utility industry supply chain distruptors are changing … · drones • predictive analytics •...
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UTILITY INDUSTRY SUPPLY CHAIN DISTRUPTORS Are Changing the Future of Procurement
UPMG | September, 2019
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1. Utility Supply Chain Disruptor Overview
2. Disruptors• TECHNOLOGY• PEOPLE• ENVIRONMENT
3. What This Means For You
Agenda
1. Segment Overview2. Recent Trends and Case Studies3. How Procurement Can Adapt
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Since Our Last Report
Snapshot of participants, assessment
criteria, and key takeaways
80+ Factors were expected to disrupt the supply chain function in ways not seen in the past 20 years. More than half are new since last year:
The challenges have intensified, but procurement will grow stronger when it confronts these disruptors:
• Advanced automation• Risk planning for all major
threats, from cybersecurity to natural disasters
• Updated hiring models• Sourcing amidst tariffs
30+ Procurement Executives Interviewed
50+ Industry Analyses and Whitepapers Reviewed30+ Benchmarking Studies Assessed
80+ ProcureAbility Consultants Surveyed
• Traditional Utilities• Private Industry (w/ Utility focus)• High-Technology Firms
• People• Technology• Environmental
• External• Internal
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New DisruptorsSupply Chain Disruptors
• Engaging young employees• More work than available resources• Tight skilled labor markets• Finding new talent• Retention• Retirement rates• Employee skillsets• Transparency and stakeholder misalignment
• Supply Management –relationships and risk
• Utility Commission Regulations
• Slowing demand growth• Natural disasters (floods,
fires, hurricanes)
• Cloud vs. on-Premises platforms
• Grid modernization
PROCUREMENTPEOPLE ENVIRONMENT
TECHNOLOGY • IoT• Drones• Predictive
analytics• 5G Wireless
• Alternative energy (solar, wind power, battery storage)
• Automation (RPA, AI, bots, ML, etc.)• Project Management Technology• Cybersecurity: hacks and
regulations
• Supply price increases
• Supplier M&A activity• Tariffs and political
volatility• Trade war• Rate pressure
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CybersecurityNew cybersecurity requirements will push utilities to innovate and stay current
5G5G will enhance wireless connectivity and widen the array of options for customer-facing technology implementation
Automation (RPA, AI, bots, ML, etc.)These technologies have proliferated further, adopted by larger firms into everyday applications like Microsoft’s PowerBI and Flow
Alternative EnergyNew technologies will continue to pressure utilities to innovate, like rooftop solar, wind generation, and battery storage
CloudDifficulties with Cloud technology integration continues to confront utilities who operate under tight technology regulations
Technology Disruptors
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Supply Chain Cybersecurity
IMPACTS ACTIONS
Attackers have more tools and resources than ever
Half of cyber attacks are third-party attacks that come from supply chain partners
56% of organizations have had a breach originating at one of their vendors
Risks are Higher • New types of attacks• Growing public awareness of
threats • Increased oversight from
regulators
CIP-013-1: Update to the Federal Energy Regulatory Commission’s (FERC) new Cybersecurity regulation
Review security procedures, both internal and external
Establish written security guidelines and controls
Train and share security best practices with staff and vendors. Human error is still the primary source of data breaches
PROCUREMENT
TECHNOLOGY
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IMPLEMENTATION CHALLENGES:
New Cybersecurity Standard: CIP-013-1NERC CIP-013-1 is a new set of cybersecurity standards designed to help power and utility (P&U) companies limit their exposure to third-party cyber risks and preserve the reliability of bulk electric systems
Cybersecurity Risk Management Plan
Monitoring
Sophisticated Contracts
REQUIREMENTS:
Volume of SuppliersAll equipment and system integrators will be subject to the plan
Change ManagementProcedural adjustments and cyber risk training will be necessary
Managing Vendor ComplianceAdding vendors requires reevaluating the plan to include connections to their data access points
Cross-Functional CollaborationProcurement teams should work together with legal and businesses units to manage cyber risk
TECHNOLOGY
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5G Wireless is becoming a battleground for system supremacy with a cold war mentality, extending its impacts to political and cyber security
5G Wireless – The Battle for System Supremacy
U.S.A CHINAHuaweiZTEAT&T
Verizon
FINLAND
Nokia
SWEDENSOUTH KOREA
EricssonSamsung
Cybersecurity will mean physical security as everyday objects connect to the 5G network, like vehicles,
Who will set the privacy standards for 5G? Who will control the networks and the free flow of information?
