Indian Domestic BPO

Case Studies

MRO inventory holding policy assessment of a Fortune 500 oil and gas exploration company

The client

  • One of the largest Asia-based oil and gas exploration and production companies
  • Headquartered in India with a global presence
  • Listed in Fortune Global 500 list of the world’s biggest corporations for the year 2012

Business need

  • The client has more than 10 assets, 20 main warehouses and 1,500 consumption sites.
  • The main warehouses and consumption sites store consumables and spares (MRO materials), which are used for operation and maintenance in exploration, drilling and production
  • The inventory of these materials at enterprise levels is around US$0.8 billion (FY 2012 – 13).
  • The current inventory holding policy for consumables and spares is 9 months and 18 months for consumables and spares respectively at enterprise level. The policy was last reviewed in 1985
  • Due to change in information technology landscape and improvement in supply base over a period of time, it became necessary for client to review the stock holding policy

Challenges

  • Non-availability of parameters with the client
  • Lead times could not be considered from SAP due to poor quality of transactions
  • Definition of stock and non-stock items not available in the systems
  • Criticality level of stock-keeping units (SKUs) not available other than insurance spares
  • Incorporation of all parameters while calculating target inventory levels
  • Other data quality issues like abnormal demands and returns transactions

Our solution

  • Calculated the raw data form SAP, SAP-SRM, HR, finance and procurement teams and used the data to create parameter values
  • Developed questionnaires, identified the right set of people and interviewed these people to collect data
  • Developed customized algorithms to segregate stock and no-stock items to improve the quality of analysis
  • Treated each SKU/item as critical and developed algorithms to identify right stocking levels of non-moving inventories
  • Identify probability distribution models based on movement of materials and developed a tool based on Microsoft Access and Microsoft Excel by incorporating parameters and statistical models
  • Developed outsider correction algorithm and removed the outlier transactions

Benefits

  • Assessment based on scientific inventory models revealed inventory reduction opportunity as against current level as under:
    • Consumables: US$200 million(37.5 percent reduction)
    • Spares: US$26 million (16 percent reduction)
  • Identify policy gaps for non-moving inventory identification and recommended change in non-moving inventory identification process which can result potential savings of US$18 million
  • Identified gaps in current structure and roles of MRP controllers and highlighted benefits through restructuring and consolidating the role of MRP controllers
  • Highlighted further reduction of inventory in the range of 1 – 2 percent through implementation of catalogue management tool as well as de-duplication and augmentation of existing master data management team

Related reading

Infosys BPM India Business

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