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01 June 2011 Mr. Stephan Kothrade, Sr.

Vice President BASF-Antwerpen Scheldelaan 600 B-2040 Antwerpen 4 Belgium

Subject: Dear Stephan:

Report of Site Visit on 9-13 May 2011

Thank you again for the opportunity to work with you and all your staff during our recent visit. It was a pleasure. As you know, our objective was to review the current asset management practices, to discuss with your managers your approach to asset management, and to provide a series of workshops on our approach to assuring excellence in asset management, which we call reliability and operational excellence. In our approach to asset management, we typically include a broad, holistic set of issues and practices, including: Products and customers in particular markets Processes both technical and management Design, Procurement, Operating and Maintenance practices Equipment People

And, as we discussed, we focus in particular on leadership and cultural change management, using the tools and techniques related to asset management as a vehicle for guiding the leadership and fostering cultural change. While many, if not most, asset management strategies focus primarily on equipment and in particular maintenance of equipment, we believe that view is very limited, and will therefore limit a companys ability to achieve excellence in asset management. Related to this, and though we might make a few suggestions on it, we believe that your Asset Management document is the best weve seen, particularly in that it links markets, operations and maintenance. Below are our observations and recommendations resulting from this visit. Our comments are provided with a strong desire to help BASF become even more competitive than it is already. So, if they appear to be too direct in some cases, we apologize for that, since we do not intend to offend, but rather provide the best information possible to assure the best outcome possible. Related to this, our time there was brief, and of course, there were language differences during our discussions, so we may have missed, or misunderstood a few issues. Given that, you and your staff should feel free to modify our recommendations accordingly, or to contact us for additional discussion and clarification. Current Business Situation. As we discussed during the exit briefing, and referring to the figure below, BASF-Antwerpen is well positioned in its operating and market positions, being

sold out in most all products, the low cost producer in many of its products, particularly those with a volume scale advantage, and highly competitive in all others. The site as a whole appears to be a B+ in unit cost, as well as operating practices. However, the range of these practices across the business units was judged to be quite wide, with maintenance practices being judged by the operations and asset management personnel in attendance as being in most need of improvement. However, since no maintenance personnel attended the workshop this view should be considered preliminary, and before any conclusions are drawn should allow for the input of maintenance. While it seems that opportunity exists for better work management, planning and scheduling, etc., had maintenance been present a different opinion may have emerged. This view could also point to a greater need for teamwork and mutual understanding between operations, maintenance and asset management. It is easy to find fault with another function when that function is not fully understood or appreciated.

Current State BASF - B+ Unit Cost; B+ in practices- Opportunity


Market Price
Big InnovationYour Future

Profit = (Price Cost) x Volume


Little Innovation Drives costs down

Unit Cost = Cost Capacity

Market Share
6
Copyright 2011 The RM Group, Inc., Knoxville, TN

We were also impressed by other attributes of the site, namely: A good management team and very talented staff A history of technical and operational improvement to grow unit capacity An excellent Asset Management Strategy document (Though we dont think of this as a handbook, or as a maintenance document) The focus is on plant performance and unit costs, not costs alone production is balanced against costs The development of an operations-led asset management strategy A good Union-Management relationship Shop floor pride and cooperation in the day-to-day work Managers generally focused on getting to root cause of failures Stores improvement being well underway Finally, market demand is high, positioning BASF for future growth. Thus, best practices across the site is a requirement for maximum return on capital, especially given the commodities markets represented, and the middle-east challenges in some markets.

These conditions should all bode well for BASF in the future. However, it is also our opinion that some managers on site are too optimistic regarding the level of excellence in their

