Supply Chain Integration and Optimization for Production Industries

1. Supply Chain Integrationand Optimizationfor ProductionIndustries Bart Winters Marketing Manager Honeywell Industrial Controls Hi-Spec Solutions 1

2. Hydrocarbon Processing Supply Chain Source Make Distribute Consume Pipeline Pipeline Pipeline Pipeline Pipeline

3. HPI Characteristics • Market Driven Characteristics • Price volatility • Raw material (feedstock) • Finished goods • Substitutable and interchangeable products and feedstocks • Significant feedstock & crude variations • Discretionary vs. non-discretionary capacity • Growing number of products

4. HPI Characteristics (cont.) • Operational Characteristics • Huge capital investments for economies of scale • Inflexible equipment and assets • Reverse Bill of Materials • Many finished product options • Many by-products or co-products • Large integrated oil companies integrated and independents • Long history of LP and MIP planning technology focused on maximizing utilization

5. Common Issues Today • Need shared visibility • Horizontal • Upstream and inventory status • Downstream/transportation constraints • Other business areas/functions (quality, marketing, etc.) • Vertical • Manufacturing visibility of the plan • Planning system’s visibility of manufacturing status

6. Issues (cont.) • Quality issues - re-work and give-away • Poor performance monitoring systems • Difficulty to measure change in plan vs. actual • Poor data analysis capability (backcasting and ad-hoc) • Ability to profitably capitalize on discretionary capacity • Latency in decision making processes • Need for incident avoidance and early detection

7. Summary Issues • Five major categories • Islands of information • Local optimization and optimization of assets not margin • Operations excellence and quality • Incident detection and avoidance • Continuous improvement and sustained benefits

8. Honeywell Solution Model • Network intelligence • Supply chain planning • Supply chain execution • Performance monitoring • Performance improvement Intelligence Improve Plan Monitor Execute Control

9. Information Management “Manufacturing businesses that make investments in SCP- and ERP-directed manufacturing applications that fail to provide for accurate real-time information from the process will achieve at least 50% lower ROI on those investments.” Gartner Group

10. Typical Information Integration B2B MANUFACTURING ERP CRM SOURCING B2C SCM MARKETING • Distributed ‘nodes’ of information connected for specific purposes • Intelligence built into the connection restricts connectivity! • Connections are • Costly to implement • Difficult to extend • Barrier to change

11. Networked Intelligence Approach B2 MANUFACTURING ERP CRM SOURCING B2C SCM MARKETING • Information becomes Intelligence • Intelligence located • At the core - forming a hub or utility of shared, scalable, standardized, robust, and centralized services • At the periphery - where it is configurable, flexible, personalized, and contextualized HUB Source: Mohanbir Sawhney and Deval Parkish Harvard Business Review January 2001

12. Results in... • Connection or elimination of “Silos” or “islands” of information • Enables required visibility across the extended supply chain • Provides more rapid and flexible connectivity of intelligence modules • Greater ability to shareinformation across the extendedsupply chain

13. HPI Supply Planning • Islands of supply planning • Poor operations visibility spreadsheet based schedule • No marketing information Pipeline Pipeline Pipeline Pipeline Pipeline

14. HPI Integrated Supply Chain Planning Multi-Site Plan Pipeline Pipeline Pipeline Pipeline Pipeline • Models aggregated into higher level model • Shared intelligence (quality, market data, capacity, inventory, etc.)

