Transcript AML presentation

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