practices. Some held a higher opinion of their practices than we did. While our view was based on limited exposure to the operation, most of the data we used to reach this conclusion came from BASF. In our view, these differences of opinion should not be viewed as negative, but rather represent the opportunity for BASF to continue to improve and gain even more market share at an even lower cost of operation. These differences are discussed in more detail below. Current Site Performance. The current performance of the assets is above average in most plants, and perhaps world class in some. Site-wide Asset Effectiveness, BASFs weighted average is reported as 82%, above the average range that we typically see of 75-80%. Unscheduled losses are in the range of 6-8%, or about average. Maintenance costs have been increasing and are expected to be ~145M this year, or a reported 2.2% of asset replacement value, compared to a Solomon reported world class level of 1.5%. And, finally, safety performance is reported as about average, with a LTA rate of 0.5. While some people in the workshop felt their performance was world class, the site level is more accurately characterized as above average. The reasons for the losses are likely to be numerous, e.g., the verbund or the tightly integrated site design, inflexibility in certain designs, product mix, maintenance and operating practices, and perhaps other issues. For example, in a site as tightly integrated, as Antwerpen is, it is likely that losses occur because of upstream and downstream issues, e.g., supply from upstream or inability to receive downstream. It may be, in effect, a serial process across perhaps six different systems. Taking an extreme example, even if each one operates at 98% AU, then its possible that the entire system could do no better than (0.98)6 = 88%. While this is an extreme example, this type of highly integrated and dependent system design, of course, requires extraordinary reliability and effective asset management in each of the plants. It may be that there are inherent system design issues that will make it difficult to achieve a world class level of performance site wide; and you may want to pursue the use of certain models that allow for the determination of the inherent capability of the site with current performance levels. Plant Tour. This performance level is consistent with our visual observations during a tour of a plant that was reported to be typical of the site. Some of our observations from this plant tour are provided below. Housekeeping was about average, and needs work there was considerable debris in the area we reviewed bolts, flanges, parts, and litter Motors need better cleaning, particularly of the cooling vents. While this was not a pervasive problem, there were a few motors that did not have completely clear shrouds for air cooling. As you may know, every 10 degrees increase in motor temperature above its design reduces its life by 50%. The litter also creates a potential problem relative to motors sucking it into the cooling screens, and blocking air flow. Leaks need attention. While this did not appear pervasive either, there were a few steam and air leaks noticeable, and in the plant there were product/process smells, reflecting some minor loss of containment. Some insulation needed proper repair. Short sections of piping were wrapped in aluminium foil, and not properly lagged. Bimetallic blind flanges were abundant, that is, a stainless pipe flange to a carbon steel blind flange. This sets up natural cathodic corrosion in the carbon steel and increases the risk of future loss of containment. Water was spraying on an air cooler, apparently as a countermeasure to provide adequate cooling for a part of the production process. However, this is inviting future problems. One question in our mind was Is this a design, procurement, operating or maintenance problem, or some combination. This is highlighted since several people

complained about the lack of reliability in the new capital projects. One even complained about the inability to even get small projects done. There were a few so-called bone yards around, that is, used/old parts laying about with little or no apparent purpose. See our housekeeping comment above. There was a huge amount of parts in the machinery repair shops. We have never seen so much stuff in a workshop. Perhaps this is necessary to expedite repairs, but it seemed to be an excessive amount of working capital not working, and should be reviewed. Certainly we want our repairs done in a timely and quality manner, but at a minimum cost to the business. Additional comments regarding the stores warehouse are provided separately later in this letter.

Lets now compare these observations and discussions with the self-audits. Self Audits. As you know, we did several self-audits of our practices during the three workshops. The final results of these are summarized below, along with your management teams score. Time did not permit doing the senior management team to do the operating and maintenance practices self-audits:
Mgmt Support/ Plant Culture

Operating Practices na 77 69 73 60 75+

Maintenance Reactive Practices Maintenance na 63 59 61 60 75+ na ~20% ~30%

Senior Management Workshop Day 1 Workshop Day 2 Overall Workshop Averages Typical Process Plant World Class

65 71 66 68 55 75+

~50% <10%

As evidenced by the data above, and our plant tour, our view is more consistent with the people on Day 2, and the senior management team. Before we discuss the details of the selfaudits and their implications, it may be useful to reflect on the workshops with the operations and asset managers. Workshop Day 1 The two one-day workshops we held were surprisingly different in nature. In fact the differences were so large, it seemed that we were facilitating the workshops for two different companies. For example, on Day 1, there were several significant disruptions during the day: The workshop started 10 minutes late. Two people left early in the morning to manage a plant failure, and did not return. This is ironic, since the workshop was about how to improve asset reliability and effectiveness. Two people left for other meetings (reportedly called out by their production director) that lasted about two hours, but did return later. Two people had to leave late in the day before the workshop ended to address plant issues.

Several times people left to take phone calls, not withstanding the request to handle those calls during the breaks.

