Collaboration Across Company Boundaries –
Shared Inventory Management
Roland E. Heersink1
Industrial Evolution, Phoenix, Arizona 85022, USA.
and
Guillermo Héctor Guzmán Ruiz
Formerly of BASF Mexicana, Mexico City, 03710 D. F., Mexico
Now of IAPI, Mexico City, 03630 D. F., Mexico
Abstract
With the advent of low-cost transmitters, wireless communications, and Internet technologies,
remote monitoring of inventory has emerged as a powerful means for process manufacturers and
their customers to collaborate more effectively in the supply chain management space.
This paper describes a powerful, yet simple, Shared Inventory Management strategy implemented by
BASF Mexicana with its chemical customers throughout Mexico.
At the application level, the strategy consisted of 3 tiers – remote data collection, storage & access;
demand forecasting & dispatch reconciliation; and business systems integration.
As a direct result of implementing a Shared Inventory Management service, BASF was able to
replace short term customer sales contracts with new long term contracts for each of its customers
in return for remote management of the customer’s inventories.
The authors of the paper were both intimately involved with the project, from concept through
implementation. Roland Heersink is CEO of Industrial Evolution, the company that provided the
service for BASF to securely collect and manage its customer’s real-time inventory data. Guillermo
Guzmán, was the BASF Program Manager who reviewed alternative solutions and assisted the
BASF sales team in the roll-out of its new sales strategy.
The project was implemented in an extremely cost-effective manner. Two key elements to
implementing the project cost-effectively were the use of industry-standard components and
leverage of existing data hosting with secure web access capabilities.
The same technology has also been applied in the refining and other industries – both for inventory
management, but also for remote monitoring and troubleshooting of real-time plant operations.
1
Address inquiries to Roland Heersink at +1 (602) 867-0416 or [email protected]
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Introduction
In November of 2001, BASF Mexicana started a search for a supplier of software and services to help
them collaborate with their customers in the management of inventories. BASF Mexicana’s customers
are located throughout Mexico and range from the largest multinational corporations to smaller domestic
companies. They make familiar products such as paint, carpet, paper and sealants that consume
dispersants, adhesives, pigments and detergents from BASF.
Many of these customers do not have sophisticated automated data collection and management
information systems at the factories that require BASF product. It was common for them not to
notice that a vital component was about to run out until tank levels were critically low. And when
customers faced an urgent inventory need, they often obtained quotes from multiple suppliers in
order to keep “rush” prices close to that for normal, scheduled deliveries.
The net result was that in order to maintain customer satisfaction and loyalty, BASF had to bear the
additional costs of more frequent (and urgent) customer support, as well as the additional cost
associated with rush deliveries.
This outcome appeared to be the most economically efficient for the buyer since he could avoid
investing in sophisticated monitoring equipment and personnel, and yet only had to bear a fraction
of the costs when things went wrong. However, it was clear to BASF that both parties were
incurring more cost than they needed to and taking too much business risk – the customer was
always sailing close to the wind on inventories, and BASF was always just one batch away from
losing the customer.
BASF was therefore seeking a technologically advanced and economic way of managing inventories
for its customers. They were willing to invest in the required data collection hardware and to
provide a pro-active inventory monitoring service for their customers. In return, the customers
were willing to commit to long term contracts and allow BASF to remotely access inventory
measurements. In essence, the customer would always use BASF products and BASF would ensure
they never ran out, at no extra cost. This reduced the overall customer costs and provided BASF
with an additional profit opportunity through better demand forecasting, optimal production
planning and more efficient product dispatching.
Application Description
The Shared Inventory Management application BASF chose was from Industrial Evolution, a U.S.
company based in Phoenix, Arizona. Delivered as a web service, the inventory management
application consisted of 3 tiers as follows:
Remote Data Collection, Data Storage and Data Visualization – the gathering of inventory and
inventory-related data from remote storage facilities in real-time for remote Web-based access by the
supplier and their buyer;
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Demand Forecasting and Receipt Reconciliation – the identification of inventory trends, filling
cycles and other inventory changes from the historical data record to predict time-to-empty, identify
filling sequences, calculate precise inventory volumes, and reconcile shipment & receipt records;
Business Systems Integration – the initiation of business actions (order, transfer, etc.) in the
supplier’s enterprise and/or planning systems (SAP, etc.) to replenish and/or optimize buyer
inventories or update supply plans based on actual and/or reconciled inventory data from various
operating locations.
