petroleum development oman l.l.c....procured specifically for project use (project material), or...

Petroleum Development Oman LLC Version 2.0 Effective: October 2013

CP- 196 Surplus Stock Management Code of Practice Printed 10/10/2013 The controlled version of this CMF Document resides online in Livelink®. Printed copies are UNCONTROLLED.

Petroleum Development Oman L.L.C. Surplus Stock Management Code

of Practice

Document ID CP-196

Document Type Code Of Practice

Security Unrestricted

Discipline Finance (C&P)

Owner FPP

Issue Date September 2013

Revision 2.0

This document is the property of Petroleum Development Oman, LLC. Neither the whole nor any part of this document may be disclosed to others or reproduced, stored in a retrieval system, or transmitted in any form by any means (electronic, mechanical, reprographic recording or otherwise) without prior written consent of the owner.

Document Security Classification Definitions They also apply to this Document!

http://sww3.pdo.shell.om/getdoc?dataid=3966312



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i Document Authorisation Authorised For Issue: August, 2013



ii Revision History

This is the first version of this document.

Version No. Date Author Reviewer Scope / Remarks Version 1.0 Dec’09 Maimoona Al-Balushi,

FPC/33 Abdulla Al-Harthy, FPC3

Code of Practice Template - Initial issue.

Version 2.0 Sept’13 Abdulla Al Harthy - FPP Abdulla Al Harthy - FPP

Alignment to newly updated PR-1150. Also updated key process, roles and responsibilities.



iii Structure of this Document This document follows the standard template within the EDMS system.

The following documents specifically relate to this Code of Practice:

Business Control Description Document ID

Policy None

Code of Practice Surplus Management (this document)

Inventory Management Code of Practice

CP-196

CP-193

Specification Specification for Quality Assurance Requirements for Product and Service

SP-1171

Procedures Materials Receipt Storage Issue & Despatch Procedure Disposal of Obsolete Stock, Fixed and Moveable Assets Fixed, Movable Assets and Stock Write-off Specification for Material Handling, Storage and Preservation. Project Close out Procedure EMC/ODC Sourcing & Inventory Procedures (SIP) Equipment and Materials Receipt Inspection Procedure.

PR-1279 PR-1311 PR-1576 PR-1858 PR-1150 PR-1962 PR-1964

Guidelines Manage Material Returns (Stock) Disposal of Current Stock Stock Check Process Refurbishment Process Project Preservation Guidelines

GU-522 GU-590 GU-596 GU-592 GU-707

Process Flow Material Reconciliation & Surplus Handover Process Appendix 1

Template Material Reconciliation Statement Template Appendix 2

Document Use of Surplus Materials Appendix 3

Document Surplus Materials Management Key Controls Appendix 4



TABLE OF CONTENTS

i Document Authorisation ........................................................................................................... 3

ii Revision History ......................................................................................................................... 4 iii Structure of this Document ...................................................................................................... 5

1 Introduction ................................................................................................................................ 8

1.1 Background ........................................................................................................................ 8

1.2 Purpose .............................................................................................................................. 8

1.3 Target Audience ................................................................................................................ 8

1.4 Abbreviations ..................................................................................................................... 8 2 Scope & Objectives ................................................................................................................... 9

2.1 Scope ................................................................................................................................. 9

2.2 Objectives .......................................................................................................................... 9

2.3 Fundamentals for this Code of Practice ............................................................................ 9

2.4 Review and Improvement ................................................................................................ 10 3 Roles & Responsibilities ......................................................................................................... 11 4 Practices to be followed .......................................................................................................... 13

4.1 Surplus Reconciliation and Return .................................................................................. 13

4.1.1 General .................................................................................................................................. 13

4.1.2 Material verification and usability: ......................................................................................... 13

4.1.3 Materials SAP Coding: .......................................................................................................... 14 4.1.4 Material Test Certificates (MTC) ........................................................................................... 14

4.1.5 Returning surplus materials to PDO Logistics ...................................................................... 14

4.1.6 Material Receipt at PDO Logistics ........................................................................................ 14

4.1.7 Updating of SAP system and Doctor Loader ........................................................................ 15

4.2 Storage of Surplus Materials ........................................................................................... 15

4.3 Surplus material Preservation.......................................................................................... 15 4.4 Periodic Inventory Review ............................................................................................... 15

4.5 Inventory check, Write off and Disposal .......................................................................... 15

4.6 Issue of surplus materials to end user ............................................................................. 15 5 Material Reconciliation and Transfer Matrix ......................................................................... 16

6 Application & Step-Out Approval ........................................................................................... 17

6.1 Application ....................................................................................................................... 17 6.2 Step-out and Approval ..................................................................................................... 17

Appendix 1 ....................................................................................................................................... 18

Appendix 1 cont’d ........................................................................................................................... 19



Appendix 2 ....................................................................................................................................... 20

Appendix 3 ....................................................................................................................................... 21

Appendix 4 ....................................................................................................................................... 22



1 Introduction

1.1 Background Surplus materials are materials left on hand and remain unused after project completion, cancellation or change in design.

