October 2021

Engineering and Construction

Materials management: Data-centric execution to enhance organizational productivity—Part 1

As a veteran of many capital projects once observed, “All projects execute materials management—those that do so without a plan and the appropriate resources just do it very poorly.”

Wyss, S., Bechtel Corp.

As a veteran of many capital projects once observed, “All projects execute materials management—those that do so without a plan and the appropriate resources just do it very poorly.” What is materials management? Ask a dozen materials managers and you will probably get a dozen different definitions. While we generally think of capital projects in terms of design and construction, the materials required to execute projects heavily impact both design and construction—not only in terms of executional information, but also in terms of execution planning. 

Materials management efforts have generally been related to improving materials-related information flows to design and construction. In recent decades, these efforts have fallen short for two primary reasons: the lack of recognition that materials management is an integral part of project management, and the failure to support change in entrenched siloed materials-related work processes as data connectivity has improved. As a result, the potential of optimal materials management has not been fulfilled. 

With the current trend of transitioning from document-centric execution to data-centric execution, it is important that engineering, procurement and construction (EPC) organizations recognize that the cross-functional executional perspective of materials management offers opportunities for data-centric-based transformational work-process change—and for significant productivity enhancement. Those organizations that attempt to manage this change from EPC siloes will suffer. 

Part 1 of this series will briefly address the broad concept of materials management and will discuss materials management as an investment and as an attitude. It will also provide examples that illustrate the hidden costs of poor materials management execution. Part 2—to be published in the November issue of Hydrocarbon Processing—will show how data-centric execution, with an object-oriented focus and exposure to a common data environment (CDE), fosters elevation out of detrimental siloed document-centric execution. Additionally, Part 2 will detail how collaboration among all transactional parties via a CDE—not just EPC and project controls, but also suppliers, service providers and the owner/client—can facilitate efficient project execution. Finally, Part 2 will highlight several areas where a forward-thinking materials management team can identify and drive transformational work process opportunities via an object-oriented approach to offer significant productivity enhancement. 

What is—and is not—materials management? 

The Construction Industry Institute (CII) is the unparalleled authority on materials management, with numerous and thorough publications spanning decades, documenting benefits of rigorous and robust materials management project execution. As CII documents show, materials management is not just procurement or warehousing, although both are elements. Materials management is the cross-functional work process coordination of materials-related work processes across engineering, procurement and construction to optimize those processes for the unique project-specific needs to deliver the lowest total installed cost (TIC) to the project. FIG. 1 provides an overview of the four phases of materials management and the steps that comprise each phase. FIG. 2 shows the parties that play roles in projects. 

FIG. 1. Phases/steps of materials management. 
FIG. 2. Parties that play a role in materials management. 

In the past, many EPC contractors have embraced the idea of materials management without recognizing that they were already executing it—just in a fractured, siloed and often inefficient manner. Concerns that adding a materials management team to project execution would add undesired bureaucracy have led many to create a narrow materials management team to mop up and close work process gaps, instead of positioning the team to prevent these gaps from ever materializing in the first place. In addition, positioning the materials management team to report to a manager besides the project manager, and specifically not providing this team the latitude to participate in all aspects of the project where materials-related decision making is taking place, has led to many lost opportunities in identifying subtle upstream work process modifications that could capture downstream order-of-magnitude cost savings. This narrowly-focused materials management practice can also cause work process gaps to occur that can significantly impact downstream execution. 

Materials management as an investment: The railroad analogy

Just as freight delivered by a single train can supplant hundreds of trucks at order-of-magnitude savings, a thoughtful, structured and disciplined materials management execution effort can optimize project execution and deliver the lowest TIC. However, just as each major route of a railroad needs to meet the specific needs of that route, and to be maintained and resourced to keep the tracks operational, materials management execution must be well thought out and structured relative to the overall needs of the organization, as well as to the specific needs of the project. Executing parties must also be disciplined to recognize that increased upstream resources may be needed to save on downstream costs. There must be an attitude recognizing that each party works to optimize overall project efficiency. EPC organizations that allow upstream lapses or gaps to occur, only to remediate or close the gaps downstream with cleanup resources, are no different than a railroad company that waits for a train to derail to find issues with the track. While it might be tempting to think that, once the plan is in place, it will self-execute, projects need a lean materials management team to see that execution proceeds as planned, and to look for the inevitable and/or unforeseen materials-related twists and turns in project execution that can impact execution. 

