NNPC Limited SCM Stock Replenishment Policy PDF

NNPC Limited SCM Processes and Procedures 21.0 Stock Replenishment This process describes the framework for effective maintenance of NNPC Limited stock items, in accordance with NNPC Limited Stocking Policy, Asset Management and Accounting Principles. The process of analyzing stock records and henc...

NNPC Limited SCM Processes and Procedures 21.0 Stock Replenishment This process describes the framework for effective maintenance of NNPC Limited stock items, in accordance with NNPC Limited Stocking Policy, Asset Management and Accounting Principles. The process of analyzing stock records and hence, replenishment is to ensure that a desired service level is achieved for User Departments in an economic and efficient manner. Objectives The objective of Stock Replenishment is to ensure: • • • • That plant availability, integrity, safety, and environmental standards are maintained in relation to materials availability with optimum level of working capital. Availability of critical materials. Required service levels while minimizing inventory holding are maintained. Cost optimization. 21.1 Stock Replenishment Policies S/N Description 1. Stocking Policy/Inventory Management Policy a. Stock holding shall be optimised at the most economic cost, taking into consideration the criticality of the equipment, maintenance option, lead-time, and sourcing strategy without compromising plant availability, health, safety and environment. b. The type and quantum of stock to be held shall be decided by Supply Chain Management (SCM) in consultation with the User Department. c. Inventory Management shall be based on pre-set min/max re-order level. The strategy shall ensure optimal availability of critical materials with focus on plant availability. d. Various selective controls such as ABC analysis, Perpetual Inventory etc. shall be applied for effective inventory management, as Materials Requirement Planning (MRP) shall be employed. e. SCM shall encourage setting up of Supply Agreements for critical spare parts with either Original Equipment Manufacturer (OEM) or their accredited representatives. f. Buy-back option shall be incorporated into all contractual agreements for stock items. g. Competent local Suppliers shall be encouraged to hold adequate stock of materials in their respective areas of competence and in their warehouses for direct and immediate purchase. 158 NNPC Limited SCM Processes and Procedures 21.1 S/N Stock Replenishment Policies Description h. Drilling and completion materials are purchased for stock to meet the specific demands of a drilling campaign. It is the expectation of the Supply Chain Manager that all materials procured for a specific well will be fully consumed by the completion of that well. i. Provisioning levels shall not be established for operational drilling stocks that are intended for consumption for specific wells. Operational drilling stocks in this context relate to Oil Country Tubular Goods (OCTGs), wellheads and major capital equipment. j. Spare parts for maintaining drilling equipment and/or rigs shall be considered in the same manner as standard operating spares and shall require provisioning levels to be established if requested by the User Department. k. Project materials are restricted for use by the specific project only. l. The Project Manager, at the completion of the project, shall review any residual/surplus material together with the Supply Chain Manager, to consider materials that are suitable for return to operating inventory or for disposal. m. SCM shall make Users aware of warehouse stock balances and consumption pattern while purchasing project materials. n. Sourcing for new materials shall not be initiated without confirming stock availability or existence of a Call-off Agreement. o. SCM shall ensure timely replenishment of the operative stock of materials by strict adherence to set materials management parameters for each item. p. The parameters for stocking office consumables and household goods shall be as lean as possible (Just-In-Time). q. The decision to return project spare parts into operational inventory shall be as follows: i. If stock already exists, materials shall be taken into stock if consumption pattern, current stock level and onorder situation permits (i.e., stock levels shall not exceed normal maximum levels). ii. For non-stock materials, they shall be coded and taken into stock on a “do not re-order basis” where there is a foreseeable use in the next three (3) years or next TurnAround-Maintenance (TAM). 159 NNPC Limited SCM Processes and Procedures 21.1 Stock Replenishment Policies S/N Description 2. Guidelines Stocks Related to Availability of Equipment Minimum/Maximum Level Setting: Provisioning levels are the quantity related to Maximum and Reorder points (minimum) that are agreed in consultation between the Supply Chain Management (SCM) and User departments because of an approved Stock Proposal Form (SPF) being submitted for consideration. Effective provisioning levels shall be established to ensure that operational support is maintained without an excess / surplus of stocks being generated. Stocks shall be managed using minimum and maximum levels. The minimum and maximum levels shall be set using the following formulae in conjunction with the User Dept (Maintenance function), to ensure that the equipment criticality is also taken into consideration: a. Minimum Level: i. Minimum = (Average Estimated monthly Consumption x Total Elapsed Time in months) + Safety Stock. b. Maximum Level: i. Maximum = Minimum stock x 2 For new items the estimated annual consumption shall be established by reviewing the manufacturer's estimate. This review shall be made in conjunction with the maintenance engineers based upon: a. Operational experience for similar equipment. b. The number of units installed and c. The criticality shall also be taken into consideration. Stock Order Quantity For items controlled under the minimum/maximum level method, the quantity to order shall be decided by: Requirements (Qty. to order) minus Availability = Shortage (Ordering Quantity) The period to decide requirements (quantity to order) shall be based on 12 months consumption. 160 NNPC Limited SCM Processes and Procedures 21.1 S/N Stock Replenishment Policies Description The shortage figure shall be tested to ensure that it is at least equal to the difference between the Maximum Stock and Quantity on order less the Stock plus On Order Quantity (i.e., Q = C (P + T) + R - (S + O)). The review shall be triggered when the stock quantity reaches or goes below the minimum level (Re-order level). Stocks Related to Cost Optimisation Stocks shall be managed using the Economic Ordering Quantity (EOQ) calculation. The formula for EOQ is based upon the optimum balance of ordering costs (which increases as order quantity decreases since more orders are placed) and carrying cost (which decreases as order quantity decreases since average inventory decreases). This is an inventory parameter option, which shall be incorporated in all computerized inventory management systems. It can only be fully utilized where the SBU/CSU has such a system in place. If an SBU is operating its stock replenishment manually then the calculation can be made as follows to replenish fast moving items: Quantity to Order or Q = C (P + T) + R - (S + q) Where: C = Estimated future average monthly consumption (expressed in quantity) P = The period between ordering reviews (expressed in months) T = Total elapsed time (i.e., the period from the date on which ordering action is started until the material is available for use). This includes the time taken to place an order, supplier's delivery time and transit time from supplier to customer (expressed in months) R = Reserve stock to be carried, if any (expressed in quantity). S =Stock available. (Expressed in quantity) q = Outstanding order quantity. (Expressed in quantity) Q = Quantity to order {net requirements - (Expressed in quantity)} 161 NNPC Limited SCM Processes and Procedures 20.2 S/N 1. Stock Replenishment Procedures Responsible Party Description Job Aid SCM, Inventory Planning (N-5) Review stock item when it reaches or goes below minimum level in the reordering template in accordance with the guidelines of this process and decide upon the quantity to be ordered. Stock Report Go to Purchase Requisition Process. 20.3 Stock Replenishment Input & Output Documents S/N Document Description Type Frequency Source Recipient 1. Stock Report Input As required SCM, Inventory Planning (N-5) SCM Inventory Planning (N4) 20.4 Stock Replenishment Indicators S/N Performance Measure Key Performance Basis of Measurement Timeframe Target 1. Timeliness of the Stock replenishment process Latest date for completion of stock replenishment process. As required As required 2. Accuracy of the Stock Report Number of material errors, omissions, and misrepresentations in the report. As required Zero 162 NNPC Limited SCM Processes and Procedures 163