Logistics & Distribution Workshop: Risk mitigation across the … · 2019-05-15 · 2 Risk...

Logistics & Distribution

Workshop: Risk mitigation across the

Fertilizer supply chain

Pablo Ruiz del RealMSc Civil Engineering

ALG Partner and Head of the Middle East Office

9th GPCA Fertilizer ConventionMuscat, 19th September 2018

2

Risk mitigation across the Fertilizer supply chain

Muscat, 19th September 2018

ALG in a “nutshell“

ActivityTop global consultancy firm with over 25 years of expertise working with the leadingtransport operators infrastructure developers and investor advising them on strategic,capacity, infrastructure and operational challenges

Services• Strategy & Policy

• Transaction & PPP partnership

• Business advisory

• Infrastructure development

• Operations

• Technology

Sector• Logistics, Supply chain and land transportation (Intermodal, Railway, Highways) (20%)

• Maritime ( Port terminals, Port Authority's, maritime companies) ( 30%)

• Aviation ( Airlines, Airports, CAA, ATM/CNS,..) ( 50% of our revenues)

Clients

• Leading transport & infrastructure operators

• Infrastructure developers

• Investor groups & Financial institutions

• Government & Multilateral l Institutions

• Spain (15%)

• Rest of Europe ( 20%)

• Latam (35%)

• Middle East (20%)

• Africa & Asia (10%)

Resources• 2018B: Revenues > $ USD 25,0 M

• 85 professionals

• Offices in Dubai, Spain, UK, Brazil

and Mexico

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ALG, we offer services in a flexible and versatile way, covering all the

stages from the strategic planning to warehouse design

Route – to – market design

Design a demand

drive supply chain

and the logistics

footprint

Outsourcing

strategy & tender

management

• Definition of the most suitable route-to-market strategy

• Design of the appropriate supply chain depending on the strategy selected:

infrastructure, equipment, outsourcing policy…

• Structuring of the management framework: organization, KPIs, IT tools…

• Analysis of outsourcing policies• Definition of a outsourcing strategy on logistics• Management and issuance of calls to tender to carriers• IT functional requirements and RFI/RPF for SCM and WMS implementation

• Conception, design and implementation of new warehouses (layout,

equipment, processes, organisation and systems)

• Management of implementation

• Diagnosis and improvement of processes and warehouses

Warehouse design,

improvements &

PMO

• Process coordination to streamline SOP procedures from Demand forecasting,

aggregate planning, production scheduling and alignment with Warehousing

• Overall diagnosis of the logistics chain (operations, costs, processes and resource

utilization)

• Studies on inventory optimization(working capital definition of Improvements

opportunities along the SC

Audit of logistics

operations, S&OP

and SCM alignment

• Industrial companies

• FMCG companies

• Logistics service

providers


• FMCG companies


providers


• FMCG companies


providers


• FMCG companies


providers


• FMCG companies


providers

• Design of new supply-chain models to better match the Co’s objectives

• Restructuring of the supply chain at an industrial and/or logistical level.

Network optimization and distribution strategies: nodes, modes, fleet…

• Definition of a outsourcing strategy on logistics

• Design the key operational processes: truck, rail, warehouse, port…

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We have worked with leading ports & maritime players worldwide

Telecom, Pharmaceutical and FMCG

Industrial companies and O&GCouriers Express, Distribution

and Automobile

Financial Institutions

• All those clients relied on ALG specialized support to improve their operation in recent years

• We can provide our own vision, practical and result-oriented approach to face your challenges

• If found suitable, we could prepare a detailed collaboration proposal for any of these areas

http://www.saralee.com/

http://www.saralee.com/

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2011 2012 2013 2014 2015 2016 2017

Others

Supply Chain

Railways

Ports

Aviation

Our Middle East office: reference for our international expansion

• ALG opened the office in

2009, with no previous

beachhead

• With a steady and healthy

growth, ALG has achieved

during the last 5 years double-

digit growths every year

• This has enabled the

company to double its

business in the last 2 years

• The local team has tripled in

the last 3 years: currently

team of 15 consultants

• We have experience in all

countries in the Middle East:

