Expediting

EXECUTIVE SUMMARY


This case study is intended to present processes of the Expediting Activities, generally in oil and gas industry in Alberta and more specifically in a large size EPC (Or EPCM) company in Calgary. In this report a brief investigation and survey with respect to literature and limited available academic resources, companies’ practices and current market conditions has been conducted at WorleyParsons Calgary.

“Expediting activities would be minimal if all other procurement and engineering activities are done perfectly (3)”. However, defining the best practices for “Expediting Processes” can also be helpful considering the fact that there is no perfect procurement process. A comparison between selected company, WorleyParsons’ practices and best practices has been performed to determine the gaps and conclude recommendations.

It is observed and concluded that EPC companies approach to “Expediting Processes” are relatively similar with some differences due to adaption of some processes by companies based on their client’s requests or their discretion (See appendix 2 for more details). Therefore, it is important for EPC companies to identify and define clients’ needs as clearly as possible and in the earliest stages of any project. “Failing to correctly meet customer’s requirements, expectations and needs has contributed to the United States lack of competitiveness in the global economy. This is likely also true in most of the industrialized nations (2)”. In relationship between the oil and gas companies as the “Clients” and the EPC Companies as the service providers, defining the need and identifying the success factors is an important task which will affect the expediting requirements as well. Therefore, a form is designed and suggested to be used by project team in order to define the expediting activities based on that and prevent possible dilemmas. (See Appendix 4)

Moreover, it is realized that due to limited number of suppliers and past contractual relationship amongst Clients, EPC companies and Suppliers a flexibility regarding implementation of expediting process particularly in Alberta’s booming economy conditions and consequently clients and EPC companies and suppliers is in place. Vendors or contractors may not follow exactly the best practices or the company’s policies or in other words they may have some deviations from the processes because of their close relationship with the expeditors etc.

INTRODUCTION

The Expediting Process is defined for ensuring that all expediting activities are carried out in accordance with defined obligations, procedures and customer requirements, including the timely delivery of all Material and Equipment (M&E) and documentation defined within the Purchase Orders (PO). Expeditors assigned to a project report to the Project Procurement Manager (PPM), on larger projects possibly via an Expediting Manager or Supervisor.

There are different positions defined in expediting process. Desk Expeditors are responsible for establishing and maintaining regular contact with all Suppliers either by telephone, fax, email or letter to obtain reliable information on the status of Suppliers’ drawings and documentation, sub-Supplier materials, production and delivery of M&E. Desk Expeditors highlight any potential delays and initiate corrective action.

Desk Expeditors’ responsibilities are not complete until all M&E are delivered and accepted at the designated delivery point, damage and discrepancy reports resolved and documentation provided.

Field Expeditors complement the Desk Expeditors by making personal visits to Suppliers’ works and physically checking the status of Suppliers’ progress through the engineering, raw materials accumulation and production phases of a PO. Field expediting services may be supplied via approved third party inspection and expediting agents.

Field Expeditors are responsible for:

- Identifying need for corrective action and assuring corrective actions are being implemented at the Suppliers’ works in accordance with project requirements.

- Providing detailed reports to the central office on the complete status of an order.

The Expediting Manager or Supervisor is responsible for:

- Coordinating Field Expeditors’ assignments and maintaining a register for each Field Expeditor with details of the project, PO number and the required deliveries of Suppliers and sub-Suppliers,

- Issuing Field Expeditors’ reports to the PPM for distribution and updating a sequential register ensuring that there is a numbered report against every expediting visit, and

- Issuing Field Expeditors’ reports to the PPM for distribution and updating a sequential register ensuring that there is a numbered report against every expediting visit, and reviewing the Field Expeditors’ invoices and / or expense reports for correct format and accuracy.

CASE ANALYSIS

The Expediting process is a formal and cross functional process that provides this opportunity for companies to develop a framework not only for how the delivery will be acquired but also how the delivery will impact the project time, quality and schedule.

One of the main inputs to expediting strategy is supplier positioning as shown per figure 1. This is a 2x2 matrix which creates quadrants that position a supplier and define a company's strategic approach to that supplier (9).

