Alkhorayef Petroleum and Lean Manufacturing

Matthew Kenna joined Alkhorayef Petroleum in 2008 as VP Manufacturing, and within 14 months completed a Lean Management conversion for two factories - a foundry and an ESP plant.

New Libya facility

“I can assure you that this is the best system for any oil field manufacturing”
-Matthew Kenna, VP ManufacturingSP & Wepco

The Alkhorayef experience with Lean has been impressive: turnover has been reduced 53%; production has increased 48% (2008 vs. 2009); and lead time has been shortened from 87% in one value stream and 91% in another.

The Lean Management concept has been successful in the oil supply industry through build-to-order based on each well’s requirements, short lead times and high quality. It is well-suited to markets like the Kingdom of Saudi Arabia where 95% of the product is sourced from outside the Kingdom. Alkhorayef Petroleum is unique in that it is the only manufacturer of ESP equipment located in the Middle East which is one of the largest users of ESP equipment in the world. In Lean you recognize that long transport times to market do not add value and tend to lead to batch thinking. Long lead times lead customers to think they better order a large batch of pumps to ensure they don’t run out. The customer also might recognize a savings if they order a large batch (batch discounting) however if you review your cost for the whole cycle (not just the cell of purchasing) you will probably find that the cost savings are wiped out. It is largely recognized in most industries around the world that inventory can cost up to 45-50% per year. APC can apply single piece flow and get product to the customer faster based on the tact (beat) of the customers rig availability. Toyota (the leanest company in the world) not only have their suppliers next door they set up their plants where their customers are – they don’t’ centralize. Many of the other ESP companies centralize in one area Lean manufacturing has been used for years to improve efficiencies and profits across multiple industries.

Lean manufacturing is designed to remove waste (non-value added processes) through the entire life of product, from the supplier of the raw material to delivery of product to the customer. Lean organizes employees into value adding teams that are responsible for removing the waste in the process that prevents the customer from receiving his product on a timely basis. Forms of waste include waiting, excessive movement, re-work (defects), over production, unused creativity, and over management. Non-value added processes can include looking for tools, waiting for parts, or storing inventory.

I have practiced Lean for 11 years. My Lean work has been mostly in the oil field and given the tough delivery and well conditions I can assure you that this is the best system for any oil field manufacturing. I say this because every well is a small manufacturing plant and each plant needs different equipment as the conditions for each plant are unique. Forecasting and inventory in the oil field will not help you get the proper piece every time. This is particularly important given the economic conditions we all find ourselves in these days. Quick delivery of equipment for any given well with high quality is what you want.

One of the major tools within the Lean toolbox is the concept of single piece flow and the removal of batch processing within the plant and field operations. What is wrong with batch processing?  Batch processing comes from the concept that economies of scale (minimizing set up cost by maximizing the number of units processed each run) drive the cost down for the benefit of the customer and the company. This however leads to longer lead times and quality defects hidden in inventory. Single piece flow recognizes that the customer usually only needs one unit at a time and receiving 100 at a reduced rate usually leads to extra costs when you consider the full cycle of cost not just the one cell or process. In the oil and gas industry the beat (or tact) of the customer comes from the rig count they have available. Tact time can be defined as the maximum time per unit allowed to produce a product in order to meet demand. If they only have one rig why ship them 10 pieces of equipment? It should also be pointed out that each well is a unique oil/gas manufacturing plant and it requires a specific piece of equipment. Therefore, each piece should be designed, built and installed as a single piece.

By applying lean manufacturing at WSP, the overall delivery of motors (in process time not including back order) has been reduced 87%, pumps 93%, and seals 92%. The input times for motors has dropped 35%, pumps and seals dropped 38%. Total output has increased by 34% with a 24% reduction in inventory. Savings to the customers will be reduced lead-time and cost savings.

In September of 08 we received a request from a Russian company for 4 complicated systems. The systems were designed, built, shipped and installed in 90 days. In the past the manufacturing time alone would have been 90 days. A Saudi customer wanted 4 water well systems in 2 weeks, they were delivered on time. There are numerous cases of requests for short deliveries into Iran that were accomplished.

APC in currently accessing the needs of our customers in our Wepco foundry and is applying lean principles to deliver a quality product. We are also reviewing the customers’ needs and takt in Libya and Kuwait and using some of the Lean principles there to deliver better service with a reduced need for capital.

In today’s economy and environmentally aware society, it is the responsibility of major corporations to use the available resources wisely. In the book “Natural Capitalism” Paul Hawkin, Amory Lovins and Hunter  Lovins. Chapter 7 refers to Lean and how it applies to the environment. One waste, which I feel is the largest of all waste, is over production. Over production occurs when either the production is completed before it is required by the customer or when the product is produced and never consumed by the customer or the product is produced or quality issues prevent consumption by the customer. In all these instances natural resources are consumed at a rate that does not match the requirements of the customer. Also, over all inputs reduce with Lean so environmental inputs also are reduced.