To maintain a reliable electricity supply at 99.99%+<\/sup> service levels, for example, utilities must be able to respond quickly to changes in demand in the near term and accurately anticipate future demand. To do so, they must have a well-organized supply chain that allows them to purchase the necessary equipment, materials, and services from the right suppliers at the right time, in the right quantities, and at the right price.<\/p>\n Doing so has become increasingly more challenging in the last 3 years.<\/p>\n As a result, Supply Chain Optimization (SCO) has become an increasingly mission-critical business practice for utilities. \u00a0To contend with these challenges, utilities can no longer simply manage their supply chain \u2014 they must optimize it.\u00a0 And to do that, investments in new processes and systems will be required.<\/p>\n [1]<\/a>\u00a0Scala et al. \u201cRisk and Spare Parts Inventory in Electric Utilities\u201d. Proceedings of the Industrial Engineering Research Conference.<\/p>\n Inventory Planning and Optimization \u00a0\u00a0<\/strong><\/p>\n Targeted investments in inventory optimization technology offer a path forward for every utility.\u00a0 Inventory Optimization solutions should be prioritized because they:<\/p>\n Using predictive analytics and advanced algorithms, inventory optimization helps utilities maximize service levels and reduce operational costs by optimizing inventory levels for spare parts. For example, an electric utility might use statistical forecasting to predict future parts usage, conduct inventory audits to identify excess inventory, and leverage analytical results to identify where inventory optimization efforts should focus first. By doing this, the utility can ensure that machines are running at optimal levels and reduce the risk of costly delays due to a lack of spares.<\/p>\n By using analytics and data, you can identify which spare parts and equipment are most likely to be needed and order only the necessary items. This helps to ensure that equipment has high up-time. It rewards regular monitoring and adjusting of inventory levels so that when operating conditions change, you can detect the change and adjust accordingly. This implies that planning cycles must operate at a tempo high enough to keep up with changing conditions. Leveraging\u00a0probabilistic forecasting<\/a>\u00a0to recalibrate spares stocking policies for each planning cycle ensures that stocking policies (such as min\/max levels) are always up-to-date and reflect the latest parts usage and supplier lead times.<\/p>\n <\/p>\n Service Levels and the Tradeoff Curve<\/strong><\/p>\n The Service Level\u00a0Tradeoff Curve<\/a>\u00a0relates inventory investment to item availability as measured by service level. Service level is the probability that no shortages occur between when you order more stock and when it arrives on the shelf. Surprisingly few companies have data on this important metric across their whole fleet of spare parts.<\/p>\n The Service Level Tradeoff Curve exposes the link between the costs associated with different levels of service and the inventory requirements needed to achieve them. \u00a0Knowing which components are important to maintaining high service levels is key to the optimization process and is determined by several factors, including inventory item standardization, criticality, historical usage, and known future repair orders. By understanding this relationship, utilities can better allocate resources, as when using the curves to identify areas where costs can be reduced without hurting system reliability.<\/p>\n With inventory optimization software, setting stocking policies is pure guesswork: It is possible to know how any given increase or decrease will impact service levels other than rough cut estimates.\u00a0 How the changes will play out in terms of inventory investment, operating costs, and shortage costs, is something no one really knows. \u00a0Most utilities rely on rule of thumb methods<\/a>\u00a0and arbitrarily adjust stocking policies in a reactive manner after something has gone wrong such as a large stockout or inventory write off.\u00a0 When adjustments are made this way, there is no fact-based analysis detailing how this change is expected to impact the metrics that matter:\u00a0 service levels and inventory values.<\/p>\n Inventory Optimization software can compute the detailed, quantitative tradeoff curves required to make informed inventory policy choices or even recommend the target service level that results in the lowest overall operating cost (the sum of holding, ordering, and stock-out costs). \u00a0Using this analysis, large increases in stock levels may be mathematically justified when the predicted reduction in shortage costs exceeds the increase in inventory investment and associated holding costs.\u00a0 By setting appropriate service levels and recalibrating policies across all active parts once every planning cycle (at least once monthly), utilities can minimize the risk of outages while controlling expenditures.<\/p>\n Perhaps the most critical aspects of the response to equipment breakdown are those relating to achieving a\u00a0first-time fix<\/strong>\u00a0as rapidly as possible. Having the proper spares available can be the difference between completing a single trip and increasing the mean time to repair, bearing the costs associated with several visits, and causing customer relationships to degrade.