manufacturing and supply chain
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MANUFACTURING AND SUPPLY CHAIN
APRIL 2019
CARLOS DUARTE, GROUP EXECUTIVE MANUFACTURING & SUPPLY
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CARLOS DUARTEGroup Executive Manufacturing & Supply
Carlos was appointed as Group Executive Manufacturing and Supply in October 2017.
Carlos is responsible for Continuous Manufacturing, IS & PE Manufacturing and Global Supply Chain. He recently also took on responsibility of Global SHES.
Prior to joining Orica, Carlos spent 30 years at Schlumberger, a global oil and gas technology services company. Over this time, he held several senior leadership positions including Vice President Supply Chain, Vice President Manufacturing and Vice President New Businesses.
Our strategic priorities
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Disciplined capital allocation across the portfolio
Manufacturing and Supply Blasting Field Services Productivity Solutions
Cost leader Market leader Value differentiator
Be the market leader in chosen segments; deliver superior returns on investment; and generate strong free cash
Deliver shareholder value
Flexible sourcing capability
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Our global manufacturing network is complemented by third party sourcing
.
Continuous AN Plants
Initiating Systems Plants
Carseland,Canada
Tappen,Canada
Cuatrocienigas,Mexico
Brownsburg,Canada
Minden,USA
Fexar,Colombia
Lorena,Brazil
La Portada,Chile
Chambishi,Zambia
Fujairah,UAE
Gyttorp,Sweden
Karelia,Russia
Ust’Kamenogorsk,Kazakhstan
Wei Hai,China
Honce,ChinaGomia,
IndiaLimay,Philippines
Bontang,Indonesia
Burrup,Australia Yarwun, Australia
Helidon, Australia
Kooragang Island,Australia
Third Party AN Plants
Sirgala,Estonia
Lalahan,Turkey
Hallowell,USA
Itatiaiucu,Brazil
Panaguirishte,Bulgaria
Ulaex,Cuba
Capricorn Park,South Africa
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IMMEDIATE CAUSES:• Low reliability and integrity performance in
continuous manufacturing plants• Low utilisation rates in discrete
manufacturing plants• High and frequent variability in demand and
increased replacement third party sourcing and logistics costs negatively impacting production costs
• Poor performance of the Burrup JV with Yara
KEY FOCUS AREAS: • SHES performance, reduction in downtime
and unplanned maintenance and increase in throughput
• Quality and productivity performance• Product portfolio rationalisation and SKU
reduction to improve utilisation rates and to drive longer-term footprint decisions
• Sales and Operating Planning (S&OP) process – significant improvement on forecast accuracy and planning adherence
Context and backgroundManufacturing performance has been below expectations for more than a decade
Key priorities: short to medium term
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Reliability and Integrity
Utilisation and Cost Reduction
Supply Planning Process
Reduction of downtime and
unplanned maintenance
Improve utilisation rates and drive
long- term footprint decisions
Improvement in forecast accuracy
and plan / schedule adherence
FOCUS
ACTION
BENEFITIncrease throughput
and productivity and lower unit cost
Product portfolio rationalisation
Minimise downtime and optimise plant
maintenance planning
1. CONTINUOUS PLANTS
2. INITIATING SYSTEMS PLANTS 3. SUPPLY CHAIN BUSINESS
Capturing value across the portfolio
1. Continuous plants
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PREVIOUS STATE TODAY AND FUTURE STATE BENEFIT
PEOPLE & PROCESSES
• Pervasive lack of standardisation –organisation structure, business processes and performance metrics
• Suboptimal maintenance practises resulting in high levels of breakdowns
• Standardised organisation design implemented
• Capability and structure in place to drive and implement equipment reliability improvements
• Optimised maintenance strategy to reduce downtime and cost
• Discipline and capability to maintain performance
MAINTENANCE & CAPITAL
EXPENDITURE
• Underspending of sustenance capital, especially in older plants
• Capex allocation process does not always place the right weighting on critical manufacturing projects