With this in mind, and the above data and discussion, we thought the self audit scores from Day 1 were high nearly world class Management Support and Plant Culture, world class in operating practices, and just above average in maintenance practices. Starting late, having numerous interruptions, when combined with the data on asset utilization, unscheduled losses, maintenance costs, and safety performance, and with the observations from the site tour, do not support a position of world class operating performance. The Day 1 participants generally seemed to have a higher opinion of BASF practices, than those on Day 2, or which is supported by the data. More importantly to the business, if you do not see the opportunity for improvement, you will not pursue the improvement. BASFs position is, and should continue to be, always looking for ways to improve to beat the competition. Workshop Day 2 On Day 2, there were far fewer disruptions: We did start 10 minutes late, again We had one early departure for a medical appointment And, more importantly, there was much more energy during workshop much more discussion, debate, questions, laughter, and being somewhat presumptuous, enjoyment during the day. Certainly we enjoyed the second day much more. Significantly, the self-audit scores were lower, though still above average, except in maintenance, which was about average. People generally saw much more opportunity for improvement in all practices. We think these scores more accurately reflect the reality of the performance at BASF-Antwerpen. Near the end of both days, all the attendees were asked to identify three actions they were going to take as a result of the day to improve performance. Guidelines were provided, including the ability to incorporate some of their existing objectives into the actions. And, the actions were to be smart specific, measurable, accountable, reasonable, and timely. And a due date was to be part of the action. Some of the actions were more ambiguous and may require more definition to meet the smart criteria. As you know, with the senior management team session, there were few disruptions, but the meeting started 10 minutes late, again. This seems to be a standard within BASF-Antwerpen, though not a good standard. And, one manager in particular seemed to be busy with his blackberry most of the time. We do not mean to be rude or presumptuous in making these observations. We understand that there can be urgent matters that deserve your immediate attention, and we respect that. However, it does suggest that there is insufficient stability and/or discipline in the current processes to allow for a managers undivided attention to review current asset management practices for the opportunities that may be present. Details of the self-audits are shown in Appendices 1-3 of this letter. The original individual data is attached as a separate excel document. Additional discussion is provided below. A. Management Support and Plant Culture. Referring to Appendix 1, senior management scores were consistent with the operations and asset managers, with the totals being 65 and 68, respectively. Its a small surprise that senior managers had a lower overall

score. The opposite is more often true. The scores for each question of this category were also fairly consistent, with the exception being questions no. 9 and 10, regarding the precision of BASF operating and maintenance practices, respectively. Senior managers graded each of these lower by about a full point (Q9 5.3 vs. 6.2 and Q10 5.7 vs. 6.8). Taking a linear multiple of this score would be, say times 10, would provide an approximation of the anticipated score for operating and maintenance practices, or 53-62, and 57-68, respectively. When asked about the specifics of these practices, as shown in the self-audits in Appendix 2 and 3, the scores were proportionally higher, i.e., 73 for operations and 61 for maintenance, respectively. This is contrary to what would be expected in looking at questions no. 9 and 10 of Appendix 1. In any event, senior managements view is more consistent with ours. Finally, the group with the lowest total score in this category was PV at 61, and the highest was PU at 74. PV apparently sees more opportunity in its operation. B. Operating Practices. Referring to Appendix 2, and the table above, the average score across the site was 73, with a range of 67 (PM) to 77 (PU). Note that senior management did not do this one, and that we excluded PI, since it is a support function to the production functions. The lowest overall score in this category was for question no. 7, at 6.2, regarding operators doing minor PM and basic care. C. Maintenance Practices. Referring to Appendix 3, and the table above, the average score across the site was 61, with a range of 58 (PB and PI) to 65 (PC). The lowest score in this category was no. 8, regarding having a process for PM Optimization. Question no. 9, regarding operator care was 6.0, fairly consistent with question no. 7 in the operating practices self-audit of 6.2. In any event, most of the groups, which again did not have maintenance representation, saw considerably more opportunity in their maintenance practices than in operating practices. While the operating units and asset management saw more opportunity here, it is imperative that the operating units consider carefully how they operate so as to minimize the risk of defects and process/equipment failures that result in maintenance requirements. This would necessarily include setting the strategy for operations and maintenance (are we doing the right things); and having effective work practices (are we doing things right). This requires creating a common strategy with common goals and respective roles among operations, maintenance and asset management. Additional comments regarding this are provided below in the section on operations-led asset management and reliability. We have sent by separate correspondence a set of guidelines for planning and scheduling that may be of assistance here. As we discussed, these maintenance scores are consistent with our observations, and consistent with unscheduled losses of ~6-8%; maintenance costs increasing and now at ~2.2% of Replacement Value; and with a Lost Time Accident rate of 0.5. You are encouraged to review the self-audit details in the appendices for each of the areas, and to consider specific issues that may require additional attention. Asset Management Strategy. The Asset Management Handbook is excellent. As noted above, it covers the key issues that must be addressed for effective asset management the markets and business requirements for the assets, and the operating and maintenance practices for meeting the business requirements. Most Asset Management strategies that we have reviewed have been maintenance management strategies that have been re-branded with the words asset management. However, there are a number of issues that need to be addressed for this to be an effective document at the operating level and to assure its implementation. Our comments and suggestions are provided below. 1. Its title is Asset Management Handbook. While there may be some language differences, we do not view this document as a handbook. Rather, it seems to us to be

