FMC branches out for improved materials forecasting
New sourcing director works to improve the flexibility of FMC's supply chain.
By William Atkinson -- Purchasing, 10/16/2008 2:00:00 AM
When Milton Young was brought in as global sourcing director by Houston-based FMC Technologies, one of his first goals was to improve the flexibility and responsiveness of the firm's supply chain. While that may sound like a fairly straightforward project, those that have been through something similar know it's far more complicated than it may seem.
FMC designs, manufactures, and services machinery and systems for the energy, food processing, and air transportation industries. Its two energy segments are Energy Production Systems and Energy Processing Systems. One product of the former segment involves valve assemblies that control the flow of crude oil and gas pumped from undersea petroleum fields. The assemblies are called "subsea Christmas trees," because of their branching shape. These products operate a mile or more below the ocean's surface and must be designed and built to withstand extreme heat and corrosion.
As head of the subsea sourcing leadership team, Young is responsible for establishing long-term contracts with suppliers and directs two groups. One works with the company's five global manufacturing locations to aggregate demand for specific commodities and set up purchasing agreements. The other builds relationships with suppliers to improve performance.
To provide more visibility to the company's supply chain Young began developing an integrated forecasting process, designed to provide more timely and accurate information to strategic suppliers. The result was a cross-functional project designed to create an integrated demand and supply forecast.
"If you look at global sourcing agreements across all of our subsea plants, one thing that made it difficult was that, while we forecast our inbound [materials demand], we didn't have a way of turning that inbound forecast into something we could use to work with our suppliers," explains Young.
While it was a step in the right direction, Young's organization usually had to wait until the project teams and engineering groups had completed designing and specifying their products before actual requirements and forecasts could be determined. The requirements would come out in the form of purchasing requisitions which were turned into purchase orders sent to suppliers. To get its forecasts to suppliers much earlier, Young's team adopted a step-by-step process.
The first step was to gain an understanding of what customers wanted in each project. Young and his team were able to work with operations managers to develop a process where the customer information is used to build a forecast of supply requirements.
From there, the team was able to build a tree forecast—about 200 trees a year—and use that to forecast its demand for valves and valve blocks. And then from there, they moved back into raw materials and machined components, he adds.
For example, the steel FMC buys to support its valve and the block manufacturing represents its longest lead item. "We need to be forecasting our steel demand a year in advance to acquire the materials," says Young.
The complexity of this process involved determining the timing of what the company needed and the types of things it was going to build. "We took our global tree demand and tried to put it into buckets by tree type—horizontal tree, vertical tree, type of material specified, etc." Young says.
"Based on that list of tree types, we looked at our bill of materials and said that, roughly out of the 3,000 to 4,000 unique parts, we need to look at 60 or 70 of them—the ones that are the longest lead and most strategic items," he says.
The next step was to create strategic bills of materials that highlight those items. This allows the company to forecast what it needs. However, this didn't solve the problem of when it was needed.
"We assign the trees that we are forecasting, based on if they are already in the sales forecast, such that we know when we're going to build them; or if they are further out, we will find a build-date based on a universal assumption," explains Young. From there, the next step is to back up lead time and order parts or raw material six to eight months in advance.
FMC has done all of this within its SAP system, so that, if things change, all of those parts move in the various time buckets with it.
The new process is helping FMC craft its raw material supply agreements. "We are also able to take the information and do some 'rough cut' capacity planning across our entire production plant network," he adds. "In addition, we are able to determine our current and future spend with each of the suppliers."
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