utility industry supply chain distruptors are changing … · drones • predictive analytics •...

UTILITY INDUSTRY SUPPLY CHAIN DISTRUPTORS Are Changing the Future of Procurement

UPMG | September, 2019

2© 2019 Copyright ProcureAbility. All Rights Reserved.

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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


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


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


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


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


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


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


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


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


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


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%


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


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


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


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


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


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


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


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


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


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


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


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


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


Thank You

Conrad Snover

President

ProcureAbility

(415) 806-6726

[email protected]

https://www.linkedin.com/in/csnover/

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