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ОглавлениеPART 2: LEADERSHIP
...and seeing it through to fruition
Effective people are not problem-minded, they are opportunity-minded.
Peter Drucker, Management Guru.
Author: V. Narayan
Location1: 2.1.2 Automobile Parts Manufacturer
3.1 Background
On my first day at work in this company, I met my boss, the General Manager of Production (GM). My position had been vacant for a year, during which time the head of the production planning department had been managing it. During this interim period, a number of issues had arisen, which the GM listed for my action. When he finished, I requested a three-week vacation, and he nearly fell off his chair! I explained that I would come to work, but wished to be free of executive responsibility in order to evaluate the current situation for myself. This review would help me identify the expectations of all the stakeholders, including the people on the shop floor—but I did not share this thought with him.
The review would give me a first-hand impression of the current status. From these inputs, I would produce a master plan. Each item in the master plan would be a separate project, with its goals, cost, time, and resource estimates. When he heard this explanation, he accepted my request. He still negotiated the review time period downward to two weeks.
3.2 Review Process
I arranged meetings with about 70 production supervisors and their managers, in groups of 10–12 people. In these sessions, I listened to them and recorded their requests and complaints. There were additional meetings with the main service department staff as well, including those in the stores and main canteen. The canteen staff had several requests, some of which appeared quite important for staff welfare. During factory rounds, I spoke to production and maintenance workers and union representatives. My own discipline engineers, supervisors, and contractors also provided their inputs. It appeared that many of the issues were related to stresses on the infrastructure. The company had seen rapid growth over the initial 15 years of its existence, but the infrastructure had not kept pace with the growth in production volume.
Analysis of the feedback highlighted some common problems. These included complaints about the utilities: provision of electricity, water, and air. Factory ventilation, dust levels in the ceramics department, and fume extraction in the plating department were also significant issues.
The main canteen provided food to more than 4000 people in the daytime, about 2500 in the second shift, and about 1500 people at night. Food was served in batches, as the seating was limited to 1500 people. Electrical heating was used for cooking, for which they needed a secure electricity supply.
These issues did not appear in the GM’s list, which generally covered current projects, some staff issues, and a list of complaints from production managers.
I applied the first two project selection hurdles. Were these expectations related to production or welfare or safety, and were they feasible? This process narrowed the list down to about 10 items that could be handled as stand-alone projects. The next step was to evaluate them for importance. We had to find the money for items that affected health, safety, and environment (HSE) and staff welfare. Items that were critical to production were clearly important. We will not go into the details of how funds were obtained; that is a long story in itself. Suffice to say it needed lateral thinking and agile maneuvering.
The lead time for completing some of the items was two–three years. This allowed us to phase the work within a three-year budget window. The company had an annual budgeting system. This imposed additional challenges of phasing, accruals, and other familiar accounting handcuffs with which most engineers will be familiar.
3.3 Selected Projects
We selected the following projects based on the criteria discussed earlier. A brief description of the work is given along with its justification and timing.
1.Factory Ventilation (HSE)
With conventional north light roof trusses, the temperature inside the large factory buildings reached 85–90°F in summer. There were a few large column-mounted air circulators to provide artificial ventilation. We planned to install 40 additional air circulators to alleviate the problem. The lead time was 6 weeks and we could get 10–12 units per month. Summer was approaching, so this became a high-profile HSE issue. The costs involved were relatively low and people on the shop floor would see action being taken. The workers representatives helped decide the sequence in which the new units would be installed, giving them a role in decision making. The sequence was something I preferred they decided themselves, as it would minimize arguments. The project was justified as an HSE item.
2.Electricity Supply
The public electricity supply system was unreliable, due to a serious mismatch between supply and demand. There were frequent power cuts; to overcome this difficulty, the company had installed four 350 kW diesel generators, with a fifth on order. These worked as stand-alone units, supplying isolated sections of the factory. This limited our flexibility to provide power where it was needed to suit the (variable) production demand. With stand-alone units, we could never load the machines fully. To overcome these limitations, we planned to synchronize the generators and connect them to the distribution network. The latter was currently not a ring main; this was another shortcoming needing correction.
This project required major investment in new transformers, circuit breakers, and feeders. Due to the lead time required for procuring the hardware, this project was phased over three years. The cost of the project was high, but so were the expected returns. We expected to reduce the value of lost production due to electrical supply problems by 50–60%, giving a benefit-to-cost ratio of 5:1.
A different issue related to the cost of electricity purchased from the public supply system. The electricity supplier applied a three-part tariff, with charges for the connected load (kW), energy consumed (kWhrs), and a surcharge for power factor below 0.96 (kVA charge). In addition to the thousands of induction motors in service, there were large induction furnaces in the factory. Without correction, the power factor could drop as low as 0.91. We already had a number of power factor correction capacitor banks, which brought it up to 0.94–0.95. We planned a separate project to increase the power factor to a maximum of 0.98. This upper limit was set by the possibility of a large induction furnace trip when we could end up with a leading power factor. The new capacitor banks would be brought into service or disconnected so that the power factor never exceeded 0.98 or went below 0.96. The project was phased over two years, based on hardware availability. The costs were relatively low and the expected benefit-to-cost ratio was 5:1.
3.Air Supply
There were two problems, one relating to pressure fluctuations and the other to entrained water. The latter issue had been so serious in the past that the main air supply lines in the factory buildings were sloped in a saw-tooth fashion, with manual drains at the low points (see Figure 3.1).
Pressure fluctuations were due to peak demands exceeding installed capacity and because of pressure drops in the pipelines. The entrained water came from the humid air. The water should have condensed in the after coolers of the air compressors, but a simple calculation showed that the cooling water temperature was far too high to be effective. In turn, this was due to an overload on the closed circuit cooling system. The original cooling pond was suitable for two diesel engines and three air compressors. The equipment numbers had grown to four diesel engines and four compressors. One more generator and two compressors were on order.
Figure 3.1 Original design of 4” air mains.
The air compression capacity was marginal and the projected demand increase was 30 percent. We decided that a third one would be needed to provide buffer capacity. In order to reduce the pressure drop in the pipeline distribution network, we planned to add four new air receivers located close to the main consumers. Peak demands could then be met from these receivers. They would also act as additional knock-out vessels to trap entrained water.
We planned to install industrial cooling towers to absorb heat from the cooling water used in the engine and compressor cooling jackets and after-coolers. This would eliminate the bulk of the entrained water at source.
These two projects were planned for completion in 18 months. The cost of the third compressor, air receivers, and cooling towers was in the medium-range. We expected to reduce the value of lost production due to air supply problems by 90%, giving a benefit-to-cost ratio of 15: 1.
4.Water Supply
The city municipal water supply system provided about 70% of the factory’s requirements. The company had installed many bore wells to draw groundwater to meet the remaining requirements. The city accepted our justification for requesting additional water supply, but were not willing to invest in a new pipeline from an existing reservoir about four miles away. We offered to underwrite the capital costs while the ownership remained with the municipality. I convinced the finance manager that we should pay a grant towards the capital cost of a city asset that would benefit the company.
We also decided to accelerate investment in additional bore wells in plots of land owned by the company in the vicinity of the existing factory site.
These projects were also in the medium-range of costs. Most of the additional water requirements were for welfare facilities. Without these projects, production levels would eventually have to be drastically curtailed, but we justified the project on staff welfare and HSE grounds.
5.Dust and Fume Pollution
The dust pollution in the ceramics department and the fume problem in the plating department were potentially serious health issues. The existing extraction systems were clearly not effective, but the solutions were not obvious. At this stage, the project scope was to study the problem carefully, understand the causes, and identify solutions. We employed a specialist consultant to assist us, and the work took several months to complete. The problem was traced to the particle size of the ceramic dust. These were so small that much higher velocities were required at the extraction unit inlets. The project scope included the installation of cyclone separators and powerful extractor fans.
At the plating department, we found that the fume extraction issue was more complex. The extraction hoods had to be redesigned and repositioned. Extraction velocities had to be increased, so new fans were required.
The costs of these two projects were in the medium range, and the lead time of the equipment required meant that the project had to be scheduled in the third year. We justified it as an HSE project, but the results showed that there were other benefits as well.
6.Security of Energy Supply to the Canteen
The scale of the problems that the canteen faced on a daily basis was staggering. The local culture required that freshly cooked and piping hot food be served. The main staple was cooked rice, of which we needed on average, 10 oz. per employee. About 1500 meals were served in each batch.
The rice was cooked in large electrically-heated cookers mounted on trunnions. Each batch had to be cooked in 20 minutes, and the vessel cleaned and ready for the next batch in 5–10 minutes. The water temperature had to be raised from the ambient 60–70°F to 212°F, and this could take 10–12 minutes. The canteen manager was visibly under stress. If there was any glitch, food could not be served—to at least 1500 and possibly up to 4500 waiting people!
The electrical cooking system was excellent, but consumed significant amounts of energy. Because sunshine was available in plenty, we planned to install solar water heater panels on the concrete roof of the canteen. Each panel would be about 120 square feet in area. With four of them in series, even on a cloudy day we could get the water to 150–160°F in about 10 minutes. We decided to install two banks of four panels each along with an insulated hot water storage tank. This allowed us to supply hot water rapidly, and stored enough water for the second and third shifts as well. A structural design check of the roof confirmed that it was suitable for the additional roof loads.
The project costs were in the medium range. Delivery of the solar panels would take 6–8 months, so we phased the project into the second year. The primary purpose was to get rapid supplies of fairly hot water to the cooking vessels, so that cycle time could be reduced. This would give recovery time to the canteen staff in the event of a power supply glitch. The bonus was that electrical energy savings made it economical as well. The project was justified as a welfare item.
3.4 Results
We completed all the selected projects within three years. When computing benefit-to-cost ratios, we measured or estimated the benefits over a 3-year period (thereafter, they would be influenced by other initiatives as well). The results are described below.
