Secrets of the AML – your best friend or worst nightmare? How to tell the difference PVF Roundtable Ron Merrick, P.E. 20 Oct 2009 Approved Manufacturers Lists We’ve all grown up hearing about “the AML” ---- It’s one of the first documents that’s circulated for markup and comment on a project, Or, one of the first documents a user provides, – And it can bedevil your life or save your bacon from then on. Here are some thoughts on how to keep yourself out of trouble, and how to help the clients make their lives better (or, at least, try….) • Disclaimer: this entire presentation is concerned with BULK materials, not capital equipment. Some tag items follow what is presented here, while others may not. 2 Definition of bulks vs. tag items This is a broad subject, but the part we care about concerns bulk materials sold through distribution. Here, the seller is not the manufacturer, and the manufacturer is not selling to the user or its agent. Examples of bulk items – – Valves, pipe and fittings, wire and cable, conduit and cable tray, tubing, and other items where quantity on the line item could be greater than 1. Not bulks – – Pumps, vessels, anything that has its own foundation, that is identified by a tag number. 3 The AML question Questions project people ask each other: What does this really mean? Whose idea was it? How can I change it? Why is it there? What kind of idiot put THAT on there? What kind of idiot didn’t know that THEY should be on there? That idiot’s spelling is so bad I don’t know WHO that is….. Questions bidders ask us: Why am I not on there? Why didn’t you send ME that package? Why DID you send me that package? What kind of idiot didn’t know that WE make that thing? What kind of idiot didn’t know that WE are the authorized distributor? What kind of idiot didn’t know we changed our name in 19….. 4 The AML question Why all these problems? 5 The AML question Why all these problems? With any list, someone has to create it, someone has to maintain it, someone has to know WHY the list exists. – In other words, it needs a philosophy or a reason for its existence Let’s review what we do. 6 What the industry does and why Everybody has approved lists, and has had these lists for as long as anyone can remember In the good old days, when sales were mostly direct, owners had staff people who knew which products worked well – During this era, the products were actually in a state of development as users and manufacturers searched for ways to make things suitable for use in oil and gas services – Lots of product innovations were proprietary and lots of tradenames were used for materials and designs The E&C was mostly responsible only for pulling it all together 7 What the industry does and why Purchase specs were long and involved, and proprietary designs and materials were not uncommon Users worked directly with manufacturers, often with specific design requirements for that user’s product These users had very specific approval lists for products that they personally were familiar with – Often, their own inspectors witnessed everything – And manufacturers had direct control of everything • Their own foundry, often on the top floor of the factory • Their own ‘secret’ manufacturing methods 8 What the industry does and why Flash forward thirty years ---- The bust Downsizing Outsourcing Doing more with less “I’m goin’ to the house” And throughout, the move to standardization and elimination of “our special way of doing things” 9 What the industry does and why But some things never change. What’s the first thing that happens on a new project? 10 What the industry does and why But some things never change. What’s the first thing that happens on a new project? As part of procedure development, somebody sends the project AML around for comment. 11 What the industry does and why But some things never change. What’s the first thing that happens on a new project? As part of procedure development, somebody sends the project AML around for comment. Don’t have specs, don’t have flowsheets, don’t have interaction with the client – yeah, of course, we can tell you what we’re going to buy - Insert snide emoticon here News flash --– ‘What’ we’re going to buy determines our choice of ‘Who we’d be willing to buy it from’ and thus determines the AML we need. 12 What’s an AML? Back to basics – let’s clarify what we’re talking about AML stands for Approved Manufacturer List – Sometimes there are other names and acronyms – Basic idea is it’s a list that tells you who to buy from • ‘Who’, in this case, means you also need to know the representation Now the devil is in the details --– What does ‘Approved’ mean? What does ‘Manufacturer’ mean? 13 What’s an AML? Back to basics – let’s clarify what we’re talking about AML stands for Approved Manufacturer List – Sometimes there are other names and acronyms – Basic idea is it’s a list that tells you who to buy from Now the devil is in the details --– What does ‘Approved’ mean? What does ‘Manufacturer’ mean? Not what you might think, not necessarily, not always. 14 What’s an AML? Let’s talk about approvals first, then about manufacturers. 15 Status of AMLs in the industry Beginning in the mid-90s, a lot of domestic end user AMLs were left to coast. – Sometimes the only champion retired, – Sometimes the management decided not spend any more money on it, – Sometimes the whole refinery business was running on inertia, – Most of the new companies that were created didn’t have time for this, or the money men never heard of such a thing, – Or somebody’s brother-in-law just promised to take care of it and don’t worry about the details. 