On Monday morning Chris Jackson, Global Sourcing Specialist for subsea trees, was beginning to plan out his week when Lori Grant, Global Planning Manager, walked into his office to deliver the details of a new project. TechnipFMC has recently received a contract from amajor operator to provide 40 next generation (Subsea 2.0) Subsea Christmas Trees for a new offshore field in the Gulf of Mexico. A Subsea Tree is a piece of equipment that is fixed to the wellhead of a completed well for the purpose of monitoring and controlling the flow of hydrocarbons. As there are several wells drilled for a project, each wellhead will need a Subsea Tree to regulate and maximize production.
As a sourcing specialist in the tree group, Chris and his team have been tasked with developing a sourcing strategy for a portion of the Bill of Materials (BOM). A major factor influencing your strategy will be the recent decision to consolidate in-house manufacturing and assembly located in South America. Further, some of the items you are being asked to source can also be made in-house. As a results, you and your team will need to include a make/buy recommendation in your strategy.
As Chris begins to prepare for the project he takes a moment to reflect behaviors and foundational beliefs:
TechnipFMC Case
Competition 2023
Going Forward
After this initial meeting, Chris begins thinking about the information he and the team will need to gather and analyze to develop the sourcing strategy. In order to be successful, they will need to create a presentation that addresses the following areas:
1. Summary of Case Facts and Problem Solving Methodology
2. Executive Summary of Selected Strategy
3. Recommendations and Data Analysis
4. Implementation and Follow Up Plan
Knowing they will need to collect data for the project, Chris makes a list of people they will need to meet with over the coming days.
|
Department / Function |
Reason for Meeting |
|
Global Planning Manager |
Project requirement dates, bill of |
|
Category Management |
As this project is for a next generation |
|
Supplier Quality |
Cost / benefit information related to |
|
Supply Chain Analyst |
Supplier performance metrics and SPI. |
|
Engineering |
Issues related to engineering changes and |
|
Procurement |
Buyers |
|
Logistics |
Logistics |
Notes from Meeting with Global Planning Manager
Planning has decided to
. Lori provided a table detailing the quantities and the planned finish dates.
All parts must arrive one month ahead of the planned finish date to allow time for finally assembly of components.
Bill of material represents the part requirements for a single subsea tree.
Planning will load sales orders at the end of October 2023. As a result, requisitions will not be able to be converted into purchase orders until November 1st 2023.
Parts with criticality ratings of 8 and above pose serious potential consequences and require an additional 30 days of lead time due to pre-production supplier documentation review.
Lori also provided a list of in-house manufacturing capabilities and associated production costs for the two manufacturing locations.
a. Direct material and labor represent 60% of the total cost of parts manufactured in house.
TechnipFMC Case
Competition 2023
b. The new design for the Composite Valve Block represents a major engineering achievement for the company and provides a distinct competitive advantage over alternatives in the market.
c. Though TechnipFMC has the machining capabilities to make tubing hangers, reworks have become a regular occurrence. Over the past 6 months, TechnipFMC has had issues meeting customer requirements for this part.
Assume no inventory holding costs will be incurred either in-house or outsourced parts.
When making sourcing and investment decisions you and the team should keep in mind that demand for subsea systems is expected to increase for the next 5 years.
See Exhibit 1 – Schedule
Requirement Dates Tree Deliveries
|
Planned Assembly Finish |
South American Plant |
|
Sept. 1st 2024 |
10 |
|
Dec. 1st 2024 |
30 |
Bill of Materials for Next Generation Tree
|
COMPONENT |
CRITICALITY |
QTY |
CATEGORY |
|
Composite Valve Block |
10 |
1 ea |
Machining |
|
Gate Valve |
7 |
2 ea |
Machining |
|
Metal Seal |
8 |
5 ea |
Machining |
|
Tubing Hanger |
10 |
1 ea |
Machining |
|
Wing Blocks |
5 |
2 ea |
Machining |
See Exhibit 2
Manufacturing Costs & Capacity
Notes from Meeting with Category Management
The management of TechnipFMC’s supply base is critically important. With suppliers providing upwards of 90% of sub assembly components, TechnipFMC must insure that QSL (Qualified Suppliers List) has the right capabilities and enough capacity to meet current and future demand. Further, the SQDC (Safety, Quality, Delivery, and Cost) for all suppliers must be continuously monitored. Suppliers are organized by the service they provide and grouped into categories. The category you are sourcing is Machining.
See Exhibit 3
Qualified Supplier List (QSL)
See Exhibit 4 Volume Discounts
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2023
Notes from Meeting with Supply Chain Analyst
The analyst team is responsible for pulling together information to produce metrics, reports and tools that supply base. One of these tools is Supplier Performance Index (SPI)
to providing you with the SPI formula, the Global Supply Chain Analyst has also pulled the relevant performance data for the list of qualified suppliers you received from the category teams (see Exhibit 3 Qualified Supplier List).
See Exhibit 5
SPI Calculator
Notes from Meeting with Supplier Quality
Supplier development is an important tool for improving the performance of underperforming suppliers. Deploying an Supplier Development Engineer (SDE) will reduce the supplier’s SPI score by .25. The cost of deploying an SDE is $100,000. Due to diminishing returns, deployment of two SD Engineers will reduce the supplier’s SPI by .35, while three SD Engineers will reduce the SPI by .4. There are currently 8 SD Engineer’s available for this project.
Due to the high Price of Non Conformance (PONC) associated with this project an SPI score greater than 1.25 is unacceptable.
Notes from Meeting with Engineering
The engineering team is currently making changes to two of the core tree components. These engineering changes are driven by new customer requirements. The Lead Project Engineer has warned you that the following components are still being designed and are not, at this time, available for procurement.
Wing Blocks Expected Release: Feb 15th
Gate Valve Expected Release: Mar 1st
Notes from Meeting with Procurement Team
The Director of Procurement has consolidated the feedback from the team.
See Exhibit 6
Bid Information
Notes from Meeting with Logistics
1. Shipments to the plant will be staged at various distribution points within each region. As a result, transit time and cost will be consistent across each region. Note that all Incoterms will be FCA. See Exhibit 7
Transit Time and Cost
TechnipFMC Case
Competition 2023