<\/p>\n Using modern software, you can benchmark past performance and leverage probabilistic forecasting methods to simulate future performance. By stress-testing your current inventory stocking policies against all plausible scenarios of future parts usage, you will know ahead of time how current and proposed stocking policies are likely to perform. Check out our blog post on\u00a0<\/em>how to measure the accuracy of your service level forecast<\/em><\/a>\u00a0to help you assess the accuracy of inventory recommendations that software providers will purport to provide benefit.<\/em><\/p>\n <\/p>\n <\/p>\n Leveraging Advanced Analytics and AI<\/strong><\/p>\n When introducing automation, each utility company has its own goals to pursue, but you should begin with assessing present operations to identify areas that may be made more effective. Some companies may prioritize financial issues, but others may prioritize regulatory demands such as clean energy spending or industry-wide changes such as smart grids. Each company\u2019s difficulties are unique, but modern software can point the way to a more effective inventory management system that minimizes excess inventory and places the correct components in the right places at the right times.<\/p>\n Overall, Supply Chain Optimization initiatives are essential for utilities looking to maximize their efficiency and reduce their costs. Technology allows us to make the integration process seamless, and you don\u2019t need to replace your current ERP or EAM system by doing it.\u00a0 You just need to make better use of the data you already have.<\/p>\n For example, one large utility launched a strategic Supply Chain Optimization (SCO) initiative and added best-in-class capabilities through the selection and integration of commercial off-the-shelf applications.\u00a0 Chief among these was the Smart Inventory Planning and Optimization system (Smart IP&O), comprising Parts Forecasting \/ Demand Planning and Inventory Optimization functionality. Within just 90 days the software system was up and running, soon reducing inventory by $9,000,000 while maintaining spares availability at a high level. You can read the case study here\u00a0Electric Utility Goes with Smart IP&O<\/em><\/a>.<\/p>\n Utilities can ensure that they are able to manage their spare parts supplies in an efficient and cost-effective manner better preparing them for the future. \u00a0Over time, this balance between supply and demand translates to a significant edge. Understanding the Service Level Tradeoff Curve helps to understand the costs associated with different levels of service and the inventory requirements needed to achieve them. This leads to reduced operational costs, optimized inventory, and assurance that you can meet your customers\u2019 needs.<\/strong><\/p>\n <\/p>\n <\/p>\n <\/p>\n [\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row column_structure=”1_2,1_2″ admin_label=”row” _builder_version=”4.19.0″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” custom_margin=”0px||||false|false” custom_padding=”0px||||false|false” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” global_colors_info=”{}”][et_pb_column type=”1_2″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text content_last_edited=”off|desktop” admin_label=”CONTENT” module_class=”post-main_text” _builder_version=”4.25.2″ header_3_text_color=”#0c71c3″ header_3_font_size=”19px” background_size=”initial” background_position=”top_left” background_repeat=”repeat” z_index_tablet=”500″ text_text_shadow_horizontal_length_tablet=”0px” text_text_shadow_vertical_length_tablet=”0px” text_text_shadow_blur_strength_tablet=”1px” link_text_shadow_horizontal_length_tablet=”0px” link_text_shadow_vertical_length_tablet=”0px” link_text_shadow_blur_strength_tablet=”1px” ul_text_shadow_horizontal_length_tablet=”0px” ul_text_shadow_vertical_length_tablet=”0px” ul_text_shadow_blur_strength_tablet=”1px” ol_text_shadow_horizontal_length_tablet=”0px” ol_text_shadow_vertical_length_tablet=”0px” ol_text_shadow_blur_strength_tablet=”1px” quote_text_shadow_horizontal_length_tablet=”0px” quote_text_shadow_vertical_length_tablet=”0px” quote_text_shadow_blur_strength_tablet=”1px” header_text_shadow_horizontal_length_tablet=”0px” header_text_shadow_vertical_length_tablet=”0px” header_text_shadow_blur_strength_tablet=”1px” header_2_text_shadow_horizontal_length_tablet=”0px” header_2_text_shadow_vertical_length_tablet=”0px” header_2_text_shadow_blur_strength_tablet=”1px” header_3_text_shadow_horizontal_length_tablet=”0px” header_3_text_shadow_vertical_length_tablet=”0px” header_3_text_shadow_blur_strength_tablet=”1px” header_4_text_shadow_horizontal_length_tablet=”0px” header_4_text_shadow_vertical_length_tablet=”0px” header_4_text_shadow_blur_strength_tablet=”1px” header_5_text_shadow_horizontal_length_tablet=”0px” header_5_text_shadow_vertical_length_tablet=”0px” header_5_text_shadow_blur_strength_tablet=”1px” header_6_text_shadow_horizontal_length_tablet=”0px” header_6_text_shadow_vertical_length_tablet=”0px” header_6_text_shadow_blur_strength_tablet=”1px” box_shadow_horizontal_tablet=”0px” box_shadow_vertical_tablet=”0px” box_shadow_blur_tablet=”40px” box_shadow_spread_tablet=”0px” use_border_color=”off” global_colors_info=”{}”]<\/p>\n\n
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