These materials could have been drawn from PDO general stock items (standard stock item), procured specifically for project use (project material), or procured by contractor on PDO’s behalf.

This code of practice covers management of surplus materials from projects such as EMC/ODC and other capital projects. The processes covered include: surplus identification, verification, reconciliation, project to project transfer, return to PDO logistics and surplus re-use.

Management of surplus materials generated from standard PDO stock is covered by a separate Code of Practice i.e. CP-193.

1.2 Purpose This Code of Practice and related procedures details the principles on which all surplus material management activities are to be identified, planned and implemented in an orderly manner so as to deliver fit for purpose surplus material management services.

1.3 Target Audience The Code of Practice is intended for use by all PDO and, where relevant, contractor staff involved in the management of PDO owned materials including surplus materials management.

1.4 Abbreviations Abbreviation Description

CoP Code of Practice

MTC Material Test Certificate

MRS Material Reconciliation Sheet

GU Guideline

PR Procedure

WH Warehouse

MAP Moving Average Price

MTO Material Take Off

FFP Finance Focal Point

FCN Field Consignment Note

BI Business Intelligence – SAP reporting tool

QA Quality Assurance

CFDH Corporate Functional Discipline Head

EMC Engineering and Maintenance Contract

ODC Off-plot Delivery Contract



2 Scope & Objectives

2.1 Scope This Code of Practice applies to: • PDO and Contractors’ units that execute project surplus materials management activities. • Site locations owners, both PDO and Contractors, where project surplus materials are held

and/or surplus materials management activities are carried out.

2.2 Objectives The Objectives of the Code of Practice is:

• To ensure that PDO surplus materials are properly identified and managed while under PDO or Contractor’s custody.

• To ensure adequate and accurate surplus inventory records are maintained at all times at both PDO and Contractors’ storage facilities.

• To help accelerate the utilization and disposal of surplus materials • To provide clarity about relevant activities/processes around surplus materials

2.3 Fundamentals for this Code of Practice • All PDO surplus materials should be identified, inspected, labeled, transferred to another project

or returned to PDO Logistics. This can take place during project execution or after project completion and/or cancellation.

• All materials planned for return to PDO shall be segregated and transferred to relevant storage facility in accordance with the following criteria:

o Items which have potential use but not part of ‘general stock’ (standard materials) and where required, having MTCs shall be returned to PDO surplus storage facilities.

o Items which have potential use and are part of ‘general stock’ and where required, having MTCs shall be returned to PDO standard stock storage facilities.

o All other materials should be sent to PDO auction yards within the respective area, flagged for disposal and disposed through sale to other operators or auctioned via public tender.

• Any item that can be immediately used on another approved project or transferred to general stock shall be transferred to the next approved project at the original procurement cost.

• Items taken into PDO surplus storage facilities shall be recorded in SAP at nil value with no credit given to returnee project. The same shall be issued to users at free of cost.

• Items returned to ‘general stock’ shall be recorded in SAP at prevailing Moving Average Price (MAP) with the returnee project getting credit for the returned (accepted) quantities. Any subsequent issues from stock shall be at the prevailing MAP within SAP system.

• As a matter of policy, any surplus item remaining unused after 4 years of storage in PDO storage facilities (calculated from last consumed or receipted whichever is latest) shall be considered as redundant and proposed for write-off. FPP shall produce annual reports of such materials and share with relevant PDO CHs prior to raising any write-off proposal. It will be the responsibility of the CH to justify to FPP the need for storage extension by providing planned usage sites/dates.



• Surplus materials should be properly marked, labeled and preserved at all time in accordance with PDO’s procedures and guidelines as detailed in GU-707 Project Material Preservation Guidelines and PR-1858 Procedure for Material Handling, Storage and Preservation

• PDO operates a process which ensures that surplus stock is checked prior to a new order being placed on the market. This provides the basis for optimising our existing surplus assets thus allowing PDO to contain project costs. Therefore, any material procurement requests, whether procurement is to be done by PDO or by our contractors, shall first be screened by a respective PDO or Contractor’s Project Engineer against surplus stock records in SAP and only approved if no suitable items are found in stock.

