Why Utilities Supply Chains Shouldn’t Wait to Go Digital

Why Utilities Supply Chains Shouldn’t Wait to Go Digital

  • Many utilities continue to rely on traditional procurement processes and legacy systems and are reluctant to adopt digital systems
  • Pandemic-induced delays and extended lead times for critical components have added to supply chain inefficiencies
  • As costs and clean energy goals become critical, a best-in-class utilities supply chain has become vital to profitability
March 31, 2022 | Supply Chain Software Blogs

It’s not business as usual for utilities anymore as they transition from fossil fuels to renewable energy to reduce carbon emissions.

Then there are changing regulatory requirements, increased price pressures, aging infrastructure, pandemic-induced supply chain delays, technological disruptions and shifting market dynamics due to the Russia-Ukraine war.

Adding to these challenges are the procurement and supply chain processes at utilities that continue to rely on old processes and legacy systems.

The nuclear power industry clearly demonstrates this lack of procurement and supply chain digital transformation, and the hidden costs utilities could be paying for the inertia. 

Return of the nuclear era (along with some obstacles)

While wind and solar power propel clean energy transition, utilities need the complementary stability and resiliency of nuclear energy to guarantee cleaner, cheaper and reliable electricity.

But while wind, solar and nuclear are in harmony operationally, they are at odds economically. Plummeting prices for renewables have helped decrease electricity rates, pushing prices lower than the economic breaking point for many nuclear facilities.

Building a best-in-class nuclear supply chain is thus critical to driving down costs, mitigating risks and ensuring regulatory compliance. By empowering nuclear supply chain and procurement teams with digital tools and expertise, utilities can help modernize nuclear plants to become the bridge to a clean energy future.

As many as 321 new reactors are set to become active by 2040 and the revenue from operating nuclear plants is projected to rise 2% each year over the next two decades to reach nearly $460 billion by 2040, according to The World Nuclear Supply Chain: Outlook 2040.

But beyond these projections, the ground reality is not encouraging.

In the U.S., nearly 10,000 MW of nuclear capacity has been retired over the past several years due to high operational costs, falling power prices or operational issues. With razor-thin margins and increasing competition, nuclear energy is facing its greatest economic challenge precisely when it is needed most.

As costs and clean energy goals bear down on utilities, a best-in-class nuclear supply chain has never been more vital to profitability.

However, many nuclear plants and their supply chains lack the tools, staffing and expertise to unlock economic potential. The complexity and uniqueness of nuclear energy mean the plant system teams are often siloed and not engaged.

4 reasons for nuclear supply chain inefficiencies

To better understand the supply chain transformation issues besetting most utilities, especially nuclear plants, GEP spoke with David Mueller, vice president of strategic programs at Paragon Energy Solutions, a top supplier for the U.S. commercial nuclear industry. Here are some of the issues he pointed out:

1. Expanded lead times

Lead times have expanded because of supply chain disruptions, and they are likely to be stretched further. The lead times for batteries, for instance, are currently over 52 weeks, says Mueller. This is because for many suppliers, nuclear makes up only a small percentage of their overall business and they are not willing to invest time and money to comply with the QA and regulation requirements of this domain. The supply of basic material, chips and design equipment like valves has also been impacted, he says.

2. Warehouse inefficiencies

The movement of inventory in and out of the nuclear plant warehouse can often be “baffling”, says Mueller. In most nuclear warehouses, the fast-moving items are scattered at the back of the warehouse. There is no definite plan about how things are stored. Streamlining warehouse operations with real-time visibility and transparency presents a tremendous opportunity for supply chain transformation.

3. Legacy systems

Adding to the chaos is the sheer reluctance of nuclear plants to adopt digital systems. A lot of nuclear plants still rely on analog systems and legacy technology. Many among these aren’t willing to part ways with these systems. “They like to stay analog. And while there are some digital systems, most utilities have been afraid to move to the digital world,” says Mueller. As most of the new young engineers are not familiar with how analog systems work, hiring the right talent for utilities becomes another key challenge, he adds.

4. Reactive obsolescence

Another challenge for nuclear plants relates to identifying obsolete components. According to Mueller, obsolescence in nuclear facilities is typically “reactive and on-demand”. This often impacts the inventory of critical material. To streamline operations, reactive must give way to proactive obsolescence. Look at critical spares and those that are known to be obsolete; identify a priority list of these components and work to mitigate supply-related risks, says Mueller.

Why move to digital

Digital is the way forward for procurement and supply chain teams at utilities and at nuclear plants that still work on legacy technologies and manual processes, says Mueller. That’s because digital procurement and supply chain systems, powered with AI and data analytics, are not only more efficient but also create significant cost savings opportunities.

With digital transformation, procurement and supply chain teams can help utilities drive down costs, mitigate risks, and ensure compliance, making existing nuclear fleets competitive once again.

The good news is that many utilities are looking to embrace digital systems. And to quickly transition to digital, some utilities have streamlined and shortened their approval process, especially since 2021, says Mueller.

Learn more about how GEP can help utilities transform procurement and supply chains.

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