1.Factory Ventilation (HSE)
The air circulation fans were installed more or less on schedule. Some installations were late, caused by delivery delays from the vendor, but all the fans were in place within four months. Our departmental credibility went up a notch in the eyes of the workers.
2.Electricity Supply
There were budget overruns, as the transformers and circuit breakers cost nearly 30% over the estimate. This had to be offset by savings elsewhere. On the plus side, the value of production lost due to electricity supply problems went down by nearly 80%. The benefit-to-cost ratio was 5.5:1.
The power factor capacitor banks and their control systems were very effective. The reduction in electricity bills was better than estimated, and the benefit-to-cost ratio was 6:1.
3.Air Supply
We installed pressure recorders at key points in the three factory buildings. The charts showed that after installing the air receivers, the pressure fluctuations were minimal and well within acceptable limits.
Once the new cooling towers were connected, more than 95% of entrained water was trapped at the supply end. A small quantity was drained from the air receivers, but there was no water to be drained from the low point drains on the air mains any longer. The saw-tooth pipeline design described earlier was abandoned whenever new air lines were laid.
Production loss due to air supply or quality problems all but disappeared once all the new facilities were installed. Computing the benefit-to-cost ratio proved difficult, as there were questions about the number of compressors to be included in the cost figure. The range was 11:1 to 16:1, depending on the cost figure selected.
4.Water Supply
Laying the new water mains proved very time consuming, as the municipality had complex and slow tendering processes for procuring and laying the pipe. There were city streets to be crossed; this required coordination with other city departments and utility companies. Eventually it was completed after about 30 months.
We made better progress with the additional bore wells, about half of which turned out dry while the rest yielded varying amounts.
Meanwhile, the demand was rising continuously. These two projects helped us to meet the demand, but there was no doubt that the problems would worsen in future. We did not compute a benefit-to-cost ratio as it was a survival and welfare issue.
5.Dust and Fume Pollution
The ceramics departments used to be in a permanent dust haze before we installed the new cyclones and larger extractor fans. The haze cleared visibly and quickly, so the workers were happy. But there was an attractive spin-off as well. Most of the ceramic dust recovered from the cyclones could be reused, allowing a small production volume increase and cost savings. What started off as a welfare/health project gave a benefit-to-cost ratio of 2.5:1.
The new fume extraction hoods and fans in the plating department worked well from the beginning. The number of workers reporting sick dropped significantly, so we felt quite pleased with the results.
6.Security of Energy Supply to the Canteen
The solar water heater panel project produced dramatic results. The canteen people were relieved from the tension that prevailed earlier. They could go about their work calmly and with less anxiety. The savings in electrical energy paid for the project within eight months, which was a bonus.
3.5 Lessons
When management gurus talk about vision, mission, and objectives, we may find our eyes glazing over. However, this experience taught me that the gurus are quite right. A systematic approach allows us to objectively evaluate what needs to be done and why.
As engineers, we do not always think in commercial terms; technical excellence is what most of us find appealing. Without an effort to do a cost-benefit analysis, I suspect these projects would have been shot down. When the benefit is 250% of cost (in some cases it was over 1000% of cost), it is easy to convince management. Funds suddenly become available to maintainers and engineers, instead of the much-favored Production and IT departments.
We found that shop floor workers can be quite realistic in their expectations. When it comes to recognizing infrastructure weaknesses, their inputs are often quite useful. Visible feedback that they can see through our actions helps build trust and confidence. Shop-floor staff helped identify the main weaknesses during the two-week review period, not outside consultants. The items they highlighted proved valuable, as all of them had excellent economic or HSE benefits.
That the boss is an important customer is not in question; not recognizing this can be career limiting! However, we should pay heed to the other customers as well, and include their ideas in our plans.
Expectations should be vetted to ensure that they add value and are manageable within existing cost constraints. Only those projects that pass the hurdles should be used to formulate the plan.
3.6 Principles
1.Deciding a line of action pro-actively is distinctly superior to playing catch-up. The vision and the current status give us the means to do a gap analysis and set our objectives.
2.Knowing the customer’s expectations is important, whether these are from management or the shop floor. Asking them directly is better than making assumptions.
1 For this chapter and all subsequent chapters, see Chapter 2 for additional information about location.
... why customer expectations matter
Energy is the essence of life. Every day you decide how you’re going to use it by knowing what you want and what it takes to reach that goal, and by maintaining focus.
Oprah Winfrey, Talk Show Host
Author: V. Narayan
Location: 2.1.2 Automobile Parts Manufacturer
4.1 Background
The company designed and built many of the special purpose machine tools (SPMs) they needed for manufacturing their product range. This work was done by a separate division that had a design office, a large machine shop, and an assembly department. The design group was in close contact with the production and process planning departments. Castings and forgings required for these SPMs were made by third-party vendors to the company’s specifications and rigorous quality standards. The 500 odd staff in this division occupied one building, approximately 60,000 square feet in area.
The company had a principal in Europe and affiliates around the world, making a similar range of products. The company’s European principal decided that SPMs made in this plant were of comparable quality to those made in their European factory. They made a policy decision to increase SPM production in this plant with orders from affiliates being executed here, once additional capacity was established.
The SPM manufacturing, assembly, and testing areas had to be increased significantly. Additional machine tools were required along with overhead cranes, packing and dispatch bays, and a small increase in office space for a larger design group.
Demand for the company’s main product range of fuel injection pumps and spark plugs was also rising rapidly. As a result, the company’s own production process needed additional factory area. The company decided to relocate the SPM division to a new factory to be built on a green-field site. This would release an additional 60,000 square feet in the existing plot to cater to the growth in primary product demand.
They owned a plot adjacent to the existing factory, with a public road dividing them. The plan was to build a new factory building 100,000 square feet in area with its own infrastructure services such as electricity supply, water, and air. The SPM division would thereafter operate as a profit center.
For many years, the company had used a respectable and reliable firm of architects for their civil engineering work. At the time of these events, they were supervising the extension of an existing factory building (described briefly in Chapter 22). While observing this work, I noticed that our own civil engineers and the architects were operating well within their comfort zones.
The architect’s designs looked very sound, but it was not clear whether more economic designs were feasible. We could resolve this question by opening the architectural and structural design work to outside bids. After obtaining approval to conduct a conceptual design competition, we invited other qualified architects. The successful submission would meet specified criteria: customer expectations, cost, and adherence to schedule.
4.2 Customer Expectations
In Chapter 3, we discussed the importance of getting the inputs of shop-floor staff when planning for the future. We applied this principle in planning this project. The starting point was ‘market research’ with our main customers, the workers in the SPM division.
We prepared a questionnaire to evaluate the requirements and expectations of all the people who would be working in the new factory building. The questions tried to identify their preferences with regard to working conditions and services. Specific requirements of specialized groups could be recorded in free text. We selected about 50 machinists and assembly technicians randomly, then interviewed them individually, using the questionnaire as a prompt. We interviewed trade union representatives, designers, and managers as well. The results were compiled and collated so that we had a good idea of the expectations of a cross-section of customers.
As in the earlier exercise described in Chapter 3, we were quite surprised at the number of common factors in their responses. The majority of those interviewed wanted the following:
1.Natural ventilation; in the existing factory, large column-mounted air circulators were used to cool the work area; they did not want these in the new building.
2.Natural lighting.
3.Large spans between columns; some people specified 60–70 feet as the desired span in both directions.
4.Overhead gantry cranes to cover the entire assembly and dispatch bays.
5.At least 20 cubic feet of storage space per machine-tool, for tools, jigs, and fixtures.
6.Dry air supply for machines; in the existing factory buildings, condensed water in the air pipelines had been a major problem for some years.
7.Assured supply of power and water.
There were a few other requirements, but these were relatively minor and could be carried out at low cost during the detailed design.
4.3 Technical Criteria
In the earlier designs of the factory buildings, north light trusses were used. At the time this project was being planned, structural and reinforcement steels were very expensive and in short supply in the country. As a result, the roof structure costs were over 30% of the total whereas the foundation costs were relatively low, because the site was on a solid granite formation. In the most recent design, the weight of the roof structure was about 6.8 lbs/square foot of roof area; in earlier designs, it was nearly 7.5 lbs/sq ft. We decided to inform the participants in the competition that we would expect to see a significant improvement in the structural design over the current performance.
We told them of our desire for large spans, cranes, and other items highlighted in the survey results.
4.4 Commercial Terms
We paid a nominal fee to the competitors to cover part of the costs of preparing their proposals. Under the terms of the competition, they had to assign the ownership of their designs to the company. The company could ask the winning competitor to incorporate features from other designs if that was considered useful.
The competitors were to advise us of their fee structure, which we would incorporate into the final contract to the winning competitor. We included a preliminary project schedule in the invitation to compete, which we asked them to accept on a best-effort basis.
4.5 Selection Criteria
We informed the competitors in advance of the criteria which would be used in making the final selection. They had to meet our technical criteria or, if not, demonstrate why their design was superior technically and commercially. Their design had to be aesthetically pleasing; this of course was a subjective issue. Their fee structure should be comparable to those prevailing in the market, but this was negotiable, if other conditions were met. They had to demonstrate that our project schedule would be met.
4.6 Competition Outcome
All eight short-listed firms submitted their proposals. We opened these in the presence of the two executive directors. A three-person evaluation team selected the two best proposals, and listed their merits and shortcomings. The evaluation team presented their results and recommendations to the directors, who made the final selection.
The selected firm of architects had offered some innovative design ideas in their conceptual design. The roof structure design was even better than we expected, weighing about 6 lbs/sq ft. This would lower total costs by nearly 4%.
Figure 4.1 Folded Plate Design of Outer Walls
The outer walls were designed as a folded plate (see Figure 4.1). The folded plate design strengthened the relatively slim stone wall (about 18” thick) considerably. It was strong enough to withstand the bending and buckling stresses caused by the wind and roof loads. Folded plate designs are normally used for concrete roofs, but using them for the walls was an interesting concept.