• Compliance owners shall develop annual Compliance Assurance Plan based on Surplus Management Key Controls Matrix (Appendix 4) and carry out relevant compliance checks as appropriate.

2.4 Review and Improvement This Code of Practice will be reviewed and where necessary updated annually. However, should it so warrant, updates will be done more frequently.



3 Roles & Responsibilities Below is the summary matrix of the roles and related responsibilities that are required to both manage and implement the Code of Practice:

Role Related Responsibilities FPP As the process owner for the surplus management process, FPP is

responsible for: - Fostering company wide deployment of surplus management best

practises. - Conducting random check on the adequacy of assurance plans

developed by CHs for identification of surplus material and implementation of these plans.

- Ensuring surplus management business processes work effectively, efficiently and are relevant across functional boundaries and interfaces.

- Ensuring the integrity of SAP system data is maintained at all times and that of all relevant supporting systems.

- Reporting surplus utilisation KPIs and other general statistics - Sponsor/fund the QC resources needed at WH for verification of

incoming surplus materials. -

Contract Holders (EMC/ODC and Projects)

Responsible for: - Overall PDO owned materials management oversight at contractor

sites. - Developing/updating surplus management assurance plan for

materials at contractors sites - Carrying out surplus management compliance check on contractors

as per the assurance plan. - Overall activities related to surplus identification, reconciliation,

reconciliation statement sign-off - Arranging project to project transfers (in coordination with relevant

Finance Focal Point (FFP) and/or assist contractor with returning of materials to PDO storage facilities.

Project / Asset Teams

Responsible for:

- Actively promoting use of surplus materials within their teams. - Regular screening of Material Take Offs (MTOs) to ensure that no

unnecessary new orders are placed for items existing under surplus stock.

- Coordination with relevant PDO teams to get surplus materials recertification.

- Where relevant, seeking relevant PDO authority to grant waiver on the use of surplus materials.

- Monitoring of procurement activities and inventory levels in order to keep surplus material left behind to within the threshold of 5% of the total material/procurement Capex.



Quality Management (UEQ)

Responsible for all quality related issues including:

- Witnessing material testing and certification, both within and outside PDO

- Maintenance, retrieval, and uploading of material Mill Test Certificates (MTCs) to Doctor-Loader system (MTC database).

- Providing end users with access to Doctor-Loader system in order to retrieve MTCs

- Ensuring that deployed QC staff verifying the incoming surplus materials in PDO warehouses are provided with relevant specification/ standards to confirm that the materials are fit for purpose and therefore can be deployed in future projects

- Issue quality alerts on potential quality issues.

Materials Integrity (UEOC)

Responsible for:

- Approving testing laboratories - Approving deviations from standards - Providing the guidelines for conformity testing of surplus materials.

Contractor Warehouse Staff

Responsible for: - Ensuring that PDO owned materials at its yards are properly

identified, labelled, adequately preserved and stored and material records are update and relevant.

- Arranging/coordinating material returns to PDO as per the company procedure and/or relevant contracts.

- Carrying out surplus reconciliation exercise at its yards, obtain PDO sign-off.

- Produce quarterly reports of materials considered surplus by contractor for CH review.

Material Master Data Maintainer

Responsible for screening requests for new material master coding and arrange SAP coding for non coded materials

Investment recovery section

Responsible for sale/disposing off unwanted materials following the approval of write-off (where required) as detailed in Section 4.5 herein.

PDO Logistics Responsible for: - Responsible for receiving material with MTCs from contractor,

checking material condition, verifying quantities, update SAP records and storing of materials.

- Responsible for receiving materials categorised as ‘scrap’, verifying quantities and arrange offloading and storage of the same at relevant auction yards.

- General material preservation as well as calling off of specialised companies to do specialised preservation activities in coordination with the respective material CFDHs.

- Developing/updating surplus management assurance plan for materials at Logistics sites

Stock Checkers Responsible for overall stock checking and reconciliation process

Finance Focal Point (FFP)

Responsible for making manual debit/credit procurement cost transfers for materials transferred between projects in coordination with the relevant project engineers.



4 Practices to be followed The amount of surplus materials generated from PDO operations is perceived to be high and therefore must be controlled. It is therefore recommended to limit the amount of surplus materials left behind after project completion to ca 5% of the total material/procurement capex. CHs are expected to closely monitor inventory levels, track procurement activities, continuously work to identify and transfer surplus inventories during various stages of the project so that to ensure the 5% guide is not breached by the end of the project.

