 PSIX-80 grade $900.00 per metric ton X-80 steel means steel which will have a minimum strength of not less than 80,000 PSI

Conversions

Inches to mm 0.03937 mm = inches0.03937

Weight of a pipe given its OD (Outer Diameter), wall thickness (WT) and length in meters

(OD - WT) X WT X 0.0246615 X Length = Kgs.

(OD, WT in mm and length expressed in meters)(Divide by 1000 to get weight in Metric tons )

OFF SET GEOMETRY CONSTRAINTS CAN BE FORMULATED FROM HERE

ERW PRODUCTION PROCESS

Though Helical geometry is not the issue here, the variety of pipe sizes is.

Welspun has premium HFI welding for the ERW plant (6” – 20”) which means it can seamlessly weld fractional values

of pipe.

Though from 16” to 20” ERW competes with HSAW, the number of intermediate sized is vastly greater in that

range.

Welspun can only take advantage of this if many customers seek out custom specifications.

FURTHER COMPLICATION WITH ERW

DATA? TOO MUCH AVAILABLE

Business Plan (Year 2013-14) - Little Rock. 1,000,000 BUSINESS PLAN FOR YEAR 2013-14 - Version 4.0

SPIRAL EXT COATING DJ HFW   HFW Coating TOTAL  

PARTICULARS Quarter - 1 Quarter-2 Quarter -3 Quarter -4 Spiral % Quarter - 1 Quarter-2Quarter -

3 Quarter -4EXT-

Coating % Quarter - 1 Quarter-2 Quarter -3 Quarter -4 DJ % Quarter - 1 Quarter-2 Quarter -3 Quarter -4 HFW % Quarter - 1 Quarter-2 Quarter -3 Quarter -4HFW

Coating % Quarter - 1 Quarter-2 Quarter -3 Quarter -4Total BP 2013-14 %

OD                                                             

   

THK                                                                

DAYS ==> 91 92 92 90 365   91 92 92 90 365   113       113   91 92 92 91 365   19 4 9 59 90   91 92 92 90 365  

PER DAY ==> 157 145 107 121 132   1584 233 117 133 178           0   199 301 392 468 340   313 38 439 500 437              

NO. OF PIPES 14250 13384 9822 10888 48344   21053 21407 10723 11930 65112   11188       11188   18117 27500 36053 42368 124038   5789 132 3947 29474 39342              

RAW MATERIAL CONSUMPTION (MT) 70920 70223 61275 58944 261363   0 0 0 0 -           -   14552 34495 32315 42284 123646   0 0 0 0 0              

SALE (MT) 66665 66010 57599 55408 245681   93259 100262 61201 62159 316,882   52323       52,323   13296 31732 29635 38467 113131   4141 142 4263 19541 28088              

SALES (FEET) 1083000 964392 746487 827488 3621367   0 0 0 0 -           -   688440 1045000 1370000 1610000 4713440   220000 5000 150000 1120000 1495000              

SALES (SQ. METER) 790423 715393 621671 603938 2731426   1054338 1187728 619966 669477 3531509           0   203034 402510 395576 592331 1593450   68241 1946 58388 373377 501951              GROSS SALE 89.40 91.30 70.66 64.98 316.35 99% 13.20 14.62 10.42 7.03 45.27 133% 0.00       0.00   14.63 34.06 32.17 42.99 123.85 98% 0.61 0.02 0.53 3.36 4.52 100% 117.85 140.00 113.78 118.37 489.99 101%

ADD:SCRAP SALE 1.28 1.26 1.10 1.06 4.70 1.5% 0.00 0.00 0.00 0.00 -           -   0.38 0.83 0.80 1.15 3.15   0.00 0.00 0.00 0.00 0.00   1.65 2.09 1.91 2.21 7.86 2%

LESS:Ocean Freight (Inbound - Pipes)         - 0.0% - - - - -           -   - - - - -               - - - - - 0%

LESS:Rail Car (Loading Cost)             3.99 4.86 2.37 - 11.22 33%         -   - - - - - 0%           0% 3.99 4.86 2.37 - 11.22 2%