The wall section on the inner part of the folded plate had large outward facing top-hinged window panels. The section of the wall forming the outer part of the folded plate walls had a large recess, which could be used for storage of tools, jigs, and fixtures (see Figure 4.1). A thinner outer wall section meant that fewer materials were required, so the walls would be cheaper.
The main columns were spaced at 70 feet × 70 feet. With this spacing, we anticipated some problems with rainwater disposal because the down-take pipes could at best be spaced every 70 feet. This problem had to be solved during the detailed design, and was a situation about which we were aware. The provision for natural lighting was excellent, with large window areas in the outer walls and the north light roof structure design. Aesthetically, their design was pleasing.
4.7 Results
The factory building construction progressed quite well, in spite of many problems, some outside the company’s control. Within a year of ground breaking, most of the building work was completed. For various personal reasons, I decided to take up a new assignment with another company, so I did not see the last stages of this project through to completion.
I visited the factory five or six years later, and was quite impressed with the design. Several machinists and technicians recognized me as I walked through the factory. They offered greetings and expressed their satisfaction with the building. They were proud in the knowledge that their ideas and contributions had helped make their work environment pleasant. The best part was that the overall cost was much lower than if we had persisted in ‘doing business as usual.’
4.8 Lessons
1.Incorporating customer expectations in the design specifications helps optimize plant design. Objectives can be clearly set out at inception.
2.Specifying success criteria at the outset removes subjectivity in decision-making.
3.Paying competing architectural firms a small fee can help get better designs by releasing their creative juices. It also enables company ‘ownership’ of all the designs.
4.Better design features do not necessarily cost more. This example illustrates how they could save money.
4.9 Principles
1.People like to operate within their comfort zones. It is the leader’s job to recognize the symptoms and shake them out of this situation.
2.Consultants (including architects) must pull their weight—they can add value and help make large savings. To do so, they must be given freedom to exercise their creativity.
3.In order to establish trust in any partnership, we need clarity from the outset. If the objectives are clearly stated up front, people usually rise to the challenge.
…with leadership and expertise
It is paramount for leaders to align the organization so that all are working together to achieve the same objectives.
Peter Wickens, Author.
Author: Mahen Das
Location: 2.4.1 Medium-Sized Semi-Complex Petroleum Refinery
5.1 Background
The refinery received its compensation on a cost-plus basis, i.e., it received all its operating cost, plus a fixed percentage of that cost. Each partner paid a sum in proportion to the amount of crude processed for it. In such an arrangement, there was no motivation for the refinery to function cost effectively. In fact, the higher the cost, the higher was the fixed percentage of compensation, i.e., the profit.
Over the preceding decade, the refinery had undergone a major expansion. As a result, it had focused on new construction and start-up activities, not maintenance of assets as a business process. Although the people were generally well educated and competent, expertise and leadership for maintenance of assets had been lacking.
5.2 Prevailing Culture
The working culture was quite similar to that in most other places at that time. Departments were securely compartmentalized. The Operations department called most of the shots. The Maintenance department was at their beck and call. Process technologists and advisory engineers had little to do with the overall efficiency of operations. The Materials department was within the Finance function and, with the mental make-up of typical bean counters, had little appreciation of consequential loss due to low quality of maintenance materials or their delayed delivery.
The Inspection section (within the engineering function) was very conservative, basing inspection intervals on a fixed-time schedule. Although the regulatory authority allowed considerable flexibility, they preferred to play safe. As a result, all process plants were subjected to annual inspection shutdowns during which almost all equipment was opened for inspection. At the time of these events, risk-based techniques such as RCM and RBI had not been introduced in this refinery, as in the process industry in most of the world. Conservative inspection and maintenance engineers only had past practice for guidance (see also Chapter 10 for some more detailed insights into a similar situation).
5.3 Infrastructure
Computerization of maintenance, inspection, and materials business processes was in its infancy. Computers were used largely as work list repositories. Work planning was fairly advanced. For major projects and plant shutdowns, Critical Path Planning with resource leveling was carried out using commercially available software, CASP®™. However, once the project execution began, there was little or no progress toward monitoring and updating the plan. The critical path charts remained as decorations on the wall.
5.4 Shutdown Work
Preparation for a shutdown mainly meant pulling out last year’s work list, adding the current wishes of the operating and inspection departments, and having it estimated and converted to a critical path plan with CASP®™. The operators added tasks such as shutting down and gas-freeing at the front end, and starting up the plants at the back end separately to this plan. Technologists gave their requirements to the operators for adding to the plan. The project engineers made their own separate mini-plans and appended them parallel to the main plan. There was little coordination of the preparation activities between these departments. In the absence of a milestone chart, these preparations were never completed in time for proper award of work contracts—and contract work was required. This meant that there was never enough time for proper competitive bidding, so prices were higher than necessary. Local contractors maintained a skeleton work force of skilled craftsmen. During big projects, such as a shutdown, they hired temporary workers. Often, they hired whoever was willing to work, without regard to skills or experience. Contractors and their personnel were viewed with suspicion by the refinery and always kept at arm’s length.
During execution of shutdowns, the maintenance engineer was supposed to be the coordinator. Other participating departments did not recognize his role because top management never announced it formally. As a result, the execution was as if there were many separate football games instead of one well-orchestrated team.
In the past, management did not formally spell out the objectives of the shutdown. The duration was fixed by the refinery schedulers on the basis of past history. Authorization of overtime work, extra work, additional contract work, etc., was done in an ad hoc fashion, without an overall guiding principle or premise. In short, there were no clear answers to the following questions, before and during the course of the shutdown:
•Why are we carrying out this shutdown?
•On what basis is maintenance and inspection work selected?
•Is the shutdown to be realized in the shortest possible time?
•Is the shutdown to be realized at the lowest possible cost?
•What are the economic consequences to the refinery and its partners if the shutdown is realized a day earlier or a day later than planned?
•Who is the person overall in charge of the shutdown activities?
•Is the work going as per plan?
•Are the costs on track?
Top management rarely, if ever, visited the shutdown site. Cost and time over-runs were accepted as inevitable.
The management team, including the Maintenance and Engineering Manager, considered maintenance as a necessary evil. In their perception, maintenance was primarily the act of fixing things when they broke down. As long as there was a credible story to explain to the outside world why a plant did not deliver its planned production, they were happy. There was no impact on the compensation to the refinery!
5.5 Economic Imperatives
The high cost however, was reflected in the selling price of the products of the refinery. By the time I arrived on the scene, the operating cost had reached such a level that the products coming from this refinery were barely competitive with imports. The refinery ceased to make economic sense and had thus lost its raison d’être!
Inevitably, the threat of a close-down of the refinery loomed, unless it took steps to become competitive with imports. For the first time in its history, the refinery was under pressure to improve its cost performance.
5.6 New Brooms—To Sweep Clean
A new refinery General Manager (GM) arrived at this time. As maintenance cost (always a major portion of the total operating cost of a refinery) was running at a much higher level than benchmark levels, he sensed the urgent need for expertise and leadership for the Maintenance and Engineering function. The person the new GM selected for this job had to have hands-on experience of several years in process industry at various levels of hierarchy in several locations around the world. I was fortunate to catch his attention, and so got the job.
When I arrived to take over the position of Maintenance and Engineering Manager, a planned major plant shutdown was about six months away. It took me about two weeks to sum up the situation. The next task was to change the prevailing mind-sets and behaviors.
5.7 Improvement Process
I decided to use a top-down and bottom-up approach simultaneously. I would explain a principle to the management team, convince them of its benefit, get their commitment to it, and then do the same in my own line. I went through this process applying five principles. Throughout this campaign, I used my daily walk-about in the process units and workshops talking to the people I met. I conducted several shop-floor meetings to explain the five principles.
Using an open door policy facilitated one-on-one debates on relevant topics with anyone who chose to come. This established credibility with staff and helped build a strong case for change. In a period of ten weeks, I explained these principles and obtained the support of relevant personnel and the management team. Cynics were silenced by peer pressure.
The refinery was now ready to try out the new paradigm on day-to-day maintenance, as well as the approaching shutdown, now about three months away.
5.8 The Five Principles
Principle 1—Define a Maintenance Philosophy
Through this step, we defined the purpose of maintenance and the manner in which it would be carried-out, and stated it as follows:
“The purpose of maintenance is to keep the technical integrity of assets secure, and to ensure that their operational reliability is at all times at the level which our refinery business needed. Maintenance activities should be carried out in a safe and environmentally responsible manner. This should be achieved with the maximum possible efficiency so that the overall cost, i.e., the sum of direct and consequential costs, is minimized.”
It took some time and effort to make most people really understand the meaning of this definition; but once that happened, there was visible enthusiasm especially among the plant operators and maintenance workers. For the first time ever, refining economics reached people at the shop-floor level. Indeed these were the people who made things happen! Everyone could clearly see the direction in which the maintenance effort needed to be pushed.
Principle 2—Maintenance is a Business Process, Not Just a Department
This principle attempted to break down departmental barriers and promote team spirit. The general message was that Maintenance, as defined in Principle #1, was a business process which transcended departmental boundaries. Unless all participants in the process—namely, operators, technologists, inspectors, and maintainers—worked as a team, the process would not perform optimally.
Explained in this manner, the principle met little resistance and was readily accepted. The best measure of this was that representatives of all the disciplines started attending morning meetings in the main control room. In these meetings we reviewed the events in the past 24 hours and decided actions needed.
Principle 3—Contractors are Essential Partners in the Enterprise
It was not optimal to carry all the manpower required to do maintenance work using our own payroll. This was because of two main reasons. First, the work load varied a lot. Second, not all skills were required all the time.
Therefore, this refinery, like most of process industry, carried a base-load manpower on its payroll and did peak-shaving using contractors. In our case, the peak manpower, annualized by averaging over the shutdown cycle, was about 30% more than the base manpower. Individual peaks were many times more. Thus, contractors were major participants in the maintenance process; unless they felt part of the team, their performance could not be optimal.
