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Risk Scenario

Hard Crash

An equipment breakdown harms a company and kills a career.
By: | August 31, 2015 • 7 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

Part One: Pressure Builds

Barry Little cast an appreciative glance back at the front door of the elementary school where he’d just dropped off his little girl Lila, age 5, for her morning kindergarten class. He was grateful that he trusted Lila’s teacher and the rest of the school staff.

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Walking to his car, with the late September sun warming his face, he ticked off the other reasons he had for being happy. Ten minutes before dropping Lila off, he’d dropped off her little brother Benjamin at daycare. Benjamin was a joy, now speaking in full sentences and displaying a wry sense of humor.

Driving to work, Little ruminated on his further good fortune. He was celebrating the one-year anniversary of his promotion to plant manager of the Glaucus Inc. ammonia plant in nearby Edmonton, in the province of Alberta, Canada.

His promotion coincided with increased natural gas production in the fields close to the Edmonton plant. Natural gas is the feedstock for ammonia, and its recent abundance and lower cost was a boon for the company.

Just that week, his managers asked him to extend the current ammonia production run out two years to take advantage of the lower cost of natural gas and the burgeoning demand for fertilizer in the emerging economies of India and China.

Ammonia is a key raw material for the production of fertilizers. But there are inherent risks. Ammonia production is a demanding process on plant equipment. And the extended production run was being performed at the expense of regularly scheduled equipment maintenance.

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Little knew the reasons for management’s decision. With global revenues at close to $1 billion annually, publicly traded Glaucus could run that figure close to $1.25 billion in this two-year window.

There was another factor gnawing at Little. The vastly increased production of natural gas in North America meant that chemical manufacturing was on the upswing. New plants were being built and existing plants expanded which increased lead times for equipment and spare parts

In this high-demand environment, contingency plans that included the purchase of spare parts were important to minimize any downtime due an equipment breakdown. Little, relatively new to this position, was in the process of drafting contingency plans, but they weren’t complete. The plant had some spare parts and equipment, but it was questionable whether that was adequate.

***

Little was relaxing that night after dinner, keeping half an eye on an Edmonton Eskimos game, when his cell phone lit up.

A fast moving storm was moving through Alberta. No sooner had Little seen that news on his phone, when he got a call. A lightning strike at the Glaucus plant tripped the electrical system off line, triggering a “hard crash” and a complete shutdown of the plant.

“Gotta go,” Little said to his wife as he jumped up and grabbed his raincoat.

“Where to?” she said.

“The plant’s been knocked out by a lightning strike. I gotta get over there!”

“Drive safely!” she called after him but he was already out the door.

Driving to the plant with rain pelting his windshield, Little’s mind raced.

“What to do?”

The truth was, he didn’t know.

Part Two: Break Down

When Little arrived at the stricken plant, his assistant plant manager, Denny Ashe, was waiting for him just outside the door.

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“It’s a complete shutdown, nothing is on line,” Ashe said as he and Little walked into the plant together.

Little strode out into the plant’s main control room. Nothing seemed amiss, but everything was shut down.

“Do we have power?” he asked Ashe.

“Yep, we’re just reconnected,” Ashe said. “The strike tripped our system, but the circuit breakers have been reset and service has been restored.”

Little stood, looking at the idled control panels for the plant’s equipment and at the faces of the operators, who were watching him expectantly. The faces of the watching operators triggered something in Little.

It looked like they were expecting him to act, so he did.

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Little turned to Ashe.

“Let’s start it back up.”

“Are you sure?” Ashe said.

Ashe was just asking a question, but it angered Little.

“Yes I’m sure!” Little thundered.

“Start it up like I said!”

Just then, the phone number of Little’s manager flashed on his phone. Flustered, Little didn’t answer the call.

What Little didn’t know and didn’t take the time to find out was that a critical steam turbine driving a process compressor was damaged when the lightning strike shut the plant down so suddenly. The turbine was vulnerable because it hadn’t been properly maintained due to production demands.

Little went out and stood in the middle of the compressor building with his hands on his hips as Ashe worked with the operators in the control room to get the plant back on line.

When the plant restarted, the turbine started to vibrate excessively. Without vibration trips, the turbine continued to operate. The vibration caused a lubrication oil line to break, which in turn started a fire.

“Fire!” one of the turbine operators yelled as he ran to grab a fire extinguisher since there was no sprinkler protection installed, but another turbine operator beat him to it. The fire was so intense that it burned the two workers severely.

Denny Ashe shut the plant back down as calls went out to the emergency response team.

As a member of the emergency response team used a first-aid kit to attend to the turbine operators, Little stepped back, realizing that he still held his phone in his hand.

He couldn’t look at the injured workers laid out on the compressor building floor, with their co-workers offering them aid. He couldn’t face it.