Business
Systems
Integration
Demand
Forecasting &
Receipt Reconciliation
Data Collection,
Secure Storage &
Web-based Visualization
Figure 1 – 3-Tier Application Hierarchy
Data Collection, Storage and Visualization Tier
The first customer to accept BASF’s proposal was Pintex, the largest manufacturer of paints and
protective coatings in Mexico.
Pintex used 2 grades of acrylic copolymer latex supplied by BASF and had just opened a new plant
in Tlalnepantla in the north east suburb of Mexico City. BASF used the services of a local
instrument engineering firm to install automatic level gauges on each of the storage tanks and a PLC
(Programmable Logic Controller) to record the level information. [A second phase of this project
will install flow meters to assist in reconciling delivery receipts – these will also be monitored by the
PLC.]
Attached to the PLC is a PC with an auto-dialing modem. Data is collected every 15 minutes. The
PC retains a buffer of 15-minute data values obtained from the PLC and routinely dials out to send
the most recent data set to Industrial Evolution’s data center. The frequency at which the modem
dials out is set as a function of the typical consumption rate of the product, but generally varies
between 2-4 times per day.
Other BASF customer sites will either install a similar PLC-based setup at their plant(s) or send data
from existing inventory measurement equipment to the Industrial Evolution data center – either by
telephone modem or by network connection, depending on what is available. Industrial Evolution
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already has a significant track record in securely gathering data in real-time from various data
sources, including PLC’s, ATG (Automatic Tank Gauging) systems, DCS’s (Distributed Control
Systems), process historians and others.
Once the data is received at the Industrial Evolution data center, it is stored in a real-time database
from OSIsoft for on-line access to the most recent 2 years of data, in accordance with assigned user
privileges. By retaining a copy of the collected data for secure web access, Industrial Evolution
allows operating companies to share real-time process data with business partners in a secure
manner without requiring user access to their site systems or corporate networks. This avoids the
risk of intrusion (accidental or malicious) into live operational systems, while still setting the stage
for real-time collaboration.
In the case of the Shared Inventory Management project, BASF wanted its sales force and product
schedulers to be able to access their customers’ inventory data, in a way that their customers could
rest assured that there was no possibility of interfering with their day to day operations.
The solution architecture is shown in Figure 2. Data from the locally-installed PLC’s arrive by
scheduled telephone modem transfer where they are interpreted by Industrial Evolution’s software.
New inventory measurements are extracted from the data transmission and downloaded into a PI
System database at Industrial Evolution’s data center. In the event of a communications failure, the
data file carries sufficient redundant data that missing data are automatically recovered on the next
successful transfer.
Customer BASF Users
ISP
Industrial Evolution
Hosting Center
Internet
Firewall ISP ISP Firewall
VPN Server VPN Server
On-Site PI Servers Internet
Data Source Servers
Figure 2 – Network Architecture
Both BASF and the customer can view data stored in the central PI System on a secure set of web
displays, accessible only with a valid userID/password combination. At BASF, the product
scheduler has access to all the inventory data, arranged by customer or by product. The scheduler
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has certain “write” privileges whereby she can update customer and product information. BASF
sales personnel have access to the data for their customer only.
Each customer also has access to his own data, and can also update their individual contact
information.
Data access is over the Internet from any Internet-connected device. BASF is provided a web site
address and a set of password-protected user accounts – each ID/password combination uniquely
reflects the desired access privileges for its intended user. The software is 100% server-based –
there are no software downloads to the user’s PC, and therefore the user can access the inventory
information from any PC. For example, a salesman about to visit a customer can login from home
or using a wireless PDA ahead of his sales call.