LESS: Rail Car (Out Bound)                                 -   - - - - -               - - - - - 0%

LESS:Expenses at Destination         - 0.0% - - - - - 0%         -   - - - - - 0% - - - - - 0% - - - - - 0%

LESS: C& F CHARGES                                 -   - - - - -               - - - - - 0%

LESS: Marketing Expense 0.00 0.00 0.00 0.00 0.00 0.0% 0.00 0.00 0.00 0.00 -           -   0.00 0.00 0.00 0.00 0.00               0.00 0.00 0.00 0.00 - 0%

LESS:LD                                 -                           0.00 0.00 0.00 0.00 -  

NET SALE 90.67 92.57 71.77 66.04 321.05 100% 9.22 275.70 8.05 7.03 34.06 100% 0.00       0.00   15.01 34.88 32.97 44.14 127.00 98% 0.61 0.02 0.53 3.36 4.52 100% 115.51 137.23 113.31 120.57 486.63 100%

NET SALES ($/MT/SqrMtr/Joint) 1360 1402 1246 1192 1307   9 232 13 11 9.64           0.00   1129 1099 1113 1147 1123   9 9 9 9 9              

RAW MATERIAL                                 0.00                                      

HR COIL/PLATES 55.81 61.35 54.57 51.30 223.02 69%                     0.00   12.37 29.32 27.47 35.94 105.10               68.18 90.67 82.04 87.24 328.12 67%

DIRECT VARIABLES ( WELD WIRE & FLUX) 1.11 1.05 0.88 0.90 3.94 1%                     0.00   0.00 0.00 0.00 0.00 0.00               1.11 1.05 0.88 0.90 3.94 1%

COATING and DJ COST         - 0% 3.21 3.63 2.49 2.04 11.38 33% 4.05       4.05             0% 0.22 0.01 0.18 1.18 1.59 35% 7.48 3.64 2.68 3.22 17.01 3%

VALUE ADDITION ($) 33.76 30.16 16.32 13.85 94.09 29% 6.00 272.07 5.55 4.99 22.68 7% -4.05       -4.05   2.64 5.56 5.51 8.20 21.90 7% 0.40 0.01 0.34 2.18 2.93 1% 38.75 41.87 27.72 29.22 137.56 42.85%

VALUE ADDITION ($/MTsqr mtr/joint) 506.39 456.96 283.31 250.00 382.98   5.69 229.07 8.96 7.45 6.42   -362.00       -362.00   198.36 175.34 185.79 213.10 193.62   5.84 5.84 5.84 5.84 5.84              

STORES & SPARES                                 0                                      

DIRECT VARIABLE (Inserts, X-ray, PU seals) 0.11 0.10 0.08 0.08 0.37 0.1% 0.51 0.58 0.30 0.33 1.73 5%         -   0.02 0.04 0.04 0.05 0.15 0% 0.06 0.00 0.05 0.32 0.42 9% 0.70 0.72 0.47 0.78 2.66 0.55%

OTHER DIRECT VARIABLE(Packing matrl, TPI etc.) 0.05 0.05 0.03 0.04 0.17 0.1% 0.12 0.13 0.07 0.08 0.42 1%         -   0.00 0.00 0.00 0.00 0.00 0% 0.00 0.00 0.00 0.00 0.00 0% 0.17 0.18 0.11 0.12 0.58 0.12%

SEMI VARIABLE - Stores & spares 1.40 1.40 1.40 1.40 5.61 1.7% 0.62 0.62 0.62 0.62 2.47 7%         -   0.85 0.85 0.85 0.85 3.42 3% 0.09 0.09 0.09 0.09 0.37 8% 2.97 2.97 2.97 2.97 11.87 2.44% 11.87 -