Figure 1: Supplier Positioning















The four types of relationships are:

 Acquisition: Many suppliers, buyers dominate. Focus on supply chain optimization, efficient procurement processes, and receiving bids from many suppliers

 Profit: Lots of suppliers, but big impact on company if supply is disrupted; so, consider target pricing strategies and umbrella contracts with preferred suppliers.

 Security: Few suppliers, but not a lot of financial risk from supplier failure; so, consider volume insurance contracts, maintaining buffer stock, and always be on look out for alternative suppliers.

 Critical: The Company depends on the suppliers. Generally, the company will look for performance-based partnerships, with market and technology leaders, owning specific know-how. The balance of power between buyers and suppliers can be varying quite bit. Consider strategic alliances, building close relationships, even vertical integration (3).

To assist in synthesizing key points about the company’s practices, closer look at the expediting process is required. As it is shown in the Appendix1 an expediting process is followed all project members and expeditors are to follow the instructions and understand their roles and responsibilities. According to this procedure each member of the expediting group has a different role during each phase of the project which is described in this paper. Of course, the importance of the vendor and criticality of the items being purchased are playing a vital role in the expediting method we may take as well as other factors which will be described below.

Process Description

In this section the “expediting Process” is defined in detail and in each section the survey results (See Appendix 3) are identified and explained in order to shed more light on the whole process where necessary.

Organization

a) The Expediting group is responsible for ensuring that all expediting activities are carried out in accordance with WorleyParsons’ obligations and procedures and customer requirements, including the timely delivery of all M&E and documentation defined within the POs. Expeditors assigned to a project report to the Project Procurement Manager (PPM), on larger projects possibly via an Expediting Manager or Supervisor.

b) Field Expeditors complement the Desk Expeditors by making personal visits to Suppliers’ works and physically checking the status of Suppliers’ progress through the engineering, raw materials accumulation and production phases of a PO. Field expediting services may be supplied via approved third party inspection and expediting agents.

Field Expeditors are responsible for:

• Identifying need for corrective action and assuring corrective actions are being implemented at the Suppliers’ works in accordance with project requirements, and

c) The Expediting Manager or Supervisor is responsible for:

• Coordinating Field Expeditors’ assignments and maintaining a register for each Field Expeditor with details of the project, PO number and the required deliveries of Suppliers and sub-Suppliers,

• Reviewing the Field Expeditors’ invoices and expense reports for correct format and accuracy (5).

Project Kick-off

a) The Expediting group reviews each PO with the project procurement manager to define the level, manner and frequency of expediting activity required.

According to the survey this judgment is based on:

• criticality of the design information required,

• criticality of required delivery for M&E against required on-site dates,

• complexity of the M&E, and

• Suppliers’ past performance

b) The Expediting group may be requested to provide input to the Project Procurement Plan or its potential subsequent Project Materials Management Plan. Upon PO placement, the Expediting group assesses if Field Expediting is required and the initial frequency of visits (5).

c) An estimate of the number of visits and man-hours is established and if necessary Customer approval sought (via the PPM) before assignments are issued. The Expediting Manager or Supervisor allocates a Desk Expeditor to each P.O. The number of POs allocated to a Desk Expeditor depends upon the type of M&E being purchased, the complexity of the order and the urgency with which it is required. On projects without an Expediting Manager or Supervisor, this assignment will be done by the Project Procurement Manager (5 and the survey) – See Appendix 1.

Expediting – General Method of Operation

Following are the main expediting operational activities based on the available information at WorleyParsons share point and the survey results:

a) The Expediting group is responsible for the following tasks upon issue of the PO:

• Preparation of an ‘expediting file’ for the PO

• Issue of a standard letter, fax or email to the Supplier requesting details of the Supplier’s reference number and contacts for expediting purposes.

b) The Expediting group provides ‘expediting reports’ as required, which as a minimum include:

• Expediting input to regular project procurement and progress reports,

• Exception reports showing whether a Supplier’s latest promised delivery date is: later than the PO delivery date, and/or later than the ‘required on-site’ date.

c) The Expediting group ensures:

• That all expediting correspondence, faxes, emails and standard forms are filed in date order in hard copy files and/or electronic document control system.