This principle also found ready acceptance except from the Finance function. They needed further convincing that there were sufficient checks in place to prevent malpractice when contractors’ personnel worked as a team with refinery personnel.
Principle 4—Define the Day-to-Day Maintenance Process
We defined the day-to-day maintenance process using the diagram shown in Figure 5.1
Figure 5.1 Day to Day Maintenance Process
The main features of this process are:
•The key participants in the Maintenance process work as a team; priorities are clearly defined and understood, and all work is screened by this team.
•Proactive work is determined with the help of risk-based methodologies; it is planned and scheduled for a long period. This is the long look-ahead plan of known work.
•Emergent work is subjected to daily scrutiny and appropriately prioritized.
•Backlog is used as a repository of work. It is managed within defined parameters, e.g., ceilings on total volume and residence time for each item.
•The current week’s work plan is firm. It consists of proactive work and all high-priority emergent work which was known before issuing the plan the week before.
•Work on this plan will be displaced by new emergent work only if the team decides that it has high enough priority. Otherwise it will be put in the repository.
•The following weeks’ work plans consist of proactive work and appropriately scheduled emergent work from the repository.
•After execution, every week’s plan is reviewed; learning is extracted and applied in the future.
Principle 5—Define the Shutdown Maintenance Process
Figure 5.2 Shutdown Maintenance Process
We defined the shutdown maintenance process using the diagram illustrated in Figure 5.2.
The main features of this process are:
•Well ahead of time, management installs a team leader and identifies future team members of all disciplines. Their roles are clearly defined. The premise of the shutdown is clearly established, from which the objectives may be derived.
•Timely compilation of the work list, including a review of process issues, e.g., catalyst regeneration.
•The team challenges all items in the work list using a risk-based approach. They freeze the revised work list and, thus, the scope.
•Any new work proposed after the freeze has to surmount a tough business hurdle.
•The team identifies contractors at this stage.
•The planner uses a multidiscipline-integrated planning, scheduling, and resource optimization of all work in the scope (people, equipment, cost, etc.). This results in one plan for all disciplines, optimized for all resources. Contractors are fully involved in this work.
•Use of brain-storming exercises to identify alternative solutions for expensive items of work at this stage, e.g., scaffolding rationalization.
•Actual shutdown execution is a seamless and integrated process from the time the feed is cut off until the time finished products start to flow to storage. During this entire period, the team leader is solely in charge and manages daily coordination meetings, daily safety supervisors meeting, completion of inspection before the halfway point, and daily update of plan. The team leader applies a tough business challenge for emergent work.
•Top management including the GM frequently visit the site, show visible support, and get a first-hand “feel”.
•The team leader carries out a post-implementation review and feedback (improvement cycle), soon after completion of shutdown.
I published the new maintenance philosophy document, Principle 1 described above, within three weeks of arrival. The remaining four principles, which were based on this principle, followed in the next few weeks.
5.9 Results
Within a year, the new ways of working were firmly in place. The mind-set and expectations of staff were radically different from those seen just a year earlier. After three years, using an international four-quartile benchmarking scale, the maintenance performance of the refinery moved up two quartiles, and thus became a leader.
5.10 Learning Points
1.Importance and Power of Benchmarking
With the help of benchmarking, the new GM quickly came to realize that one area with poor performance was maintenance. The benchmarks he used were developed by an international petroleum company, also one of the partners in this refinery (see Chapter 8 for additional details). These were used to compare the performance of its numerous child companies all over the world. That maintenance performance needed improvement will be clear from the following popular benchmarking factors:
• Annualized Total Maintenance Cost (TMC) as % of Total Operating Cost, excluding fuel.
In a petroleum refinery, most cost elements are independent of the activity level, i.e., the throughput. These cost elements add together to account for the fixed cost. Of the elements which are dependent on activity level—accounting for the variable cost—the cost of fuel is the most significant. Others, e.g., process chemicals, have a negligible effect in the context of this benchmark. Therefore, if the cost of fuel is removed from the total, the proportion that various cost groups such as production, maintenance, technology, and administration form of the total is nearly constant from year to year. The proportion of the annualized TMC should be about 30%. The GM noticed that in this refinery it was about 45%.
• Annualized TMC as % of Asset Replacement Value.
As the replacement value of an asset varies with inflation and other market forces, so does the cost of maintaining that asset. This ratio, therefore, is quite a good indicator of maintenance effectiveness. When the new GM arrived, this ratio for the refinery was 2.5% as against 1.4% for an average performer and 0.9% for the best performers.
2.Maintaining Focus
Keeping an enterprise or an initiative in focus is a major factor for its success and good performance.
It has been experienced over and over again that an initiative or enterprise will fail unless it is kept in focus by people responsible for it. This focus is often expressed as ‘keeping your eye on the ball.’ Focus is a top-down thing. Unless the top management sends clear signals of interest, the organization below will not respond. In this refinery, the glamorous thing was to build new plants and then commission them, thus being in the limelight. The mundane task of maintaining the existing and the newly-acquired assets was out of focus—and rightly so because there was no reward for good performance in maintenance.
The lack of focus on maintenance was not hard to recognize. I asked the refinery economist to relate the direct and indirect effect of maintenance on the refinery bottom line. When I revealed these numbers to the shop floor level, maintenance suddenly acquired a new glamorous high profile. This also led to maintainers talking to operators on equal terms.
3.Providing Leadership and Expertise
It is not enough to have a group of competent people in an enterprise. Their efforts will be wasted unless there is a leader with relevant expertise who can give direction to their individual efforts. High-visibility direct contact with the rank and file, easy accessibility to them, and leading from the front speed up the rate of progress towards the goal. Daily walks through the plant, shop-floor meetings, an open-door policy, and one-on-one debates with the rank and file help re-establish the focus.
5.11 Principles
Leaders need to understand the true state of affairs and, when necessary, have the courage and energy to take corrective actions. Lack of focus is a fairly common problem and sometimes happens over time due to the plethora of emerging ideas, projects, or external pressures.
The first step is to take stock and unambiguously define the purpose of the enterprise and the philosophy guiding its conduct. Good communication will ensure that every one concerned with the enterprise understands the issues.
Applying Business Best Practices
… focus, alignment, and speedy implementation help to reap benefits
There are costs and risks to a program of action, but they are far less than the long-range risks and costs of comfortable inaction.
John F. Kennedy.
Author: Jim Wardhaugh
Location: 2.2.2 Large Complex Refinery in the Far East
6.1 Background
The organization had a very traditional functional structure. This structure is shown in a simplified way in Figure 6.1. Many of the senior managers were expatriates, but local people were very competent and were rapidly taking up senior positions. The refinery was making lots of money and, at the time, could sell all the products it could make. The focus was very much on throughput.
The company’s attitude was certainly not one of complacency, but neither was there a real thrust to be maximizing profitability. The entire operation was waiting for a spur that would goad it into action. Then it came. A review by an American consultancy company, specializing in process plant benchmarking, showed that the refinery was a relatively poor performer in many important areas. In school report terms, it could do a lot better.
6.2 Reaction
The results of the benchmarking exercise were embarrassing. Nowhere was this more so than in the maintenance area, which was depicted as a very overstaffed and high-cost operation with low equipment reliability (although delivering respectable levels of plant availability). The first response to the benchmarking was one of denial. Many of the hard-working occupants of positions in the maintenance department saw this as an attack on their personal competence and commitment to the company’s performance. The results could not possibly be true. Their second reaction was fury. It was totally absurd that hard-working, committed, and competent people could be shown as poor performers. This just did not make sense. Their third reaction was to seek explanations and excuses. There must be input errors or errors in the analysis and comparison processes.
Figure 6.1 Simplified Organization Chart
However, the results could not just be ignored. Interestingly, action was called for by personnel at all levels, from the top to the bottom of the organization. All had different motivations, but none could live with this slur; all demanded action.
What I didn’t realize at the time was that the responses demonstrated by the workforce were following the classic Bereavement Curve (See Figure 6.2). This curve originated as a result of research by bereavement counselors and is usually attributed to Elizabeth Kubler-Ross. Change managers soon realized that this curve also fitted the classic reactions to many traumatic events in business; it has been used extensively by consultants to track responses to significant change.
Figure 6.2 Bereavement Curve
6.3 Review Process
I was given the task of unraveling this mystery, and identifying the issues and charting a way forward. Because this was my first brush with benchmarking, my first step was to understand the benchmarking process as a totality. I needed to understand how it worked, and what both the terminology and the definitions meant. The second step was to scrutinize the input process which we had used.
The benchmarking input document took the form of an extremely detailed and structured questionnaire which was sent to a number of refineries in the area. Each completed the questionnaire for their own facility. There was some degree of validation built into these questionnaires, but anyone completing them properly needed a good understanding of the benchmarking firm’s terminology and definitions. Teasing out the required information from many sources in a refinery was not easy. It was made more difficult because the in-house information was presented in many different formats and with many inconsistent definitions often slanted to the needs of particular users of this information. For example, we found about four different definitions of overtime, with different variants focusing on hours worked and hours paid and added complexities being introduced if the work was done by shift workers on national holidays.
Handling this data gathering process effectively was not easy; it required a good understanding not only of a number of underlying management and financial measurement concepts, but also the concepts and assumptions behind the benchmarking firm’s definitions. In retrospect, and knowing the importance of correct inputs, a person of high competence with a good overview of the business should have been allocated to the job. However, completion of this sort of questionnaire is not the most glamorous of jobs and it certainly wasn’t seen as career enhancing. So, unsurprisingly, we found that the task had been given to a fairly inexperienced individual.
Once an awareness of all of the above had been gained (understanding would only come later), the next step was to confirm that the input data was accurate, or at least reasonably so. This is where things started to become even more difficult. Although the location was reasonably sophisticated in the use of computer systems, the data sought did not seem to be retrievable in any sort of straightforward way. There were no consistent definitions between any of the computer systems or the various manual systems used in the location. Indeed, definitions were often totally absent; many individuals had concocted definitions as required in an ad-hoc way.
