How utilities can reinvent their supply chain for a more dynamic market

Our macroeconomic environment still involves longer lead times for transformers, cable, meters and other equipment, while shifts in the labor market have made it harder than ever to find needed engineering and construction talent. Amid a struggle with inflation over the past few years, many power producers and utilities were further constrained as available capital became scarcer. The implications resonated into project management, procurement and beyond as players in the sector confronted delivering net-new large capital projects to build renewable assets; preparing the grid for rapid expansion of the use of electric vehicles (EVs); and maintaining legacy generation, transmission and distribution assets amid cost pressures and some failed rate cases. All of these factors have complicated the industry’s drive toward a greener future.

However, the priorities remain the same, so utilities must shake off a mentality of buying what is needed, when it’s needed, with a sole focus on price. Instead, today’s imperative is to evolve supply chain capabilities to better control risks and support continued growth. By building strategic supplier relationships, sharing demand plans across multiple horizons and integrating category management with project execution, utilities can better manage market volatility and take advantage of new sources of supply and technology. Here’s how.

Build global supply chain capabilities

Every power producer and utility wants to secure a spot at the front of the line with key equipment suppliers, optimize limited external labor pools and be able to deploy capital more efficiently, significantly reducing spikes and valleys in supply. Those that invest in these capabilities will be best positioned to deliver on those goals:

• Category management: To make category managers more proficient, enable them with integrated toolsets that allow for understanding shifts in supply base ownership, identifying alternate sources of supply, and building market knowledge for new spend categories, such as renewable assets, electric vehicles, and grid sensing.
• Demand forecasting: Planning capabilities and a modern digital planning platform can increase visibility of the specific required equipment and services for capital projects and maintenance needs. Meanwhile, leverage AI and data and analytics as embedded toolsets to curate data from budgets, work orders and past invoices to create a multi-horizon view of procurement needs.
• Supplier risk visibility: In a dynamic market, real-time insights via digital tools are needed to assess financial, operational and cyber risks in the supply base so that mitigations can be planned early and activated immediately when needed. Segmentation of the supply base using a risk-informed lens puts a focus on those suppliers that have the largest impact on the enterprise’s growth and sustainability goals.
• Capital project delivery: As more funding becomes available through the Inflation Reduction Act (IRA) of 2022 and other sources, most power producers and utilities are increasing their annual capital plans. The traditional linear approach to engineer, procure and construct, where each party completes its part and sends it “over the wall,” cannot easily scale for increased spending. Supply chain organizations need to consider adding new specialized roles that can be embedded with large project teams and bring to bear the newly enhanced capabilities in an agile way.

Make the transformation stick

The conventional wisdom in an industry that must be “always on” is to adopt capabilities that are already tried and true. However, for power producers and utilities in today’s environment, supply chain capabilities will need to evolve at a rapid pace and therefore must leverage both proven methods and tools, as well as a mindset of iteration around newer enablers. For instance, planning capabilities can be enhanced with platforms that have been long used by products-oriented industries, offering an opportunity to borrow a mature solution off the shelf. On the other hand, creating more capacity for category managers to take on new areas of spending and apply more sophisticated techniques may be a matter of shifting their focus away from one-off purchases and introducing generative AI tools to do noncomplex sourcing and negotiations work instead, which can best be achieved through an agile approach.