Supply Chain Issues Mean Planning Is More Important Than Ever
Credit to Author: Aaron Larson| Date: Mon, 02 May 2022 04:14:00 +0000
It’s hard to imagine a company that hasn’t been affected by supply chain issues over the past couple of years. Even before the COVID-19 pandemic began, a couple of utility executives had suggested POWER write about supply chain issues and hold sessions on the topic at our conferences. While POWER has done that, the situation has gotten markedly worse in the meantime.
In recent months, sanctions on Russia following the country’s invasion of Ukraine and COVID lockdowns in China have threatened to disrupt the world’s supply chains even more. China Briefing, a business publication produced by Dezan Shira & Associates, a foreign direct investment consultancy, reported that a lockdown in Shanghai, a city of 25 million people that serves as China’s financial center, was “the largest scale lockdown ever” and that Port of Shanghai operations had been disrupted by the situation.
“Shipping giant Maersk estimates trucking services into and out of Shanghai will be ‘severely impacted by 30%,’ ” China Briefing reported on April 3. “Some shipping companies have diverted their vessels to nearby ports, such as the Port of Ningbo in Zhejiang. However, it’s not an easy switch as COVID-19 control measures have already caused rising congestion outside both ports. The global supply chain may feel the impact in the following weeks,” it said.
Supply Chain Challenges for Power Projects
During the Combustion Turbine Operations Technical Forum (CTOTF) Spring Conference held March 13–17, in Louisville, Kentucky, a panel discussion on day one focused on the “supply chain crisis.” Luis Cordova, PE plant manager of Austin Energy’s Sand Hill Energy Center, a 600-MW combined cycle facility in Del Valle, Texas, said supply chain issues had forced his team to postpone work that was scheduled to occur at the end of April.
Cordova said his group has been preparing for about three years to do a project this spring. The company had all the equipment it needed on order and everything seemed to be on track. The necessary contractors were all lined up and the engineering aspects of the job had been finalized. However, when the construction kickoff meeting was held, Cordova received bad news. Two solid-state relay controllers that were needed for the project were on an eight-week backlog. To make matters worse, the controllers are very particular to Sand Hill’s panels and aren’t interchangeable with other controllers that may have been available, so the project had to be rescheduled.
Perhaps the most frustrating part of the job delay is that the controllers are relatively inexpensive. Before the pandemic struck, Cordova suggested they probably could have been purchased for less than $1,000 and received in about two weeks, but now the unavailability is affecting a multi-million-dollar project, and may result in some workarounds until the project can be completed.
“These are unprecedented times from my perspective,” said Joe Clements, director of Generation Procurement and Warehousing with PPL Services Co. And Clements’ perspective is quite broad, having worked in the industry for almost 40 years—32 years of which he’s been running supply chain organizations.
To provide context, Clements noted that in the spring of 2021 steel tubing for boilers had a 16-week lead time. By the fall, the lead time had jumped to 21 weeks. Lead times for spring outages this year climbed to 30 weeks. Following the London Metal Exchange’s decision to halt nickel trading on March 8 after prices doubled to more than $100,000 per tonne for the metal, Clements said he can’t even get companies to give him a quote for boiler tubes. (Nickel is used to make stainless steel and other alloys stronger and better able to withstand extreme temperatures and corrosive environments.)
“We had an active proposal out and we had three of our OEMs [original equipment manufacturers] tell us, ‘We can’t give you pricing on that because we can’t hold it firm for the duration of our quotation.’ So, they wouldn’t even bid us raw stock material. That’s unprecedented for us and for our industry,” Clements said.
Chelsea Kovanda-Bukowski, manager of Business Development with OILKLEEN, a company that supplies lubricants and advanced oil filtration technologies to the power industry, reported she was having trouble getting hydraulic fluid for customers. “We just got put on allocation for 12,000 gallons of hydraulic fluid a month. We sell 50,000 gallons of hydraulic fluid a month, so you’re going to these customers and you’re having to figure out ways to keep them running,” she said. “We’re also getting 10- to 14-week lead times—six-month lead times on some—and trying to get people product.”
The Planning Conundrum
A major problem stemming from supply chain issues is hoarding. Many managers don’t want to get caught with their pants down, so they place orders for items they “might need” or order “a few extras” so they don’t have to worry if something goes awry during installation or an unexpected problem arises later. Admittedly, it’s hard not to overcompensate when faced with supply chain issues and trying to plan for every possibility, but that just exacerbates the situation.
Clements said he’s been trying to better understand his company’s supply chain for a while. “For some time, I’ve encouraged my folks to get out and understand our suppliers—who they are, their principals, what drives their business, the risks that they present to us, how they’re managing those risks. So, we’ve been doing a little of that but probably not enough,” he said. “We have a forward-looking procurement plan that we use. It’s 12 to 18 months of projects that are coming up with new contracts. So, we are out there forward-looking trying to understand our risk in those markets.” It behooves everyone in the power industry to do the same.
—Aaron Larson is POWER’s executive editor.
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