Certainly it was not easy to get the input information required. The sort of information being sought included details of plant utilization, availability, reliability, reasons for downtime or failure, overtime, and costs. It became clear that inspired (and some not-very-inspired) guesses had been made to feed the questionnaire. Indeed, there had been a large number of errors in answering the questionnaire; the data input contained significant inaccuracies. But it was impossible without a lot more effort to make more than guesses as to whether the inputs painted a black or a charitable picture of our performance.
6.4 Characteristics of Refining Industry Top Performers
Information from our benchmarking company and scrutiny of top performers showed that some of the excuses we were toying with as partial justifications for poor performance were invalid. It became clear that the following aspects of a refinery had little impact on performance:
•Age
•Size
•Geographical location
•Feedstock
•Extent of use of contractors
•Organization (functional or business unit)
•Unionization
There were top performers (and poor performers) of all sorts of shapes, ages, sizes, etc. However, what was apparent was that a move away from the traditional command and control regimes of the past would be beneficial.
The “Characteristics of Refining Industry Top Performers” were identified as:
•Clear organizational goals
•Flat organization with increased span of supervision
•Data-based self-management systems
•Good management systems with small management staff
•Emphasis on improved operational reliability
•Intelligent risk taking
•More collaboration and teamwork
•Emphasis upon value-added aspect of each position or policy
6.5 Results of the Review
We had many manual information systems, a Computerized Maintenance Management System (CMMS), and a lot of other computer systems. But these made up islands of isolated data with incompatible definitions. It was common practice to use different terminology to discuss activities around the refinery. We could not easily access such factual data as who was doing what and why. Thus, we had a high technology refinery run by well-educated and competent staff, but groups in the refinery were each speaking their own language. There were some common business objectives defined by senior management, but by the time they had gone through the translation filters of the disparate groups, they were no longer common.
We did not have the ability to define and measure performance in anything other than the crudest terms. We had bought a CMMS and many other computer systems but we hadn’t bought increased visibility. We had almost no idea who was doing what, or why. We didn’t know what the end results were. We certainly weren’t measuring performance and, the more we looked at things, the more convinced we became that we definitely weren’t managing performance. Indeed one manager, when faced with this dilemma, said that we were on autopilot. This seemed doubtful as autopilots do have one target destination. We had many different ones.
We still didn’t have concrete answers or a good understanding of the picture that the benchmarking firm had painted of our performance. However, we found that there was enough factual evidence to identify numerous significant problems:
•Although the refinery had both an overall vision and targets, these had little impact on the efforts made by refinery management and staff. Departments in the refinery were optimizing their efforts based on their own aims rather than on the overall refinery business aims.
•Plant availability at 96% or so was reasonably good for the time. But this level came about largely by providing excessive redundancy of equipment.
•Our reliability effort was unfocused and ineffective. For example, Mean Time Between Failures of pumps was about one year rather than the four years attained by respectable performers.
•Overall costs of doing business were high. For instance, maintenance costs as a percentage of the replacement value of process plant and equipment was over 2% rather than the 1% or less of top performers.
•Maintenance and operations were significantly overstaffed, with too many layers of supervision, and most of the hands-on work was done by over-supervised contractors. Indeed, many of our own fitters had stopped carrying tools as if it was beneath them. This inherent overstaffing was exacerbated by high levels of overtime.
•A huge number of contractor employees arrived at the refinery each day. It was unclear who they were working for, what jobs they were going to work on, and how competent they were. What was certain was that they were having too many accidents.
•There was significant over-management at all levels. Unnecessary authorization hurdles were found; these were causing delays in carrying out fairly mundane activities.
•Productivity was poor with a lot of apparently unnecessary work being done and much of the work being done by a few people. Hands-on-tools time was estimated to be about 30% of the possible time,with many delays.
•A low-risk culture permeated the refinery.
•The Inspection department was consciously acting as a police group separate from the refinery. They looked like employees of the regulatory authorities. There was little apparent business benefit coming from them.
•The Safety department had become emasculated, had no authority, could get little done, and was staffed by inexperienced personnel. The accident rate was increasing.
We wanted to publicize the problems in an easy-to-understand form, so we summarized the findings of the benchmark study and the further internal scrutiny, as in Table 6.1 below.
Table 6.1 Findings of Benchmarking and Internal Scrutiny
6.6 Strategic Decisions on Effecting Change
Contact with the benchmarking firm had jolted us out of our complacency. What was frightening was how easily we had become outdated in our thinking and management styles. The findings of the benchmarking firm and the results of the in-house scrutiny were put to refinery management together with a set of proposals. This prompted a watershed in our thinking about how we were going to operate in the future. Four key decisions were taken which would change things forever:
1.The modern management styles advocated by the benchmarking firm would become our target organizational style (see Figure 6.3, Organizational Characteristics of Top Performers).
2.We would migrate to these as quickly as possible, so that effective change management would be essential (see Section 6.7 below).
3.A set of new computerized information systems would act as enablers (see Section 6.8).
4.The engineering group would be the engine to drive these changes refinery-wide.
Figure 6.3 Organizational Characteristics of Top Performers
6.7 Managing the Change Process
We knew that we were heading for a big upheaval. We were going to change the way the business was run and this would have a significant impact on people at all levels. So we needed a consistent framework in which to manage the changes. The Kotteri approach was chosen.
John Kotteri studied over 100 companies going through change processes and identified the most common errors made as:
•Too much complacency
•Failing to get enough allies
•Underestimating the need for a clear vision
•Failing to clearly communicate the vision
•Allowing roadblocks against the vision
•Not planning and focusing on getting short-term wins
•Declaring victory too soon
•Not anchoring changes in the corporate culture
•Too much management and too little leadership
He made a clear distinction between:
•Management, which is a set of processes to keep complex systems running smoothly and
•Leadership, which defines the future, aligns people, and inspires them to pursue the vision
However, these were the recipes for failure. We were interested in success. For this, Kotter presented an eight-point recipe which we adopted:
1.Establishing a sense of urgency
•Identifying actual and potential major risks or opportunities
2.Creating a guiding coalition
•Assembling a group prepared to act as a team and with enough power to lead the change
3.Developing a vision and a strategy
•Creating a vision to help direct the change effort and developing the strategies for achieving that vision
4.Communicating the vision
•Making effective use of all opportunities to communicate the new vision and strategies, and teaching new behaviors by the example of the guiding coalition
5.Empowering a broad-based action
•Getting rid of obstacles to change; changing systems that seriously undermine the vision; encouraging risk-taking and non-traditional ideas, activities, and actions
6.Generating short-term gains
•Planning for visible performance improvements; creating these improvements; recognizing and rewarding employees involved in these improvements
7.Consolidating gains to produce more change
•Using the credibility achieved from the short-term gains to change systems, structures, and policies that don’t fit the vision; continuous re-invigoration of the transformation process.
8.Anchoring new approaches in the culture
•Getting all parties to recognize the connections between the new behaviors and corporate success; ensuring that the commitment to change was embedded within the leadership succession process
6.8 Effective Computerization
A key part of our vision was either to buy off-the-shelf, or to build and implement quickly in-house, a number of information systems which would act as enablers of new and more effective ways of working. We had already had some success in using computer systems. Although we were fairly low on the learning curve, we were confident that we knew what ingredients were needed in the systems:
•Clear business objectives translated into department and individual performance targets
•Focus on value-adding work
•Best practice business model and workflow processes
•Good organization and execution of NECESSARY activities
•Visible performance measurement to:
•Show what is important
•Show where problems are
•Drive the improvement process
The benefits we were seeking, and were confident of getting, are shown in a simplified way in Figure 6.4.
Earlier we had investigated several computer implementations in a number of refining sites, including our own, in a search for the recipes for success. We found that most systems developed in the traditional way by IT departments had been relatively unsuccessful. Indeed that approach seemed to be a recipe for failure and produced systems which:
•Were large and over-specified
•Formalized traditional work methods
•Became substantially unchangeable when the designers left the site
•Had little positive impact on site culture
More successful projects were run by users, with the assistance of the IT group. They had considerable visible managerial support as well as senior user involvement and commitment. This approach became our model for all system implementations.
Figure 6.4 Benefits from a Computer System
We bought systems off-the-shelf whenever possible. When we had to build our own, we used the unconventional approach of prototyping. A modern programming language enabled a manager and system developer to sit together and quickly make a working system, albeit at the expense of computer efficiency. This “draft system” could be modified quickly, as many times as necessary to produce the required result. The use of prototyping produced effective systems quickly. It also brought some scathing remarks from the IT professionals in other locations. They called our approach “kitchen computing.” Further details are given in Appendix 6-A.
Success was brought about by focusing on the following key aspects of the systems:
•Small simple solutions to problems
•Focus on the key players who use the system most
•System consciously designed to effect an agreed transformation (e.g., to make planned work easy and unplanned work difficult)
•Presentation (screens) exert psychological impact on users
•Real time data, where necessary
•Fast implementation
The results of these efforts were:
•Cheap, simple systems which were dynamic, living, relevant.
•All significant actions of site personnel became visible.
•Poor performers in the workforce (whether engineers, supervisors, or fitters) were identified, embarrassed, and isolated.
•Psychological impact on site tradition, culture, attitudes, norms, etc.
6.9 Initiatives to Improve Performance
The four decisions in Section 6.6 acted as a framework for action. Large numbers of issues were identified. Equally large numbers of corrective actions were initiated and integrated to make step changes in performance. There were too many to cover in this book, but a number of the most significant issues and the related initiatives are explained in some detail in the chapters detailed below:
| • Chapter 8 | Benchmarking |
| • Chapter 10 | Integrating Inspection & Degradation Strategies |
| • Chapter 15 | Managing Surplus Staff |
| • Chapter 27 | Workflow Management |
| • Chapter 32 | Overtime Control |
| • Chapter 33 | Managing Contractors |
| • Chapter 44 | Pump Reliability |
6.10 Lessons
1. Making lots of money does not necessarily imply that you are a good performer (but it can hide the truth and dull your desire to improve).