Security is as strong as BASF and its customers require – within the hosting center, there are 3
security layers to protect the data, and an additional security layer to verify logins. There is also pro-
active monitoring to prevent intrusion and to identify unusual patterns of usage. Communications
are encrypted and individual digital certification is available if required.
Overview display by product type Vessel detail display
Figure 3 - Sample Inventory Overview & Detail Displays
Figure 4 – Inventories can also be viewed by wireless PDA
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Demand Forecasting and Receipt Reconciliation
Most Vendor-Managed Inventory (VMI) solutions are typically based around a relational database
and stop at storing small volumes of data and providing Web visualization.
The Shared Inventory Management service that BASF envisaged was also to make intelligent use of
information already at hand to forecast demand and to reconcile receipts. They wanted to minimize
the reliance of the forecasting capability on human interaction. They also did not want to have to
rely on truck drivers or customers to reconcile receipts. In addition, they wanted to avoid the initial
high cost of acquiring and integrating demand forecasting, planning, scheduling and ERP systems.
Industrial Evolution supplied a software application called ProTRAQ, also from OSIsoft.
ProTRAQ provides an intelligent means of identification of inventory trends, filling cycles and other
inventory changes from the historical data record to predict time-to-empty, identify filling
sequences, calculate precise inventory volumes, and reconcile shipment & receipt records.
All calculation and prediction results are also stored in the hosted PI database, together with the
collected data, and made available as necessary on the web page displays. Graphical displays
highlight inventory status (e.g. low volume, 2-days-to-empty, etc.), making it easy for users to
identify specific areas requiring attention.
ProTRAQ uses both current data and the historical data record to complete specific inventory
calculations and to infer a number of advanced inventory management metrics, as highlighted in
Figure 5, below.
ProTRAQ Calculations
• Inventory volume
• Inventory loads received
• Receipt reconciliation
• Stock use patterns
• Time-to-reorder
• Time-to-empty
Figure 5 – Typical ProTRAQ Replenishment Calculations
Volume Calculations
ProTRAQ’s volume calculation uses the raw data measurement and vessel configuration data to
continuously calculate the volume of material in that vessel from the vessel’s level (or equivalent)
signal. A variety of basic vessel shapes are available to the volume calculations as part of the
standard solution.
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Volume calculations also account for the level below (or above) the transmitter span, and indicate
this information in the configuration data. Configuration data for each vessel is pre-loaded into the
central database or can be accessed electronically from their source system via direct referencing.
Manual adjustment or override of the configuration data is possible, as needed.
Volumes based on other geometries can be developed to fit the specific vessel design or can be
determined from an existing set of strapping tables.
Identification of Product Receipts
ProTRAQ has an automatic load estimator that continually monitors the actual inventory
measurement over time in order to determine when a delivery starts and ends, and estimates the size
of the material delivery received. Delivery size is calculated as the difference in volume between the
start and end times of a validated load, less the measured or inferred inventory consumption rate.
Reconciliation of Identified Product Receipts
Two methods of inventory reconciliation are available, using either actual receipt/shipment
information (e.g. loading bills, etc.), or additional information that may be available electronically
around the inventory vessel. Reconciliation results are stored in the database and made available to
the user via a web page display or report.
Estimation of Product Consumption Rates
ProTRAQ uses the historical record of all inventory data collected to infer best estimates of the
inventory consumption, and any associated patterns. These consumption estimates, together with
any external inventory consumption forecasts, provide the basis for future inventory predictions.
Using the data collected, ProTRAQ determines inventory consumption rate based on measurements
taken in the previous 8, 24, 48, 72, and 168 hours.
All consumption rate calculation results are stored in the database, allowing users to view and
analyze their performance over time.
Estimation of Time-to-Reorder & Time-to-Empty
ProTRAQ uses the latest consumption rate calculations and inventory measurements to determine
the number of days left until reorder and empty, according the specified trigger points for that
vessel. The Time-to-Reorder and Time-to-Empty values are calculated in real-time, so that they are
continually updated with the latest consumption data, inventory measurements and new inventory
deliveries, all as calculated by the other ProTRAQ components.
