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While power generation is a vastly different industry than most manufacturing operations, there are common processes, specifically in the areas of supply chain management and asset management, where power generation executives can learn from their manufacturing brethren. IFS started as an enterprise asset management (EAM) vendor to the nuclear power industry, and we have since grown and expanded into a full application suite for a number of project- and asset-intensive industries. So we are in a unique position to offer, in this article, insights for the lessons manufacturing can teach power generation about ERP.
Supply Chain Challenges
Some of the most perplexing management problems in the power generation space are really related to old school methods for dealing with suppliers and the supply chain. While supply chain management (SCM) in manufacturing often has to do with raw materials or subassemblies, in power generation, SCM centers around the whole idea of the planning, design, construction and operation of capital assets because asset management is the core business of anybody in energy and utilities. During the early planning and design stages of an energy industry asset, during the decades of operation and during the years where hard decisions need to be made about lifecycle extensions versus retirement and replacement, equipment vendors and professional services companies are key supply chain partners to the power generation executive. Power generation assets can be very long-lived, in the case of a coal fired or nuclear plant, or they may have a shorter lifecycle like a gas-fired peaker plant, windfarm or solar power harvesting system. But regardless of how many decades of life we are talking about, these assets represent a tremendous investment, and it is the job of the power generation executive to maximize their output while minimizing their cost. This can only be done when supply chain management is treated as a core discipline in the enterprise system of record.
In a time of skyrocketing costs and constrained availability of materials and labor for the capital construction and the operations and maintenance of the various assets, margins are shrinking. And when you have to face that board of directors and tell them that operating or construction costs are escalating over and above what you had projected, it is not a fun conversation. Nor is it enjoyable to explain to a board of directors that the vendor you selected through a low bid is no longer in business and therefore cannot repair or service the assets they sold you, leaving you with an extended period of outage or reduced capacity. SCM ERP functionality -- and related business processes -- employed in the manufacturing space can help you avoid these decidedly unpleasant interactions.
Moreover, many public companies and other entities are interested in proving that they are following corporate social responsibility (CSR) guidelines like those outlined in the UN Global Compact. Whether the goal is to secure or protect a spot in the Dow Jones Sustainability Index or to satisfy investors, rate payers or other stakeholders, ERP ought to help document that relationships with employees, suppliers and our suppliers' employees are equitable and conform to CSR principles.
As is the case in manufacturing, the supply chain really touches every aspect of the engine energy and utilities market operations. But the supply chain takes on a different and more difficult dimension for, say, an independent power producer, than it does in the manufacturing space because in power generation you have a one to five year design cycle and your operations and maintenance can be 10 to 60 years followed by decommissioning and scrapping. Supply chain partners need to have a defined and well-managed role during that entire product lifecycle. Engineering companies, contractors, capital equipment vendors and others need to be a part of engineering and new facilities planning. Your supply chain partners need, for instance, to be a part of determining what parts of the asset can be recycled so that, during design, you can form a concept of the reverse supply chain.
Takeaway: While supply chains in manufacturing support production, supply chains in power generation support the assets in all of the phases of the asset lifecycle. SCM functionality in ERP needs to be tightly integrated with asset management, maintenance and functionality used to manage capital projects.
Apart from the ability to manage early involvement of supply chain partners, one of the biggest issues in asset lifecycle management (ALM) in general is that the asset owner needs to have access to the asset data. Without good supplier management, in a setting that treats the vendor more as a provider of a commodity item than a partner, full access to asset information including specifications, as designed and as built drawings, etc. may not be forthcoming. Of if they are available, they may not be in a format that allows them to be imported directly into an enterprise asset management (EAM) software suite.
The reason good asset information management (AIM) is so rare is because the power sector is accustomed to involving vendors only in well-defined portions of a project or asset rather than on a higher level where they can contribute more intelligently and completely to overall project success. In the manufacturing space, we have stopped defining vendor involvement so narrowly and are now focusing much more long term relationships and partnerships with our suppliers That way, we can have complete access to the drawings and documents and all of the equipment information. In a manufacturing setting, this makes it a lot easier to actually build that bill of material, communicate product details to customers and manage the product lifecycle.
Energy executives may solicit bids and define contracts with vendors, without ensuring access to the type of intellectual property that is really critical for the long term success of a power generation facility. But soliciting bids may not be the best way to select and start a relationship with a vendor when that relationship must extend well beyond completion of an initial project. What the energy and utilities space can learn from manufacturing is that if you start developing the partnerships with your suppliers when a project is in the very early planning stages, you are in a much better position going forward. Even as a power executive is starting to do a feasibility study and engineering, it makes sense to have that vendor on board on a consultative basis. After all, they know more about their products than we do, and they can help us plan and design our facilities in a more effective way.
Takeaway: ERP for power generation needs to take into account not only contract management to ensure that access to data, but integrated EAM tools must incorporate and leverage that data before, during and after capital project construction.
In too many instances, utilities and power generation companies are still operating their supply chain on the basis of competitive bid and going through the supplier selection process entirely on the basis of cost. Unfortunately, there really isn't necessarily a lot of consideration given to the long term viability of the suppliers or how the supplier is going to be able to meet the organization's needs over the life of the asset. In manufacturing, however, we have become a lot more proactive about evaluating suppliers from the standpoint of risk management, the ability of that partner to work with us on an ongoing basis, to meet our quality criteria and help us ensure we are meeting the needs of our customers. We are actually looking at the D-U-N-S Number when considering the supply chain risk and evaluating partners long before we ever start doing business. Just as you run a credit check on potential customers to ensure they are in a position to pay, mitigating supply chain risk requires consideration of a vendor's stability particularly given the need for support during an extended asset lifecycle.