2. Improvements in performance need to be managed by defining vision and strategies.
3. Misalignment, however well intentioned, must not be allowed.
4. A sense of urgency needs to be established; otherwise, nothing happens.
6.11 Principles
Significant events and changes trigger responses, which follow the bereavement curve. This is true for people at all levels.
Facts demonstrate reality and drive alignment in a way that opinions never can.
Reference
Kotter, J. P. 1996, Leading Change. Boston: Harvard Business School Press. ISBN-10: 0875847471.
Appendix 6-A
Rapid Creation and Use of Simple Cost-Effective Computer Systems.
6-A.1 Business Aims
The aim of each system should be to bring increased business benefits. Any other reason is probably invalid. If we need to improve the profitability of our plants, we need to improve reliability and availability, and to optimize the capital and revenue costs of our operations.
6-A.2 Effectiveness Of Information Systems
We studied a number of information system implementations in various locations in the company. Few opportunities had been grasped to use computer systems as enablers of new ways of doing business. We became convinced that many of these implementations had actually made things worse. Relatively user-friendly paper systems had been replaced by unfriendly computer systems. However, in a few locations, we saw how modern computer systems could be effective vehicles for significant improvements in performance and cost.
Because we had seen so many poor implementations, we sought the recipes for failure and success. These are shown in Sections 6-A.3 and 6-A.4 below.
6-A.3 Features of Poor Implementations
•Implementation run by IT group
•Benefits intangible
•Replicates old paper systems and past work procedures
•System is avoided by workers and largely ignored by management
•Almost unchangeable
6-A.4 Features of Most Successful Systems
•Project run by users with assistance of IT group
•Considerable visible managerial and senior user involvement and commitment
•Shared ownership between Operations and Engineering, etc.; the systems are seen as a site wide repository of data and a facility which can be used by all
•Clear focus on the benefits expected, how these will be achieved, and by whom
•Systems designed for easy use
•They give benefits larger than the input effort to all levels of user and have support of all levels in the organization
•They are a good cultural and organizational fit
•One-stop shop for all required data
•Critical to day-to-day activities, to ensure use; this prevents them being bypassed and valuable data and history lost
•The systems contain “used” indicators of performance
•All significant activities, events, and performance are made visible
6-A.5 Creation and Implementation of the Computer System
•Project management: A key factor in bringing success was that users ran the project in partnership with the IT group. This notion, which these days is called “client-led,” is very different from “client-centered” where users (the clients) are consulted rather than direct ing and managing. The modern term “client-led” is chosen to em phasize that clients are in control of the total process. System analysts and other specialists provide the clients with methodologies, tools, and techniques necessary to manage and control the process.
•We felt instinctively that this was the right approach; modern system development is aligning on this style. Today’s arguments for this approach include:
•An organization’s information system needs are difficult to define (especially by an outsider)
•IT analysts tend to drive for technological solutions
•Modern information systems must take account of the intertwined mix of hard needs, soft issues, and individual agendas
•Introducing new methods brings feelings of insecurity that need to be managed effectively
•Data and System Development Roadmap: It had been found that data was in a whole series of unconnected data islands with a variety of data definitions, preventing effective transfer and correlation of data. A project to rationalize data definitions and produce a consistent refinery data model was set up to run in parallel with the creation of small business systems. Prime focus was put on data that would be used in performance indicators to drive business improvements. A simplified overview is shown as Figure 6-A.1
Figure 6-A.1 Data Overview
It was necessary to have an overview of the refinery needs. This overview is shown in Figure 6-A.2
We prepared a road-map of the systems to give a visual picture of the end results (see Figure 6-A.3).
6-A.5.1 Use of Prototyping Techniques
There are some myths, which, if not recognized, lead inevitably to problems in developing systems:
•Users know exactly what they want.
•All users have identical needs.
•Users can effectively communicate their needs to computer people.
•Users needs never change.
Figure 6-A.2 Major Applications for Process Industry
Figure 6-A.3 System Roadmap
Few users can design a new information system in an abstract atmosphere. But this is what the standard “efficient” way of developing an information system asks for. It asks you to identify and freeze requirements. If you can’t visualize it but are forced to guess anyway, it is not surprising that end results are unsatisfactory.
A tangible demonstration to the users of what the system will do, and how, is essential to build confidence. Also essential is the ability to quickly change things to achieve a better optimization, either because the world changes or because your idea of what you want the system to do, and how, changes.
If you are buying an off-the-shelf system, things can be easier; we bought these where possible. We seemed to be ahead of the game in a number of cases so we had to create a number of our own systems, in areas such as
•Overtime.
•Scaffolding
•Permits
•Maintenance workflow and productivity
•Contractor management
•Equipment data
•Risk-based inspection
The prototyping approach to system development can provide a flexible way of creating systems. It assumes that change is inevitable and uses software which produces working systems quickly, but with an inefficient use of computer resources. It does this by its approach (see Figure 6-A.4) and through the use of a 4th or 5th generation language.
The steps in the approach and time scale for developing a typical small system are shown in Figure 6-A.5
Figure 6-A.4 Prototyping Approach to Application Development
Figure 6-A.5 Prototyping Development Time Scale
6-A.6 Training
People need familiarity and confidence in the work flow, new business processes, procedures, and the new computer systems which are supporting them. We found that it is not effective to leave all this to the vendor.
A coordinated approach was found to be a winner, where the vendor acted as the technical expert training IT people; and site personnel were taught by the site’s focal points.
Notes:
1.Site focal points were chosen because of commitment to the cause and interest in success. They were usually people of stature and informal leaders in their groups. There would be a focal point in each geographical and discipline area. We did not choose those who were computer geeks.
2.IT personnel received extensive training on hardware, software, back ups, software, and language from the vendor. This could take a month depending on prior knowledge.
3.The system administrator had a week of intensive training at the vendor’s office on configuration and optimization.
4.User focal points had a week of on-site training by the vendor.
5.Managers and supervision had a day learning how to use the system and a day on how to extract benefits.
6.Technicians, operators. etc., were trained by focal points. The amount of training for an individual varied with the number of functions she or he used, and could vary from two hours to a week. We found we needed to allow one hour of training for each piece of functionality used and then allow for another hour of practice.
It is important to focus training on the specific needs of the group. It is not cost effective to try to train everyone to do everything. If the function is not practiced within a few weeks (or, in all likelihood, days!), the learning is lost. Several training packages, each focused on particular user types, should be made up from combinations of basic modules. For example, for a CMMS, you might select
•Work request creation, scheduling, executing
•Updating history
•Equipment register
•Getting material
•Getting permits
•Queries and reports
A mix of classroom training (maximum 6 participants) plus guided self-learning
•Training (rather than practice) should not be programmed for more than three hours a day
•Put a training system (simulator) filled with relevant data on site for users to practice on
•Training sessions to be “just in time” and no more than three weeks before hands-on opportunity
•Concentrate on core users at first
•Don’t just explain how to use the computer system. Explain in simple language the cultural and work practice changes to be expected.
6-A.7 Lessons
1.The traditional approach to systems development seems to be a recipe for failure and produces systems bringing little business benefit.
2.The unconventional use of prototyping produced effective systems quickly.
3.The result was cheap, simple, quickly implemented systems which were dynamic, living, and relevant.
Evaluate Contractors’ Unit Rates
A cynic is a man who knows the price of everything and the value of nothing.
Oscar Wilde
Author: Mahen Das
Location:2.2.1 Liquified Natural Gas Plant
7.1 Background
In my capacity as an internal maintenance and reliability consultant, I visited this LNG plant to review their performance. Contracting efficiency and value for money obtained was one of the items reviewed. The company was a fairly mature operation and had a number of contract companies for maintenance work. These contractors had been established during the construction of the facility and had grown with it.
The company had set up norms for the effort required to carry out various types of maintenance work. These included man-hours required for or cost of:
•Manual excavation of 1 m3 of earth
•Thermal insulation of 1 m of 4” pipe at ground level
•Building tubular scaffolding from ground level, per m3
•Inserting a 4” 150# spade
•Grit blasting per m2 of steel surface at ground level
•Painting per m2 of steel surface at ground level
There was a tiered quantity-discount scheme in place for all types of work. They also had agreed rates per man-hour for different trades, including
•Pipe-fitters
•Welders
•Scaffolders
•Grit-blasters/Painters/Insulators
The unit-work rates had been established some years earlier. These had never been reviewed. The man-hour rates had also been established some years ago and regularly increased, based on inflation. For the past two years, however, the contractors had voluntarily foregone inflation correction, claiming that inflation would be neutralized by improved productivity of their workers. The management was pleased with this position.
7.2 Evaluating the System
Using call-off contracts, supervisors could easily farm out most of the day-to-day maintenance work with selected contractors. On completion, they could measure the executed work in the specified units. The contractor would submit an invoice based on the approved rates.
Together with an engineer from the company, I followed a maintenance job from initiation to completion. The job was to pull a spade from a 4” 150# line containing product after it had been prepared and made safe for maintenance work. The job was executed by a contractor. The work permit was obtained, the necessary precautions were taken, and the job was completed efficiently by the two contractor’s fitters assigned, without any incident or hold-up.
From the moment the contractor’s fitters were involved up to the time they went away, it took a little less than one hour. At this time, I was not familiar with the agreed rates, but on the basis of my observation, I expected that the contractor would invoice the company for 2 man-hours of work. When the actual invoice arrived, prepared strictly in accordance with the agreed norms, it was for 8 man-hours. The schedule of rates indeed specified an effort of 8 man-hours for removing a 4” 150# spade from a line at ground level, and for remaking the joint. The company’s engineer who accompanied me was more embarrassed than shocked. His embarrassment was caused by the fact that such gross discrepancies had not been discovered earlier. They had simply been accepting the norms which had been agreed between them and the contractors.