a good strategy document. Nor is it a maintenance document as its title suggests, since it is far broader than a maintenance strategy. It is our recommendation that its name be changed to that of Asset Management Strategy and/or Policy, or at the very least, Guideline. 2. The document itself is not consistent with the actual job function of the so-called Asset Manager. Our impression is that asset managers are working tactically, are far more maintenance focused, are lower in the organizational hierarchy, and with due respect to them, are among the less experienced staff in the organization. The Asset Management Strategy is more a strategic or policy document, while the people implementing it are far more tactical. It also calls for the Asset Manager to manage TTC or total maintenance costs. We do not see how this will happen if the maintenance manager is at a higher level in the organization. This appears to naturally create conflict and confusion regarding who is truly responsible to TTC. Nor do we see how the Asset Manager can effectively deliver on the strategy at the level he or she is operating. If we just look at your organization structure, with the maintenance manager reporting at a higher level than the asset manager, this would tend to indicate to us that at present doing things right (maintenance implementation) is valued more by BASF-Antwerpen than doing the right things (strategy and policy implementation). To assure the appropriate priority is given to asset management, some of our clients have an Asset or Reliability Manager reporting directly to the Site Director. 3. There seems to be an insufficient link between marketing and product mix, and the asset management strategy as it is being deployed within BASF-Antwerpen. Time did not permit further discussion or review of this issue, but it seems to need additional work. We have forwarded you by separate correspondence information and case studies regarding how this may be addressed. We encourage you to pursue this, but if we can be of further assistance, we will be glad to support you. 4. In light of the above comments, we recommend that additional consideration be given to the OPAL project and how it supports the asset management strategy. While we are much more comfortable with the preliminary OPAL organization presented to us, than we are with the current approach that appears to have much inconsistency, we think this deserves further review. Having the process/technical manager, the production manager, and the asset manager report to the operations manager at first glance seems to be a good idea. However, in the current approach, having the operations manager and maintenance manager report to the VP of the business unit leaves the so-called asset manager in the situation noted above. Our experience is that in other organizations what BASF is calling an asset manager would be called a reliability engineer, or maintenance engineer, or area engineer, or some similar title. They would definitely not be called an asset manager. It is BASFs intent to have an operations led asset management strategy. Given this, it may be more appropriate to change the title, and have the operations manager be responsible for implementing the asset management strategy, without having someone called an asset manager, but rather, an asset engineer, advising the operations manager on the right things to do, and then holding the maintenance manager accountable for doing things right. See the discussion on Operations Led Asset Management/Reliability below. 5. Initiative overload may detract from effective asset management. Several managers complained of initiative overload. It is a common complaint. A few suggestions on this issue are in pages 46-47 of the What Tool? When? book we left with you, and well send a paper by Winston Ledet on this by separate attachment for your consideration.

6. Finally, one issue that seems to deserve additional attention, as part of the asset management strategy is that of capital projects. While this is more strategic in nature, it does merit additional attention. Several people complained of poorly designed and delivered equipment, and of the inability to even get projects done, let alone reliably. This is also a common issue at most manufacturing businesses. It is, of course, very difficult to have high asset effectiveness, when you have a poor, unreliable design. Operations Led Asset Management/Reliability Strategy. Our understanding is that the Operations Managers intend to lead Asset Management. We fully support this approach. However, at this time, it appears to be more asset manager or maintenance lead. Certainly we must have excellent maintenance practices and they have a strong role to play in assuring reliability, including excellence in our routine PM, Shutdowns, Condition Monitoring, Work Management and Planning and Scheduling. The leadership for that effort should remain with the Maintenance Department. As you can see from the figure below, and as evidenced by the Charlie Bailey example, having a maintenance-led reliability, or asset management, strategy will lead to the planned domain shown, and you will get some improvement. These improvements will be less stable, and they will not provide for world class performance. It will in effect be maintenance owned and focus on maintenance issues and practices. As we discussed in the workshop, it is common that two-thirds (67%) of our production losses have little to do with equipment and/or maintenance, and of the one-third that does, about twothirds of that (67% of 33%) is because of poor operating practice or design issues. As such, maintenance only controls about 10% of the total production losses. Because of this, asset management must have a strong operations led defect-elimination approach. Stop the defects that cause the failures, and less maintenance will be required. Not stopping the defects upstream of maintenance will result in doing unnecessary work more efficiently, a bad practice. In an operations-led approach, cross-functional teams are used in problem solving and defect elimination, leading to greater teamwork, and better results.