4.1 Surplus Reconciliation and Return

4.1.1 General

As a general practise, the contractor shall produce quarterly reports of materials considered as surplus in their storage facilities and forward to CH review. CH shall review the same and decide whether to keep the material where is, move to another project or return to PDO.

Within two months of project substantial completion (during the commissioning and initial operate phase) or cancellation, the contractor shall prepare the final material reconciliation statement of all PDO owned surplus materials (both PDO supplied and contractors procured) using PDO’s standard template (see Appendix 2 attached herein). Contractor shall consult relevant PDO staff to review and sign-off the Material Reconciliation Statement (MRS) prior to arranging material transfer to relevant site.

4.1.2 Material verification and usability:

As part of the material reconciliation statement sign-off process, both the contractor and PDO staff representative shall first carry out a thorough verification of materials to be returned, both in terms of quantities and physical condition / positive identification prior to items being moved to PDO store. This shall be followed by categorization of materials into 3 types:

1. Items which could be immediately used on another approved project or the items which can be transferred to general stock. Items under this category will be transferred to the next approved project or to stock respectively, at the original procurement cost. The original project will get a credit and the receiving project/stock account will get corresponding debit.

2. Items with positive identification and intended for possible future use and MTCs are available (MTC shall be traceable to heat number) which can be sent to surplus yard. No credit is given.

3. Items with no MTCs, obsolete specification, damaged, unusable in PDO projects/operation or those under the heading below ‘norms for scrapping’. Material under this category will be transported directly from contractor’s yard to PDO auction yard for auctioning/sale.

4. Norms of scrapping materials:

In order to ensure orderly scrapping of PDO materials, the following criteria can be used, among others, as the basis for scrapping any materials:

• Pipes / Plates

Material without marking (specification/ grade/ class)

Material with pitting, damages or corrosion.

For Pipe up to 6” dia - length below 500 mm.

For Pipe above 6” dia - length below 300 mm.

Plates size below 300 mm x 300 mm (all thickness)



• Electrical items

Cables without marking / Identification information

Small length below 5 meter or so.

Scrape boxes, wooden drums,

Corroded / Damaged fuses.

Old/damaged Fittings & Fixtures.

• Instrumentation items

Cables without marking / Identification information

Small length up to 5 meters.

Corroded/ Damaged gauges & meters.

• Damaged items

These items should first be checked for rectification / correction for potential use, if possible. If not, then they can be scrapped.

4.1.3 Materials SAP Coding:

Any surplus materials planned for return to PDO warehouse shall first require a SAP number allocated. Contractor shall prepare the standard coding request form and forward to PDO Data Management (FPP2) to arrange coding.

4.1.4 Material Test Certificates (MTC)

All PDO returned surplus materials shall have the soft copies MTCs provided along with the materials for loading into MTC repository system called ‘Doctor Loader’. Where, MTC details are already available in the ‘Doctor Loader’ system, this shall be specified in the MRS giving the reference number for PDO verification.

Doctor system acts as a reference and repository system of all material technical data for all future surplus material users should they need to check relevant technical information.

4.1.5 Returning surplus materials to PDO Logistics

As a preparation for returning materials to PDO, following successful completion of the reconciliation process, the Contractor shall prepare separate Field Consignment Note (FCN) documents for ‘keep’ and ‘scrap’ materials and attach a copy of the Material Reconciliation Statement. Contractor shall ensure that materials proposed for return to warehouse for storage, specifically those identified as ‘keep’, shall be in good and usable conditions, SAP coded, having MTC where applicable, and are properly marked with both the material description and SAP numbers.

Once the materials are ready for transporting back to PDO, the contractor shall inform PDO head of warehouse to agree the date for return and then shall arrange transportation or call-off the transport service as per the contractual agreement with PDO.

4.1.6 Material Receipt at PDO Logistics

Material arriving from contractors shall be offloaded at relevant PDO storage facility i.e. surplus store or scrap yard, verified against the MRS and the FCN signed-off as per the standard logistics material return process.



4.1.7 Updating of SAP system and Doctor Loader

After the ‘keep’ materials have been physically checked and reconciled against the MRS, SAP system should be updated accordingly and relevant copies of MTCs passed on to the EQA team staff to upload into Doctor Loader.

4.2 Storage of Surplus Materials It is the responsibility of PDO Logistics team to receive, verify and store returned surplus materials in a safe manner and in the right location. All contractors’ returned materials should be properly packaged and labeled by the contractor prior to their returns in accordance with PR-1858 Procedure for Material Handling, Storage and Preservation.

4.3 Surplus material Preservation Surplus materials preservation shall be done in accordance with procedure PR-1858 / GU-707 Specification for Material Handling, Storage and Preservation. Surplus materials in the Warehouse shall be monitored regularly for deterioration and damages and proper action taken by the Warehouse staff.