Datang/Fiberhome
Sprint
T-Mobile
TECHNOLOGY
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Technology DisruptorsHow Procurement Can Adapt
CybersecurityMake a Risk Mitigation Plan
AutomationImplement RPA to reduce your tactical workload
Predictive AnalyticsExplore how Machine Learning can improve the accuracy and foresight of your supply analytics
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Retirement and an Aging WorkforceHiring needs increase as employees retire
Labor markets are tough. Engaging and retaining young talent grows increasingly difficult
The Gig EconomyCurrent research indicates that prior estimates were overstated by ~3x
The Gig Economy will still impact labor availability and how you get work done
Employee SkillsetsEmployers should focus on upskilling new employees to accomplish higher level jobs and use new technology
Skilled Labor DeficitSkilled labor markets exhibit reduced supply and increased demand: linemen, construction workers, plumbers, machinists, and others
People Disruptors
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30% of the Utility industry is ready to retire in the next 10 years Ready to retire now: 10%
Ready in 1-5 Years: 11%
Ready to retire in 6-10 years: 10%
While retirements mount, the Utility industry grows younger
Retirement and an Aging Workforce
Utility Industry Flattening Age Curve
Perc
ent o
f Wor
kfor
ce
PEOPLE
Utilities can close these talent gaps
with the Gig Economy
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The Gig Economy:A Lower Impact Than Previously Thought
This study conflated dates, included full-time freelancers,
part-timers and people who had only one gig in the last year
35% IN THE GIG ECONOMYOF THE U.S WORKFORCE 11% IN THE GIG ECONOMY
OF THE U.S WORKFORCE
Previous Estimates Revised Estimates
PEOPLE
Annual Growth Estimate: 5%
New studies show 11% of workers are professional
freelancers
Revised Growth Estimate: 2%
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The Gig Economy is Still Important
40% Of U.S. workforce is
engaged in freelancing activities
19% The average percentage of
contingent labor within organizations has increased from 15 to 19 percent in
the last year
57% Of U.S. companies
hire temporary workers
16% Of employees say their companies have well-defined strategies for
managing contractors, freelancers and gig
workers
The Gig Economy can help your supply chain maintain flexibility and scalability
PEOPLE
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Effectively Hiring with the Gig Economy
Build a Plan to hire, manage, and maintain a freelance
workforce
Workforce Agility & Flexibility
Gig Workers to Fill Gaps
Cost Leadership
High service levels within a supply chain
Boost capacity to undertake large-scale projects in limited timeframes
Circumvent high overhead costs associated with unnecessary permanent hires
PEOPLE
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People DisruptorsHow Procurement Can AdaptAlternative Hiring ModelsFill the gaps with temporary workers
Employee SkillsetsUpskill your people
Retain Your Current Employees and Attract Younger OnesEnhance your benefits package, invest in their growth, and recognize them
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Slowing Energy Demand GrowthRevenue growth through demand growth will slow
Renewable EnergyAs cost-competitiveness increases, external pressures push Utilities to renewable sources
Political VolatilityPrices have risen and the economy has fluctuated as the trade war with China advances
Natural Disasters Floods, fires, and hurricanes continue to present downtime risk to continuous electrical and water supply
Rate PressureCustomers consistently demand lower rates while expecting innovation and 0 downtime
Supplier M&A ActivityWhen suppliers consolidate, the supply base loses diversification
Environment Disruptors
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The EIA predicts US demand growth to slow to less than 1% YoY due to 4 worldwide trends
Energy Demand Growth is Slowing
Four primary reasons
1. Expansion of Services Economy rather than industrial economies
2. Energy Efficiency LED lights, battery-powered lawn mowers, smart
appliances
Behavioral: Turn off the lights and an ideological shift towards greener technologies
3. Electrification Electric vehicles, HVAC systems, manufacturing
Electricity generation is far more efficient than gasoline, propane, etc.