KSA, UAE, Qatar, Oman,

Kuwait…

Key Facts Performance in the Middle East

Double

digits growth

Revenues per practice

x11

Number of clients

70%recurrent8 M USD

2011 2012 2013 2014 2015 2016 2017

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The objective of this workshop is to present a methodology to mitigate

risk and shortages along the Fertilizer supply chain

• Review the methodology and inputs

• List the related cost concepts to enable a

decision taking process

• Address the location of inventory and port

facility design

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It is as important to manage the fertilizer’s long supply chain as it is to

manage the risks along each step of its production and distribution

The risks identified should be analyzed in order to develop a mitigation plan based to ensure

optimal performance and service level

Fertilizer production supply chain:

Risk identification Risk mitigation optionsMitigation plan &

corresponding costs

Final decision & impact

on the final design

• Potential risks

• Risks classification

• Occurrence frequency

• Potential impact

• Two key business drivers:

• Continuous production

• Sales order fulfilment

• Mitigation plan

• Economical impact and

potential design changes

Production

Plant AMaterial

StorageTransportation

Material

Storage

CustomerMaterial

StorageProduction

Plant B

Consumption

Triggered Supply

Consumption

Triggered Supply

Sales Demand

Triggered SupplyContinuous

Production

Continuous

ProductionContinuous

Supply

Risk assessment methodology

Transportation

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The risks matrix is used to evaluate every risk, its occurrence

probability and the impact it can generate

Risk assessment level

The outcome of the risk assessment, considering the combination of likelihood and

consequences, will enable the final decision in the mitigation of each identified risk scenario

Probability /

Impact

Insignificant

(I)Minor (Mi) Moderate (Mo) Major (Ma) Severe (S)

Almost certain

(C)M H H E E

Likely (L) M M H H E

Possible (P) L M M H E

Unlikely (U) L M M M E

Rare (R) L L M M H

Risk Impact

L – Low M – Moderate H – High E – Extreme

Pro

bab

ilit

y

• Prioritizing risks based on:

• Impact on lost sales

• Unutilized fixed assets

• Probability of risk occurrence

Final risk ranking

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Costs to be allocated to impacts and mitigation measures has to be

calculated for risk evaluation of product’s flow

The comparison of risk's financial impact against the cost of the proposed mitigation

measure enables the selection of the option (risk or mitigation) with lower cost

Components of impact and mitigation (WIP products)

IMPACT

Costs calculated for the financial impact analysis

MITIGATION PLAN

Costs of mitigation plan in comparison to the cost of an occurred risk

Cost of non utilized

Transportation assetsLost Sales Revenue

Cost of non utilized

Production Plants

assets

Storage Cost / Ton Truck Transport Cost / Ton

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Costs to be allocated to impacts and mitigation measures have been

calculated for risk evaluation of finished goods products

The evaluation of finished good risks included the comparison of its financial impact against the

cost of the proposed mitigation measure and selecting the option (risk or mitigation) with lower cost

Curtail production cost

(additional OPEX per ton )Lost Sales Revenue

IMPACT

Costs calculated for the financial impact analysis

Storage Cost / Ton

(extra storage capacity)

MITIGATION PLAN

Costs of mitigation plan in comparison to the cost of an occurred risk

Components of impact and mitigation (for finished goods)

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Example: The production stoppage risks have also been compared to

the corresponding mitigation storage costs

Should you company mitigate the production shutdown risk with strategic stock?

