Download Module 9 CASE STUDY Participant Notes Rev 2 PDF

TitleModule 9 CASE STUDY Participant Notes Rev 2
TagsTechnology Procurement Supply Chain Casting (Metalworking)
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Page 1

Rev 2 30-10-08 Module 9 - Managing Project Procurement Page 1


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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Page 2 Module 9 - Managing Project Procurement Rev 2 30-10-08


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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Rev 2 30-10-08 Module 9 - Managing Project Procurement Page 3


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.

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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