The future of supply chain management for energy and utility companies

Many hoped 2020 would usher in a new decade of economic growth and maybe a new version of the “Roaring Twenties.” Two years into a global pandemic, we realize that’s not the case. COVID-19 has turned the supply chain on its head, and energy and utilities (E&U) companies are feeling the effects. Labor and supply shortages, growing demands for renewable energy alternatives, and increasing material costs have prompted many in the E&U sector to review their supply chain needs.

Since suppliers are involved in almost every aspect of the way E&U companies operate – from purchasing and engineering to compliance and quality control – it’s vital that they are able to track data and communicate as efficiently as possible. To do this, business owners and operators will need to be vigilant to new disruptions in the supply chain and plan accordingly.

Energy and utility companies should consider these trends when developing a new supply chain management system.

4 Trends Shaping Today’s Supply Chain

#1 Digitalization

Supply chains are expected to ramp up their digital capabilities over the coming years. In a Gartner study, 25% of respondents expect to have digitalized their supply chain systems by 2025. That’s a significant increase from only 1% today. Successful digitalization involves the mass implementation of sensors using the Internet of Things (IoT) devices, network collaboration through cloud technology, and automation tools to improve efficiencies.

Automation, in particular, is a must for companies that want to become more agile in their operations. Automation tools can be used in almost every aspect of a business, from complex systems to menial tasks. For example, instead of conducting physical, often time-consuming inventory evaluations, automation tools can do the job with greater accuracy and less risk.

Digital twin technology and artificial intelligence also play critical roles in today’s supply chain. Companies benefit from these predictive analytics tools by tracking and ordering inventory more efficiently, addressing maintenance issues before machine failure, and collecting and storing performance data proficiently. More companies will learn to leverage this technology to integrate their supply chain systems, improve risk management, and make more informed decisions.

# 2 Shifting Consumer Expectations

Today’s consumers expect a high level of convenience for a product or service. Concerns over COVID-19 exposure have heightened this expectation. As a result, more consumers are doing more of their shopping online and turning to mobile applications to connect with businesses. Additionally, the preference for renewable energy sources is rising as more consumers seek environmentally sustainable choices. Supply chains will need to embrace technology and establish more energy-efficient processes to deliver on customer expectations.

# 3 Balancing Supply Chains

The global supply chain was hit hard by COVID-19 in 2021. Experts are predicting more of the same in 2022. Prices for raw materials are expected to increase up to 53% by 2025, and labor shortages will continue to add stress to an already slow system. Because of this, supply chains will need to restructure their offshoring strategy and consider local resources in the process. Balancing global, regional, and local supply chains will help create a cost-effective and functional plan of action in today’s volatile market.

#4 Improved Business Models

Production delays, supply shortages, and high commodity pricing caused by the pandemic have reinforced the need for supply chain evolution. Many are investing in their strategies, specifically internet-based business models, to adjust to post-pandemic realities. In a recent study, 79% of respondents said that taking an internet/platform-based approach will be crucial for businesses in the future.

An example of this is Powerpeers, an electric energy company based in the Netherlands. Powerpeers is a community-based platform that allows customers to choose their energy source and share any excess energy with other Powerpeers customers. This platform-based business model allows the company to connect with customers and provide a unique service that gives them a competitive edge. The supply chain will need to utilize similar technology to operate efficiently and compete in today’s market.

What Does This Mean for Energy and Utility Companies?

Issues with the supply chain have trickled down into the energy and utilities industry. Below are a few of the areas E&U businesses will need to address to optimize their supply chain management system.

Supplier Collaboration

Energy and utilities operations have always been complex. Now, E&U companies are relying on multiple suppliers and contracted laborers to meet a sweeping range of demands. On the one hand, these third-party providers add a breadth of expertise and skill that allow companies to provide an enhanced level of service to their customers. On the other hand, this opens the door for non-compliance and safety risks.

The ability to track suppliers and contractors is essential for E&U companies. Automating supplier disclosure – written assurance of conformity to requirements – can help these companies minimize the risk of non-compliance and improve visibility. Other benefits include automating notifications to warn managers about expiring supplier declarations so that they can request new declarations promptly.

Automation and artificial intelligence produce a greater level of accuracy that handwritten documentation can’t provide. Adopting these technologies is vital for E&U companies to proficiently meet customer and compliance needs.

Managing Risks

Supplier-driven cyber risks have posed serious concerns for E&U companies. The surge of data transmitted through previously mentioned digital tools has intensified opportunities for privacy violations and cyber hacks. By continuously monitoring the risks associated with suppliers, regions, and cyber security, these companies can address any vulnerabilities in their systems.

Additional software that allows secure data exchange from company to supplier and vice versa can also be helpful when combating cyber threats. The best solution would streamline data into large packages of information that can be shared with suppliers through a secure web portal. Suppliers can use the same portal to upload and submit responses back to the company. This creates a traceable system that enables efficient, effective, and transparent process execution.

Strategic Planning with Digital Twins

There’s no question about it; digital twins will be vital for E&U companies of the future as they significantly increase resiliency amongst day-to-day uncertainties. Using digital twins allows companies to simulate outcomes from entire processes weeks in advance. One of the many benefits of this technology is its ability to apply numerous scenarios to a process to better understand any potential risks.

For example, when interruptions occur with suppliers or materials, digital twin technology can be used to determine how this will affect the production timeline, pinpoint new resources, and adjust as unexpected events occur.

Moving Forward with Resilience

Resilience — the capacity to recover quickly from challenges, stress, or unforeseen circumstances — will be key for energy and utilities companies going forward. Resilience has been necessary for survival during a global pandemic that continues to send shock waves through the supply chain. To improve processes and make adjustments quickly, companies will need to take advantage of every opportunity for innovation.

Digital tools like automation, artificial intelligence, cloud computing, and more, are available for companies looking to restructure their business models. Adopting these technologies is the best way to become more agile, increase profitability, reduce risk, and gain a competitive edge amid the uncertainties of today. 

Siemens offers various solutions for energy and utility companies, including supply chain management, in our Xcelerator portfolio. Learn more about these solutions here.

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This article first appeared on the Siemens Digital Industries Software blog at https://blogs.sw.siemens.com/energy-utilities/2022/03/15/the-future-of-supply-chain-management-for-energy-and-utility-companies/