Materials management as an attitude: A parallel to safety

Several decades ago, construction teams employed safety teams that amounted to “safety policemen,” reporting to construction management. Construction managers and superintendents often pushed the limits of safety to complete the job. The safety engineers were left to police unsafe behavior, with some safety concerns disregarded by construction management—as safety was considered subservient to production. At the turn of the century, however, there was an awakening within the construction industry, and attitudes changed to recognize that everyone was responsible for safety—not just the safety organizations—and that safety superseded production. Due to this attitude change, project safety organizations are lean (but effective) teams, consisting of a safety manager (who reports to project management) and resources to provide training. At present, everyone polices safety on a project. 

Organizations that recognize that materials management is the sum of the phases and steps detailed in FIG. 1, and that also recognize that the sub-disciplines within the EPC teams have a responsibility to execute their respective steps to facilitate overall project optimization—as opposed to optimizing their individual steps (i.e., working separately in siloes)—will achieve the highest level of efficiency and deliver the lowest TIC. As projects need to employ a lean safety team, with a leader reporting directly to project management, EPC contractors will achieve the highest levels of efficiency when they recognize that materials management is not just a subset of procurement but also a resource to project management. In fact, if you remove “materials related” from the term’s definition previously provided, you will have defined project management. Materials management is a specialized subset of project management—it is focused on the wide and diverse set of project activities that are touched by materials. 

A lean materials management team: A resource, not an empire

With even the most open-minded team of design engineers, designers, procurement professionals, field engineers and superintendents, asking each to understand all the interrelated aspects of the materials management process is not reasonable. Each project must have a lean materials management team consisting of a materials manager (who reports directly to the project manager), along with a small staff that is knowledgeable of the work processes. This team will participate in the ongoing project execution and will attend meetings focused on: 

  • Providing early identification of opportunities to optimize and/or capture upstream materials-related work process changes that will offer order-of-magnitude downstream savings 
  • Monitoring materials management execution by transactional parties in engineering, procurementand construction to watch for minor materials-related protocol deviations and communication gaps that might negatively impact project productivity 
  • Preparing cross-functional project-specific work process reports to management that identify hidden work process issues. 

For example, a well-developed materials management effort entails upstream protocols that support and align with downstream protocols. Small changes in the design process (such as providing or omitting data in the model) can enhance or starve construction intelligence. Minor or subtle changes in the way materials are identified can impact downstream system tools with a disastrous effect. Meetings—such as purchase order (PO) award kickoff meetings—with suppliers (generally led by the procurement organization) must have someone present to see that all aspects of the planned PO execution (specifically aspects of supplier scheduling, delivery and shipment) facilitate information flow to the project to facilitate construction planning. The bottom line is that the optimal materials management team is a resource with no transactional duties at all. This team is there to ensure that each transactional party (FIG. 2) executes their respective role to optimize project efficiency. 

The hidden impact of poor materials management

Large capital projects employ hundreds of EPC professionals. These projects entail collaboration not only with the client/owner, but also with suppliers and subcontractors, and they are complex in execution. Minor upstream inefficiencies can and do generate a significant downstream impact. Many times, these inefficiencies are not discernable, and are simply swept under the proverbial rug and unnecessarily written off as just the cost of doing business. The following are a few examples, but these are just the tip of the iceberg. 

Missed materials identification (ID) causing construction schedule changes. Piping design, along with the supply and erection processes, are major aspects of process plant project execution. EPC contractors began delivering data-centric piping design two decades ago. This process, while one of the most complex in a process plant project, is also highly automated and efficient. Piping materials are highly standardized, but some large-diameter components—specifically, flanges larger than 24 in.—can be supplied to numerous standards. Projects have historically had issues with large-diameter flanges being properly installed, and guiding these installations are the API-605 (Large-Diameter Carbon Steel Flanges) and MSS-SP44 (Steel Pipeline Flanges) standards. Improper flange installation is often not caught until the piping is ready for installation—causing the project to be delayed and new costs incurred due to the need to cut and re-weld large flanges. 

On a project with a very logistically challenged site location, this concern was raised without a thorough root cause analysis. Instead of having the piping discipline requisition for these large-diameter flanges in accordance with their standard protocols, the mechanical discipline added these flanges to any equipment order that required large-diameter flanges, and the equipment supplier would provide the mating flange. 