4. Growth of Renewables 75% of all renewable generation sources are
forecasted to be cost-competitive with fossil sources by 2025
Near-zero conversion losses
Demand Growth as low as 1% YoY
Source: EIA Annual Energy Outlook 2019
ENVIRONMENT
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IMPACTS TO UTILITIES STRATEGIES TO ADAPT
Flattening revenue growth through demand growth
Market, regulatory, and customer-driven pressure to adopt renewables
Adapting to a Flattening Demand CurveENVIRONMENT
Think critically, and plan in advance
Fail fast, fail cheap
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Most of us are in the same boat: We are still uncertain as to how and when these tariffs will ultimately affect us
Tariffs: Total Impact Still Unknown
SectionProjected
ValueEffective
Date Materials Affected Tariff Amount201 – Safeguard $16B 2/7/2018 Solar cells and modules 30% year 1
declining to 15% in year 4
232 – National Security
$10B 3/23/2018 Steel; Aluminum 25% Steel10% Aluminum
301 – List 1 $34B 7/6/2018 Machinery; Motors;Semiconductor Circuits
25%
301 – List 2 $16B 8/23/2018 Metal Sheets; Chemicals 25%
301 – List 3 $200B 5/10/2019 Raw Minerals; Base Chemicals;Construction materials and tools;Paper; Metallic nuts, bolts, fittings, tube, pipe;Automotive
25%
301 – List 4PROPOSED
$300B On-Hold Steel and iron pipes; Steel and iron alloy products used in construction materials
25%
Summary of Recent US Foreign Trade Tariffs
ENVIRONMENT
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Utility Industry Challenges Caused by Weather Outages
Infrastructure replacement at many utilities is lagging, posing increased risk for
service outages.
Outages are a source of public angst. Social media
provides an avenue for customers to publicly decry Utilities during an outage.
Regulatory bodies are less likely to approve rate
increases when public approval declines.
20% of interactions with Utilities on social media are caused by a
power outage
60% of utilities in the US lose an average of $100,000 in revenue
due to outages
ENVIRONMENT
SOCIAL MEDIA REGULATIONAGING INFRASTRUCTURE
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Reduce the Impact With Storm Analytics
UtilityData
WeatherData
Non-WeatherData
Overhead Distribution Facility
Asset Location & Direction Data
Customer Data
Schedule Data
Vegetation Type
Vegetation Density
Soil Characteristics
Wind Speed and Direction
Thunderstorm Intensity
Rain During Events
Available Data for Analytics
ENVIRONMENT
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Manufacturing
Engineering
Storm Analytics Example
Florida’s exposure to passing hurricanes and subsequent
flooding poses significant supply chain risks since many
manufacturing plants are located near the shoreline or in the
immediate hinterland
Identify suppliers group on MAP
Highlight past hurricane paths
Create contingency plan
Location of Florida Manufacturing Plants and Engineering Centers
Abate supply chain risk with Storm Analytics
ENVIRONMENT
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How Procurement Can Lessen the Impact of Natural Disasters
Monitor near real-time updates on storm forecasts Proactively initiate mitigation plans ahead
of a storm’s arrival
Identify key suppliers in areas vulnerable to storm paths
Stock up on inventory
Setup emergency communication systems
Test business continuity plans
Map your supply chain Understand the interdependencies within
logistics networks
Diversify supplier & manufacturing locations
Establish strong supplier relationships
SHORT-TERM
ENVIRONMENT
LONG-TERM
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Environment DisruptorsHow Procurement Can Adapt
Tariffs Diversify your supply base
Buy US steel or from tariff-exempt companies
Hedge price fluctuation risks with Futures Markets
Supplier M&A Activity Critical supply lines: engage in strategic partnerships
Transactional supply lines: strategically source to introduce more competition
Rate Pressure Control costs
Show value
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These disruptors may sound daunting, but with a firm plan
and strong stakeholder alignment,your company will thrive.
What This Means for You
Your internal stakeholders want your help through more communication and transparency: Confront these disruptors with a plan of action and execute Know, quantify, and prioritize your risks
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Thank You
Conrad Snover
President
ProcureAbility
(415) 806-6726
https://www.linkedin.com/in/csnover/
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