Risk: Unexpected Plant Shutdown

Likelihood Most Likely Rare Rare Rare Rare Rare Rare

Impact Major Major Major Major Major Major Major

Risk High Moderate Moderate Moderate Low Low Low

Impact cost per plant

shutdown day

Days of shutdown

1d 2d 3d 4d 5d 6d 7d

IMPACT

Days of shutdown and the impact on the production, lost sales, and lack of usage of transportation assets

$414,369 $828,739 $1,243,108 $1,657,477 $2,071,846 $2,486,216 $2,900,585

1d 2d 3d 4d 5d 6d 7dDays of shutdown

MITIGATION PLAN

Is there across your company a common understanding of how much it cost one day of production lost?

What are the average time of unexpected production shutdown in your company

Equivalent mitigation

storage cost

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The risk assessed in the supply chain has to cover the unexpected

situations in the every main product that is being used

Classification of risks by product

# Risk origin Risk description SulphurSulphuric

Acid

Phosphoric

acidAmmonia Fertilizer

1 INBOUND Operational delays (train transit)

2 INBOUND Operational delays (Loading / Unloading)

3 INBOUND Pipeline unplanned issue

4 OUTBOUND Plant shutdown

5 OUTBOUND Port closure

6 OUTBOUND Loss of specific sales

7 INBOUND Delays in the supply by transport mean

8 OUTBOUND Foreseeable reduction in sales

9 INBOUND Non availability of transportation means

10 INBOUND Non availability of resources

11 INBOUND Increase in prices

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The total stock to be hold from each products has to be calculated

accounting for the different risks

Stock composition

Specific risks

Variations in stock replenishment lead

times and demand

• Ensure ability of receiving new batches

• Continuous supply and sales

Planned maintenance stop

Unforeseen risks or sales reduction

The total required stock and capacity is then divided by the usable storage capacity

Inbound flow into storage

Outbound flow from storage

Calculation of :

• Storage capacity required

• Working capital

• Operational cost

• Days of storage (without replenishment)

Components of calculated stock

Safety Stock

Strategic Safety Stock

Operational Stock & Capacity

Buffer Capacity

Strategic Buffer Capacity

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The stock’s objective is to avoid stoppages and ensure a continuous

flow, but the definitions vary depending on the stock’s location in the SC

The buffer capacity provides capacity to receive products if the following consumption activity stops

or is delayed while the safety stock allows the sourcing of product to the next activity, if the original

supply stops or is delayed

Different stock calculations

Safety Stock

Strategic

Safety Stock

Operational

Stock & Capacity

Buffer Capacity

Strategic

Buffer Capacity

Production

Plant A

Material

StorageTransportationMaterial

Storage

CustomerMaterial

Storage

Production

Plant B

Transportation and demand

variations

• New product

• Consumption in lead time

Not Applicable

Not Applicable

New stock during lead time

Continuous supply

(Plant A unplanned shutdowns)

Production rate variation

Plant A storage for plant B Unplanned

shutdowns

Plant A storage for plant B planned

shutdowns

Ensure supply

Continuous supply

(Plant B unplanned shutdowns)

Production rate, vessel arrival time and

sales plan variations

Plant B storage for unplanned

shutdowns

Not Applicable

Consumption

Triggered Supply

Consumption

Triggered SupplySales Demand

Triggered SupplyContinuous

Production

Continuous

Production

Continuous

Supply

Continuous supply

(missed train)

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The risk mitigation stocks should be classified based on their locations

within the supply chain and the previously defined stock terms

Risks and corresponding stocks

# Risk origin Risk description

1 INBOUND Operational delays (train transit) *

2 INBOUND Operational delays (Loading / Unloading)

3 INBOUND Pipeline unplanned issue

4 OUTBOUND Plant shutdown

5 OUTBOUND Port closure

6 OUTBOUND Loss of specific sales

7 INBOUND Delays in the supply by transport mean Mitigated using trucks

8 OUTBOUND Foreseeable reduction in sales

9 INBOUND Non availability of transportation means Mitigated using alternative implementation measures

10 INBOUND Non availability of resources Mitigated using alternative implementation measures

11 INBOUND Increase in prices Mitigated using alternative implementation measures

Safety StockStrategic

Safety StockBuffer Capacity

Strategic

Buffer Capacity

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The calculation of safety stock requirements has to take into

consideration both supply (transportation / production) and demand

variabilities

Safety Stock calculation

• The safety stock is calculated using the following formula:

Stock calculation

Nivel de

servicio

99%97%

95%90%

85%

Kβ

2,331,88

1,651,28

1,04

Service

level

1

Averagedemand

2

SSProb

Demand

The lead time can be attributed to two factors:

• Transportation mode supply

• Production time supply

𝑺𝑺 = 𝐂. 𝝈𝒅𝟐 𝑳 + 𝝈𝑳

𝟐. 𝒅𝟐

• 𝜎𝑑: Standard deviation of demand

• 𝐿: 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑙𝑒𝑎𝑑 𝑡𝑖𝑚𝑒

• 𝜎𝐿: 𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛 𝑜𝑓𝑙𝑒𝑎𝑑 𝑡𝑖𝑚𝑒

• 𝑑: 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑑𝑎𝑖𝑙𝑦 𝑑𝑒𝑚𝑎𝑛𝑑

• 𝐶:𝐷𝑒𝑝𝑒𝑛𝑑𝑠 𝑜𝑛 𝑡ℎ𝑒 𝑠𝑒𝑙𝑒𝑐𝑡𝑒𝑑 𝑠𝑒𝑟𝑣𝑖𝑐𝑒 𝑙𝑒𝑣𝑒𝑙

Average

Lead Time

Variable

DemandSafety

Stock

Reorder Point

Variable

Lead Time

Days

Operational

Stock

Max(L)

Max(D)

Min(D)

Min(L)

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Continuous improvement and end to end visibility

Main takeaways

Continuous improvement

• Continuous follow-up of the risk o Improve mitigation actions

o Improve response to unexpected events

• Minimizing risk frequency and impact through more

robust process o Decreases the variability (reduced safety stock)

o Improves the service level

End to end Supply chain visibility

• Sharing information among stakeholders to anticipate

riskso Sales forecast with clients

o Production plan with railway operators

• IT enables sharing plans with updated information

Raw materials

DC

Customer /

Consumer

Plant

Plant

Plant

Reduced

variability

Monitoring

Robust

processIdentify

root cause

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In case a intermediate product is also exported as final goods,

additional operational and safety stock has to be built

The additional storage requirement has to be properly address the sales fluctuation

Stock categories

Strategic buffer capacity

Plant

Port

Export

Storage

tanks

Plant

1

Operating & safety stock

WIP for internal

consumption

Strategic safety stock

Mitigate risks in the supply

chain for internal consumption

Mitigate risks in the WIP

supply chain for export

consumption

Operating stock

Safety stock

Buffer capacity

Loading

stationUnloading

stationStorage

tanks

Additional

Already calculated

for internal

consumption

Already calculated

for internal

consumption

Transportation

1

WIP for export

In-plant Port facilities

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At the same time, designing the optimal port terminal layout and

maritime operations will reduce demurrage and increase customer’s

service level

Designing the optimal storage site location at the port (of origin and destination) and optimal maritime

operations may lead to huge improvements in the supply chain and capture on the spot market

Port terminal planning & maritime operations

• Liquid and solid shipment

• Storage per annum of liquid and solid bulk

• Average size of orders

• High seasonality

Inputs

• Storage site layout

• Required berths occupancy for liquid & solid

• Minimum transferring rate

• Operations design

• Transhipment operations

Activities to be reviewed / developed

Origin Port Destination Port

Hub PortOrigin Port Destination PortOceanic voyage Gulf voyage

• Loading time

• Port exit time

• Oceanic voyage

duration

• Port entry time

• Unloading time

• Loading to smaller vessel

• Port exit time

• Gulf voyage

duration

• Port entry time

• Unloading time

Transshipment

Dammam

Pablo Ruiz del Real

M +971 50 277 58 86

[email protected]

www.alg-global.com

Thank you!

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