The project materials manager joined the project after this decision was made. The materials manager pointed out that the root cause was poor execution and not supply, and that the mechanical discipline’s materials ID protocols did not conform with the piping discipline’s protocols. The materials manager received project concurrence to revert to a standard protocol where the piping team requisitioned these flanges—or so he thought. 

This project was a large gas plant, with numerous sizable compressors, a large central pipe rack with fin fan coolers on top,  compressors on one side of the rack and suction drums on the other side, connected by 54-in. to 72-in. interconnecting piping. Detailed construction planning was only being performed 2 mos–3 mos ahead of execution. The construction team was utilizing a large 400-t crane to put in place equipment and large piping. The crane was positioned in a sub-area adjacent to the pipe rack. The crane would work adjacent to the sub-areas and then would be moved several sub-areas down the plant. Moving the crane involved a crew of 10 and a full day of work. 

Two months before the construction team wanted to install large-diameter compressor piping, which required the 400-t crane, it came to light that the 54-in. and 72-in. pipe spools would not be on site in time. An investigation showed that the spools had not gone into fabrication because the materials management system indicated that the large-diameter flanges had not been requisitioned. It turned out that these flanges had been requisitioned, but this was before the materials manager joined the project. The flanges were requisitioned by the mechanical discipline—not by the piping discipline—and not in accordance with piping discipline protocols, so they were invisible to the system. Therefore, the spools had not yet been fabricated. 

The project team quickly retrieved the flanges—which had been sitting at the vessel fabricator facility for more than a year—and sent them to the spool fabricator, who quickly fabricated the spools. However, due to logistical issues, the spools arrived on site 2 mos late. The net effect was that the construction team had to leave the area where the 400-t crane was needed to move the crane back to the place where these large-diameter spools had to be positioned. This caused a reshuffle of the entire construction schedule and delayed operations by a full day. No one quantified the cost of this delay, but it does not take much imagination to see the large impact and cost that this simple but poorly thought-out engineering decision incurred. 

Passive management of pipe spool fabrication. Of the four basic categories of materials (major equipment, fabricated systems, standard components and consumables), fabricated systems require the highest level of collaboration and they suffer the most when the EPC contractor passively manages the process. Fabricated systems can take many forms, but the two most prevalent in a process plant are pipe spools and structural steel. 

With the piping design, the supply, fabrication and erection processes are almost always on a secondary critical path, if not the primary path—and EPC contractors who actively engage with pipe spool fabricators reap a smoother construction path, particularly where the materials management team takes the lead. 

In another example, two projects were being executed in parallel for the same client. Each project had similar scopes and logistical challenges, but were managed by two different project teams. Both projects awarded the fabrication PO to the same fabricator, and, due to their compressed schedules and logistical challenges, both chose to free-issue spool materials for fabrication as opposed to relying on the fabricator to supply the spool materials. 

Project A took a passive approach, with the procurement organization managing the spool fabricator. While its procurement team shared high-level priorities with the fabricator, assuming that the spool component materials would be received upon shipment, it did not integrate systems with the fabricator. Instead, this team relied on the fabricator to work according to project priorities by using the fabricator’s standard cascade allocation execution. Unsatisfactories, overs, shorts and deficiencies (UOS&Ds) were not addressed upon shipment receipt. The project team produced delivery curves from its sophisticated materials management tool, but only at the ISO level, as that was the finest granularity that the project engineering team could deliver. 

Project B had its materials manager manage the spool fabricator, proactively coordinating engineering and construction aspects, as well as procurement aspects, of the PO. High-level priorities were shared with the fabricator, but, in contrast to Project A, project systems were integrated with the fabricator. The project team was able to deliver priorities at the spool level directly into the fabricator’s system. Project B received the finer granularity of takeoff at the spool level (which the project’s engineering team was unable to do) and included the fabricator’s receipt data, capturing UOS&Ds in the project materials management system. As a result, instead of being forced to rely on the fabricator’s cascade allocation system to release spools into fabrication, Project B utilized the project’s sophisticated construction priorities materials management tool and specifically directed the fabrication of each spool. As a result, not only did Project B’s spool fabrication go smoother, but so did its downstream piping erection program. 

Fabricators generally utilize a cascade allocation system, designed to get as many spools as possible into fabrication. While this approach can achieve the intended goal, it does so to the detriment of individual spool delivery priorities. 

