Improving Capital Projects Supply Chain Performance

Research Team 172 found that using Supply Chain Management practices (taking a longer-term view of the supplier and buyer relationship and working collaboratively to improve processes) can lead to shorter fabrication durations. The findings from Case Study 7 highlighted lead-time reduction in the procurement of pipe supports. Through SCM, the project case study realized schedule improvement of from three to six weeks, but further along in Case Study 6 there was greater schedule savings of eight to 12 weeks. (RR172-11, p. 123)

Research concluded that using SCM tactics to standardize products will have benefits for all stakeholders on the project. In Case Study 7, standardization led to reduced lead-times as illustrated in Figures 9.19 and 9.20,  shown below. In Case Study 1, standardization led to reduction of inventory and shortened the procurement cycle time. In Case Study 8, Butler Manufacturing Company used SCM tactics to standardize its product offerings, which led to less customized products and more efficiency. Ultimately, standard materials allows for greater manufacturing efficiency by the seller, less design review and approval cycles by the EPC, and ultimately better price, schedule, and quality for the end user. The pitfall is sub-optimization, which is where design changes required by the project outweigh any savings at the equipment level. (RR172-11, p. 123)

Case Study 2 discussed the advantages of using SMI on projects. Some of the advantages documented were: reduction in buyer’s inventory, supplier can provide better quality service at less cost, and multiple suppliers tiers are funneled through the tier 1 supplier reducing administrative efforts. The case study was based on an owner organization and not a project. If SMI is used on a project-by-project basis, the case states that some difficulties may arise in forecasting demand for SMI materials and adapting to an ever-changing project schedule. (RR172-11, p. 47) 

Case Study 1 illustrates the benefits of forming preferred supplier relationship with key suppliers. The buying organization in this case study was able to achieve the following goals by initiating a preferred supplier relationship: (RR172-11, p. 27)

• Reduce non-value adding activities (Table 3.3 below)
• Assure only owner-approved materials are supplied
• Implement Just-in-Time (JIT) deliveries through greater flexibility in warehousing, expedited delivery and access to inventory
• Reduce internal overhead cost
• Reduce total cost to the owner

Case Study 6 illustrates how using PEpC SCM tactics can improve the lead time of engineered-to-order (ETO) equipment. In this case study the buyer had an alliance agreement with the seller which led to reduced lead times because the terms of the agreement do not have to be re-negotiated with the supplier. Instead of taking a month or more to negotiate an agreement, alliance agreements can allow contracts to be placed in as little as a day and a half. Time is further reduced by shortening the engineering and information exchange time. Overall, using PEpC and Alliance agreements can reduce the lead time of ETO equipment by two to three months. (RR172-11, p. 90)

Case Study 5 reviews a scenario where project schedule and cost were ultimately improved through owner procurement of stainless steel piping material. The study begins by discussing a pinch in the supply of stainless steel piping materials, which was causing risk in cost and schedule to the end user. The owner procured these materials from mills, then paid a distributor to receive, manage, and store the materials. Economies of scale and positive relationships with the supply chain enabled this situation (PEpC). RT-172 also reviewed the benefits of collaborative information technology systems (isolated shared networks or webpages). (RR172-11, p. 67)