Mapping the inbound logistics of the refineries & terminals (plants) onshore at StatoilHydro, identify main problems and issues and suggest quick wins and possible solutions DET SAMFU(cid:10)(cid:10)SVITE(cid:10)SKAPELIGE FAKULTET, (cid:10)ORSK HOTELLHØYSKOLE – I(cid:10)STITUTT FOR ØKO(cid:10)OMI OG LEDELSE MASTEROPPGAVE STUDIUM: OPPGAVEN ER SKREVET INNEN FØLGENDE FAGOMRÅDE: OPTIMERI(cid:10)G AV VERDIKJEDER Master i økonomi og administrasjon, foretaksledelse ER OPPGAVEN KONFIDENSIELL? ((cid:10)B! Bruk rødt skjema ved konfidensiell oppgave) TITTEL: Mapping the inbound logistics of the refineries & terminals (plants) onshore at StatoilHydro, identify main problems and issues and suggest quick wins and possible solutions. ENGELSK TITTEL: FORFATTER(E)((cid:10)B! maks tre studenter pr oppgave): VEILEDER: Jan Frick Studentnummer: Navn: 895331 Ane Sofie Julien ………………… ……………………………………. ………………… ……………………………………. ………………… ……………………………………. OPPGAVEN ER LEVERT I TRE – 4 – INNBUNDNE EKSEMPLARER Stavanger, ……/…… 200... Underskrift instituttadministrasjon:…………………………… 1 Acknowledgements I would like to give my thanks to Jan Frick at the University of Stavanger for his constructive criticism and firm guidance throughout the research process. Further, I would like to thank my counsellor at PricewaterhouseCoopers, Rolf Christian Nystein for making it possible for me to commence on this project. Thank you for organizing the accesses needed at StatoilHydro and for the help of getting in touch with the right people. 2 Executive Summary The aim of this paper is to identify main problems and issues in the supply chain of the inbound logistics at StatoilHydro’s onshore plants. The identification will be based on a mapping of the chain, where value added activity is in focus. The problems and issues will be evaluated and prioritized according to suggested quick wins and possible solutions will be identified. The recommended solution will be based on the elaborated theory of muda and the principle of lean thinking. The research was conducted by the leads of Action research and resulted in a comprehensive mapping of the supply chain and the procurement process, with a definition of customer value, value stream, costs and risks. Through the analysis of the chain with the seven wastes of lean thinking as a reference point, several problems were defined. These problems had all in common that they were inhibiting flow of goods or information through the chain. As not all the wastes were just as easy to eliminate, they were categorized and prioritized due to: quick wins, which problems that contributed most to increase flow if they were eliminated and the problems that could not be eliminated because they are not in the hands of StatoilHydro. By eliminating the different problems and issues derived, StatoilHydro may increase the reliability and efficiency of their supply chain. As these factors were the ones valued by the customer, an effort should be made to increase flow so the information and goods may move faster through the chain. The alternative solutions to how StatoilHydro may accomplish this have been evaluated in this paper. Through this evaluation, following recommendations were made due to their ability to add to customer value: ♦ Increase flow by organizing for focus on process rather than task, by appointing a responsible for the whole purchasing process, including arrangement for transport. Quick wins may be gained. ♦ Strive to better communication between the different steps in the chain 3 Table of Content Acknowledgements...................................................................................................................2 Executive Summary..................................................................................................................3 Table of Content.......................................................................................................................4 1 Introduction......................................................................................................................6 1.1 Background.................................................................................................................6 1.2 Purpose.......................................................................................................................6 1.3 Scope and Limitations................................................................................................6 1.4 Outline of the Paper....................................................................................................7 1.5 About StatoilHydro...................................................................................................12 1.6 Theory.......................................................................................................................15 2 Method.............................................................................................................................21 2.1 Research Design.......................................................................................................21 2.2 Action Research........................................................................................................23 2.3 Qualitative Data Gathering and Presentation...........................................................25 2.4 Sample......................................................................................................................26 2.5 The Interview Guide.................................................................................................26 2.5.1 Validity and Legitimacy...................................................................................28 3 Situation Analysis...........................................................................................................29 3.1 Supply Chain Structure.............................................................................................29 3.1.1 The Physical Flow of Goods............................................................................30 3.1.2 Information Management.................................................................................38 3.1.3 Organizational Structure...................................................................................42 3.2 Supply Chain Performance.......................................................................................43 3.3 The Business Context...............................................................................................44 4 Identification of Main Issues and Problems.................................................................46 4.1 Cost, Risk and Value Added.....................................................................................46 4.2 The Seven Wastes of Lean.......................................................................................51 4.3 Categorization of the Problems and Issues...............................................................63 4.4 Prioritising of Quick Wins........................................................................................67 5 Generation and Evaluation of Alternative Solutions..................................................73 5.1 Alternative Solutions to Increase Flow....................................................................73 6 Recommended Solution and Justification....................................................................80 7 Conclusion.......................................................................................................................83 References................................................................................................................................84 Appendixes..............................................................................................................................86 Appendix 1: Presentation e-mail..........................................................................................86 Appendix 2: Interview Guide...............................................................................................87 Appendix 3: Respondents.....................................................................................................88 Appendix 4: Category Wheel Details...................................................................................90 Appendix 5: Procurement/Supply Chain Management process at