TABLE 1 depicts the differing delivery sequence for two identical spools. The first path is via a cascade system, which does not hold inventory for otherwise non-releasable spools if that inventory can be used to put a lower-priority spool into fabrication. The second path is through a priorities system that reserves inventory for spools by priority, even if the spool has other materials not available. The cascade system will get more spools delivered sooner; however, these spools tend to be the wrong ones. TABLE 1 shows that, for the two spools in question, while the cascade system has an enhanced delivery curve, it gets one spool to the jobsite too early, and the other spool arrives there too late. In contrast, while the priorities system has a delayed delivery curve relative to the cascade system, this system gets the spools to the jobsite when they are needed. The cascade system not only negatively impacts erection, but it also requires the jobsite’s warehousing team to unnecessarily store and manage spools. Multiply this by 10,000 for a project with 20,000 spools and the ensuing chaos is obvious. 

Project A’s early delivery curves were not grounded in hard data, but on the fabricator working to project priorities. Spools were cannibalized by the fabricator’s cascade system as the fabrication process proceeded, causing the curves to slip more than 6 mos to the right. Project B’s curves were initially less optimistic, but, as they were grounded on hard data from the integration, they proved to be more accurate. Project B’s actual delivery curve never slipped outside of a +/– 10% delivery time frame. FIG. 3 shows flat spool delivery on Project A, relative to actual construction priorities, as opposed to the far steeper and more desirable curve on Project B. 

FIG. 3. Pipe spool delivery curves: Project A (left) vs. Project B (right). 

Project A communicated only 10 priorities to the fabricator and allowed the fabricator to release spools into fabrication, utilizing the fabricator’s cascade allocation process. The net effect was that the first priority area achieved erectability (i.e., the level of spool deliveries at the jobsite necessary to support the start of erection) 30 wk after deliveries began. The last priority area achieved erectability at 40 wk—only 10 wk after the first priority. This delayed the start of pipe spool erection at the jobsite and created an undesirable peak in resource staffing. 

Project B communicated 57 priorities to the fabricator, integrated the fabricator’s enterprise resource planning system with Project B’s materials management tool, and directed the fabricator to release spools into fabrication on an individual spool basis by using Project B’s materials management tool. The net effect was that the first priority area achieved erectability 15 wk after deliveries began. The last priority achieved erectability at 48 wk, a 33-wk difference. This facilitated an early pipe spool erection time frame and allowed staff resources to avoid an undesirable peak. Additionally, on Project A, UOS&Ds took a back seat to production concerns and were not addressed upon receipt. Not only did the project lose the opportunity to have the component supplier correct the cause of the UOS&Ds, but Project A was caught off guard late in the project when the scope of the issue came to light. For spool components, particularly when it is a supplier’s market, UOS&Ds can easily approach 5% or more. This not only significantly impacted individual spool constructability on Project A (where only a single insignificant component will block release to the floor), but it left the project team unaware of a significant unsourced scope, thus cutting into contingencies and delaying construction. 

In contrast, Project B immediately addressed UOS&D data that was fed directly back into the project materials management system via integration. This allowed Project B to actively correct the UOS&Ds as they occurred and to avoid surprises late in the pipe spool fabrication program. 

Finally, and of no small significance, the integration on Project B fostered high levels of communication and cooperation that were not evident on Project A. This mitigated any acrimony that could have occurred in the collaboration effort between an EPC contractor and a significant supplier if communication had not been good and expectations had not been met. 

Takeaway

In the first example, a seemingly minor and well-intended, but misinformed, change had a disastrous impact on construction. Downstream impacts like this example occur routinely when projects do not have a cross-functional materials-related team in place to watch for these minor transgressions. Unfortunately, when this type of team is not present, these transgressions are often swept under the proverbial rug and accepted as the cost of doing business. However, these transgressions will not occur if the EPC organization implements an optimal approach to materials management. 

In the second example, utilizing a cross-functional materials-related team (as opposed to a silo-based procurement team) to manage complex cross-functional activities significantly enhanced project execution. 

Part 2 will review how barriers created in a document-centric execution are transitioning to a data-centric execution and will also discuss how implementing an optimal materials management effort, along with a cross-functional materials-related work process, can lead the transition to data-centric execution and significantly enhance productivity. HP  

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