16 Status of AMLs in the industry Here are bad AML examples from recent projects: 17 Status of AMLs in the industry Here are bad AML examples from recent projects: A category of “alloy pipe” containing only makers of welded stainless pipe, when the project required seamless chrome alloy pipe. A category of “ball valves” containing only utility and light duty ball valves, when the project required highperformance metal seated ball valves. A category of “cast steel valves” with a ‘no Chinese’ requirement, in which almost every single manufacturer listed had moved their major production to China. 18 Status of AMLs in the industry What do we (the engineering contractor) do under such circumstances? 19 Status of AMLs in the industry What do we (the engineering contractor) do under such circumstances? It entails a lot of justification as to what we need, why we can’t do it, whether the products on the AML are even available, sometimes recounting the history of steelmaking, …….. 20 Status of AMLs in the industry How about a case in which a supplier offers something off the AML on the basis of price? 21 Status of AMLs in the industry How about a case in which a supplier offers something off the AML on the basis of price? Depends…… – If it’s a tight AML, nice try but no. – If the AML is more open or more in need of help, then it depends on the skill and desire of the engineer and the buyer, but we probably need a REALLY good story as to the advantages. • To the engineer, being lower cost is probably of no real interest except as an item of suspicion – ‘what’d you leave out?’ 22 Status of AMLs in the industry Solutions? 23 Status of AMLs in the industry Solutions? If you’re looking in from the outside -- Review the project AML carefully as soon as you can, before commercial activity starts – Highlight the trouble spots – Don’t throw the kitchen sink out there – provide a few well-chosen alternatives and stick with them Get backup! – If you have any doubts, be sure the manufacturers involved have a chance to comment 24 Status of AMLs in the industry What happens when you’re handed a client AML? Find out how rigorous it is – – How strictly enforced, – How dedicated the owners are to it, – Whether you have the option to add new categories, or are on your own for categories of material not listed, – Do you know the client engineers who are responsible for it? – Can you build what the project needs from the suppliers listed? If not, be as specific as possible why not. – Don’t ever suffer in silence, – And don’t surprise us. 25 Status of AMLs in the industry The situation is getting better – Numerous end users, starting about 2003, recognized this lack of controls and began a new corporate AML or consolidated ones they had come into possession of from previous entities. Some of us had an opportunity to contribute to a number of those. Some of these may be in danger of stagnating, since maintaining an AML is a constant process. 26 Fluor’s position Here’s what Fluor provides: 27 Fluor’s position Here’s what Fluor provides: The Evaluated Supplier List (ESL) contains manufacturers who have been represented on SRAs and who have repeatedly been used successfully. These represent a baseline or core product offering that we can show a client with real assurance that we can build the project using these manufacturers. Additional manufacturers will need to be added, in the vast majority of cases, to meet project needs. “Evaluated” means that these manufacturers have been successfully used on several projects in the recent past and have proven themselves. 28 The E&C dilemma Virtually all projects publish an AML In the case of clean AMLs, or ones where the client is really insistent, we use theirs totally or mostly In other cases, we try to update and to add categories to suit what we will build – In all honesty, some projects try harder than others – Clients with clean AMLs are often OK with adding new categories for new types of material Everybody has a legacy AML that they will use if nothing better is presented – The ‘I did this on my last project’ syndrome 29 The E&C dilemma Remember, Most of our purchase orders are directed to distribution. We have a highly developed supplier rating system, but it contains nothing on manufacturer performance, because ---- – It’s a supplier rating system. 30 The E&C dilemma Why don’t we “approve” manufacturers? 31 The E&C dilemma Why don’t we “approve” manufacturers? We’re not in a position to “approve” manufacturers because we have too wide a disparity in applications. – One project’s “exotic” is another’s “commodity” – We work in so many different business units – We have no single set of technical requirements against which to “approve” – We have no opportunity to put something in service to see how it holds up “Approve” has a pretty serious meaning sometimes, when we’re passing something on to a user over whose practices we have no control. 32 The E&C dilemma Why? An end user can control its own people, enforce limitations on policy and procedure, generally enforce its own rules for operation and discipline its employees for misoperation. An engineering company can’t have any influence on what happens after startup. And, • some entities would love to shift liability to someone who promised something….. 33 The E&C dilemma Another strategy is to maintain a list of manufacturers known to be operating in the region. This comes with no recommendation whatsoever, But it’s useful for verifying spellings, product lines, known countries of origin, and fates of old brand names – Acquired by…. – Merged with…. – Now made by…. – Discontinued…. 