SCM at Shell
Source: Business-improvement.eu
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![]() Shell improves their inbound supply chains By Dr Jaap van Ede, editor-in-chief business-improvement.eu, 20-09-2021 Factories of Shell have fluctuating demand for labour and materials. However, until now there was no integral way to plan, source and deliver the right mix, just-in-time. There was a lot of silo-like behaviour; planners, buyers and logistic managers did not work together. About 2 years ago, this started to change. As a result, the supply chains towards the assets of Shell become increasingly more reliable and efficient. We have two kinds of supply chains, explains Sanchay Roy, supply chain transformation lead at Shell. ‘Our primary supply chains handle the transport of hydrocarbons, like crude oil, gas, LNG, and finished products we make out of these commodities. These primary chains connect our plants, or assets as we call them, mutually and with our customers’ ‘Our secondary supply chains, also called our non-hydrocarbon supply chains, run towards our assets. They ensure the timely arrival of the right people and materials, for smooth-running operations, maintenance, projects and turn-arounds. Just-in-time arrival of people and materials is very important, since any disruption can cost millions of euros per day.’ Among the, often hired, people are engineers, repairman, contractors and turn around teams. ‘The rmaterials that are required range from simple items, such as filters, to very complex components, such as large valves.’
‘Besides this, we had no common management system that described how the supply could be optimized. Unilever and for example Philips, in which I worked for several years, lay far ahead of us regarding this.’ An even better example is Toyota and their famous Toyota Way. ‘It dictates how their factories operate, regardless of the place where these are located. The Toyota Way covers the type of leadership, the learning cycles, and a common language for continuous improvement. We wanted a similar Shell Way.’ Three types of assets The third and final category are refineries and chemical plants, that produce end products. The refineries in Pernis and Moerdijk in The Netherlands are for example part of this group. ‘Historically, Shell grew by way of acquisitions and joint-ventures. This is one explanation that most assets used to operate in a rather silo-like way’, explains Roy. ![]() The Bonga oil platform of Shell in the Gulf of Guinea near Nigeria
All these extra materials turned out to be no insurance for smooth operation. ‘When we analysed the situation, in two-third of the cases the right people and/or materials still were not available when needed. So the safety stocks at for example an oil drilling platform were not only too high, but also encompassed the wrong items.’ Besides this, large safety stock brings two disadvantages. ‘First, an item that you urgently need, may be hard to find. Second, the inventory turnover rate sometimes was seven to nine years, or even more. As a result some materials like for example valves turned out to be unusable when needed, because these had been stored improperly or were simply too old. In that case, a new item still had to be ordered in a rush, at high cost.’ Unclarities This is not due to the transportation time, since with a plane and then a helicopter one week would be enough. ‘The problem is that components are often specially designed for us. If we need a new item, sometimes redesigning is needed. Then the item must be produced and assembled, with components that must be delivered by sub-suppliers. Next, a lot of other steps follow, like customs clearance. Especially between steps extra delays are possible, because of unclarities or missing information.’ To summarize, each asset of Shell not only managed its own supply chain, which made it impossible to exploit synergies. In addition, the inbound supply chains where (1) far too expensive due to high satety stocks, and (2) the supply of the materials did not ensure smooth operation! No feedback loop This led among others to the aforementioned situation where an extra valve was ordered as ‘insurance” against a long lead time, regardless if this valve was really needed. Preventive maintenance was included in the planning, but also this was not an integral part of supply chain management. The same could be said about procurement.’ ![]()
An asset like an oil platform needs materials and people for drilling, operation, maintenance and for turnarounds. Needs associated with these activities were planned separately. ‘As a result for example two helicopters could fly towards an oil platform within a short period, with e.g. materials and a team for production, and with materials and a team for maintenance.’ Full truck loads Like for example truck manufacturer Scania, known for their Lean supply network, Shell strives for just-in-time delivery from their ditribution centres, with full truck loads . For Shell this is extra complicated because this company is active in countries with relatively poor infrastructure, like Nigeria. Integral approach This approach, for which Sanchay Roy is responsible for Europe, Middle-East and Africa (EMEA), becomes part of Shell’s new and standardized asset management system worldwide. This is the afore mentioned Shell Way. By 2025, there should be one standardized, integral and digitalized approach to supply chain management around the globe. ‘The North Star is to make every day excellent for our frontline workers’, says Roy. Excellent means that there are zero supply-chain related production losses, zero safety incidents and that there is zero waste, like unnecessary stocks.
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Visibility Critical ‘For each asset, we make an end-to-end value stream map to see which engineering systems and related spare parts are needed. For an oil platform this can be thousands of parts. Next, it is checked which parts are critical for operation and/or could cause the highest deferment in production. This turned out to be 540 items for one specific oil platform, divided across six engineering systems. For this category of critical items, 100% availability should be guaranteed.’ Supermarkets ![]()
‘Converting opportunities or data into dollars you could call this. For example, we investigated which chemicals and fuels can be grouped and bought together. We did something similar regarding sea transportation. There were hundreds of ships in operation, of which most are contracted. Thanks to the new integrated planning, leading to lesser and more combined transport, the number of ships could be reduced by almost half. We call these kinds of opportunities value gaps. In the first improvement wave, closing these gaps should result in savings of tens of million dollars.’ Digital go-see ‘When for example a spare part does not arrive on time, you can digitally check if this aberration is already dealt with. In nine out of ten of the cases no further action is needed, since every effort is already done to correct the problem. In the past this could not be seen, and led to an unnecessary chain of e-mails and meetings.’ The software Shell uses is Power BI of Microsoft. ‘This tool can be coupled easily to almost any database. A lot of data was already available in our ERP-system SAP, but it required a lot of searching for access. The new approach, digital go-see with Power BI, is much easier and faster.’
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