The Five Manufacturing Domains


World Class Manufacturing

Performance Levels

s dLe am ion al te t uc tion od Pr -func d s Le os ce Cr Planned an en int Domain Ma

Strategic Domain
Proactive Domain Eliminate Defects; Lowest Cost Competitive Advantage Organizational LearningIndustry Leadership

Fix it before it breaks; Least Stable Fix it after No Surprises, Regressive it breaks; Competitive Parity N Domain IO Most IS Expensive Dont fix it eV Overtime Meet Budget, Th Source: W. Ledet Heroes Staged decay The Manufacturing Game; Reactive Domain
Kingwood, TX 83
Copyright 2011

The RM Group, Inc. Knoxville, TN

Supporting this, recall the experience and wisdom of Charlie Bailey Reliability cannot be driven by the maintenance organization. It must be driven by the operating units, and led from the top. Charlie tried to get excellent reliability by focusing on maintenance PM, Predictive Maintenance, Planning and Scheduling, and he did get some improvement (2-5%).

However, it was not until he focused on operations-led reliability and asset management that he got dramatic improvement (10-40%). If we stop the defects being induced through our operating practices take care to start up, operate, and shut down the equipment properly, involving operators in basic routines, and defect elimination, our maintenance requirements will be substantially reduced, and our productivity will improve. Supporting this also requires the use of several common measures that are shared by operations and maintenance, but led by operations, i.e., unplanned downtime, maintenance and repair costs, routine PM compliance, and on-time delivery. Doing so, facilitates teamwork, and striking a proper balance for the business as a whole. We will send by separate correspondence an example partnership agreement for use in developing one between your operations and maintenance/asset managers. Asset Utilization (AU) / Overall Equipment Effectiveness (OEE) Measurement. BASFAntwerpen refers to this measure as Asset Effectiveness (AE) and we believe a good measurement system is in place. We do, however, have several observations. 1. As you know, AE allows us to understand how our assets are performing, and to effectively manage all our losses from ideal. The focus in using this measure is managing the losses, not getting any particular number. If we manage the losses, the AE will be what it should be. One report in a recent site communication that AU is currently at 92%. However, as we understand it, it is impossible to have an AU performance higher than AE. Nor is 92% consistent with a 6-8% unscheduled losses plus all the other losses. The information provided to us indicates a more accurate level closer to 82%. This disparity indicates a possible overstatement of performance, perhaps wanting to look good, a natural tendency in all of us. However, if people hear and believe it to be 92%, then this perception of performance will drive behaviour, and little or no opportunity will be seen for improvement. If no opportunity is seen, then none will be pursued. Your measures should expose your weaknesses, so you can improve them. Measuring all losses from ideal, and managing those losses, presents the greatest level of opportunity. The goal must be to be good, not to look good. 2. It was reported that the BASF AE measure does not include quality losses, specifically material that is recycled through the process. Several of the operations managers did not believe that this was a significant issue. While we accept this to be true, we still believe at least a trial measure should be made for a few months to verify this view. 3. Finally, we note that AE is a measure of capital efficiency. We should not spend too much more money expanding capacity until we operate the existing assets effectively.