• Review maintenance spend against benchmark standards
• Ensure Capex projects capture true cost & benefits of maintenance projects
• Increased plant performance• Reduction in unplanned costs
Focus areas to improve overall AN manufacturing performance
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AN PLANT OEE PERFORMANCE VS BENCHMARK
KI AMMONIA T/A (2017)$8M overspend
$4m other impacts35 days overrun
KI NITRATES T/A (2018)$1.4M underspend
+0.26m other impacts3 days underrun`
1. Continuous plantsImproved AN Manufacturing performance over past 18 months
50%
60%
70%
80%
90%
100%
FY15 FY16 FY17 FY18 FY19 (YTD)
Bontang YarwunCarseland Kooragang IslandBenchmark
20%
40%
60%
80%
100%
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
Yarwun AN OEE (12 Month Rolling)
Improved consistency
TURN AROUND DELIVERY
Strategic 30+ year asset • Plant located in the Pilbara region of Western Australia;
strong 5-year growth in materials moved (i.e. strip ratio)
• 50% JV with distinct responsibilities; Yara operates the plant, Orica is responsible for sales and marketing
• Plant essentially loaded from FY20
Temporary technical issues • Working with Yara to resolve issues; engagement at CEO
level, with Orica manufacturing presence on the board
• Full rectification project plan has been developed and is progressing; Orica’s engineers on site; all long-delivery replacement equipment ordered/being manufactured
• Interim plant defects are currently being resolved; complete heat exchanger and absorption tower replacement scheduled in 2H19
• Plant will run as much as possible until permanent repairs in place to assist identification and rectification of any further issues
D&A to commence when plant available for use; expected to be in FY20
Burrup Technical Ammonium Nitrate (TAN) plant, Western Australia
2017 2018 2019 2020 2021 2022
120
110
1000
130
Iron Ore Production 2017-22 CAGR = 0.7%
Material Moved 2017-22 CAGR = 3.1%
Australia Iron Ore Production and Material Moved Indexed Volumes (2017 Vol=100)
Source: Wood Mackenzie
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1. Continuous plantsBurrup update: short term challenges, fundamentals remain strong
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2. Discrete plantsGlobal Initiating Systems network with latent capacity
>20 plants globally• Key plants include:
– Helidon, Queensland– Brownsburg, Canada– Gyttorp, Sweden
• Products include:– Boosters, shock tube, detonators
(electric, non-electric and electronic) and packaged explosives
Significant underutilisation across the product range
• Average utilisation is well below 60% across the product range
• Target utilisation is 80%
• Product portfolio rationalisation required to achieve target
2. Discrete plants
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PREVIOUS STATE TODAY AND FUTURE STATE BENEFIT
S&OPPROCESS
• Manufacturing and Supply Chain managed as two independent workflows
• Regular changes to forecasts and manufacturing plans
• S&OP process did not drive accountability
• Regional Presidents own S&OP process
• Manage customer forecast and orders, set limit to forecast and plan variation
• Minimise downtime related to grade changes, reduce slow moving and obsolete inventory, improve product quality and reduce cost
• Optimise plant maintenance downtime according to demand
PRODUCT PORTFOLIO
• Initial number of SKUs (stock keeping units) > 45,000 due to chronic customisation and duplication
• Lack of product lifecycle management leading to failure to retire products
• <20,000 SKUs, mainly due to deletion of unused or duplicate SKUs
• Pathway to further rationalisation and reduction
• Strategic retirement of products through lifecycle management
• Reduced inventory due to smaller product portfolio and reduced slow moving and obsolete stock
• Reduced complexity in manufacturing and supply chain
PLANTS & EQUIPMENT
• Lack of standardisation of manufacturing technologies and process across plants
• Serious underutilisation of plants and single source of supply for some products
• Standardised technologies across the network
• Increased utilisation across the product portfolio
