Material Management: A Critical Focus for Turnaround Success

Part 1: Turnaround Material Categorisation and Delivery terms

Material (Material, Spare Parts and Consumables) management is a critical task during the planning and preparation phases of a process plant turnarounds. The primary objective is to ensure that the right materials are available at the right place and at the right time. Given that material costs constitute a significant portion of the overall turnaround expenses, procurement decisions must be made with care to avoid excessive purchases that could lead to surplus inventory. At the same time, it is essential to ensure that all necessary materials required to complete the scope of work are on-site. Effective consolidation and optimization of material requirements, along with consideration of material interchangeability, are crucial for efficient turnaround management. Let’s look into various aspects of material categorisation here, which helps in managing, procuring, and utilizing them effectively.

Materials are broadly categorized into five types:

1. Spare Parts: These are identified by OEM (Original Equipment Manufacturer) part numbers and must be procured from the OEM itself or from OEM-recommended vendors. Example: Piston ring, Sleeves, Bushes etc.

2. Other Materials: These are identified by material specifications and dimensions, accompanied by test certificates or assurance certificates. They can be sourced from approved vendors or suppliers. Example: Gaskets, Stud bolts, Pipe fittings, Valves etc.

3. General Consumables: These are sacrificial materials that will be consumed or disposed of after use during execution. They can be sourced from approved vendors or general suppliers, depending on their applications. Examples: Welding electrodes, Lubricants, absorbents etc.

4. Refurbishable Components (Assembled with a Set of Spare Parts): These components can be reused after refurbishment. Procurement from OEM or OEM recommended vendors is only necessary when the component becomes non-repairable. Examples: Mechanical seals, Dry Gas seals, Couplings, Rotor assemblies etc.

5. Capital Spares: These are one-time procured spares under Capex cost and are kept in stock with a unique Material Master code. They are typically high-value, critical components. The cost of these spares is directly charged to the asset as a capital expense, with the value being depreciated over time. Any future procurement of these items must be made through the Capex budget. Example: Heat Exchanger Tube bundle, Compressor Rotor, Extruder Die Plate etc.

Based on the organization's material inventory strategy, materials are classified into two categories:

Inventory Material (Stock Items): These are regularly used materials or those critical to the reliable operations of the plant, kept as inventory with a minimum and maximum quantity level set based on the consumption history. Consumption reviews are conducted periodically to adjust the min/max levels. These materials are identified with

a unique Material Master Numbers, and their costs are covered under the inventory budget. The cost is transferred to the end user's cost centre upon utilization. Any stock above the maximum level is considered surplus. Typically, the Inventory Management team initiates a purchase request when the net stock availability falls below the minimum level.

Non-Inventory Material (Non-Stock Items): These materials are procured directly on a case-by-case basis as needs arise. Most organizations maintain a unique Material Master Numbers to identify these materials as part of the standardization of procurement specifications. The cost of these materials is directly charged to the relevant end user's cost centre. Any unutilized material is considered surplus. Typically, the requesting department will initiate a purchase requisition when the need arises.

Another aspect is Material Delivery Lead time, it refers to the duration from the issuance of a purchase order to the processing, dispatch, and transportation of the material to the designated site warehouse location. It is typically classified into the following categories:

· Long Lead Items: Items with a lead time of more than 12 months.

· Medium Lead Items: Items with a lead time of 6 to 12 months.

· Normal Lead Items: Items with a lead time of 3 to 6 months.

· Short Lead Items: Items with a lead time of 1 to 3 months.

· Just in Time Items: Items that are available immediately after purchase order issuance, typically within a month.

It is important to note the incoterms (delivery/shipping terms) in the purchase order, as they can sometimes be overlooked and may significantly impact the delivery lead time. The estimated material delivery lead time should be calculated by adding the purchase order delivery date to the time required, as defined by the incoterms, for the items to arrive at the designated site warehouse.

Various commonly used incoterms include:

DDP (Delivered Duty Paid): The seller takes on all costs and risks to deliver the goods to the buyer’s premises, including import duties and taxes.

DAP (Delivered At Place): The seller is responsible for delivering the goods to a specified place of destination, including all costs and risks involved, but excluding import duties and taxes.

FOB (Free On Board): The seller covers the costs and risks up to the point where the goods are loaded onto the shipping vessel. The buyer takes over responsibility from that point.

FCA (Free Carrier): The seller delivers the goods, cleared for export, to a carrier or another person nominated by the buyer at a specified place. The risk transfers to the buyer once the goods are delivered to the carrier.

CIF (Cost, Insurance, and Freight): The seller covers the cost, insurance, and freight to transport the goods to the destination port. Risk transfers to the buyer once the goods are loaded onto the vessel.

EXW (Ex Works): The seller makes the goods available at their premises, and the buyer is responsible for all transportation costs and risks from that point onward.

The Turnaround or Maintenance Team typically maintains a Surplus Material list, which includes excess materials from various sources such as previous turnarounds, maintenance, and projects. This list serves as a resource for materials needed during the turnaround. Before making procurement decisions, the team should verify the required materials against the surplus list to determine if they can be sourced from existing surplus.

A solid understanding of material categorization is crucial for establishing an effective material planning and procurement strategy in Turnaround Material Management. In the next article, we will dive into the details of material planning.