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Case Study

ASCM Transformation Learning Program Saves Brazilian Oil & Gas Company Nearly $800 Million in First 18 Months

25% Reduction of total inventory

34% Reduction of excess inventory

40% Reduction of SKUs in database

Executives at Petrobras knew that their maintenance repair and operations (MRO) and investment materials supply chain could be more efficient. The Brazil-based oil and gas company, one of the largest in the world, has a highly complex MRO supply chain with hundreds of thousands of SKUs, thousands of suppliers, and hundreds of business units. In order to evaluate its MRO and investment materials inventory management, Petrobras joined ASCM in 2019 to develop a pilot project for the Enterprise Certification for Sustainability Standards. This culminated not only in the certification of its MRO and investment materials supply chain, but a list of improvement opportunities that could be resolved through a Transformation and Learning Program (TLP).

Petrobras

The transformation begins

The supply chain team at Petrobras is responsible for purchasing and shipping  out materials to the company’s platforms, vessels, rigs, gas treatment units, power plants and refineries.

For years, business units in the company would request parts and products, which would be fulfilled by the procurement department. However, inventory was continuously growing.

“We had big issues with the extended inventory material planning process,” said Paulo Henrique Furtado, inventory manager for Petrobras. “The materials planning problems were related to its operational complexity, which was aggravated by long lead times, considering the specificity of the materials needed, and the specific regulatory legislation for the company.”

“We used to buy the requested equipment and spare parts as soon as possible to avoid risks associated with shortages,” continued Furtado . “However the excess inventory encumbered our company in terms of financial and operational costs and obsolescence.”

Petrobras transformation begins

Using SCOR to analyze the issues

Together with ASCM, they implemented the Enterprise Certification for Sustainability standards. These standards are based on ASCM’s SCOR framework and are used to assess an organization’s alignment to three pillars; ethics, sustainability and economic responsibility.   

Through the maturity assessment against the Enterprise Certification standards, the assessment team identified that some key Process Excellence criteria from the standard, like S&OP optimization, received a low maturity score. The identification of these lower scores led to the subsequent development of their TLP, which uncovered the following gaps within the requisition and purchasing process:

  • The Procurement, Inventory Management and Logistics teams had low involvement in the planning and demand creation processes, letting other areas of the company dictate the demand for purchasing materials and equipment.
  • There was a high volume of excess inventory for routine maintenance and projects that continued to increase.
  • Plans by the business units were created without considering their execution, maintenance, contracting and logistics constraints.
  • Projects scope changes continuously without considering their impacts to inventory.

The development of their TLP included four specific objectives that needed to be achieved.

  • Balance the demand for materials with execution, contracting and logistics capabilities;
  • Implementing a IBP process with team’s assertiveness in planning materials for routine maintenance, turnarounds and investment projects;
  • Create and compare planning and allocation scenarios, enabling continuous assessment of transformation efforts; and
  • Establish monthly planning meetings with business, supply and logistics areas.

Starting with a short-term solution

Petrobras team knew they couldn’t solve all their process problems immediately, so they decided on a short-term solution to address several of the major gaps. This included increasing their involvement in the demand and requisition process, balancing  the buy-consumption ratio, lowering cash expenses and reducing excess inventory.

With help from ASCM advisors the Inventory Management Department, with the business units and the procurement department created a tool called Purchase Limit that serves as a central repository to analyze all purchase orders, purchase requisition and monitor the usage of maintenance materials.

“We realized that we could avoid unnecessary purchases by analyzing information related to the expected date of consumption of the materials, supply lead times and available stocks ,” said Furtado. “We analyzed the flows and began to learn where we could stop the requisitions and control the flow to assure that we purchased only the materials that are really needed.

Starting with a short-term solution

Using the SCOR Framework

Using the SCOR Framework and the information collected during the TLP, Petrobras was able to modify the process flow. Purchase and requisition orders were put through an automatic demand-management evaluation based on an algorithm to determine whether or not materials were needed. If they were needed, they would be procured. If it was unclear, the orders were further analyzed and refined, which would lead to either a purchase or elimination of the order altogether.

“We were like doctors of the supply chain,” Furtado said. “During the TLP, the results obtained in the SCORmark helped diagnose the problems. Just as doctors do, we were able to prescribe the right “medicines” – in this case, solutions -- to help fix the issues.”

Implementing the new process wasn’t easy. The Inventory Management team had to communicate to their internal stakeholders, that they were not going to order or purchase materials.

“We communicated our strategy at a high level, to the executives, and we aligned our strategy to company objectives,” said Furtado.  “If people questioned, we could present them with data that showed we had  enough inventory or indicated they didn’t need to order materials in the short-term. It helped make the decision to cancel orders easier.”

Petrobras Results Chart

Within 18 months  of modifying this process, Petrobras  was able to save just over $786 million by canceling unnecessary purchases and requisitions while at the same time fulfilling only those requests that, by their analysis, were essential.

Next for Petrobras: Long-term solutions and learnings

With success in the short-term, the team is now ready to face some of the long-term gaps and issues to continuously improve their processes over the next three years using the concepts from SCOR and additional individual certifications from ASCM.

First, the team has started to implement the Sales, Inventory & Operations Planning (SIOP) methodology applied to MRO demand planning into business units. In addition, they are working to change the culture in Petrobras from one of ordering on demand to one of analysis and planning, basing decisions on data.

Overall, supply chain managers at Petrobras are optimistic about having achieved many of their objectives so far and are looking forward to making further changes.

“ASCM was fundamental in Petrobras’ transformation because they were able to bring an outside opinion about our business,” added Furtado. “Their expertise and experience helped Petrobras realize that its inventory management, procurement and logistics departments should have an active role in defining, controlling, and improving the whole planning process.”

Petrobras building

Additional positive outcomes

Increased knowledge of teams: The TLP encouraged an upskilling process in the company that has already generated an improvement in the level of knowledge of 32% of employees in the piloted area and is being implemented across the entire supply chain department.

Gains in the sustainability of the operation: Adequate planning for consumption reduces waste and, consequently, the need for less use of natural resources and the emission of greenhouse gases, also contributing to the preservation of the environment. Additionally, Petrobras is working on the Enterprise Certification for Sustainability Standards Results to publish them together with its Sustainability Report.

Additional positive outcomes

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