It may be tactically sound to use low bid for certain aspects of an energy infrastructure project, including commodities like readily available hardware. But the components that are mission critical, where access to that supplier on an ongoing basis is important not just to your install project but eventually to your service techs, must be sourced differently. Down time is something you don't ever get back if your vendor does not have the material and products and tools when and where you need it to stay up and running or get back up and running. Selecting a vendor through low bid may put you at increased risk of being unable to accomplish repairs on the asset on a timely basis. Your customers and other stakeholders don't really care about the fact that you had a supply chain hiccup. They just want their power back on. Manufacturers have long realized the importance of the supply chain development when it comes to keeping the end customer happy.
In a public or regulated utility environment, where you answer to a government agency, it doesn't take much more than a few supply chain mishaps and one election for you or your bosses to be finding a new job. So it really is in the best interest of the energy and utilities industry to start working more closely with their suppliers well in advance to mitigate risk. Because once that generation capacity is online and operational, the nature of relationship we have with vendors and their ability to support us will determine how well we can execute reliability-centered maintenance (RCM), condition-based maintenance (CBM) and how aggressive you can be in maximizing uptime and controlling asset lifecycle cost.
APICS, the association for operations management, in its body of knowledge stresses that building strategic partnerships is one effective way to reduce costs and improve service in the supply chain is to develop strategic partnerships. Such alliances should be chosen based on an overall business strategy and are typically with suppliers of strategically important goods or services. These partnerships are based on trust and rely on predictable communication streams and management systems.
Takeaway: ERP and EAM solutions that allow you to evaluate and mitigate risk in your supplier dealings and rate and rank supplier performance over time will allow you to reduce supply chain risks over the lifecycle of your assets.
Close collaboration with vendors is important not just for risk mitigation but for performance optimization. As stated above, your suppliers know their products and technologies better than anyone else. At early stages of the lifecycle, they can offer insights that will allow you to design and construct an asset that will perform better than would be the case if it was designed in a vacuum and be more easily and cost effectively operated and maintained. Once your asset is in place, suppliers continue to develop new technologies to improve the efficiency of the systems you have in place, and you need to take advantage of that and understand these developments so you can determine if it makes sense to retrofit to increase output, decrease cost or extend the lifecycle of your assets.
Enterprise software also ought to allow you to define suppliers that meet specific performance criteria during their relationship with you. It is also important to be able to track the percentage of single and or sole source selections as when you have a single vendor for a particular item, it certainly involves risk. If you have a sole source, then you need to protect that supplier from going out of business. If these vendors are in places that have political instability, or are prone to natural disasters, we want to be able to identify that risk and move to dual sources for these items.
Takeaway: Improved performance through supply chain partner collaboration is a lot easier if your enterprise application suite can be opened to your key supplier partners. It is easy today, with the right kind of technology that supports overall equipment effectiveness (OEE) to have your ERP or EAM system fire off a message to the appropriate supplier of that particular asset that tells them a component they supply or maintain for you is getting ready to fail because it is starting to degrade according to a certain kind of parameter. These e-business practices, in common use in manufacturing, have obvious implications for an asset- and uptime-oriented business.
Inventory is still important
While inventory is more a central aspect of manufacturing ERP than power generation, in the energy industry, we still care about inventory, whether it is physical inventory or inventory to meet the needs of our transmission or distribution systems or generation. We need to be able to track it well and to be able to know where it is and make sure that it is available. Why is this? According to one recent study, only 30 percent of a maintenance technician's job can be classified as wrench time -- as actual productive work. That is basically because the technician doesn't have what he or she needs to do to do the job. So they spend a lot of time waiting for parts, tools and other resources, basically because management is not communicating with their suppliers very well.
These problems can be mitigated by maintaining a thorough point of view to maintenance inventory stock and allowing for kanban, Just In Time (JIT) and a lean supply chain to go with it. Along with that would come supplier measurement characteristics, so basically they measure the suppliers on how well they deliver, and do they deliver on time in the right place and right quantity.
When we look at inventory planning, it is important to have the right material in the right place at the right time so that the repairs can happen, or so that we have a flow of fuel for generation. There is no greater waste than a worker waiting hours without having the right parts on hand to make a repair. That time cannot be returned or bought back . it is just gone. Lessons that can be learned from the manufacturer space, including the discipline of reorder point planning (ROP), including statistical models that automatically adjust your reorder points based on usage, history and other factors. So maybe you have central storage and you really need to get some visibility into that central inventory. Where is the information about your parts stored? Is it someplace that you can find? Using the right ERP product to facilitate kanban will actually enable you to do direct pulls from stores on use. ERP can enable you to implement a plan for every part, ensuring you have access to everything you need to know about how the part is planned, where it is sourced and what size the kanbans are.
Takeaway: Even in an asset intensive environment, having excellent control over and visibility of inventory is of critical importance. Enterprise software dedicated to maintaining and managing capital assets must have embedded maintenance inventory functionality.
The concepts we discuss here are really founded on the APICS body of knowledge. Power generation executives could get a lot out of involvement with APICS as this organization has pioneered a lot about how schedules are communicated, how engineering changes are executed seamlessly, how engineering expertise is shared amongst various partners and other topics of critical interest to the power generation space.
Manufacturers have been using ERP to optimize their operations for a long time. The EAM space is in many cases not as developed in a number of these areas. So the ideal for a power generation organization is to have in place an ERP application that has powerful, class-leading EAM functionality built into it. This allows for powerful asset lifecycle management, effective work management for day-to-day maintenance. It also delivers the potential for all of the more advanced methodologies used in traditional manufacturing.