Bob Trebilcock: Welcome to The Rebound where we'll explore the issues facing supply chain managers as our industry gets back up and running in a post-COVID world. This podcast is hosted by Abe Eshkenazi, CEO of the Association for Supply Chain Management, and Bob Trebilcock, Editorial Director of Supply Chain Management Review. Remember that Abe and Bob welcome your comments. Now to today's episode. Well, hello, and welcome to today's episode of The Rebound where we're going to learn about the supply chain transformation journey at Petrobras, one of the world's leading petroleum industry companies. I'm Bob Trebilcock.
Abe Eshkenazi: I’m Abe Ashkenazi.
Bob: Joining us today and we're going to try and get this right, is Paulo Henrique Furtado. Paulo is the Inventory Manager at Petrobras and one of the leaders behind the project we're going to talk about today. Paulo, welcome, and how did I do?
Paulo Furtado: Bob, you did great. My name is Paulo Henrique Furtado and it's a great pleasure to be here today and many thanks to you Bob and Abe for this great opportunity.
Bob: Well, thank you and we're excited to have you. I know that Abe and I heard you at the ASCM event and it's really a great and exciting project that you're going to walk us through. This was a big event in your company, so why don't we just get started here? Many of our listeners may not even be familiar with Petrobras. Tell us about the company, what you do and the scope of your operations.
Paulo: Petrobras is a Brazilian public health corporation that operates integrated and specialized mentoring the oil, natural gas in the energy industry. Even though the Brazilian government is the majority stakeholder, the company has its stocks being traded on the New York stock market and Sao Paolo stock market. Petrobras is recognized worldwide for our technology in neutral deep waters that enables oil and natural gas exploration and production in [unintelligible 00:02:18] fields. The [unintelligible 00:02:19] fields are one of our main focuses today and due to the high standard levels regarding the oil quality and the productiveness.
In order to show our complexity and size I brought some big numbers here. We have 57 production platforms, over 5,000 production wells, our daily output is 2.77 million barrels and our proven reserves are almost 10 billion barrels. We also have 12 refiners producing over 1,800,000 barrels per day and 15 thermo-electric plants and 3 biodiesel plants.
Bob: Paulo, a really extraordinary organization, and the breadth and depth of the organization it's really hard to put our arms around. Before we start getting into the transformation of the work that you did, give me and our listeners a little bit of context. Describe what was going on in the supply chain operations. What were the major issues that you had prior to starting the project or that drove you to start the project?
Paulo: In the beginning, our board was very uncomfortable about the amount of MRO we invest in material inventory, because it was affecting our company in terms of financial operational costs and obsolescence. We had to synchronize requisition consumed relation and because of that, we had high levels of surplus inventory. Even though having a scenario of high inventory levels, we couldn't provide our customers with their required service level and there were a lot of complaints. Although we had high inventory levels, supply chain was a bottleneck to our operations at that time.
Bob: By the way, we should clarify that when you talk about a customer, that's an internal customer, correct? Primarily providing supplies and MRO and things to your own operations.
Paulo: Yes. All of them are internal customers for sure.
Bob: That was my understanding. I remember when you and I spoke setting this up that you said that, as a result of the bottlenecks that you were just talking about, the board asked your supply chain team to seek a benchmark to measure your supply chain performance, and in full disclosure, you did this in conjunction with ASCM and the new SCOR model. How did you go about that? In other words, what did that process entail?
Paulo: What our board asked us to solve the problems, they asked, "You need to compare our operation with similar operations or high standard in order to find out what is happening, what is the problem, and then to solve the problems." We start to look at it around the world and follow ASCM which was at that time developing an enterprise certification process for Petrobras. We discussed it a lot with ASCM and decided to pilot the certification process in our MRO and investment materials supply chain.
It was a very, very hard process with over 170 documents and procedures analyzed, trips, meetings, and shortly after, Petrobras was the first ASCM-certified company around the world.
Abe: Paulo, really interesting when you talk about the transformation project and how you went about it within the organization specifically after you benchmark where you currently work and then establish the targets. Give me a sense of the initial steps of getting buy-in across the organization to do this. My assumption is that, given the scope and the service levels, you had to have other departments buy in on this as well.
Paulo: Yes. I think the important outcome of the certification process is the evaluation, summary, and gap analysis. There is a report that lists the company's supply chain strengths and weaknesses and it's a great diagnosis. In our case, the main issues they analyzed and they discovered were related to the planning process. As I said, we have the requisitions and consumption was synchronized, we had inventory management issues, we had generic policies, and difficulty in keeping our stock [unintelligible 00:06:48] updated, consider the high number of actors SKUs. We had over 1 million SKUs active at that time.
The last one, the last more important issue that they discovered it wasn't ready to choose SK and competencies, the report met that we could improve our employees’ skills, especially in the supply chain process and system. As a first step of the transformation, we trained a special team in the SCOR methodology in order to show them the new tools and the mark best practices. After the training, 19 people got their SCOR P endorsement. Then we have submitted our data to SCOR Mark and we were compared with similar operations, and the results confirmed the previous diagnosis that we had a lower-than-expected performance.