• Receipt by Document Control of all final copies of documents, including test certificates and data books plus sign-off that all such documentation meets requirements (5).

Expediting of Drawing and Production Schedules

The Expediting group is also responsible for the following:

a) Expediting the Supplier to provide a document submittal schedule within the period indicated in the Supplier Document Requirement List (SDRL) issued with the PO – The Supplier Document Schedule (SDS) is passed via Document Control to Engineering for review against the SDRL. If both the lists of documentation and the submission dates are acceptable, the Supplier Document Schedule is approved and review coded by Engineering and passed via Document Control back to the Supplier.

b) Obtaining various exception reports from the document control system as required assisting in expediting the (re-)submission of documentation from Suppliers.

• Requesting the Supplier to supplement its overall production program with a detailed ‘material status report’ updated regularly, and

• Ensuring that the Supplier submits a regular report highlighting any problem areas and giving brief status of the PO which can be checked and monitored against the overall production program (5).

Field Expediting

Field Expediting visits may be carried out by Desk Expeditors, inspectors and other Procurement or Engineering personnel on certain occasions, but only after prior agreement with the Project Procurement Manager.

Based on the survey results the Field expediting services may be provided by “Third Party Inspection” and expediting agency after agreement of Project Procurement Manager.

a) Field Expediting to the Supplier shop is carried out, where required, according to the expediting component of the Materials Management Plan or when one or more of the following situations develop:

• The M&E is of such importance that it requires monitoring on a regular basis,

• Delivery is so critical to the overall construction program that ‘continuous expediting’ is required to avoid any slippage,

• General Supplier poor performance.

b) Where Field Expediting is required; the Desk Expeditor raises an ‘Expediting Assignment’ which includes:

• Details of the PO or sub-order to be expedited together with a brief history of the status,

• All relevant correspondence – including inspection requirements.

d) Subsequent visits are arranged by the Expediting group in accordance with the frequency determined in the Expediting Assignment and include as a minimum the following:

• Status of submission and approvals of documentation and drawings – the Field Expeditor’s report highlights all documents overdue for return to the Supplier after review by WorleyParsons,

• Physical review of Supplier’s stock material and production progress on the shop floor, including check on actual labour loading against that planned.

e) In all cases, the Field Expeditor contacts the Desk Expeditor before leaving the Supplier’s premises with an update of the current status of the PO and may issue a ‘highlight expediting report’ or ‘Flash Report’ by fax or email from the Supplier’s premises.

f) The Field Expeditor issues a ‘full expediting report’ within a specified time of each visit to the Expediting Manager or Supervisor. Reports include as a minimum:

• The original and latest promised delivery dates

• Drawing / document submission dates

g) The Expediting Manager or Supervisor:

• Logs receipt of the expediting reports,

• Distributes expediting reports immediately to the Project Management

h) Document Control copies and distributes the expediting reports in accordance with the project document distribution matrix.

i) The Field Expeditor advises the Expediting Manager or Supervisor at the end of each month the current expediting workload status to confirm the workload registers are correct (5).

Dispatch and Shipping

a) Dispatch of M&E is controlled and tracked by the Expediting group, when required and depending on the applicable delivery conditions, in conjunction with Logistics and Transport to ensure its movement in the fastest and most economical manner, and its location is known at all times.

c) All inter-site movement of M&E is controlled by Field Material Control. When an item of M&E is being returned to the Supplier, Site Materials Control advises the Expediting group identifying the reason for return such as the applicable reports. Also, Expediting will ensure that the necessary corrective action is taken (5).

EXPEDITING BEST PRACTICES

To gather enough data on best practices of expediting in the oil and gas industry in Alberta, three different companies were studied. (See Appendix 2 for comparison) According to this study following activities is used as a guideline of expediting best practices. Although according to the project size, complexity of the project, criticality of the items etc. the process could be different or practiced in a different paste a few suggestions can be followed which will be described later in the text.