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Inventory Usage forecast Display (on right-hand side) Shipment/Receipts Reconciliation Display
Figure 6 - Sample ProTRAQ Displays
Business System Integration
There is currently no integration with business systems implemented. However, a key factor in
BASF’s selection process was the ability of the chosen Shared Inventory Management system to be
able to integrate with their SAP system in the future. The SAP system would then manage order
fulfillment and integration with BASF’s manufacturing facilities.
The integration envisaged by BASF would use a direct connection from Industrial Evolution’s
hosted PI servers to BASF’s SAP systems over a Virtual Private Network (VPN) using another
OSIsoft product called RLINK. Two sample implementation architectures are shown below in
Figure 7.
Supplier Consumer Supplier Consumer
ERP ERP ERP ERP
System System System System
Industrial Industrial
Evolution Evolution
Shared Shared
Inventory Inventory
Management Management
Business Platform Business Platform Business
Connector Connector Connector
Inventory Inventory
Measurements Measurements
Figure 7 – Sample Business System Integration Strategies
RLINK has been implemented in over 100 projects to integrate real-time data with SAP. It also
planned for implementation in this project to bring real-time inventory measurements and
ProTRAQ calculation results up from the Shared Inventory Management platform to BASF’s SAP
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System. In essence, ProTRAQ proposes an order request and SAP generates the request and fulfills
it. Other systems connected to SAP, such as trading systems and manufacturing execution systems
can then use this information to perform their tasks in a coordinated and optimal way.
In general, RLINK collects and translates real-time production data values into information
expected by SAP modules. In addition, the RLINK gateway supports transferring process orders,
specifications, and maintenance orders back from SAP. It uses RFC’s (Remote Function Calls) and
BAPI’s (Business Application Programming Interfaces) from SAP to interact with the MM
(Materials Management) module of SAP.
The RLINK gateway also works with the SAP’s PP-PI, PM, and QM modules and received initial
SAP Certification back in November 1996.
Figure 8 – Software Components
Project Benefits
Before embarking on the Shared Inventory Management project, BASF expected the following
benefits:
• Improved customer satisfaction
• Fewer transaction errors
• Reduction of inventory
• Reduced administrative costs and increased return on capital
• Improved efficiency for supplier and buyer
It is too early to declare victory on all these benefits but initial indications show that the project is on
track to achieve the benefits anticipated.
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What has been more enlightening, however, is the unanticipated benefit. Often, when a customer
had been about to run out of product, they placed a rush order on BASF. It should be anticipated
that for a supplier a rush order means increased profits. However, that was not BASF’s experience.
The administration and shipping costs for rush orders was often higher than the price premium
available, since customers used the threat of competitive products to keep rush prices close to
normal.
The outcome had been that BASF was typically incurring a lot of extra cost for little extra reward.
The customer had had a similarly costly outcome – he used to pay more for product than he needed
to and had continually run the risk of not meeting his order commitments.
The BASF sales force presented the Shared Inventory Management concept to their customers and
agreed a new business arrangement. BASF would invest in the inventory monitoring hardware
required at it’s the customer’s facilities. In return, the customers would commit to buy BASF
product for 3 year terms under pre-agreed conditions. BASF would remotely monitor the inventory
levels and schedule deliveries to optimize BASF’s production plan and minimize logistics costs. At
any time, the customers may find themselves with a lot or a little inventory, but they were
guaranteed never to run out by BASF.
The benefit of this arrangement to the customer was clear – peace of mind and no rush order costs.
The benefits to BASF were lower sales cost (higher yield per salesperson), lower distribution costs,
stronger customer loyalty and greater market share.
Service vs. Product Approach
BASF realized early on that the right approach to Shared Inventory Management was to take a
service approach rather than a product approach.
In order to share data between strategic partners or customers, both parties would need to view the
system and therefore there would be a security and support need for both parties. BASF felt that it
was better to have a “neutral” third party company manage the data sharing on behalf of all the
parties and act in their mutual interest.
BASF also felt that they wanted to get the benefits of using standard products. In making that
decision, Sr. Ramon Ibarra, General Manager of BASF Mexicana and a keen supporter of this
Shared Inventory Management initiative, said that: “OSIsoft’s PI software is an industry standard.