Yard Banding             0.39 0.44 0.21 0.29 1.34 4%         -   0.00 0.00 0.00 0.00 0.00               0.39 0.44 0.21 0.29 1.34 0.27% - Power ( Variable) 0.16 0.20 0.16 0.15 0.67 0.2% 0.21 0.22 0.21 0.20 0.84 2%         -   - - - - -   - - - - -   0.37 0.42 0.37 0.35 1.51 0.31% 4.05 2.54 Project Tooling (E2 and others) 0.38 0.38 0.38 0.38 1.50 0.5%                                                 0.38 0.38 0.38 0.38 1.50 0.31%

PROJECT & TOOLING EXPENDITURE 0.30 0.30 0.30 0.30 1.19 0.4% - - - - -           -   0.08 0.08 0.08 0.08 0.31   - - - - -   0.38 0.38 0.38 0.38 1.50 0.31% 1.50 -

FINANCIAL COST 0.05 0.05 0.05 0.05 0.21 0.1% 0.02 0.02 0.02 0.02 0.07 0%         -   0.00 0.00 0.00 0.00 0.00 0% 0.00 0.00 0.00 0.00 0.00 0% 0.07 0.07 0.07 0.07 0.28   0.28 -

TOTAL VARIABLE COST 2.44 2.48 2.40 2.40 9.72 3.0% 1.88 2.00 1.43 1.54 6.86 20%         0.00   0.95 0.97 0.97 0.98 3.87 3% 0.15 0.09 0.14 0.41 0.80 18% 5.42 5.55 4.94 5.33 21.24 4.36%

CONTRIBUTION ($ mil) 31.32 27.68 13.92 11.45 84.38 26% 4.13 270.06 4.12 3.45 15.82 46% -4.05       -4.05   1.69 4.59 4.54 7.22 18.03 14% 0.25 -0.08 0.20 1.77 2.14 47% 33.33 302.26 22.78 23.89 116.32 23.90%

CONTRIBUTION ($./MT/Sqr Mtr/Joint) 469.80 419.39 241.65 206.73 343.44   3.91 227.38 6.65 5.15 4.48   -362.00       -362.00   127.01 144.69 153.06 187.59 159.39   3.61 -42.72 3.44 4.74 4.25              

CONTRIBUTION ($ mil / DAY) 0.14 0.30 0.15 0.13 0.23   0.05 2.94 0.04 0.04 0.04           0.00   0.02 0.05 0.05 0.08 0.05   0.01 -0.02 0.02 0.03 0.02   0.21 3.26 0.27 0.28 4.02  

FIXED EXP. / MONTH                                 0                                      

POWER & UTILITY (Fixed) 0.23 0.23 0.23 0.23 0.91 0% 0.08 0.08 0.08 0.08 0.30 1%         0.00   0.22 0.22 0.22 0.22 0.88 1% 0.16 0.16 0.16 0.16 0.64 14% 0.68 0.68 0.68 0.68 2.74 0.56% (2.74)

MANPOWER 5.97 5.97 5.97 5.97 23.86 7% 2.31 2.31 2.31 2.31 9.25 27%         0.00   2.29 2.29 2.29 2.29 9.17 7% 0.25 0.25 0.25 0.25 1.01 22% 10.82 10.82 10.82 10.82 43.29 8.90% 43.29 -

ADMINISTRATION 1.20 1.20 1.20 1.20 4.81 1% 0.47 0.47 0.47 0.47 1.86 5%         0.00   0.38 0.38 0.38 0.38 1.51 1% 0.01 0.01 0.01 0.01 0.05 1% 2.06 2.06 2.06 2.06 8.23 1.69% 8.23 -

SALES PROMOTION 0.00 0.00 0.00 0.00 0.01 0% 0.00 0.00 0.00 0.00 0.00 0%         0.00   0.00 0.00 0.00 0.00 0.00 0% 0.00 0.00 0.00 0.00 0.00 0% 0.00 0.00 0.00 0.01 0.02 0.00% 0.02 (0.00)

                                  0                                      

PBIDT 23.92 20.29 6.52 4.06 54.79 17% 1.27 267.21 1.27 0.59 4.40 13% -4.05       -4.05   -1.20 1.70 1.65 4.33 6.47 5% -0.18 -0.51 -0.22 1.35 0.43 10% 19.76 288.69 9.21 10.32 62.04 12.75%