7.3 Reviewing the Existing Norms
After this observation, the maintenance and engineering manager of the company agreed to carry out a review of the existing norms immediately. He then realized that there was no one in his organization who was sufficiently confident to make time estimates of maintenance activities. This explains why no one had thought of reviewing the norms until now. I suggested a two-man team be formed to work under my guidance. One would be an experienced supervisor and the other the engineer who accompanied me earlier. They soon realized how simple estimating was if one used real-life experience and common sense. I guided them for the first few items, after which the two of them carried on, on their own.
The review revealed that all items of work were grossly over-estimated; some, such as the de-spading work we had observed, were over by a factor of 4! No wonder that the contractors had “voluntarily” given up the inflation correction for the past two years.
7.4 Corrective Actions
When the contractors were confronted with this, it was not difficult to get them to accept that the existing norms were indeed grossly over-estimated and should be reviewed. They agreed to reduce the existing norms by 25% across the board with immediate effect, while the review got under way.
A joint company/contractor team was set up to formally review and agree revised norms on an urgent basis.
7.5 Benchmarking and Results
On return to my base, I initiated an intra-group benchmarking exercise. The purpose was to compare the norms for unit maintenance activities which were agreed between other associate companies and their contractors. A number of companies welcomed this and agreed to participate. Data gathering and processing took some time and effort. Once accomplished, however, this proved to be very useful. The product was regularly used during subsequent performance reviews. Many companies realized for the first time how far their norms deviated from that of their peers. Although some deviations could be explained by special local conditions, these benchmarks provided a basis for constructive discussion between contractor and company.
Some of the results, together with the question which generated that unit rate, are illustrated in Figures 7.1 to 7.7. Locations are marked AAA, BBB, etc., to protect their identity.
Excavation
Carry out excavation activities to expose an underground pipeline—to inspect the protective coating system, check for corrosion, and take wall thickness measurements. The soil surface is not covered by pavement or any other cover; the excavated soil can be put along the trench (the soil is not contaminated so the excavated soil in total can be put back). The total amount of soil to be excavated and backfilled is approximately 30 cubic meters. See results in Figure 7.1.
Figure 7.1 Excavation & Refilling—Relative Costs
Insulation
Removal of cladding (galvanized iron or aluminum sheeting) and rock wool insulation over a length of 30 meters of a 6” and a 12” pipe, lying next to each other, in a pipe bridge of approximately 6 meter height. The lagging and rock wool insulation are in good condition and can be put back after inspection of the pipe. Scaffolding and grit blasting or power brushing are excluded from the contract. See results in Figure 7.2.
Figure 7.2 Insulation Removal and Replacement—Relative Costs
Scaffolding
Erect and, after use, remove tubular scaffolding for the above-mentioned example (insulation work on a pipe bridge) to the local safety requirements. See results in Figure 7.3.
Grit Blasting
The 6-inch pipe mentioned in the example for insulation needs to be grit blasted to SA 2.5. Estimate man hours. See the results in Figure 7.4.
Figure 7.3 Scaffolding—Relative Costs
Figure 7.4 Grit Blasting—Relative Costs
Spading/Despading
As part of a job, spades have to be placed to isolate a vessel. For this purpose, 4 nos. 8” 300#, 4 nos. 6” 300#, and 6 nos. 2” 150# spades have to be installed in the existing line work. Estimate man hours required per spade of each size, including cleaning the flange faces, placing new gaskets, placing new stud bolts, and de-spading after the job is completed. See results in Figure 7.5.
Figure 7.5 Spading/Despading Pipes—Relative Costs
Figure 7.6 Welding 4”, 6,” and 10” Pipes—Relative Costs
Welding
A few lines in the pipe bridge mentioned in the examples above need to be renewed; each has a length of approximately 30 meters. These pipes are 4”, 6”, and 10” in size; all are schedule 80 carbon steel. Safe-to-work preparations, scaffolding, and insulation work are done by others. Please estimate man-hours per completed weld of each size, including joint preparation, grinding, alignment, and welding. See results in Figure 7.6.
Valve Gland Packing Renewal
During a shutdown, various types of gate valves need to be repacked (all old packing rings to be removed from the stuffing box and renewed). The total number of valves to be repacked is approximately 40 pcs of sizes 4, 6, and 8 inch. Estimate the man-hours required per piece of each size. See results in Figure 7.7.
Figure 7.7 Valve Gland Packing—Relative Costs
This kind of benchmarking proved quite simple to carry out. It proved useful in checking contract prices and in preparing estimates prior to inviting competitive bids.
7.6 Lessons Learned
1.Although competitive bidding is a safeguard against overpricing, it fails when contractors form alliances.
2.All norms should be reviewed regularly and updated if necessary.
3.An outside pair of eyes can reveal weaknesses in your systems, which you yourself are too close to observe.
4.Benchmarking is a powerful tool for assessing comparative performance.
7.7 Principles
Without in-house capability for making realistic estimates, there is no way of knowing whether you get value for money from your contractors.
Externally-enforced maintenance cost reductions can hurt the long-term viability of the company, cutting away some flesh and bone along with the fat. Internal audits of current practices can help identify out-dated procedures that add costs without adding value. Some of these practices may have started off as well-intentioned streamlining exercises, to improve efficiency of repetitive work. Periodic audits will demonstrate that controls are constantly reviewed, and thus minimize external pressures.
Benchmarking is about being humble enough to admit that someone else is better at something than you; and wise enough to try to learn how to match and even surpass them at it.
American Productivity and Quality Center.
Author: Jim Wardhaugh
Location: 2.3.3 Corporate Technical Headquarters
8.1 Background
Our little group was providing a benchmarking and consultancy service to our own facilities and to a few others with whom we had technical support agreements. These sites were scattered around the world. They operated in different geographical areas, under different government regulatory regimes. They were of different ages and sizes; they used different feed-stocks to make different portfolios of products. Our task was to scrutinize data from these locations, identify those whose performance could be improved, and arrange to help those who needed it.
8.2 Company Performance Analysis Methodology
We had a systematic methodology for capturing performance data from the sites. There were structured questionnaires asking for relevant data. These were backed up by copious notes explaining in detail the methodology, terminology, and definitions. Some returns were required every quarter while the rest were required annually. Each client location would then send the requested data, which was checked rigorously for any apparent errors. The data was used by a number of different groups in the head office, each looking at different aspects of performance. Our group looked at aspects of maintenance performance.
We did not want to ask a site for data that it was already sending to the head office in any report. So we took great pains to extract data from a variety of sources. In this way, the input effort by the sites was minimized and little additional information was needed from them.
When satisfied that all the data looked sensible we massaged the data to identify the performance of each site (or a facility on that site) in a number of ways. The main performance features published for each site were:
For each of the major plants on site [e.g., Crude Distillation Unit (CDU), Catalytic Cracker (CCU), Hydro-cracker (HCU), Reformer (PFU), Thermal Cracker (TCU/VBU)]:
•Downtime averaged over the turnaround cycle (whether 3, 4, or 5 years). This smoothed out the effect of major turnarounds (also called shutdowns)
For the whole site:
•Maintenance cost, averaged over the turnaround cycle, as a percentage of replacement value
•Maintenance cost, averaged over the turnaround cycle, in US$/bbl.
•Maintenance man-hours per unit of complexity.
This information was published annually and provided in a number of forms, but the two most common provided comparisons with their peers and were:
•A straight-forward bar chart showing a ranking from best to worst (see an example in Figure 8.1).
•A radar diagram which sites found useful because it could show at a glance a number of aspects (see idealized version in Figure 8.2). Comparisons could then be made against the performance of the best (see Figure 8.3).
On each spoke of the diagram, the length of the spoke represents the actual value for each facility. The shaded polygon shows the data points for the best performers; these are the values of the item in the ranked order, one-third of the way from the best to the worst performer.
Comparisons were made against two yardsticks:
•The average performance of the group of plants or refineries
•The performance of the plant or refinery one-third of the way down the ranking order.
Because the facilities were of different sizes and complexities, we had to normalize the data. We used a number of normalizing factors to achieve this. For example, when measuring maintenance costs, we used factors such as asset replacement value and intake barrels of feedstock as the divisors.
These divisors gave different answers and thus somewhat different rankings. Not surprisingly, those deemed to be top performers, liked the divisor we used. Those deemed poor were highly vexed. Although there were exceptions, whatever the divisor used, those in the top-performing bunch stayed at the top, those in the bottom bunch stayed at the bottom. Only minor changes in position or performance were identified. Those in the middle of the performance band could show significant movement, however. Normalizing methods are discussed in Appendix 8-B.
Figure 8.1 Example ranking on a bar chart
Figure 8.2 Idealized radar chart
Figure 8.3 Realistic radar chart showing plant performance
8.3 Benchmarking Consultant’s Methodology
As noted above, we had minimized the input effort for the in-house methodology. The benchmarking consultant, however, scrutinized in detail a much wider area of refinery performance. Each site had to make a significant input effort. This effort was made even greater because the consultant used terminologies and definitions that were different from those used in the regular company reports.
This benchmarking exercise was carried out every two years. Although we invited all refineries to participate, not all did. As explained, this was because of the cost and effort involved. However, enough did participate to enable us to rank company performance with those of peer competitors.
8.4 Recipe for Top Performance
By using data available from in-house returns and from benchmarking studies, it is possible to make comparisons/rankings of individual facility performances in a number of specific areas.
However, this number crunching can only take you so far. It does not tell how good performance is achieved. What do the top performers do that makes them different and more successful than their poorly-performing peers? Figure 8.4 shows where top performers differ from poor performers.
Figure 8.4
8.5 Driving Improvements in Individual Locations
Benchmarking is about improving business performance, so there are more aspects to consider than simply measuring some readily available numbers. Essentially the steps needed are as follows:
•Identify the key business processes that you need to do well to bring success.
•Understand your business processes thoroughly.
•Measure your performance.
•Measure the performance of good-performing peers (making sure terminology and definitions are reasonably consistent).