34 What an AML is supposed to do So why do projects and clients even have an AML? 35 What an AML is supposed to do During execution of the project, you have to buy material or cause others to buy it Because product in this industry is not specified by brand name, there has to be some way in which the project can limit the supplier base. In theory, your AML will contain only manufacturers who can do the job – You’re supposed to say you would be OK on a technical basis with whoever from that list turns out to be the best deal commercially. – “Separation of powers” --- engineers provide a range of choices and buyers select one 36 What an AML is supposed to do This is why you care who’s on the AML, And why it’s important to spend time to know what you will buy before you finalize the project AML – This gives you an opportunity, if you can, to take out manufacturers who you think won’t come through – The ‘not on AML’ reason to reject a bidder’s offer is a pretty powerful one – But, if you neglected to add some bidder you later realized it’d be good to have, it may be an uphill battle So what makes a good AML? 37 What a project needs in an AML Here’s what we told a major end user recently – The key word is “manufacturer”. – The word “approved” is probably the most controversial. Some prefer “recommended” or “recognized” or “acceptable”, depending on how much control is associated. – In a hydrocarbon processing environment, where managing risk is of paramount importance,… – The primary purpose of the AML is for the owner to have greater confidence that material coming in to the plant is of minimal risk of failure. – There are other purposes, • Control of spend, feedback, becoming a higher priority customer, better maintenance and operations,….. 38 What a project needs in an AML Here’s what we told a major end user recently – What’s the focus of the AML? • Most common material or every last little thing? – How broad or fine are the categories? • “Ball Valve” or “Soft-seated Fire-safe Ball Valve”? – Where do updates come from? • Manufacturers, MRO, self-research? – How often to update? • Regular schedule or as-needed (whenever there’s a budget)? How broad should the list be, in each category? – Preferred vs. all other manufacturers – What happens when manufacturers change something? • • How do you find out about changes? What changes matter? – Who takes the initiative? • Top-down or bottom-up? 39 What a project needs in an AML Here’s what we told a major end user recently – What does ‘manufacturing’ mean? – Once upon a time, there was a manufacturing company, and its owners lived in the town and so did all the workers, and the foundry was there also, and the patternmakers and the designers, and the final assembly took place in that same building……. – Today ---- NOT! 40 What a project needs in an AML Here’s what we told a major end user recently – Today ---• • • • Casting (and forging) sources are almost always outsourced Specialty machining (stems) are frequently outsourced Gaskets and bolting is 100% outsourced, and they’d be crazy not to A lot of non-critical machining is outsourced – Multi-national manufacturers either – • • Make identical and interchangeable product in several countries or not. – Confining our discussion to ANSI / API valves, • • Many manufacturers try to have the product the same regardless of where it’s made. However, there are some whose patterns and details are different depending on source. The only way to know is to ask (to be familiar with the product details). 41 What a project needs in an AML Here’s what we told a major end user recently – How much movement in manufacturing sourcing is there? • In the last five years, there are probably more manufacturers have moved / re-sourced than those who have stayed put. – Where have they gone? • China, mostly. – Not only that, • • There are new manufacturers arising spontaneously from India, Turkey, Eastern Europe…..and China. Commodity valves are moving to low-wage countries faster than specials and new designs – Items with low labor content are affected least (the cheapest place in the world for ‘decent’ forged steel is still Italy) – Cost of shipping and cost of inventory “on the water” and time for shipping all help to counterbalance the low labor rates. 42 What a project needs in an AML Here’s what we told a major end user recently – One product that’s moving to low-wage countries faster than valves is… 43 What a project needs in an AML Here’s what we told a major end user recently – One product that’s moving to low-wage countries faster than valves is… – Castings. – Is this a bad thing? • Inspection of castings is way easier than inspection of complete finished valves • Western manufacturers have another shot at inspecting the castings during the machining process • Castings are the single biggest contributor to cost of finished valves 44 What a project needs in an AML Here’s what we told a major end user recently – So ask yourself ---– Do you care about the country of origin of everything in the product? – Or do you care about the location of assembly and test? • There is no wrong answer • One is easier and cheaper, and the answers are more straightforward, than the other – Is it OK with you to trust the manufacturer to own the responsibility to make it right? 45 What a project needs in an AML Here’s what we told a major end user recently – The final issue is how to maintain an AML as an ongoing operation. – Because future changes are inevitable, an AML should undergo regular maintenance or it becomes a laughingstock. – An AML should also not be too restrictive, since if it cannot be complied with it runs the risk of being ignored altogether. – A system of regular reporting by the companies listed can be very useful. Did they take our word for this? – We’ll find out in a few years. 46 What a project needs in an AML Thank you for your time. Questions? 47