• Expediting Activities

o Review Purchase Orders (POs) and Determine Expediting required

o Establish Priorities for all Materials and Equipment (M&E)

o Develop the Expediting Component of PO Administration

o Allocate a Desk Expeditor/Package Expeditor to each PO

o Expedite and Receive Purchase Order acknowledgement

o Expedite Supplier on a regular basis

o Provide Reports

o Expedite Supplier Sub-orders

o Commence Field Expediting, as necessary

o Arrange Regular Visit to the Supplier

o Issue Field Report and Follow-up any Actions Required

o Receive 'Ready for Inspection' Notice

o Receive Inspection Release Certificate and Initiate Shipping Actions

o Check Completeness of Dispatch

o Closeout Expediting File





CONCLUSIONS AND RECOMMENDATIONS

Expediting activities are more required when there is a chance of slippage and according to the expediting component of the Materials Management Plan or when one or more of the following situations develop:

-The M&E is of such importance that it requires monitoring on a regular basis,

- Delivery is so critical to the overall construction program that ‘continuous expediting’ is required to avoid any slippage,

- Delivery of ‘Critical’ M&E has slipped and is jeopardizing the overall construction program, and

- General poor performance of the supplier.

Also, identifying the clients’ needs as early as possible can play a vital role in project delivery success. A recommendation is to use a form (an example provided in Appendix 4) and agree on the scope of work and develop the PEP and expediting plan based on that.

Based on the facts stated in this paper and according to the survey performed there are also other recommendations which is categorized into two main sections:

• General Recommendations for EPC Companies

Mutual respect between the expeditors and vendors must be continuously increased and monitored (6). The expeditors should get involved as early as possible in the course of the project execution so they can re-act proactively and help selecting the vendors (7). For all companies it is necessary to update the project expediting plan as it is a live document and make it available for all parties responsible. As observed during the survey and data collection and according to some market investigation, there are no specific qualification requirements for an expeditor to get a job in most EPC companies. As another recommendation Engineering companies need to re-assess the requirements for this position. Moreover, Expeditors’ recommendations should be considered in project scheduling since they are the most familiar with the vendors and their time management (8). It is suggested to base the companies’ communication on a more concrete system and keep track of all communications. Based on the survey results it is recommended that the PO include a requirement that the Supplier submits un-priced copies of all sub-orders for major components and it is the Expediting group’s responsibility to ensure these are received and checked to ensure the delivery dates are factual and meet the needs of the production program.

• General Recommendations for EPC Companies

Specific recommendation for Company A is to allocate Field Expeditor as a separate position. Recommendation to company C is to allocate Shop Expeditor according to clients’ needs and project condition. For company B it is also recommended to allocate a specific expeditor to each PO and to prioritize the expediting activities. Company C needs to involve more team work in project expediting including the EPC firm, Client and the suppliers.

Identifying client’s needs for projects is suggested to be used for future studies. Project phase and project type must be considered as well as the client and EPC organizational requirements.



REFERENCES

1. Huston, C, L (1996) Management of Project Procurement, New York, McGraw- Hill

2. Hartman, F.T., Herrero, J.C., Ashrafi R.A. (2001); “How to Identify and Communicate Customer Needs and Expectations”; PMI’s 26th Annual Symposium, New Orleans.

3. Varughese, Joe (2010) OPMA-719 Class Notes, winter 2008, University of Calgary

4. Jergeas, George (2009) Analysis of the Front End Loading of Alberta Mega Oil Sands Projects, Project Management Journal, Vol. 39, No. 4, 95–104

5. Expediting Procedure WorleyParosns Calgary – Talisman PRIME Alliance

6. www.suplychainmechanic.com

7. Dale R.Labittzke, “Project expediting“.www.born2process.com

8. www.met-chem.com

9. Supply Chain Digest (Feb. 2010), Kraljic later made enhancements to the model, including a 3 x 3 version, and there have been many refinements of this by others over the years