100%
Maximum Sustainable Rate

AU/OEE & Loss Accounting- Minimize Waste


Scheduled Downtime
(minimize through better PM, PdM, planning)

Ideal

(minimize through better operating practices, defect elimination, PM, PdM)

(minimize through better process control, consistency, standards)

Unscheduled Downtime Heaven Process Rate Losses Quality Losses

(minimize through better standards, control, conformance)

Changeover/Transition Losses
(minimize through quicker changeovers, better production planning)

Quality Utilization

(lower costs, better alignment- marketing and manufacturing)

AU and OEE measure capital efficiencyWhy spend moreProduction Actual capital? Find your hidden plant! We must understand all losses from ideal and make business decisions to reduce them

Asset Utilization

The RM Group, Inc. Knoxville, TN

Asset Effectiveness

16

Copyright 2011

Stores/Warehouse. Though relatively new to the job, the stores/warehouse manager seems to be doing an admirable job. The warehouse seems well organized, bar coding is used in essentially all applications, receipt inspection and cycle counting are routine. Some of the data that he reported, and observations we made, were: Parts were valued at ~125M vs. a use rate of 45M/year, reflecting an inventory turn ratio of 0.36 vs. a typical number we see in the range of 1.0, suggesting considerable opportunity for reducing working capital, while still improving service level. A service level of 95%, or a stockout rate of 5%, within a typical range of 5-10%. Lube storage practices were poor in the area reviewed lubricants stored outside in the weather, subjecting the lubricants to water and dirt ingress. BASF is reported to be using synthetic lubricants for a significant portion of their lubricating requirements. While these typically last longer, provide better lubricating properties and likely have fewer wear particles, the water and contaminants must still be kept out of them, and current practice doesnt appear to support maintaining them in proper condition. Further, to the extent that non-synthetic lubricants are used, then these should be reviewed and appropriate ISO standards established for their cleanliness and related filtration. Finally, regarding water contamination, its been reported that a thimble full of water in a 200L drum of oil can reduce the life of a given machine by 50%. Even if this is only half true, its very significant. Motor shafts were not turned periodically in stores. This can result in false brinneling of the bearings in the motor, and/or development of shaft sag and effective unbalance. A process should be established for periodically turning the shafts on spare motors. Gaskets were stored in hooks. This is also not a good practice because of the risk of leaving a minor distortion in the point where the gasket hangs from the hook, increasing the risk of loss of containment on installation. Gaskets should be stored flat. We will provide a separate document outlining a set of practices for stores management that may be of benefit. Beyond the recommendations made above, we also recommend the following:

Actual Availability

No Demand/Market Losses

Potential Rate Utilization

OEE/

Top 3 Actions. The Top 3 Actions are where the benefits are to be achieved from the workshops. Effectively implemented, these will provide the improvements that pay for the cost of the workshops, times ten. As such, youre strongly encouraged to follow up on these as they will provide an opportunity for each of your directors and managers to discuss with their people what they learned from the workshops, and in some cases, begin the recalibration of their understanding of the opportunity for improvement. Also, the discussion should assure that all the personal actions meet the smart criteria. However, a few words of caution about these. Einstein once said Not everything that counts can be counted, and not everything that can be counted counts. Wisdom to consider. Not everything that the people have selected will have a value that can be calculated, but it has value it engages people in addressing problems that they see as worthy of their time. This will assure ownership. Once they have completed these, encourage them to select more. As time goes by, the value will be realized. It takes hundreds of people doing all the little things well in order to assure world class performance. Moreover, these actions should be viewed as primarily opportunities for engaging the people and facilitating their aspirations being realized, and not as simply controlling their activities. Our experience has been that beyond a certain point, the more you try to control peoples activities, the more you lose control they become disengaged just tell me what you want boss. Certainly, you must give people guidance and direction, set expectations, and measure those, but they must take the ownership for meeting those expectations. Challenge Managers. Challenge your operations and maintenance managers to raise expectations. Create dissatisfaction with the status quo. There is sufficient evidence in the data above to do this. The level of satisfaction with the status quo during the first workshop was surprising. It is important for people to be proud of what they do and have accomplished. However, it is also important to continue to look for additional opportunities to be even more competitive. Certainly your competition is doing that. Organizational Alignment. Align Operations and Maintenance and Asset Management. Set up several common measures for operations, maintenance, and asset management, e.g., use a balanced scorecard approach led by production, all are held accountable for unscheduled losses, maintenance and repair costs, maintenance schedule compliance, and on time delivery, and include these in their performance appraisals. To support this, develop a partnership agreement for each area. Continue to foster operator care as shown in the data we reviewed, organizations which have a high degree of operator care for the assets have the lowest costs. And, of course, continue to develop your operator skills. Several of the managers were quite concerned about the skill level of your operators and this deserves further review. Review and Improve Maintenance Practices. This was the lowest score in both workshops, being about average, and appears to deserve additional review. As noted we have sent additional information on planning and scheduling, and could also provide additional review on condition monitoring and general work management practices. Included in this should be a critical review of your lubricating practices by an outside expert. We are not experts, but can suggest others who are. While the frequent use of synthetic oils does suggest a higher level of attention to this issue, our concern relates to contamination of all lubricants, particularly after receipt and during the dispensing process. Capital Projects. Review design/capital projects policies in light of your current performance and overall asset management strategy. While it may be too late for existing assets, this appears to be a large area of opportunity for new capital projects, and for significant improvement capital projects.