Many of our customers know PI but are individually too small to own and operate a PI System
themselves. Using this approach from Industrial Evolution, we all benefit from the rich
functionality and strong performance of the PI System.”
Finally, when it came to web expertise and implementing a system that can be deployed to all of
BASF’s customers in Mexico, BASF sought a company with the right technical experience matched
by a strong service mentality. In selecting Industrial Evolution, Sr. Ibarra said that: “It was key to
our strategy that customers benefited by this service, not just BASF. It was therefore important to
us to find a company who puts customer satisfaction top of its priority list.”
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BASF has already implemented their first project and has placed contracts for another five customer
implementations. Their sales force is negotiating new deals with each of these customers and
expects to convince most of their Mexican customers to change their way of doing business. In
their eyes, sharing does not mean splitting the pie, and fighting for the larger slice. Instead, it means
expanding the size of the pie, with a larger piece for all participants.
Similar Application at a Refined Oil Products Terminal
The above project description is a particular example of how a Shared Inventory Management
service has been applied in the chemical industry. The same service has also been supplied to the oil
refining industry for the management of “owned” inventory residing in the terminal facilities of a
third party.
As an example of application to that industry, Industrial Evolution is working on a project to collect
real-time inventory data from a Varec ATG system across a VPN established between Industrial
Evolution and the terminal site. The refiners, who retain ownership of the product stored at the
terminal, can each access current inventory readings for their own products at the terminal,
according to the viewing privileges assigned by the terminal operator. Information access is via a
secure web site similar to that described for BASF above.
Phase II of the project envisages integration with a third-party oil trading system. Industrial
Evolution’s proven integration capabilities and range of third-party interfaces available through
OSIsoft was a key decision factor in the owner’s influence on the terminal’s selection of Industrial
Evolution for the provision of remote inventory access and as a future integration platform.
Similar Application on an Oil Refinery Hydrotreater
The same technology set used to provide secure access to real-time data across the internet has also
been implemented at a US oil refinery to foster collaboration between a catalyst vendor and their
customer.
In this case, real-time data is extracted at a much higher resolution (once per minute) from the on-
site process historian – a PI System from OSIsoft – and combined with an advanced analysis
application from the catalyst vendor to allow the catalyst vendor’s technical service engineer to pro-
actively access and analyze up-to-the-minute process data from the customer site, review calculated
key performance indicators, and generate operating recommendations for improved catalyst
performance and unit profitability. These recommendations are shared with on-site process
engineer, who can work them into the daily operating plan for the unit.
Since the technical service engineer and site engineer now also have access to the same up-to-the-
minute data, they can also collaborate in real-time to solve catalyst-related operational issues as they
arise - avoiding the wait for a routine site visit or the additional burden of data collection, packaging
and transfer to the technical service engineer. This type of real-time collaboration ensures that the
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customer is obtaining maximum value from their catalyst investments, while building stronger
customer loyalty and value propositions for the catalyst vendor.
Conclusions
There are many collaborative opportunities for chemical and oil refinery operators. The solution
described here is a simple, yet highly effective and secure, means of enabling the real-time
collaboration between business partners. It has widespread application, including that of shared
inventory management, remote monitoring, and others.
The availability of electronic information at the source data site – whether in a measurement device,
control system, or site information system - allows these opportunities to be fully exploited. The
addition of highly secure communications and data hosting technologies facilitates the collaboration
between business partners in real-time, without opening on-site systems or corporate networks to
access by individual external users.
Years of experience with a growing number of customers has proven both the value and reliability
of the collaborative services enabled by Industrial Evolution. Innovative business models and
forward-thinking strategies have allowed companies in the process industries to bring benefit to
their customer relationships and daily plant operations, as well as operating profitability and
reliability. Leading oil and chemical companies are now exploiting these opportunities to tie their
operations closer to that of their customers and/or suppliers. The cost/benefit ratio of these
solutions is very attractive, especially since the required infrastructure is most often already in place.
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