Module 9 CASE STUDY Participant Notes Rev 2

 

PROJECT PROCUREMENT CASE STUDY: ‘THE PROCUREMENT REVIEW’ Case Study WorleyParsons has been appointed by Reliant Rail as the prime contractor engaged to design a new type of rail car used to transport iron ore. The design is considered as ‘break-through’, optimizing the gross-to-tare ratio and cubic capacity. WorleyParsons is also responsible for ensuring that the supply chain for the serial production is ramped up. The project has been running for 18 months with the Identify, Select and Define phases of the project complete. The project is part way through the Execution phase with the design of the car ‘signed off’ by Reliant Rail. Internally, the completion of the new design was seen as the major challenge for this project. Dave, the project manager appointed at the start of the project, has received an internal promotion. Your first appointment as a project manager at Worley Parsons is to replace Dave as project manager and deliver the project. You haven’t had what you would consider a full hand-over, but Dave has mentioned that the procurement phase hasn’t been as smooth as it might have been and recommends that you make sure that all is on track. It is Monday, your first day as project manager, and one of your first actions is to ask for a review with Jack, the project’s procurement manager. Dave has told you that Jack ‘knows his stuff.’ ‘He’s been in the industry for donkey’s years, knows the suppliers inside out and generally has a good relationship with them’. However, his last words were ‘don’t expect an orthodox approach from Jack – he gets the job done, but in his way.’ On your first morning, the production manager visits you and tells you that the bogie frames haven’t arrived yet. He also tells you that he has not seen the castings for the axle boxes and has ‘no visibility’ of when they will arrive. He has been ‘working around' this for the last two weeks. If he does not receive them by Friday it will start to delay the project. You have a walk around the site on your first morning. The store man informs you that the axle box castings had been delivered, but were then rejected due to what the quality inspector called ‘surface porosity issues.’ Three out of the 10 castings were affected, but the whole batch was rejected as per the inspection process. The castings are now sitting in the quarantine area, waiting for the castings supplier, Oscars, to collect them. You now review procurement activities for the project. As part of the review, you print out two reports from the SmartPlant Materials system—the Procurement Status report and the Procurement Expediting Report. On the Procurement Status report, you check when the order was placed with Oscars. It was 30 weeks ago. You turn your attention to the Expediting report, noticing that the last column headed ‘Last Forecast Arrival at Site’ is blank.

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  You ask Jack to show you the Procurement Strategy and the Project Procurement Plan. Jack looks a little perplexed. ‘This project has been a disaster from the start’, he declares. ‘There’s not much point in a Procurement Plan when Engineering are six months late! In fact they’re still making changes to detailed design.’ We take care of our bit as soon as we get the drawings’ he adds. Keeping the discussion at the general level, you ask Jack how the expediting is performed. ‘The suppliers know their delivery dates – so there shouldn’t be any issues there’ is the first response. ‘Of course, if production is short of something we get on the phone right away’ he adds. ‘To be honest, we don’t have enough time to do anything else. I still have an order backlog as long as my arm and if we don’t get this stuff ordered we won’t be making anything any time soon.’ You start to focus on some specifics and Jack acknowledges that there is a problem with the fabricator of the bogie frames. ‘Of course the bogies are late’ Jack informs you. ‘We got all the drawings and specifications way too late for the critical long lead time items.’ You get the feeling that the focus is all on internal issues, and ask Jack directly if there are any supplier related issues where he feels that the supplier has let us down. ‘I can’t understand what’s going on at Oscars’ Jack says. ‘I’ve known Bill, the Production Manager for years. They make good castings and normally they give priority to our work…but they’ve got some huge mining contracts recently…and I’ve heard that they’ve got a new Managing Director. I get the feeling that this batch is not large enough to be a priority for them.’ You ask what the normal lead time would be for the manufacture of the ‘first batch’, including making the dyes etc… ‘Twenty-four weeks’ is Jack’s response. You ask another question. ‘Jack, what’s our commercial arrangement with Oscars?’ ‘It’s a Purchase Order’, Jack responds. You call the meeting to a close. You feel as though you have just scraped the surface on some serious issues which could affect the success of the project. You’re determined to work through the issues clearly and logically and between you and Jack, sort them out. You also want to make sure that next time – when you get a project from the start – you will do everything possible to ensure that you don’t end up in this situation. What a first day!

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What would you say are the key procurement issues on the project? •

There is a lack of planning. Neither a Procurement Strategy nor a Procurement Plan was developed for the project.

•

Lack of planning means that the procurement may not mesh with the project schedule and dates of which equipment and materials are required on site.

•

There is a poor interface between Engineering, Procurement and Project Controls.

•

There appears to be a lack of control of procurement activities. ─ There seem to have been a lack of regular reviews of procurement activity and status. If there have been reviews, they do not seem to have been documented. But we cannot be sure. They are not referred to in the case study. Dave does not seem to have handed any minutes of review meetings to you. Jack has not mentioned reviews or offered his copies of review meetings or procurement action/to do lists. ─ Expediting appears to be reactive rather than proactive. The production manager has told you that items have not arrived and implies that he does not know when they will arrive, but has not given any indication of what he is doing to about it. The storeman has told you that the rejected castings are waiting to be collected by OzCast but has given no date. There seems to be no information when the replacements are due.

•

There appear to be serious supplier management issues, which are reflected in: ─ The lack of interface/contact between key personnel ─ Lack of prioritization for WorleyParsons orders.

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What can be done to remedy the situation? •

Schedule a meeting between you, Procurement (Jack), Project Controls, Engineering and other relevant managers to: ─ Determine the exact current status and impact of procurement on the project schedule and quality ─ Determine an action plan to bring procurement under control ─ Develop a Procurement Strategy/Plan for the rest of the project

•

Set up a schedule of regular (weekly and daily) meetings to: ─ Report procurement/resourcing progress/issues ─ Activate issue escalation/issue action plans

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Schedule meetings with key suppliers to: ─ Re-establish WorleyParsons’ priority status with suppliers (you and Jack attend) ─ Address quality issues

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Check with Corporate/Regional Procurement to find out whether wider WorlelyParsons business relationships can provide leverage in establishing the priority in meeting WorleyParsons requirements.

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