Continue with the Top 3 Approach. That is, set up routine, structured improvement time for shop floor to work with your managers to address problems. Marketing. Educate the marketing people in asset management. There is reported to be considerable misalignment between the production function and marketing. Weve provided you a document, including case studies, on aligning the marketing and manufacturing functions, and would be glad to provide further assistance if necessary. Contracting Maintenance. One of the people we met believed that BASF-Antwerpen was getting ready to contract out the entire maintenance function. This person viewed OPAL and the recent changes to the way maintenance has been organized as facilitating this objective. We were pleased to hear from you that this is not the case and that you see maintenance as a core competence on the site. Nevertheless, the fact that this view was expressed to us suggests some misunderstanding among middle management which may be a reason why the goal of asset management as a means to increase asset effectiveness is not being fully embraced in some business units. We recommend that you address this issue. Weve provided to Joerg Unger by separate correspondence a document on Contractor Best Practice that you may find of benefit. Reliability and Safety. As always, we continue to stress the relationship between reliability (asset management) and safety. We presented ample data in the workshop to demonstrate that a reliable plant is a safe plant is a cost effective plant, is an environmentally sound plant. Many companies have had a similar experience. Given the strong correlation between reliability and safety, we recommend that a policy statement be developed to that effect, e.g.: All injuries, and failures, are preventable. Safety, and reliability, is everyone's responsibility. Management must provide a safe, and reliable, working environment. A caveat to this logic is that some failures will not be cost justified to correct. However, if you make a conscious decision to allow this to happen, then it is not a failure in your system. Finally, we encourage you to share this report with others - your immediate staff members, other people we met during our site review, and who attended the workshop, and all who have an interest. As noted above, we do not intend to offend, but rather hope that our comments will be taken as constructive, and will help BASF continue in its efforts to be the market leader in all its markets. Thank you again for the opportunity to work with you and all your staff. Its been a pleasure and we welcome the opportunity to work with you again to continue to help BASF-Antwerpen build its future. Andrew Fraser will be in touch to set up a meeting in the next two months to review the report with you and offer any additional suggestions.

Sincerely,

Ron Moore Principal Consultant Tel +1 865 675 7647

Andrew Fraser Managing Director Tel +44 7967 644852

Appendices: Appendix 1 Self Audit of Management Support, Plant Culture and Teamwork Appendix 2 Self Audit of Reliability-Based Operating Practices Appendix 3 Self Audit of PM Practices

Separate Documents as Attachments to this letter: 1. Self-Audit Details by Individual Score 2. Planning and Scheduling Practices 3. Aligning the Marketing and Manufacturing Strategies 4. Contractor Best Practice 5. Initiative Overload Paper 6. Partnership Agreement (Operations and Maintenance) 7. Stores Management 8. Lean Are You Ready? (to Jan Bolle)

Appendix 1

Self Audit of Management Support, Plant Culture and Teamwork

On a scale of 0-10, provide an honest assessment of your score on the practices and issues indicated below. A score of zero indicates no system is in place or the practice is non-existent; a 10 indicates perfection or no room for improvement. Most people will be somewhere in between. When completed, add each category to get a total score out of 100 possible.
Sr. Mgt. Mgrs.