TERM LOAN INTT. 0.32 0.32 0.32 0.32 1.27 0% 0.11 0.11 0.11 0.11 0.42 1%         0.00   0.61 0.61 0.61 0.61 2.43 2% 0.00 0.00 0.00 0.00 0.00 0% 1.03 1.03 1.03 1.03 4.12 0.85% 4.12 -

DEPRECIATION 2.45 2.45 2.45 2.45 9.79 3% 0.82 0.82 0.82 0.82 3.26 10%         0.00   1.45 1.45 1.45 1.45 5.80 5% 0.00 0.00 0.00 0.00 0.00 0% 4.71 4.71 4.71 4.71 18.85 3.87% 18.85 -

                                  0.00                                      

PBT 21.16 17.52 3.76 1.29 43.73 14% 0.35 266.29 0.35 -0.33 0.72 2% -4.05       -4.05   -3.26 -0.36 -0.41 2.27 -1.76 -1% -0.18 -0.51 -0.22 1.35 0.43 10% 14.02 282.95 3.47 4.58 39.08 8.03% 44.00

                                  0                                      

                                  0                                      

INCOME TAX 0.00 0.00 0.00 0.00 17.49 5% 0.00 0.00 0.00 0.00 0.29 1% 0.00       0.00   0.00 0.00 0.00 0.00 0.00 0% 0.00 0.00 0.00 0.00 0.00 0% 0.00 0.00 0.00 0.00 15.63 3.21%

                                0.00                                  

PAT 21.16 17.52 3.76 1.29 26.24 8% 0.35 266.29 0.35 -0.33 0.43 1% -4.05       -4.05   -3.26 -0.36 -0.41 2.27 -1.76 -1% -0.18 -0.51 -0.22 1.35 0.43 10% 14.02 282.95 3.47 4.58 23.45 4.82%

PARTICULARS Spiral HFW Total 2013-14

DAYS ==> 365 365 365

PER DAY ==> 132 340

NO. OF PIPES 48344 124038

RAW MATERIAL CONSUMPTION (MT) 261363 123646

CONTRIBUTION ($ mil) 84.38 18.03 116.32

Figure 3: Data Excerpt

WHAT IS EFFECTIVE?

Engineering Economics:

1. Cycle Driven and unconcerned with problems of Statistics & OR

2. There exists a learning curve trend; results will always be fruitful in “n” iterations. The WBS is meant to find alternatives in this way.

NO BACK OFFICE BURN OUT

Biasedness?

Efficiency?

What do we really know?

What is useful to estimate?

These concepts can be used in many

types of estimates:

WHAT IS RELIABILITY EXACTLY?

1. Indexes2. Unit technique3. Factor technique (choose factor to compute easily)

REQUIRED MATH FOR A WELL-DEFINED OPTIMIZATION SETTING

Ford used O.R. to optimize the way it designs and tests vehicle prototypes, saving $250 million.

UPS used O.R. to redesign its overnight delivery network, saving $87 million plus an additional $189 million over the following decade.

The U.S. Army used O.R. to increase recruiting 17.5% while saving 20%.

NBC used O.R. to improve advertising sales plans, increasing revenues by over $200 million.

The City of New Haven used O.R. to determine definitively that its needle exchange program was reducing HIV infection rates.

THE OPERATIONS RESEARCH CONTEXT

Two Phase Approach

1. Reliability2. Optimization

Use of MatLab, Lingo & Excel?

Use of Operations Research?

Why do all of this if optimal values may not be reached?

Estimations: kind of like fishing?

BENEFITS TO PROPOSED IDEAS

LP constraints (draw 2-D case)

LINEAR OPTIMIZATION

LINEAR OPTIMIZATION

Research

Formulation

Execution

• context• feasibility• definition

s• rationale• Evaluatio

n• Informati

on

WBS FOR QUESTIONS

Welspun Management

Shareholders/General Audience

THANK YOU FOR ATTENDING