Wednesday, February 06, 2008

EPC Business Strategy – People, Process and Partnerships


My article published in the Annual Issue of Chemical Industry Digest


Currently the EPC industry is in turmoil, confronted as it is with an extraordinary situation – too much work but too few hands. There has been a slew of grassroots and expansion projects in the refining and petrochemical sector especially in the Middle East. Concomitant with this the industry is facing a severe dearth of qualified engineers. This state of affairs is likely to continue, if not get worse, for some more years with several big projects in the pipeline. This article presents some stray thoughts on how the industry can cope with this extraordinary situation.

Engineering Process

Engineering design has been transformed radically over the last decade by a suite of smart software. These tools have made engineering design less tiresome and more efficient. Plant design is now faster and more accurate. Claims of 20-30% reduction in engineering efforts are not far-fetched. Though many EPC companies have been quick to embrace these tools, the integration has not been wholehearted and complete. The remnants of the old traditional methods linger.

The new suite of software has subtly changed the rules of engineering design. The current mantra is one-time data entry. For example, P&I Diagrams are no longer drawings with bits and pieces of information; they have been transformed into a database represented pictorially. A corresponding change in mindset is necessary to derive full benefit from these tools, which are built around the principle of collaborative working, wherein different engineering disciplines are given access to the same document to do their part. The traditional regimented method in which each engineering discipline fiercely guards its territory has to be dismantled. Engineering design today has to be seamless in the true sense of the word and the old workflow practices need to be re-constructed to suit the new toolbox. Time and effort need to be invested to train engineers in the effective use of these tools if their features have to be exploited fully.

People Power

EPC business needs engineers with certain unique skill sets:

  • Writing specifications
  • Evaluating vendor’s quotations and preparing technical bid analysis
  • Reviewing vendor drawings
  • Document management

Also Piping Engineering does not exist as a discipline outside of EPC industry. Hence recruiting new talent from other industries, especially at middle level yields only average results. EPC firms have no option but to recruit fresh engineers and groom them, but are facing very high rate of exodus to other lucrative pastures. New recruits have to be put through a rigorous training programme, both class-room and on job, before they can be brought up to productive levels, a process that can take anywhere between 12-18 months. After investing so much cost and time in training, the high attrition rate is killing.

Since the intake of projects is not uniform, EPC firms cannot go for annual campus recruitment in a big way. Borrowing the example from other professions, a cluster of EPC firms should come together to establish a 2-year post-graduate certificate course in EPC Engineering / Management. This will not only allow the high training costs to be shared amongst the participating firms but will also create a large talent pool into which companies can dip as per their yearly needs. Integrating these students into the taskforces will not only provide them the crucial on job training but would also improve the bulge-mix of the team and thus lower the costs.

Taskforce Organisation

Engineering for most medium and large sized projects is today carried out in taskforces. Within the taskforce work should be optimally carved out into meaningful ‘Design Areas’ that can be conveniently managed by ‘Area Engineers’, such that concurrent engineering is possible. By dividing the work between multiple geographical locations, time differences can be smartly leveraged to create a virtual 24x7 engineering office.

Engineering design is no rocket science and does not call for application of sophisticated technical skills, but what is not often appreciated is that it needs engineers with an extraordinary set of soft skills. Much of detailed engineering is an irritatingly iterative process. The engineers and designers start off with half baked information, making several assumptions and guess-estimates. As the information and data keep getting refined during the engineering process, designers need to frequently revisit and rework their design. This can get tiresome and sap the morale of even the most committed engineer. Momentum and motivation get easily mired. Out of the box thinking and risk taking abilities are important attributes that need to be encouraged and nourished, without fear of punishment. EPC companies have traditionally shied away from professionally qualified Project Managers and have relied on engineers who have risen through the ranks to don the mantle of leadership. More than possessing the required technical competence, the Project Manager should be a mentor, a coach and a father figure who can manage the fragile egos of the team members; someone who can bring joy and fun to the workplace.