• Potential rationalisation of our manufacturing footprint
• Increased security of supply from standardised product technologies and reduced SKUs
Rationalising and standardising IS manufacturing and supply chain
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IS product portfolio rationalisation simple example: booster
Booster 1
0.5kg
30 per case
POSX8L0.5D
POSX8L0.5DA
35 per case POSX8L0.5D1
40 per case POSX8L500PE
1.0kg 20 per case
POSX8L1000
POSX8L1000PE
POSX8L1.0D
POSX8L1.0DA
POSX8L1.0D1
2.0kg 10 per case
POSX8L2.0D
POSX8L2.0DA
POSX8L2.0D1
2.5kg 8 per case
POSX8L2.5D
POSX8L2.5D1
Original SKU
Duplicate
Customisation
Sales 2018 Stock held In FY19 catalogue PlanCurrent: 14 SKUs
Target: <4 SKUs
2. Discrete plants
Delete immediately
Run down stock, then delete
Retain
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IS product portfolio rationalisation complex example: non-electric detonator 2. Discrete plants
400ms (241 SKUs)
Flat (229 SKUs)
69mm (21 SKUs)
MS (12 SKUs)
Regular (9 SKUs) Orange (9 SKUs)
XU (3 SKUs) Orange (3 SKUs)
Other (9 SKUs)
89mm (38 SKUs)
MS (26 SKUs)
XU (19 SKUs)
Orange (7 SKUs)
Yellow (2 SKUs)
XE (7 SKUs) Orange (7 SKUs)
LP (12 SKUs)
Regular (6 SKUs) Yellow (6 SKUs)
XU (4 SKUs) Yellow (4 SKUs)
XE (1 SKU) Yellow (1 SKU)
XU3 (1 SKU) Yellow (1 SKU)
94mm (170 SKUs)
MS (97 SKUs)
Regular (30 SKUs)
Pink (26 SKUs)
Yellow (4 SKUs)
XU3 (19 SKUs)
Red (14 SKUs)
Yellow (5 SKUs)
XE (19 SKUs)
Yellow (12 SKUs)
Red (6 SKUs)
White (1 SKU)
XU2/XE (15 SKUs) Orange (15 SKUs)
Not found (14 SKUs)
LP (65 SKUs)
Regular (37 SKUs)
Yellow (34 SKUs)
Orange (3 SKUs)
XU3 (26 SKUs) Yellow (26 SKUs)
XE (1 SKU) Yellow (1 SKU)
Not found (1 SKU)
Other (8 SKUs)
Not found in BOM (12 SKUs)
DELAY SHELL TYPE & LENGTH
CAP TYPE
SHOCK TUBE TYPE & COLOUR
LENGTHS
63 unique lengths produced for
Delay A(not displayed for
lack of space)
Product Information
Product type Non-electric detonator
Current number of SKUs
>6000This includes 141 unique delay times in a wide range of lengths, colours and cap types
Target number of SKUs
<4000
Rationalisation Considerations
Sales in FY18? Y / N
Stock currently held?
Y / N
Customers • Any specific customer needs• Listed in FY19 catalogue• Potential substitutes in existing
portfolio• Customer approval process for
change
Manufacturing • Current production facilities• Other facilities capable of production• Single source of supply
Logistics / Supply chain
• Countries/regions of use• Additional logistic requirements of any
substitute products eg cost, inventory, lead time
Regulatory • Regulatory approval process for change
• Import/export licences and limitations
141 unique delay times produced
Delay 1
3. Supply Chain
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PREVIOUS STATE TODAY AND FUTURE STATE BENEFIT
MANAGEMENT & PLANNING
• Lack of standardisation –organisation structure, business processes and performance metrics
• Unreliable process not driving clear accountability
• Poor or changing sales forecast not allowing stable forward planning
• Harmonise organisation design• Supply plan providing full
visibility of capacity and inventory
• Logistics and distribution providing optimum material flow
• Reduced management complexity
• Improved accountability and visibility
• Lower inventory levels
• Reduced logistics costs
SOURCING
• Fragmented negotiation and purchasing not allowing leveraged volume negotiations
• Large supplier base, no preferred suppliers, no supplier management
• Implement strategic sourcing, and contract management
• Preferred suppliers• Enforce compliance to
contractual spend
• Reduced supplier base• Increased spending under
contract
PROCUREMENT
• Purchasing often not supported by purchase orders or contracts
• Uncontrolled purchasing diverting spend to a large pool of suppliers
• Pervasive lack of process discipline and accountability
• Standard procedures globally• No Purchase Order No Pay
policy • Maximize purchases from
suppliers with pre-negotiated price lists and catalogues
• Increased spending visibility• Improved purchasing
Driving change – an integrated supply chain
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