StatoilHydro..................91 Appendix 6: Schema Incoterms............................................................................................92 4 List of Figures and Tables Figure 1.2: The Case Analysis Framework (Taylor, 1999)........................................................8 Figure 1.3: The Oil Refining Process.......................................................................................13 Figure 1.4: The Goals of Procurement & Logistics..................................................................15 Figure 2.1: Relationship Among Research Designs (Churchill, 1995, p. 146)........................22 Figure 2.2: An Action-Reflection Cycle (McNiff & Whitehead, 2006)...................................23 Figure 3.1: Inbound Logistics Inland 1 ....................................................................................32 Figure 3.2: Inbound Logistics Inland 2 ....................................................................................32 Figure 3.3: Inbound Logistics Inland 3 ....................................................................................33 Figure 3.4: Inbound Logistics Supplier Abroad.......................................................................34 Figure 3.5: Inbound Logistics Supplier of Chemicals..............................................................35 Figure 3.6: Inbound Logistics Supplier of Services.................................................................36 Figure 3.7: External Supply Chain Onshore Plants..................................................................37 Figure 3.8: Internal Supply Chain Onshore Plants...................................................................38 Figure 3.9: Strategic and Operational Procurement.................................................................40 Figure 3.11: Organizational Structure P&L.............................................................................43 Figure 4.1: Value Stream External Customer...........................................................................49 Figure 4.2: Value Stream Internal Customer............................................................................50 Figure 4.3: Cause-and-Effect Diagram.....................................................................................68 Table 4.1: Categorization of problems and issues....................................................................64 5 1 Introduction 1.1 Background After the merge of xStatoil and xHydro the 1st of October 2007, the purchasing and logistics department have gone through an excessive analysis to obtain the as-is situation of the different processes of this unit. These analyses have been undertaken by a project called Processes for the Future (PROFF), with the goal of reaching a better compliance between the xStatoil and xHydro processes. As a part of this project an examination of the inbound logistics at the onshore plants was needed. 1.2 Purpose The purpose of this paper is to map the inbound logistics of the refineries & terminals (plants) onshore at StatoilHydro, identify main problems and issues and suggest quick wins and possible solutions. The elimination of muda by the principle of lean thinking and the effort of becoming a lean enterprise, will be applied in order to suggest how StatoilHydro may move closer to their goal of lean procurement. 1.3 Scope and Limitations The scope of the paper is the Norwegian terminals and refineries. This means the terminals of Kollsnes, Kårstø, Sture, and Tjeldbergodden and the refinery and terminal at Mongstad and leaves out the terminal of Kalundborg in Denmark. Additionally, the above mentioned plants are defined as terminals and refineries on land. These plants are all subordinated to the department of Manufacturing & Marketing (M&M). The last terminal onshore is the Hammerfest LNG plant in Northern Norway. However, this plant is defined as a natural gas (NG) plant, and is accordingly not under M&M. Additionally the mapping will be limited to the supply of goods required by the department of Operation & Maintenance. 6 Furthermore, the purpose of the paper stated that the mapping is limited to the inbound logistics at the plants. According to Peppard & Rowland (1996), the inbound logistics may be defined as “activities to receive, store and distribute inputs to the product, such as material handling, inventory control, warehousing, and contact with suppliers” (Peppard & Rowland, 1995, p. 10). The focus of the paper can be illustrated like this. User Refined product Plant Maintenance, Laboratory Processing/ and Chemicals Refinement Oil Technical Gas Vessels and helicopters Offshore installation Figure 1.1: The process in focus. 1.4 Outline of the Paper In the following, a summary of StatoilHydro, its business and history will be presented. Next, an introduction of the theories of lean thinking and business process re-engineering will be follow. These theories are the basis of the analysis and will be used in part three, to uncover any possible problems and issues. The second part will contain an overview of the research design, method and data gathering. In the third part of the paper, you will find the analysis. This is based on The Case Analysis Framework (Taylor, 1999) shown in the following figure. 7 Physical flow of goods STEP 1 Supply chain structure Information management Organizational structures Overall performance of the supply chain – customer service & cost Situation analysis Supply chain performance Relative performance- benchmarking Relative performance of individual logistics functions Internal Policies – coporate & marketing strategies The business context External business environment STEP 2 Categorize Identification of main problems and issues Prioritize STEP 3 Brainstorm ideas Generation and evaluation of alternative solutions Selected 2 or 3 realistic alternatives and evaluate STEP 4 Description Recommended solution and justification Justification STEP 5 Resources Implementation Timing Monitoring Figure 1.2: The Case Analysis Framework (Taylor, 1999) 8 The framework outlines a process of five steps that can be used to map a supply chain. The different steps consists of a situation analysis, identification of main issues and problems, a generation and evaluation of alternative solutions, a recommended solution and justification, and implementation. As a combination of the limitations of the thesis (see chapter 1.3 Scope, p. 6) and the method used (see chapter 2 Method, p. 21), the last step of the framework is not undertaken. The outline of the paper is therefore illustrated by the red frame in Figure 1.1. To gather the information needed in each step of the framework, the method of Action research is used. The relation between Action research and the case analysis framework is that they both give the scientist great liberty in customizing the research process. As a process and a problem solving tool, Action research gives the scientist a possibility to let the research develop in different directions, dependent on what shows up along the way. By using the action research approach, the scientist can be a part of the process he or she studies because the goal is to improve the current situation. The case analysis framework and Action research also follow the same path through observing and identify issues, evaluating possible actions before implementing the change. The framework of Taylor (1999) defines a structure around the purpose of the paper and gives directions on what needs to be explored in the different steps. Through the use of Action research, the information needed in each step can be gathered, through conversations with people close to, or in the situation, studied. This way of doing research gives great liberty in the sense that the scientist is not restricted by the boundaries of social sciences. To serve the purpose of this paper, a specification of the framework follows on the next pages. Because the framework will serve as an underlying guideline, the outline of the paper will follow the same path. After the method is presented in the next chapter the first part of the analysis, the situation analysis, is presented. The situation analysis serves the purpose of outlining an overview of the situation today. This part will say something about the supply chain structure, the supply chain performance and the business context. 9