Gaining an insite into Iceland

Posted on 13 Jul 2009 by The Manufacturer

Ian Ritchie, managing director of Brammer, a leading UK supplier of maintenance, repair and overhaul (MRO) products and services, looks at how a unique international partnership in spares sourcing and stores management is delivering big benefits to the world’s leading aluminium producer.

Setting up a completely new manufacturing facility poses a unique set of challenges, even in a location where much of the infrastructure and supply chain is already in place.

However, the challenge is intensified when the facility is extremely large, situated in a remote location and facing inhospitable and often extreme weather conditions.

This was certainly the case when Alcoa, the world’s leading producer and manager of primary aluminium, fabricated aluminium and aluminium facilities, took the decision to construct its first new greenfield primary aluminium smelting facility for 20 years at Reydarfjordur in eastern Iceland.

Construction of the facility, named Fjarðaál (‘aluminium of the fjords’), started in 2004, with the aim of creating one of the most efficient, environmentally-friendly, and safest smelting plants in the world. The plant, operational since 2008, has a capacity of some 346,000 metric tons per year, and measures a massive 2.5km from end to end.

Establishing local and international supply chains
To optimise supply chain efficiency and reduce operating costs, Alcoa planned to outsource stores management, spares sourcing and a range of related services for the Fjarðaál site to a third party. Already enjoying a successful partnership with Brammer in the UK for the supply of maintenance engineering spares and related services, Alcoa invited Brammer to tender for the contract.

The project brief was to create a sustainable and cost-efficient source of supply, managing the stores, warehouse and supply chain to ensure excellent availability of spare parts with transactional costs kept to a minimum. The criteria for the contract also required potential suppliers to demonstrate how a strategic longterm partnership would help reduce costs.

In November 2006, Brammer was awarded a contract covering the provision of stores, warehousing and supply chain services to Alcoa. The contract was awarded on a combination of the proven operational benefits Brammer had already brought to Alcoa in the UK and the tender proposal to deliver best practice in supply chain and stores management to the Fjarðaál project.

This project involved the establishment of what is effectively a Brammer branch – known as an ‘Insite’ – at the Fjarðaál site, to handle every possible aspect of spares and stores management and so free up Alcoa personnel to concentrate on production operations.

To manage the project, a team of Brammer employees were deployed to Fjarðaál in February 2007. They were supported by dedicated staff in the UK to undertake a highly complex data management project, complicated further by the distance and wide range of products involved.

During 2007, the Brammer team researched and audited more than 50 Icelandic suppliers, establishing a local supply chain with 30 suppliers for consumables, PPE and site maintenance. A small order system for this local supply chain was set up, with initial logistics links guaranteeing same day delivery commitments.

Simultaneously, Brammer established a supply chain for 120 global suppliers covering well over 5,000 individual product lines. This assisted Alcoa with its vendor reduction programme as the company only has to deal with Brammer rather than each of those suppliers individually, and has thus helped to significantly reduce working capital and transactional costs. Indeed, by October 2007, some £185,000 of cost savings had been achieved for Alcoa, all before the plant was fully operational. To cater for the often unexpected and unplanned nature of maintenance spares supply, a next day delivery capability to supply from the UK was also established.

Centralising operations
The initial project had involved the establishment of two off-site, remote maintenance and engineering stores facilities. While this arrangement was effective during the start-up phase of the plant, the ultimate aim of both Brammer and Alcoa was to develop the operation into one on-site, best in class, semi-automated warehouse facility to create further economies of scale and reduced turnaround times in picking and delivery.

Brammer planned and managed the entire warehouse design and relocation project for Alcoa, developing a complete understanding of Alcoa’s needs and expectations from the on-site facility, and then providing a comprehensive stores design and management consultancy to deliver the optimum warehousing solution. This involved evaluating existing customer plans for the stores and making recommendations on the best configuration in terms of storage capacity, picking, work flow, location, space utilisation, health & safety and welfare issues.

The overall requirement from Alcoa was for more than 800 pallet locations and in excess of 6,000 locations for medium-sized and smaller items. Brammer’s proposal included high-density storage units to make optimum use of space and provide easy access for picking, and longitudinal racking for pallet storage.

The design placed fast-moving lines near to the door to minimise movement, with carousel racking for smaller items.

Locations are also colour-coded to different areas of the site, with a trailer system providing delivery to line-side/plant areas – absolutely essential in a 2.5km long site.

The Insite facility also features a touch screen product identification and selection capability in English and Icelandic, allowing staff to view stock levels and order product with ease.

This facility is now fully operational on a 24/7/365 basis to support Alcoa’s production operations, with a 10-strong Brammer team handling all ordering, storeroom replenishment, goods receiving, inventory management, internal delivery, kitting and staging services and technical support for the site.

Continuing to add value

Insites are becoming increasingly common among Brammer customers and the operational and financial benefits achieved for Alcoa in Iceland are clear evidence of the reasons for this trend.

In most instances when establishing an Insite, Brammer is working with its own existing supply chain of leading engineering component manufacturers. For Alcoa in Iceland, however, Brammer had to quickly and successfully establish a robust international supply chain that included many new suppliers, whilst maintaining a clear focus on continuity of supply combined with delivering on supplier reduction, inventory management and technical support from day one.

An Insite allows Brammer to provide a full range of technical help and advice, and also to implement continuous improvement projects to deliver enhanced production efficiency and reduced working capital, with services provided either by the permanent in-house team or through other Brammer technical specialists brought in when required.

One major area where Brammer is successfully reducing total acquisition costs for Alcoa is through an OEM parts conversion project. This project involves Brammer identifying spare parts that are being sourced from an original equipment manufacturer, where Brammer is then able to provide the same part at lower cost due to it’s purchasing economies of scale, or can identify a fit for purpose alternative that assists an engineering standardisation programme.

OEM parts conversion has already benefited Alcoa with increased productivity and reduced total cost of ownership for the spare parts. This is helping Alcoa to achieve efficiencies by reducing inventory and thus the total cost of component acquisition.

As usage patterns continue to emerge, further reductions in working capital will be achievable through product and brand rationalisation and optimised inventory profiling.

Brammer is also helping Alcoa to achieve cost savings in the important area of energy consumption. One example of a successful project has seen Brammer recommend the changing of the V-belt drives on blower fans to reduce energy consumption and improve the efficiency of the production line.

The evidence in terms of verified cost savings is clear.

By the end of 2008, through its focus on reducing total acquisition costs and improving production efficiency, Brammer had delivered close to £1 million in operational cost savings to Alcoa. These cost savings being generated through a combination of the activity during the establishment of the local and international supply chains, savings in the purchase of both capital equipment and spares based on economies of scale and Brammer’s purchasing power, and individual projects to reduce energy usage and spares inventory.

Tomas Sigurdsson, managing director of Alcoa, sums up the relationship as follows: “Brammer’s approach to business aligns very well with ours. The Brammer MRO offering is a good fit for our requirements and we have high expectations for their storeroom operation processes and systems at Fjarðaál. The two operations have been seamlessly integrated and this approach is also new to Icelandic industry.

Our co-operation with Brammer will be one of the cornerstones in our operational effectiveness and long-term sustainability.”