•Understand the business processes that bring this good performance.
•Consider whether these practices will work in your own company.
•If so, manage a change process to make it happen.
A simplified overview of the benchmarking process is given in Figure 8.5.
Figure 8.5 Benchmarking Overview
8.6 Partnering Process
Conceptually we thought we knew how to bring top performance to a business. We wanted to start delivering this know-how to the refineries and start them off on an improvement track. What we didn’t have was the essential detailed information carried by staff in each location. Obviously walking into a location with a “We know it all” attitude would not work. Some partnering arrangement was vital to complete the picture and provide synergy. Conceptually this is shown in Figure 8.6.
Figure 8.6 Partnering Overview
8.7 Delivering to the Sites
Workshops and Publications
We broadcast the message in workshops, papers, and company publications. People became used to the terminology and the general idea. We offered consultancy visits to assist them in the improvement process. Not surprisingly, most of those who replied were top performers. However, we managed to get a mix of locations so that our visit did not label a location as “failing” in any way.
Preparing for a Site Visit
Arrange a scouting visit to the site to smooth the path for a full visit. This is best done by one person or two as a maximum. They must be prepared for in-depth discussions with the site management. There should be no hidden agendas so it is important for both parties to be open and honest about the aims of the visit.
Each party must table information from all relevant sources to highlight perceived problems. The head office had only a limited amount of information about the site so it was important to get detailed site information to analyze before the formal visit. This may not be immediately available so a standard list of required information is useful.
There may be a complete understanding between the team from the head office and the site management but that doesn’t always exist for site supervision and the workforce. Briefings or a simple mail-shot to advise the site what is going on, are essential. Also it is necessary to agree what information can be released to site personnel.
Agree on the team composition. This should reflect the focus of efforts, but areas scrutinized would always include Operations, Maintenance, Inspection, and Instrument/Electrical staff.
Physical facilities. Arrange for a room big enough for the visiting team and possibly a clerk. Additional space needs to be available for discussions.
Get a “gopher.” These are people who can go for this or that and do it effectively. They can help you identify and arrange access to sources of information. Effective gophers will tell you also how the organization really works and who are the movers and shakers. They should arrange one-to-one interviews for team members so that they can hit the ground running.
Team Visit
Start with introductions to as many people as possible so your faces become familiar as soon as possible. Then you are into interviews to collect data. Initially go for a neutral data collection in the identified key areas. Use non-threatening but competent questioners. Understand and use site vocabulary and definitions to make the site comfortable, but ensure you can correlate these with your own.
There are five golden rules:
•Always interview on interviewees’ home territory.
•Don’t make inter-site comparisons while collecting data (otherwise you get into competitive and defensive modes).
•Never ask someone for information that you wouldn’t give yourself.
•Cross check all information from a number of sources.
•Show draft conclusions to “partners” in the target location.
It is easy to see what you want to see. Therefore, analyze the data thoroughly; don’t jump to conclusions. Make sure you have captured the real issues, the real performance, and how it is achieved. People too often tell you what they’d like to believe themselves.
Roadmap and Follow Ups
Before leaving, identify action items, action parties, timetable, and follow up methods (possibly a role for the gopher). It is good to quantify the benefits, however roughly, as this does add impetus.
8.8 Results
This proved to be a very successful process. In the initial stages, there was some resistance, especially from the poor performers. Within two years, results from those locations who took part in the process demonstrated the value of the process to the rest. We had refined the process itself continuously during this period, so new entrants experienced a mature approach. We had a high demand for this service, with a waiting list of about 18–24 months. The head office expanded these services to third parties on a commercial basis. Eventually the unit became a major global service provider in this area.
8.9 Lessons
1.Busy people at busy facilities do not welcome demands from the head office for information, especially if that information might be used to show them in a bad light. So when collecting data, try as far as possible to use information in existing reports and returns. The fewer times that demands are made on a site, the more likely it is that they will report accurately and on time.
2.Perfection and absolute accuracy are the Holy Grail, but not worth the benefit. The aim should be to produce a good enough result with as little effort as possible.
3.Top performers run their businesses in a similar way, focusing on a number of key aspects, which bring business benefit. These are well known, as are the factors, which don’t matter significantly.
4.Poor performers put their efforts into excuses and the wrong things.
5.When giving advice to sites, it is important to be welcomed. You can’t force people to take advice.
6.Measurements need a consistent set of definitions measured in a consistent way.
8.10 Principles
1.Knowing where you are is the first step in an improvement effort. Knowing what to do about it is not always obvious. We can seek recipes from top performance—and use them.
2.In-house and inter-site comparisons will take you a long way, but it can become incestuous and self congratulatory. The market is the best leveler; it is necessary to benchmark against others.
Appendix 8-A
Vocabulary and Terminology
8-A.l In-House Terminology
Plant availability, reliability, and utilization are shown diagrammatically in Figure 8-A.1.
Figure 8-A.1 Availability, Reliability, and Utilization
8-A.2 Benchmarking Consultant Terminology
One leading consultancy dealing with refinery benchmarking uses a term called Equivalent Distillation Capacity (EDC) as a measure of size and complexity. The following definitions are based on their web site, presentations, and publications.
Annualized Turnaround Cost. Total turnaround costs divided by the turnaround cycle in years.
Availability. 100% minus (annualized turnaround downtime plus a two-year average for routine maintenance downtime)
Average Run Length. Mean on-line time of a process unit between stops. Complexity. Refinery equivalent capacity divided by crude intake capacity.
Equivalent Distillation Capacity. EDC of a unit is capacity multiplied by complexity factor. Total EDC of a refinery is the sum of the EDCs of individual units. This refinery EDC is used as a divisor to normalize aspects such as costs, personnel numbers, etc.
Equivalent Maintenance Personnel. Total number of company’s own man-hours + number of contractors man-hours + annualized turnaround man-hours including all overtime divided by 2080 (52 weeks × 40 hours).
Maintenance Costs. Total maintenance costs including capital replacement items, averaged over two years for routine maintenance and over a complete cycle for turnaround maintenance.
Maintenance Index. Maintenance costs divided by EDC.
On Stream Factor. 100% minus percentage of all downtimes (maintenance and others).
Replacement Value. Investment needed to replace refinery in its same location.
Routine Maintenance Index. Routine maintenance costs averaged over two years divided by EDC.
Turnaround Maintenance Index. Annualized turnaround costs divided by EDC.
Utilization%. 100 × total annual intake in bbl divided by (365 × annual design capacity in bbl/day).
Appendix: 8-B
Discussion on Normalizing Different Facilities
8-B.1 Possible Normalizing Factors
The following lists a number of normalizing factors usually used to try to cope with the differences found in facilities:
•Intake barrels or tons
•Replacement value (RV)
•Mechanical complexity of the plant (MC)
•Equivalent Distillation Capacity (EDC)
People often suggest (especially the poorer performers) that as a basis of inter-refinery comparison, such lists can be misleading, unfair, and certainly limited in their use as league tables of performance.
8-B.2 Comparison of Methods
Conventional financial reporting is extremely difficult to use for performance comparisons between refineries for the following reasons:
•Profitability. Return on investment or cash flows are not generally reported for individual facilities separate from their marketing and ancillary functions. They are too far removed from the supply sources and the market place to use actual trading values; therefore, transfer values have to be devised. These, however, are often driven more by taxation and where it would pay to take profits, than reality. Also, because of the volatility of market prices, results achieved do not necessarily reflect operational efforts.
•Asset values. Such book values are distorted by financial practices as well as by varying capitalization and depreciation methods. Yet they do reflect the age of assets to a degree. Although useful in the business world, asset values are not a particularly useful basis for intersite comparison worldwide.
•Volumetric divisors. Divisors such as intake quantities may reflect the size of a facility, but they do not make allowance for downstream costs of operating added-value processes, i.e., complexity/conversion factors. One leading consultant uses an Equivalent Distillation Capacity (EDC) which attempts to relate size and complexity. Many people express reservations about this methodology. It is rather artificial and difficult to sell the EDC concept to middle management and supervision as a motivating tool. People can see barrels, but not EDC. However, it has become widely used and accepted in management circles
•Complexity indices. These indices, which use the amount of equipment, are liked by engineers as they can easily visualize these as maintenance workload. By giving suitable weightings, these can be made to correlate with other normalization factors. These tend not to have credibility in fields outside engineering
•Replacement Value (RV). This is a popular divisor. Values show wide differences between similar plants located in different regions. UK and Japan show significantly higher replacement values than Continental Europe and Australia.
•In Australia, the RVs are deliberately kept as low as is believable because the local authorities use them to determine local taxes.
•When derived for insurance purposes, there is an equally powerful drive for minimization, as long as it is believable.
•One consultant calculates an estimated replacement value(RV) for each process facility considered in their studies. Although the methodology is proprietary, their RVs are almost directly proportional to their EDC values. We found at the time that they were approximately 60% of our company’s quoted RVs. Possibly this is because of their simplification of ignoring facilities such as their own utilities and generation, and assuming optimized size of tank farms, jetties, pipelines, and other peripheral activities. The valuations seem to be based on modern designs and technology; this penalizes the older plants with their piece meal modifications over the years.
8-B.3 Concluding Thoughts
Each divisor has some advantages (easy availability) and disadvantages (varying degrees of inaccuracy).
As a leading benchmarking firm once remarked, “A dog is a dog however you measure it!”
Reality brings us to three divisors:
1.Intake barrels per day as it is immediately available and free; but the answers should be viewed with caution.
2.Equivalent Distillation Capacity (EDC) as it is becoming widely adopted in the refining world.
3.Replacement Values, but see the caveats below:
•They should not be too influenced by insurance, financial, or rating considerations.
•The traditional method of escalating original as-built costs, using published international construction indices, should be used with caution as the final values can be unevenly distorted and defeat their purpose.
•The calculation should take reasonable account of standard and special-process plants, utilities, off-sites including major pipelines and jetties, and offices.
