How Wind Turbine OEMs Could Optimize Their Supply Chain?

January 20, 2014

The wind industry needs to optimize its supplier base in order to reduce costs and improve turbine performance and reliability.

Written by Borje Axelsson from ABB:

You have too many suppliers! Don’t worry, you are not alone. This is typical for a fast changing industry like Wind, where just finding suitable components is a higher priority. But there is a lot to gain by taking a couple of steps forward to manage your supplier base.

It is worth repeating the fact that the earlier you enter the design phase, the more you can influence the cost level. The solution itself sets the basic cost level. Price negotiation on an already fixed specification has much less impact. You are an expert on your wind turbine, and suppliers are of course experts on their products, solutions and services. The conclusion of these facts put together is that it makes sense to spend time with your suppliers during your design phase. Not only for key components.

Here is one area where too many suppliers is a problem.

To best utilize suppliers’ knowledge, you need to involve them in your R&D, because you want good technical solutions as well as an optimized cost. But your technical experts are a limited resource that should not spend most of their time meeting suppliers.

So, how solve this dilemma?

One good starting point is to say “yes, we want suppliers to take part in our development, but to manage this we need to drastically reduce the number of our suppliers”. The next step is to change your approach on looking at price for each single component as your starting point. Aha, you might think, someone is trying to sell me more expensive components. But the point to remember is that the cost level is more defined by the solution itself than cost of each component.

So the scenario is clear; reduce number of suppliers and get better technical solutions at lower cost. Everybody wants that. There has to be a catch, right? Yes and no.

Yes, because this requires a different approach and it requires a perspective that is more long term. It also challenges your strategy on single/multiple sources, which is basic for your risk management.

No, because you just have to redefine your criteria for selection of suppliers.

Let’s take a look at a few criteria that would get high priority with this approach;

1. Large portfolio

The larger portfolio, the more other suppliers could theoretically be replaced.

2. Application knowledge

Understand “your world”, and see beyond your own components to find the best solutions in terms of technology and cost. There’s a chance of even more success if the supplier’s knowledge covers a large portfolio, with wider knowledge and packaging possibilities. And I want to highlight this criteria that could really make the difference – selecting suppliers with the right experience and expertise, who really know how products work together will make them a real asset for you and your R&D projects and will help to avoid any sub-optimization driving total cost.

3. Availability

The availability of support and expertise wherever you are located and the ability to deliver the right components on time anywhere in the world.

4. Reliability

A reliable business partner for long term cooperation with reliable (high quality) components and solutions that will not create future trouble or costs. As I know the low voltage business well, this would make a good starting point.

Why?

They are normally not considered key or critical components i.e. they can be “bundled”.

They are used in all sub-systems of the turbine (lots of important functionality and improvement potential).

There is a wide variety of components (potential for large reduction of number of suppliers).

There are potential suppliers who could fulfill all criteria (good chance to succeed with a supplier reduction program).

The wind industry is under heavy pressure to reduce costs and at the same time to improve turbine performance and reliability. Optimizing your supplier base could be an important step to make sure you are among the winners.