Little just stared at his phone in shock, unwilling to dial his boss’s number.

***

It took a week of meetings between plant operational personnel to determine just how bad the situation was.

The team determined that the $10 million turbine, which was crucial to the plant’s production process, was totally destroyed.

The plant was powerless without the turbine; it couldn’t produce ammonia.

“I can’t tell you,” is what the equipment manufacturer said when Little called him and asked when they could deliver a replacement.

“It could be six months, it could be nine months, it could be longer,” the manufacturer’s representative said.

“When are we going to be back up?” is what Little’s manager asked him, two weeks after the shutdown and the turbine fire.

“I can’t answer that question,” Little said.

Part Three: A Chilling Dawn

Seven months after the lightning strike and the turbine fire that injured two workers, Little finally had an answer to that question.

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With a date for the delivery of the replacement turbine now firm, it would be two more months before Glaucus Inc.’s Edmonton plant could resume ammonia production.

Little’s initial inability to tell senior management when the plant would reopen motivated them to send an engineering team from the company’s Shreveport, La., plant to conduct a complete inspection of the Edmonton plant.

“I want to state for the record that I was asked by management to extend the production run at the expense of the regularly scheduled maintenance,” Little told the inspection team as they sat down with him and some of the senior management team to report on their findings.

“Barry, we’re not here to officiate between you and your manager,” the head of the Shreveport engineering team told him.

“We’re just here to report on what we found.”

The engineering team reported that the Edmonton plant’s electrical system was well used and wasn’t adequately maintained. It didn’t matter that Barry Little had only been plant manager for a year, the fault lay at his feet.

The engineering team also faulted the Edmonton operation for extending production without maintaining the plant’s equipment; not installing vibration trips on the critical turbine; not adequately maintaining turbine integrity; failing to have a written contingency plan, including maintaining spares for critical pieces of equipment and not installing sprinkler protection on the turbine.

Instead of being on track to increase its revenues from $1 billion to $1.25 billion, Glaucus Inc. saw its revenues in the year of the Edmonton plant failure slip down to $900 million. The work stoppage at Edmonton cost the company $125 million in plant repairs and lost revenues.

When it reported its full-year figures, the company’s stock price tumbled 20 percent.

The fact that Barry Little was in the process of writing a contingency plan when the plant experienced the lightning strike and hard crash didn’t help him much. He was fired in the first quarter of the following year.

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Risk & Insurance® partnered with FM Global to produce this scenario. Below are FM Global’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance®.

No company can afford the loss of property, lives and productivity from destruction caused by fire, natural hazards or equipment outage. Equipment damaged in minutes can take many months to repair or replace. If there is business interruption, revenue, stock price and shareholder confidence all can take a major hit. Market position may be lost. Inflation and material shortage may make rebuilding difficult and costly.

Of course, insurance helps alleviate some of the cost associated with property damage. But insurance isn’t the only answer, especially when considering the loss of customers, productivity, goodwill and staff.

Reliable equipment delivers resilient service to your production, utility and support systems, can reduce risk to your business and help your organization maintain a competitive advantage.




Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Manufacturing

More Robots Enter Into Manufacturing Industry

With more jobs utilizing technology advancements, manufacturing turns to cobots to help ease talent gaps.
By: | May 1, 2018 • 6 min read

The U.S. manufacturing industry is at a crossroads.

Faced with a shortfall of as many as two million workers between now and 2025, the sector needs to either reinvent itself by making it a more attractive career choice for college and high school graduates or face extinction. It also needs to shed its image as a dull, unfashionable place to work, where employees are stuck in dead-end repetitive jobs.

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Added to that are the multiple risks caused by the increasing use of automation, sensors and collaborative robots (cobots) in the manufacturing process, including product defects and worker injuries. That’s not to mention the increased exposure to cyber attacks as manufacturers and their facilities become more globally interconnected through the use of smart technology.

If the industry wishes to continue to move forward at its current rapid pace, then manufacturers need to work with schools, governments and the community to provide educational outreach and apprenticeship programs. They must change the perception of the industry and attract new talent. They also need to understand and to mitigate the risks presented by the increased use of technology in the manufacturing process.

“Loss of knowledge due to movement of experienced workers, negative perception of the manufacturing industry and shortages of STEM (science, technology, engineering and math) and skilled production workers are driving the talent gap,” said Ben Dollar, principal, Deloitte Consulting.

“The risks associated with this are broad and span the entire value chain — [including]  limitations to innovation, product development, meeting production goals, developing suppliers, meeting customer demand and quality.”

The Talent Gap

Manufacturing companies are rapidly expanding. With too few skilled workers coming in to fill newly created positions, the talent gap is widening. That has been exacerbated by the gradual drain of knowledge and expertise as baby boomers retire and a decline in technical education programs in public high schools.

