08.12.09Warren Causey, Vice President, Sierra Energy Group, a division of Energy Central

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Utilities have been managing assets for a long time -- lots of assets. Utilities have millions of parts, supplies, wires, capacitors, trucks, tools, laptops, screws, bolts, gloves and goggles. One problem facing them is that in the past, they weren't very good at managing all of those assets. That has changed somewhat in recent years with the advent of enterprise asset management (EAM) and enterprise resource planning (ERP) software. This software grew out of earlier computerized materials management systems (CMMS).

The computer has helped with the process and allowed utilities to adopt just-in-time sourcing of a wide range of materials, equipment and consumables they use. At least the processes involved have speeded up -- or have they? A look under the cover of modern EAM and ERP systems shows that many opportunities for improvement remain.

What happens when a certain valve or electronic device is listed under three descriptions in the EAM? That was the case at one company. Different employees looked the same part up three different ways, calling it by three different names.

What happens when one part is listed for automatic ordering month after month, year after year, even though the part is used no more than two or three times per year? In the case of one very large, multi-location, nonutility company, 15,772 units of that part accumulated, representing a $7 million investment sitting on shelves. It's no wonder storage space is at such a premium at some companies.

In another case, also not involving a utility, but instead a large, multinational company with 300 worksites and a computerized ERP, the firm accumulated 462 adhesives from 116 manufacturers, 109 caulking compounds from 41 manufacturers and 873 types of grease from 186 manufacturers. A close study of the problem revealed that the company only needed a maximum of five versions of each product.

Most utility assets were designed and built to have long service lifetimes. However, the U.S. economy's rapid growth since World War II required utilities to build many new systems, especially on the transmission-and-distribution side, leaving less money to replace assets as they grew older. Now, utilities face a host of new problems such as global warming, escalating fuel prices, environmental issues, renewable energy mandates, an aging workforce, legislative and regulatory uncertainty, and others. As a result, they are not likely to have extra revenue available to use to replace assets that are nearing or beyond the end of their anticipated lifecycle. With all of these other problems to solve, utilities cannot afford to maintain warehouses full of unused parts or not have the right parts available in the right quantities at the right time.

If asset management systems are not set up properly, with ordering quantities carefully matched against usage over time, and with descriptions and part numbers carefully monitored and cross-checked, the problems described earlier are what result.

"EAM and ERP systems are very valuable, but limited by the quantity of data that resides in them," said Bert Turner, vice president at IHS, a Denver-based company that offers to optimize EAM and ERP systems. "Poor material descriptions and inaccurate order points, order quantities and lead times can result in inventory duplication and obsolescence that in many cases can exceed 10 percent of overall inventory value. Simply cleansing descriptions and applying inventory optimization software tailored for indirect materials often can save a company millions of dollars per year."

Saving 10 percent of an asset procurement budget can represent a substantial improvement in a utility's bottom line. According to some studies, spare parts, materials and chemicals can tie up 10 to 20 percent of a utility's procurement spend and 60 to 80 percent of purchasing requisitions. Optimizing existing EAM and ERP descriptions, order schedules, quantities and lead times -- how long it typically takes to get a part delivered -- is something utilities can do on their own or with the assistance of companies such as IHS.

"With anticipated generation capital expenditures through 2019, finding capital for transmission and distribution expenditures is difficult," said one utility official. That includes all those assets that go into substations and beyond to keep the lights on.

When and if Washington implements caps on carbon usage, utilities will need all the cost savings they can find or the lights may not stay on. Under the current and proposed regulation, utilities will find it increasingly difficult to pass these costs on to consumers.

Another issue that faces utilities in Washington's new, hyper-environmentally aware political landscape is that they use a lot of chemicals classified as dangerous. These chemicals may be used in power plants, substations and elsewhere throughout a utility's service territory. More than 100,000 synthetic chemicals and 3 million chemical products are in use today. The U.S. Environmental Protection Agency and various state agencies classify many of these chemicals and chemical products as hazardous. The classifications of dangerous and hazardous include carcinogens, mutagens, reproductive toxins, acute toxins, neurotoxins, endocrine disruptors, air pollutants, ozone-depleting substances, waste, persistent bioaccumulative and toxic chemicals, and aquatic toxins.

If utilities don't have a good handle on what hazardous chemicals they acquire, store and use, with full awareness of the EPA's myriad handling regulations, they can cost themselves millions of dollars in fines and other difficulties. That's something else EAMs and ERPs also cannot control if they aren't carefully monitored and optimized by human intervention.

"Keeping up with growth and keeping rates stable as material prices continue to rise" is one of the greatest difficulties utilities currently face, said a senior vice president for planning at a Texas cooperative near Fort Worth. Material prices aren't likely to go down substantially, despite the recession. Keeping ERP and EAM systems up to date with the proper nomenclature, ordering information and scheduling information thus is a major imperative for utilities in these challenging times.

Just computerizing it wasn't enough. Someone has to watch the computer -- very carefully.

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EnergyBiz magazine is the thought-leading, award-winning publication of the emerging power industry. This article originally appeared in the July/August 2009 issue.

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Reader's Comments

Date	Comment
Bob Amorosi 8.12.09	Good points Warren. There are many parallels in computerization of just about any organization in many other industries. We have an old saying in my industry of electronics design and manufacturing - software won't fix bad input data, or "garbage in, garbage out" as we say. It is common practice in companies (that can afford it) to have business knowledgeable people full-time manage enterprise software and databases where any new data inputs from all parts of the enterprise must pass through them to be scrubbed and analyzed for its effects on other areas of the company. They also typically handle updates to enterprise software, and deal with training of other staff on how to intelligently use it.
Alan Belcher 8.12.09	Oh, Warren, Warren! The memories that your article bring back! You are absolutely right on many of the inventory control issues that you describe. And, of course, the problems crop up with just about any undertaking that involves maintaining machinery or equipment of one sort or another. What I found particularly challenging in the power industry was the very wide variety of “bits and pieces”. From assemblies and sub-assemblies weighing several thousand pounds down to minute and delicate reed switches. Then there were issues of obsolescence; I recall one manufacturer in particular who produced excellent quality products, but they constantly changed their designs. As a result, very little was interchangeable. Is there any advice I could pass along from my experiences? I would say that, Rule #1, the top-dog running the warehouse must have that innate ability of visually recognizing different objects by their shape, size, color, and any other discernible feature. Prior experience as a plant mechanic would be a colossal asset. Rule #2 is, unquestionably, to always keep in mind that a computer is nothing but a high-speed moron. Garbage in is garbage out! Even if it has printed out the correct tags, these must be attached to the proper component. Logical? Of course, but how often does this really happen? And don’t let the darned thing order materials on your behalf without strict supervision. Great for your vendor’s bottom line, but not yours. Rule #3 design the storage media with as much flexibility as possible so that specific areas can be expanded and contracted as needed without destroying the functionality of the remainder of the system as a whole. Is it possible that, in too many cases, warehousing is relegated to a secondary role, as sometimes happens with the HR department? Whatever, but one thing is certain. A smoothly run warehouse where parts can most times be located rapidly from only a computer record, is a pleasure to work in. And the staff involved, down to the most junior, cannot help but develop respect for a system that works reliably, and they will undoubtedly make the effort to keep it that way. Warren, a very informative article and one having a lot of truth in it!

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