Equipment Cost Optimization
Authors: Ribeiro E.M. , Farias M.A. , Dreyer S.R.B. 
Published: October 2008

Considering the importance of the cost of material and Equipment in the overall cost profile of an oil Company, which in the case of Petrobrds, represents approximately 23% of the total operational cost or 10% of the sales, an Organization for the optimization of such costs has been established within Petrobrds. Programs are developed ainting at: Optimization of life-cycle cost of material and equipment Optimization of industrial processes costs through material development.

This paper describes the methodology used in the Management of the development programs and presents some examples of concluded and ongoing programs, which are conducted in permanent cooperation withsuppliers, technical laboratories and research institution sand have been showing relevant results.

FOREWORD

Material and equipment cost account for a notable portion of the overall cost profile of an oil Company. In the case of Petrobr(is, they account for an overall budget of approximately US$ 1 billion per year, equivalent to 23% of the total operational cost or 10% of the sales.

Other examples of the significance of supply costs Relative to total costs of different industries can be found in the literature: in the United Kingdom, as reported by Alex Monsoon, such costs account for 70% of total costs for the electrical cable and iron and steel industries, 60% in the case of chemical products and 65% for vehicles. Kaoru Ishikawa2states that in Japan purchased materials reach an average of 70% of total industrial costs.

Considering the importance of these supply costs, an organization for the optimization of material and equipment costs has been established in our Company.

The mission of the material cost optimization team is: Search the reduction of Petrobrds operational cost, through the reduction of life-cycle cost, standardization and development of material and equipment.

To accomplish this mission the following permanent goals Were established:the optimization of the life-cycle Cost of selected material and equipmentthe optimization of the cost Of the Company's industrial processes, through Material and equipment development.

This paper presents the procedures used in theManagement of material development and life-cycle cost Reduction programs as well as some examples of ongoingand concluded programs.

The activity includes the review of the costs of the different phases of the service life of material and equipmen4 such as purchase, installation, operation maintenance, inventory, training and failures and the establishment of development projectaiming at changing the product in order to reduce the costs involved in installation, operation and maintenance.to induce the flourishing of alternate Suppliers.aiming at changing industrial processes through equipment development to reduce the Company's costs.

Life-cycle cost - LCC is calculated considering the different contributing factors and their net present value at a chosen interest rate (currently established as 15%per year for the feasibility studies of Petrobras). Figure 1 illustrates some of these factors.

The study of LCC allows to select the most convenient Choice when specifying a product or when judging a bid, as in many cases LCC exceeds original price by far.