Today’s EPC business demands engineers with cross-functional skills. Process engineers cannot afford to work within the confines of their idealistic cocoon and need to have a strong understanding of the ramifications of their actions on downstream engineering, especially piping. Similarly piping engineers need to empathize with their counterparts in civil and structural engineering. Organisations need to discover engineers with such potential and groom them assiduously. As this promises career growth, it will help in retaining talent. A team made up of such engineers will have less friction and high morale, work more efficiently and give better output.

The composition and leadership of the taskforce are central to the success of any EPC project. While most engineering is executed within the taskforce, some crucial support functions are shared amongst many taskforces. In order to set meaningful targets and foster accountability, taskforces should be fully self-contained requiring no external support whatsoever. Fully empowered teams managed by an empathizing leadership can achieve outstanding results. Taking a leaf from the world of advertising and IT industry, team members should be handsomely rewarded on achieving targets. And like in sports, successful teams should not be disbanded, but retained for other projects.

Partnership with Vendors

The timely receipt, completeness and accuracy of vendor information are absolutely crucial to engineering. It usually takes 10 to 12 weeks between floating an enquiry and order placement. Vendors take anywhere between 4 to 8 weeks after order to submit the relevant drawings and documents. This procurement cycle has a big impact on the engineering schedule. It is important to integrate the vendor into the project plans. This is easier said than done, since the vendors’ priorities are different from those of the project.

Vendors prepare documents and drawings to suit their own fabrication and manufacturing schedule which rarely if ever coincides with that of piping and civil engineering requirements for project. Vendors also need information, like nozzle orientation, from the EPC contractor for meeting their committed delivery schedules. Penalties and Liquidated Damages are often built into the Purchase Orders, but they rarely help because most vendors factor this into their pricing. On the other hand bonuses for better performance could just be the right tonic. It is a complex and challenging problem and building medium to long term partnerships with ‘preferred’ vendors would go a long way to ease some of these bottlenecks. A meaningful partnership would facilitate engineering due to

  • Familiarity with each other’s requirements, expectations and practices
  • Shorter enquiry to order cycle
  • Advance information for engineering
  • Fewer deviations during execution
  • Shorter drawing review time
  • Flexibility to accommodate last minute changes
  • Mutual respect and trust
Such partnerships can be established for ‘information heavy’ items like rotating equipment, control valves, safety valves, motors etc. Since the ‘preferred’ vendors are more or less assured of a steady stream of orders, this is a win-win situation for both parties and such a partnership should not pinch the contractor. This concept should however be explained upfront to the client, who must be taken into confidence.

Site Engineering

While quality is important in every human endeavour, it must be recognised that improvement in quality cannot come without expending additional time and costs. Also important is the need to appreciate that principles of quality cannot be applied with the same rigour in a service industry as in a manufacturing set-up. The quality issues with a set of engineering deliverables cannot be as life threatening as that with a batch of antibiotics. Incremental improvements in quality of engineering deliverables take a disproportionately long time. The same yardsticks of quality cannot be applied indiscriminately to projects of all kinds. Almost always errors of omission and commission in engineering deliverables can be spotted and rectified at site by the ingenuity of site engineers without too much damage. Engineering support at site to ‘refine’ the quality of engineering deliverables would save both time and cost of engineering in the home office. Excessive obsession with quality of deliverables not only adds up time and cost, but also saps the morale of the engineers. Clients should be taken into confidence on this sensitive point and an agreement must be reached at the beginning of the project.

Outsourcing

Outsourcing is a very useful and cost effective method of overcoming the resource and time crunch. It must be judiciously used though to avoid running into quality problems. Some examples of tasks that can be outsourced are thermal design of heat exchangers, hazardous area classification drawings, noise mapping, review of vendor drawings, preparation of detailed civil drawings etc. Several avenues of outsourcing are available ranging from professionally organized agencies to individuals working as freelancers. Close monitoring is necessary while outsourcing work to agencies to ensure that compatible software, standards and engineering practices are adopted. Thanks to the Internet, exchange of documents is much faster and more reliable. One resource that is not fully tapped into is the senior professionals who have retired after a long stint in the industry. They can be effectively deployed as checkers and also as advisors.

Summary

A winning strategy for EPC business should hinge around:

  • Reinventing engineering workflow
  • Empowered teams with empathizing leaders
  • Recruitment and Retention of key people
  • Partnership with vendors
  • Smart outsourcing

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