4.4 Periodic Inventory Review FPP team shall carry out periodic surplus inventory reviews as follows:

o Material aging – to identify un-used surplus materials which are over 4 years. o Surplus Returns – To establish the levels/trends of surplus returns with the aim of

minimizing the returns. o Surplus Utilization Report– To determine surplus utilization levels using SAP report:

ZBR_MB51.

4.5 Inventory check, Write off and Disposal All surplus materials shall undergo regular material check based on stock check plan. This activity shall be performed by PDO Stock Checkers under existing stock check process and reconciliation.

All surplus project materials write-off proposals will be endorsed by FD after approval from FPM and reviewed by FCN. Sales proceeds generated from the write off of surplus project materials will be presented to the Board Finance Committee as per existing practice.

Disposal of any written-off or scrapped surplus materials shall be done according to procedure PR-1311 Disposal of Obsolete Stock, Fixed and Moveable Assets Procedure.

4.6 Issue of surplus materials to end user Issue of surplus materials to end user shall follow the standard issue to customer processes and procedures. See also approved deviation process (Appendix 3) where blanket approval is given to use materials without MTCs.



5 Material Reconciliation and Transfer Matrix

Step #

Responsibility

Task Description Con

tract

Hol

der

Con

tract

or

Qua

lity

Mgm

t - U

EQ

MM

Mai

ntai

ner

PDO

Log

istic

s

1 Account for all surplus materials, prepare a Material Reconciliation Statement (MRS) and seek PDO approval to move materials to PDO

S A N/A N/A N/A

2 Carry out physical material verification against the MRS, decide whether to ‘keep’ or ‘scrap’ the material and sign-off the MRS

A S N/A N/A N/A

3 Prepare coding requests for ‘keep’ materials and forward to MM Maintainer for coding. S A N/A S N/A

4 Pack/label materials and keep ready for dispatch. Mobilise transport of materials to PDO Logistics sites as per the contractual requirements

S A N/A N/A S

5 Receive materials verify details against the MRS. Sign-off the Field Consignment Note (FCN) N/A S N/A S A

A - Accountable S – Support Role N/A – Not Applicable



6 Application & Step-Out Approval

6.1 Application This Code of Practice is applicable to all project surplus management related activities and processes, both under the responsibilities of PDO and contractors.

6.2 Step-out and Approval Any proposals to deviate from this Code of Practice for whatever reason must be submitted to FPM for formal approval to do so. Any such approvals shall be recorded and held by the requesting party and produced upon demand from the competent authority within PDO.


CP- 196 Surplus Stock Management Code of Practice Printed 10/10/2013

The controlled version of this CMF Document resides online in Livelink®. Printed copies are UNCONTROLLED.

Appendix 1 Appendix 1: Chart 1 Material Reconciliation for Major and EMC/ODC jobs

CommentsContractor QA-QC Contract Holder

Contractor Warehouse

Within two months of project substantial completion (during the commissioning and initial operate phase) or cancellation

Prepare Final reconciliation statement of contractor &

PDO supplied stock

Conduct material integrity/Quantity

verification at contractor yard

Segregate material/list

Is contractor liable?

Refer the matter to CH

Return

Yes

1 – Assign liability for missing / damaged qty

2 - Identify items to keep at Contractor yard and items to be

returned to PDO3 - Verify & Sign-off

reconciliation statement

Return to PDOGo to Chart 2

Transfer material to new project/Update new project

data sheet. Update SAP where relevant

Keep or return to PDO?

Keep

No




Appendix 1 cont’d

Appendix 1: Chart 2 (contd): Material Reconciliation for Major and EMC/ODC jobs)

Data Mgmt TeamFPP2Contract HolderPDO Logistics PDO QA/QCContractor QA/QCContractor

Warehouse

Chart 2Return materials to PDO

Verify material against

reconciliation statement

SAP Coded?

Label, pack and prepare to return to PDO

Ask PDO or Arrange transport as per the

contract

Transfer material to PDO warehouse

Provide material specification to Data

Management for coding

Scrap: Receive & inform

investment recovery team

Store: Receive & Update SAP

records

Upload MTC into ‘Doctor’ System

No

Yes

MTC available?

Yes

Store or Scrap

Flag as Scrap

No

Scrap

Store

Is it required?

Yes

No

Update Reconciliation Sheet ‘comment’ field and get PDO final sign

off

Sign off Final Material Reconciliation Sheet

Arrange Coding




Appendix 2



Appendix 3



Appendix 4



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