15. Results in... • Multi-site (strategic) planning answers: • Relative margin of per area (steam cracking, aromatics, etc.) • Ranking of crudes for a complex • Economic impact of a particular constraint • Economic bottleneck in operating plant • Maximum/Min cost/price of finished product • Product with best margin • Most/least profitable site • What if scenarios e.g. refinery shutdown Example from 33 site implementation

16. Supply Chain Execution • Without SCP plants are not doing the right things, but doing them very well • Optimally implement the plan subject to real-world events. • Advanced process control and optimization • Multi-variable predictive control technology • Material movements management • Blend optimization • Pipeline and terminal management • Control and operations performance • Recipe management • Production run planning

17. Results in... 2.5 2.0 1.5 Margin ($/M) 1.0 0.5 0.0 Plan Actual • Increased profitability • Increased quality • At 3-Sigma you spends 25% of Revenue fixing problems • At 6-Sigma you spends 5% of Revenue fixing problems • Reduces waste/give-aways • Reduces plan vs. actual gap (#1) • Increased yield • Increases planned capacity (#2) #2 #1

18. Performance Monitoring • Detect unplanned change in expectations • Asset and equipment health monitoring • Control performance • Production balance • Production monitoring • Event management • Abnormal Situation Management (ASM) Consortium

19. Abnormal Situations Abnormal process and equipment situations disallow production to be sustained as planned Plant & process Detect change Acquire & access data • Manage by exceptions with “agent” technology that search through data and utilizes applications to sense and make the supply chain aware of change. • Use expert logic to assess impact and forsee consequences. • Use workflow processes to take appropriate action. Determine causes Verify, assess & learn Foresee consequences Action • Notification • Reschedule and re-plan • Redirect the process Decisions for action

20. Results in... Get 3-15% capacity improvement Planning Constraints Availability Operational Constraints Incidents Supply Chain Execution DCS/APC/ Optimization efforts Performance Monitoring Days per Year Plant Capacity Limit < 60% Daily Production 95% 100% Supply Chain Planning

21. Performance Improvement • Market Opportunity Capitalization • Once plan and actual are in alignment ability to use discretionary capacity to take advantage of market opportunities • Backcasting and model improvement • Compare a constrained model with actual data and compare to actual results • Decision Support & Information Management • Simulation and training

22. Beyond Software “Recognizing the tie between e-business and supply chain applications is easy enough; the bigger challenge is to improve the underlying business processes.” Roberto Michel, Editor MSI Magazine.

23. Collaborative Approach Efficiency Growth Improve Plan Profitability Monitor Execute Control Processes Solutions Services • Collaborative partnership to capture latent profitability through: • Six Sigma consulting practice • Identify, prioritise, and deliver value • Solutions • Honeywell and Partners • Services • Implement and operate • Nontraditional and risk/reward funding • Ongoing partnership for continuous value creation • Resulting in...

24. Business Perspective • Business Prioritiesand Perspective • Understand the extended value chain and each element’s relationship in the enterprise business operation • This understanding defines a business model mapping how the enterprise will measure success • Understanding how to measure success is critical to achieving • Extensive domain expertise

25. A Disciplined Approach Processes • 6 Sigma Quality Process • Business planning process • Quality improvement • Cost reduction • DMAIC Process • Define - the opportunity • Measure - gather data • Analyze - scope, size, and prioritize • Innovate - new solution and processes • Control - execute and control

26. Comprehensive Solutions Improve Plan Monitor Execute Control Solutions • From sensor and control systems to extended supply chain • From suppliers to customers • Honeywell supplied and partnerships • Comprehensive world-class technology and domain expertise • Advanced Planning and Scheduling • Information Management • Advanced Control and Optimization • Production and Operations Management • Manufacturing Execution Systems • Asset Management

27. Services Services • Global reach • Comprehensive • Consulting • Project services • Support services (On-site and remote) • Co-sourcing capability • Finance • Networking • Willing to share or accept transfer of risk for technology and business results

28. $1.5B Value Opportunities $700M in Investments $1.5B in Returns • Chevron CHAMP • $250 million over 10 years • Syncrude • Tar Sands Extraction • $117 million over 10 years • Conoco Carbon Fibers • Grass roots carbon fibers plant • $17.5 million over 10 years • Alcoa Quasar • $300 million over 10 years • 8 sites worldwide

29. Concluding Remarks • Supply Chain Management and Collaborative Manufacturing don’t come on a CD! • They are achieved through the application of technology components and a methodology that focuses on delivering value through collaboration.