Then as a third step, we started the transformation and learning program, I will call them from here TLP, and the TLP provided an in-depth diagnosis much more detailed the team could gather with good data and perform key interviews that enabled the development of a complete action plan.
Bob: Paulo, after those initial steps, my memory is that you prioritized three projects, Now, there's a lot there, but feel free to walk us through each of those projects what you wanted to accomplish with them and how you went about it.
Paulo: The TLP structured six projects, but during the TLP the pandemic started and we got lots of limitations, especially capacity constraints to solve the COVID and we needed at that time to prioritize three projects. The projects prioritized was the integrated business planning, inventory management, and workforce development that I'd say were there and we selected them because these products that would best fill in the math gaps during the diagnosis phase. I will detail them a little bit about what happening, what we did because and what were the results. I think it's important to talk about them.
The first one, the integrated business planning intended to implement an integrated planning process of MRO in investment materials. To do that, it would require a strong culture changing process and then new process development actions that would take some time to be implemented. We knew that we had an important problem and knowing that we should take immediate actions to soften them. So we decided to go on using two solutions, one with short-term outcomes and the other with medium-term.
For the short term, we have created an algorithm to avoid unnecessary purchases based on the data available. Doing that, we could avoid almost $800 million in purchases. For the medium term, we created a special project with dedicated team to implement the S&OP methodology adapted to MRO, because we don't have sales in MRO because we just attend the internal clients. We created a schedule to implement this process business unit by business unit, step by step because we couldn't fail implementing it. Considering what we have implemented until now, we already can see a huge improvement in the planning process in the units that we already implemented. We've enhanced the focus on the purchase area, and more important healthier cash flow, lowering the purchases volume, and improving its assertiveness.
The second project that I want to talk about, it's related to inventory management, and the TLP listed some actions to improve our inventory management. Actions like implementation of an inventory management system, creation of specific inventory policies for strategic categories, improvements in Master Data Management, et cetera. Implementing these actions, we could reduce 25% of our inventory days of supply from 2019 to 2021, and 40% reduction in our active, SKU codes.
Finally, talking about the workforce development, the TLP design a new process to upskill, our team, this process, map the requirements for each supply chain function, measure the skills gap to each employee. To fill the gaps, we create an action plan. We will be specific trainings. Later, we assess the improvement. We first ran a pilot in the inventory management department, the department that I'm leading, and we got 32% skill improvement of our employees. Now we are running this process in the whole supply chain department. We are exactly in this moment assessing the improvements we got.
Abe: Paulo, really extraordinary efforts. Let me jump into our last question here in quite an accomplishment that you've done over the past few years here. As you look back, what are some of the key learnings that you took away from your transformation journey? Then, as you look to the future, what are you considering moving towards in the future?
Paulo: Abe, we have some key learnings from this whole process. The first one is that sponsorship is crucial. The transformation demands it. We sat with sponsors and some decisions need to be top-down. Because sometimes we need to use the hammer to make things happen. The sponsors were crucial to enable it. The second point here that the upskilling process enables the transformation. Our employees, as a consequence of their training, started to bring new solutions and they were crucial for the transformation.
The third point is empathy is crucial for the transformation. The transformation needed to touch all points of the company. We needed to consider the really difficult and particularities of everyone inside the process. In order to engage everybody we use to develop joint actions together. In these actions, they could understand better the transformation we want to implement, and we could understand their reality. It works very well. Another one is data. Data was crucial to understand the scenario. We need data to see the changes and to predict them. A data-driven culture is a must in a transformation process. Finally, each action must have an owner. During the transformation process, when it wasn't clear who was the owner, it didn't work. We needed to define who is the person that is responsible for each process.
For the next steps, some of our opportunities from the enterprise certification assessment are linked to the SDGs and other ESG metrics. We've been Petrobras. We are working with them right now and we will publish these initiatives in 2023, Petrobras sustainability report. It's important to highlight here that our social responsibility department saw great opportunity leading to the report. We start to work together in this last August. For the last point here, we ran a new ASCM assessment in September. We are starting the cycle all over again. We already have the new diagnosis, and we have new issues to solve. We are planning how to organize the TLPs and start the analysis and this whole cycle again.
Abe: Really interesting that you're using this as more of a journey as opposed to a destination. I think that speaks volumes to the commitment that the organization has to moving forward. Paulo, I want to thank you so much for sharing not only the insights but some of the impact that you're making. For those of you that want to learn a little bit more, the case study can be found on ascm.org. Just search for Petrobras and ASCM and you'll see the case study with quite a bit of the information that Paulo shared with you today. Finally, a special thank you for all of you joining us on the episode of The Rebound. We hope you'll be back for our next episode. I'm Abe Ashkenazi.
Bob: I'm Bob Trebilcock.
Abe: All the best everyone. Thank you.
Bob: The Rebound is a joint production of the Association for Supply Chain Management and Supply Chain Management Review. For more information, be sure to visit ascm.org and scmr.com. We hope you'll join us again.
For additiohnal perspective, read the Petrobras case study.