Analyst Insight: The global energy industry hasn’t been immune to the disruptions that have affected supply chains over the past several years. Now, it faces a fire that must be contained in 2023 if it’s to meet global energy demand.
The resolution of supply chain constraints in the energy industry is critical to the success of the global economy. Energy industry stakeholders are going to have to rise to the challenge, through both individual and collective action, to cultivate both short- and long-term supply chain resiliency.
Electric utilities are currently experiencing shortages of distribution transformers, smart meters, conductor materials, skilled labor and bucket trucks due to the ongoing economic impacts of the COVID-19 pandemic. Lead times to purchase new distribution transformers have risen from three months in 2018 to 12 months or more today. Utilities have relied on their existing inventory to bridge the gap between equipment purchase and arrival, but have begun to report that inventories are decreasing to unacceptable levels. The increased gap between the demand and supply of electrical equipment is also slowing the transition to clean energy.
Supply chain disruptions have already resulted in rising energy costs, project delays and productivity losses. There’s no standard playbook for overcoming these challenges, but there are actions that stakeholders can take to alleviate supply chain pressures over both the short and long term.
Short-term actions include using emergency stocks of components to address near-term demand, planning all scheduled work, substituting available materials when possible, improving communications with suppliers on the timing and delivery of materials, and relying on information technologies to improve information flow and efficiencies. Many of these efforts are already underway, but will need to be accelerated to meet global energy needs in 2023.
Over the long term, energy stakeholders will need to focus on achieving supply chain resilience through both individual and collective action. Organizations need to annually stress-test the resilience of their supply chains and develop contingency plans under disruption scenarios. This will allow them to identify weaknesses and put into place strategies for overcoming disruptions by identifying alternative suppliers and strengthening supply chain networks before disruptions occur.
Collective action is required. Where possible, energy industry participants should create a collaborative response to supply chain issues by sharing insights and resources. Pooling demand for equipment and other supplies, to help improve energy availability and system efficiency, is critical. The creation of shared infrastructure will allow the industry to heighten the responsiveness of its assets and resources. This type of coordination can be challenging in highly competitive environments, but if done properly, it will strengthen the position of all participants.
Outlook: Energy companies will never be able to avoid all the risks to their supply chains. However, they can adopt new technologies and implement fresh approaches that will allow them to predict and manage disruptions as they emerge. They can also take collective action to strengthen their supply chain networks and manage the negative consequences of disruptions in the future. We’re in the midst of an energy industry supply chain emergency, and it’s time to work together to extinguish the fire.
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