1. Has senior management (Plant Manager, VP or Director of Manufacturing and above) effectively communicated a clear strategy and set of goals to align the entire organization to operations excellence? 2. Is senior management highly supportive of operations excellence, and are they providing the systems, tools, training, time, and staff to support excellence in your operating and maintenance practices? 3. Are your operating and maintenance functions primarily driven by the urgency or emergency of the moment (0 points); or, alternatively, do you feel in control, with few emergencies; do you get to the root cause of problems and eliminate them (10 pts)? 4. Are failures in the plant viewed as failures in the individual (0 points), or failures in your management processes (10 points)? Put another way, is there a blame culture- 0 points; or do we always look at our processes to correct our failures 10 points? 5. Is there frequent communication and teamwork between operations, maintenance, engineering design, purchasing, stores, personnel, etc? 6. Have the production plan and maintenance plan been integrated into a single plan for the site, leading to frequent, substantive communication regarding equipment performance and operational capability? 7. Is teamwork, mutual respect, and communication inherent throughout the organization? Do you have Ubuntu (pronounced oo-boon-too), a Zulu word that characterizes a group that has dignity, mutual respect and oneness of purpose? 8. Do operations and maintenance work as a team to solve problems (10 points), or is there a strong tendency to blame each other for failures, downtime, and loss of production capability (0 points)? 9. Do we employ precision operating practices, e.g., precision start up, shutdown and routine operation; consistent operation from shift to shift; operator care to a high consistent standard, and all defects reported and addressed? 10. Is precision and craftsmanship inherent in the maintenance function, with maintenance routinely planned and scheduled and delivered to the schedule, having low levels of rework? Totals

6.1 5.8

6.2 6.1

6.0

6.0

7.8 6.6 7.0

7.5 6.9 7.2

7.8 7.1

7.5 7.4

5.3 5.7 65.1

6.2 6.8 67.8

Appendix 2

Self Audit of Reliability-Based Operating Practices

On a scale of 0-10, provide an honest assessment of your score on the practices and issues indicated below. A score of zero indicates no system is in place or the practice is non-existent; a 10 indicates perfection or no room for improvement. Most people will be somewhere in between. When completed, add each category to get a total score out of 100 possible.
Sr. Mgt Mgrs.

1. Are you doing good production loss accounting for all production losses from ideal, their causes, and accounting for this on a daily basis? Displaying regularly?

NA
2. Do you understand and measure your key process variables (KPVs), their upper and lower control limits, and their influence on the process; as appropriate, do you understand their lag and lead times?

8.4

7.3
3. Are you routinely applying Standard Operating Conditions and Procedures? Do you use standard practices and identical set points across all shifts?

7.2
4. Are you routinely doing process condition monitoring to assess process abnormalities and/or equipment condition to detect or avoid onset of failure?

7.3
5. Are you routinely using SPC and simple trend/monitoring charts to manage your processes, e.g., using process conformance methods to check non-conformances due to problems with 1) raw material problems, 2) equipment reliability, 3) SOPs/SOCs, and 4) instrumentation?

6.5
6. Do you have good shift handover procedures and practices? Is there a sense of teamwork, communication, and common purpose among all shifts?

6.1
7. Do operators routinely practice basic care and PM of the equipment, e.g., routine minor PM, basic care, TLC, tighten, lubricate, clean, look, listen, feel, etc.?

6.2
8. Do you have disciplined start up and shut down procedures and practices, incl. transition control for changeovers, which rigorously control the process?

7.4
9. Do you use visual controls/systems wherever possible to detect anomalies and help manage your production process?

7.6
10. Do you have good compliance to your production plan, e.g., daily or shiftly changes to your plan likely means poor compliance (and 0 points)?

7.6
Totals

72.6

Appendix 3

Self Audit of PM Practices

On a scale of 0-10, provide an honest assessment of your score on the practices and issues indicated below. A score of zero indicates no system is in place or the practice is non-existent; a 10 indicates perfection or no room for improvement. Most people will be somewhere in between. When completed, add each category to get a total score out of 100 possible.
Sr. Mgt. Mgrs.

1. All critical plant equipment has been identified and analyzed, e.g., using FMECA type analyses, and placed into a database. 2. A Pareto analysis of losses and high maintenance cost items is routinely done. 3. A formal basis is used for determining the appropriate maintenance policy (Reactive, Preventive, Predictive or Proactive), e.g. FMEA/RCM. 4. Appropriate and meaningful histories are kept on all critical equipment. 5. A work order system is fully utilized for essentially all maintenance jobs; standing work orders are minimal, e.g., <5%. 6. Routine PMs are done at 90%+ conformance to schedule. 7. There is a compelling reason for all interval-based, intrusive PMs, e.g., consistent, wear-related failure mode, statutory requirement, etc. 8. The PM program is fully optimized, applying RCM principles. 9. Operators do appropriate PM and care routines in a timely manner. 10. A process exists for verifying that Operator PMs are carried out to the appropriate standards. Totals

NA

6.0 6.5 5.1 7.1 7.1 7.2 6.6 4.7 6.0 5.1 61.5