Ben Dollar, principal, Deloitte Consulting

“Most of the millennials want to work for an Amazon, Google or Yahoo, because they seem like fun places to work and there’s a real sense of community involvement,” said Dan Holden, manager of corporate risk and insurance, Daimler Trucks North America. “In contrast, the manufacturing industry represents the ‘old school’ where your father and grandfather used to work.

“But nothing could be further from the truth: We offer almost limitless opportunities in engineering and IT, working in fields such as electric cars and autonomous driving.”

To dispel this myth, Holden said Daimler’s Educational Outreach Program assists qualified organizations that support public high school educational programs in STEM, CTE (career technical education) and skilled trades’ career development.

It also runs weeklong technology schools in its manufacturing facilities to encourage students to consider manufacturing as a vocation, he said.

“It’s all essentially a way of introducing ourselves to the younger generation and to present them with an alternative and rewarding career choice,” he said. “It also gives us the opportunity to get across the message that just because we make heavy duty equipment doesn’t mean we can’t be a fun and educational place to work.”

Rise of the Cobot

Automation undoubtedly helps manufacturers increase output and improve efficiency by streamlining production lines. But it’s fraught with its own set of risks, including technical failure, a compromised manufacturing process or worse — shutting down entire assembly lines.

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More technologically advanced machines also require more skilled workers to operate and maintain them. Their absence can in turn hinder the development of new manufacturing products and processes.

Christina Villena, vice president of risk solutions, The Hanover Insurance Group, said the main risk of using cobots is bodily injury to their human coworkers. These cobots are robots that share a physical workspace and interact with humans. To overcome the problem of potential injury, Villena said, cobots are placed in safety cages or use force-limited technology to prevent hazardous contact.

“With advancements in technology, such as the Cloud, there are going to be a host of cyber and other risks associated with them.” — David Carlson, U.S. manufacturing and automobile practice leader, Marsh

“Technology must be in place to prevent cobots from exerting excessive force against a human or exposing them to hazardous tools or chemicals,” she said. “Traditional robots operate within a safety cage to prevent dangerous contact. Failure or absence of these guards has led to injuries and even fatalities.”

The increasing use of interconnected devices and the Cloud to control and collect data from industrial control systems can also leave manufacturers exposed to hacking, said David Carlson, Marsh’s U.S. manufacturing and automobile practice leader. Given the relatively new nature of cyber as a risk, however, he said coverage is still a gray area that must be assessed further.

“With advancements in technology, such as the Cloud, there are going to be a host of cyber and other risks associated with them,” he said. “Therefore, companies need to think beyond the traditional risks, such as workers’ compensation and product liability.”

Another threat, said Bill Spiers, vice president, risk control consulting practice leader, Lockton Companies, is any malfunction of the software used to operate cobots. Then there is the machine not being able to cope with the increased workload when production is ramped up, he said.

“If your software goes wrong, it can stop the machine working or indeed the whole manufacturing process,” he said. “[Or] you might have a worker who is paid by how much they can produce in an hour who decides to turn up the dial, causing the machine to go into overdrive and malfunction.”

Potential Solutions

Spiers said risk managers need to produce a heatmap of their potential exposures in the workplace attached to the use of cobots in the manufacturing process, including safety and business interruption. This can also extend to cyber liability, he said.

“You need to understand the risk, if it’s controllable and, indeed, if it’s insurable,” he said. “By carrying out a full risk assessment, you can determine all of the relevant issues and prioritize them accordingly.”

By using collective learning to understand these issues, Joseph Mayo, president, JW Mayo Consulting, said companies can improve their safety and manufacturing processes.

“Companies need to work collaboratively as an industry to understand this new technology and the problems associated with it.” — Joseph Mayo, president, JW Mayo Consulting

“Companies need to work collaboratively as an industry to understand this new technology and the problems associated with it,” Mayo said. “They can also use detective controls to anticipate these issues and react accordingly by ensuring they have the appropriate controls and coverage in place to deal with them.”

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Manufacturing risks today extend beyond traditional coverage, like workers’ compensation, property, equipment breakdown, automobile, general liability and business interruption, to new risks, such as cyber liability.

It’s key to use a specialized broker and carrier with extensive knowledge and experience of the industry’s unique risks.

Stacie Graham, senior vice president and general manager, Liberty Mutual’s national insurance central division, said there are five key steps companies need to take to protect themselves and their employees against these risks. They include teaching them how to use the equipment properly, maintaining the same high quality of product and having a back-up location, as well as having the right contractual insurance policy language in place and plugging any potential coverage gaps.

“Risk managers need to work closely with their broker and carrier to make sure that they have the right contractual controls in place,” she said. “Secondly, they need to carry out on-site visits to make sure that they have the right safety practices and to identify the potential claims that they need to mitigate against.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]