Supply Chain Innovation:unlocking value end-to-end

Bill Antonace

Supply Chain Integration Opportunity

Major project supply chain costs can exceed 50% of total project

cost

Logistics costs can exceed 10% of total project cost

Focus on these costs can result in substantial savings

An integrated supply chain moving from a 3PL to using a 4PL

model is one such approach deserving of serious consideration

Advanced planning of alternative solutions must be

performed at project startup to lock in savings

A Target Rich Environment- Defining the 4PL

Model

First Party Logistics

• – Get it yourself

Second Party Logistics

• – Your supplier is responsible for delivery

Third Party Logistics

• – Consolidation and Delivery Service

This model is familiar and embedded across

the transport and resources industries

4PL

3PL

2PL1PL

4th Party Logistics

With the introduction of 4PL we see

• Process focus

• Centralised and coordinated management

• Consolidated systems

• Enhanced service delivery

• Cost Management

4PL

3PL

2PL1PL

4PL

Current large projects incur over 8-10%

of project costs through logistics.

This is a target rich environment of multiple millions of dollars

4PL Operating Model

4PL

3PL2PL

1PL

Why a 4PL

Separation of project and operations flows as desired

Focus turns to Demand Planning

Consolidated spend and rationalisation

Track and Trace across systems

A single management team

The complexities and differing priorities of project

logistics can and will add costs to ongoing operations if

not managed properly

Examples of potential 4PL environments

Chemical Company (USA)

$5B in sales

Project Spend of $800MAustralian Mega Project

Logistics Costs in excess of $1B

Savings potential of $20M - $50MAustralian Operator

$10B in sales

Project spend of $5B

Creation of 2 separate logistics streams

Well managed SCM teams can add overall value and

productivity in the 5-10% of total project spend while

protecting Business As Usual operations

Typical 4PL Implementation Model

Start-upEarly

works

Logistics

Build

Joint

Accountability

Delivery – one

stop operations

centre

» Early

engagement with

client and chosen

EPC provider

» High level

planning and

timeline –

2 year look

ahead

» Early works

commences; civil

and fabrication:

• Materials

• Structural steel

fabrication

• Accommodation

pioneering

works

• Laydown yards

• Supply Base

Network

Chosen

» Systems design

and build

» One step

command centre

establishment

» Service

providers

contracted

» Supply Base

providers

selected

» Monthly and weekly

operations planning

and execution

services with client

and EPC

» Lessons learned /

opportunity discovery

» Integration of

logistics; Freight

Forwarders, Custom

Clearance, Marine

Operations and

Supply Base

» Quarantine

management

services defined and

planned

» Track and Trace

systems up and

running

» Execution team of

experts on boarded

and jointly

collocated with

client and EPC

planning teams

» Personnel

deployment centre

operational

Using innovative strategies to unlock value and efficiencies in

your supply chain

SCM costs across Major and Brownfields Projects can rise to

over 50% of total project spend

• Materials Direct 11%

• Consumables 3%

• Plant & Equipment 5%

• Sub-Contracts 20%

• Logistics 9%

• People & Systems 3%

51%

Planning & startup of alternative solutions to pocket

savings is a must

Key Considerations

Examine your end-to-end supply chain for value opportunities

• Optimise the links but manage the total supply chain

• Mindful of on time price decrease vs. total landed costs

Alternate procurement process for Direct, Indirect and

Consumables may be a source of productive savings

Plant & Equipment is generally a high risk / high reward target

Process & systems must be aligned for strong compliance and

use of new innovative alternatives

Think outside your square

Look across your projects for opportunities to rationalise and

consolidate and save.

Track your results

The Pathway Forward

Be thoughtful of project start-up – monitor the early phases

Don’t assume you have nothing to learn

• Look to your partners to add value

Outsource the pieces that do not fit your competencies and

experience

Establish regular review of your top 3-6 KPI

You can reduce costs with focus on cash flow, service, quality

and safety. All will reduce rework

Payback comes with understanding results and the

integration of Lessons Learned into standard process

Supply Chain Value at Clough

$50M SCM Cost Reduction

Procurement

Equipment

Consumables

Logistics

Standards

Systems

People

Project ATotal Cost $365M

Project B

Total Cost $135M

Project C

Total Cost $100M

69

25

6

69

25

6

5935

6

6225

13

6225

13

5325

12

Opportunities Efficient Process Results

Moving to Efficient Processes

Application of Lessons Learnt

Case Study – Project C CraneCrane sourced from Queensland was delivered non-operational

-3 weeks productive time lost

Clough Equipment Sourcing Tool located a number of WA vendors for the same crane

• Vendor A – 14 cranes within 200km

• Vendor B – 10 cranes within 90km

• Vendor C – 8 cranes within 1000km

Had Clough Equipment Sourcing Tool been in place at the time of incident we

would have been able to confirm the above availability by automated supplier

email response within hours of enquiry

Moving to Efficient Processes

Application of Lessons Learnt

Case Study – Project B ConsumablesConsumables spend of $1,000,000.00 per month

Supply chain introduced a vendor managed inventory bar code track and trace

system, reducing project spend by $700,000.00 per month

Strategy captured in the SCM Operating Standard and communicated

via SCM inductions and CMS

Moving to Efficient Processes

Application of Lessons Learnt

Case Study – Project A Logistics11 Logistics service providers engaged

- Spend diffused rather than concentrated

- Little to no leverage

Multiple suppliers and INCO terms usedStevedoring services Container Services Freight Forwarding Services Engineering Suppliers

Manufacturers (DAP) Fabricators Local Transport Services Long Haul Transport Services

MSA now in place to permit spend concentration and leverage

Moving to Efficient Processes

Application of Lessons Learnt

Case Study – Plant Hire Management

- Unmanaged hire equipment

As at 15 Dec 2014 - 60% of plant and equipment on hire

across all projects were past agreed hire date.

Cost impact is $40k – $50k per day

Vendor provided monitoring systems are now in use to

highlight potential savings and improve control

335

3810

2

140

31 Days+

<31 Days

Due within 7days

No Dehire Date

Current Hire

Current State Future State

Siloed sourcing and procurement on

projects

• Corporate sourcing perspective using

MSA vendors across commodity

groups

• Corporate spend visibility

• Aggregation of spend

• Corporate Supplier Relationship Mgt

No cross-project visibility

Ineffective consumables management • Outsourced consumables management

• Outsourced ad hoc minor procurement

Inconsistent asset and hired equipment

management

• Controlled and monitored hire

• Regular hire equipment reporting to

PM

Inconsistent method of purchasing within

Clough approved systems

• Training and application of CMS across

all projects through SPMat, Oracle, etc.

Focus On Effective Service Delivery

Corporate / Project Supply Chain Status

Project 1 Project 2 Project 3 Project 4

Procurement

Logistics

Sub-Contracts

AIP / Local Content

Materials Management

Indigenous Engagement

Effective SCM