Green Economy Journal Issue 60

ENERGY
ENERGY
A utility’s geographic
footprint is one final
major element that
impacts resilience.
A dependable supply
chain, in other words,
will be about trade-offs.
Manufacturers are trying to fill the void by expanding onshore capacity
and developing more advanced equipment, but new facilities and
innovations take time.
Suppliers have told us, in fact, that utilities will need to work with
them more closely than ever to expand production. But how to
do this? Suppliers will have to continue raising prices to cover the
expense of additional manufacturing lines, which means the rands
utilities have won’t go as far. If some utilities don’t meet the higher
prices or other terms that suppliers can set, then they won’t get
contracts, whereas more cooperative utilities will.
Utilities, then, are in a new and unaccustomed position of having
to rethink supplier relationships: from tactical buys to strategic
partnerships. Either find ways to invest in suppliers to ensure future
needs or roll the dice and hope that supplies will be there when
you need them.
A dependable supply chain, in other words, will be about trade-offs.
It will be flexible while maintaining an optimal balance between cost
and performance. Where it has focused on cost to preserve capital,
it will now depend as much on drivers, including time-to-market,
ESG impact and service levels. It will mitigate risks by adjusting for
them, quantifying financial impacts and changing course as priorities
shift (see figure 3).
This dynamic of trade-off and exchange – where utilities will have
to understand demand in operations, match it with supply, and go
to external sources – effectively calls for a procurement and supply
chain clearinghouse.
The clearinghouse approach brings structure to unknowns. Utilities
progress from reactive event management to business continuity
planning, where they gain a much clearer understanding of weak
links in the supply chain. Redundancies are implemented to manage
gaps and responses to unexpected events are planned.
Once those steps are taken, a utility can prepare its supply chain
for the future using forward-looking models to forecast potential
events, prioritise risk and likelihood with sensing systems, and use
manual intervention and decision-making for recovery when adverse
events occur.
Article courtesy of Kearney Consulting
Maximise capital. The third aspect is financial: how a utility will get
the most value for the rands it has to spend. From rands tied up in
inventory of raw materials and finished goods to capital in reserve,
the utility will be able to quickly assess financials for urgent, ongoing
and investment projects.
KEY TO THE ENERGY TRANSITION
A utility’s geographic footprint is one final major element that impacts
resilience. How diverse and available suppliers are to the utility’s
operations is key because it affects how quickly it can activate alternate
routes and locations of focus if something goes awry. If plan A fails, it’s
ready for plan B or C.
Specifically, finding alternatives to reliance on single-sourced
suppliers is what’s pressing (see figure 4). By pre-qualifying alternate
suppliers, a utility can significantly reduce risk and ensure consistent,
cost-effective product flows across the supply chain. The more
suppliers and less variation in products, the lower the supply risk.
As the number of suppliers dwindles and the number of product
stock-keeping units grows or becomes exclusive due to patents
or status as an OEM, the supply risk grows exponentially. These
suppliers require a different level of engagement that elevates them
to strategic partners to utilities.
Pre-qualify where potential future alternatives exist. Dual or
multi-source where there are viable options and fewer suppliers,
and potentially vertically integrate or co-invest in those that are
of the highest value or pose the greatest dependency. Taking
the time to identify and approve alternates will pay dividends
in the long term.
First-mover utilities will proactively identify their supply risks and
develop cooperative relationships with suppliers to lock them in.
When a utility commits to a supplier – especially one that produces
some of the most essential equipment, such as transformers – that
supplier has the confidence to invest in new technology or put
in another production line. By moving beyond an attachment to
slow-moving inventory and committing to a certain volume over
a longer period, a utility can guarantee supply more cost-effectively.
Reclaiming and reigniting supplier relationships is new to the power
sector. However, this approach, along with the dynamic trade-offs
afforded by a clearinghouse-style supply chain, can limit economic risk
and bring utilities the freedom to grow and transition to a new era.
Kearney analysis
Supply chain is about trade-offs – delivering resillience while maintaining an
optimal balance between cost and performance
Figure 3. Leading utilities require supply chains that are reliable,
nimble and agile.
CONTROL TO MITIGATE CHALLENGES
The constant reevaluation of a clearinghouse structure offers distinct
advantages by allowing a utility to see what it needs and spends at a
granular level.
Determine demand. The utility determines demand by honing
its planning capabilities – turning what it needs to do into units
of labour and materials. This leads to decisions on accomplishing
tasks internally or externally and what the product platforms will
be (the groups of products, such as transformers, and their classes
based on solution). It also helps determine which platforms will
be interchangeable for use at one plant or facility or another. The
operational footprint becomes clear.
Evaluate supply and logistics. On the supply side, there will be
regular evaluation of supplier landscape, logistics and the external
workforce. The utility will have a clear view into and control over the
inbound transportation of supplies and rapid, accurate distribution of
them into the field through its own or a dedicated, contracted fleet.
Kearney analysis
Figure 4. Diversification of single-source suppliers, by pre-qualifying and dual-sourcing, can also help mitigate the risk from geographic concentration.
*Authors: Andre Begosso, Rajeev Prabhakar; partners. Natasha Villacorta, James Guba; principals. The authors would like to thank Kish Khemani for his valuable contributions to this paper.
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