Supply Chain Under Fire

Supply Chain Under Fire

By Ed Weston

 

While the competitiveness of windpower in the US continues to improve, its gains are being achieved at a painful cost to some US manufacturers—market share.  That’s the feedback from companies that are struggling with plunging price points for components and the growing trend toward imported alternatives.

 

Working around the clock, six days a week in 2007, Kocsis Brothers of Alsip, Illinois, was encouraged to add new capacity by its major wind turbine customers.  A full-service machine shop, the company responded with nearly $6 million in new equipment, including one machine capable of handling the largest parts with state-of-the-art CNC.  According to General Manager Wayne Batkiewicz, “We made this investment based on firm orders, but before the new unit was installed, customers started cancelling orders and taking them to Asia.”  Volume at the shop has fallen from a high of 16 hubs/week in 2008 to a total of two in 2011.

 

“Wind turbine component suppliers are feeling tremendous pricing pressure from wind turbine OEMs to reduce costs so they can compete in the global marketplace,” explains Bill Andreski, VP - Wind for Horsburgh & Scott, an Ohio supplier of gears that has also made significant investments in the most modern production machinery.  “The gear component supply chain is not immune to this situation,” he says.  “Offshore suppliers are being used to deliver components into the North American market, making it more difficult for us to supply parts.”

 

Abrasive Blasting and Coating Services, a South Carolina-based provider of coating services, recently opened a second plant in Elkhart, Indiana to handle the expected growth in wind turbine business.  Volumes have fallen off this year, and President Jim Odom reports that ABC is doing fewer original equipment pieces.  “It seems that some customers would rather pay for coating repairs on imported parts than have it done right the first time.”

 

What’s behind this shift?  Start with steep price erosion for wind turbines caused by global oversupply and continue with the impact of rock bottom US natural gas prices on new power purchasing agreements for developers.   What follows is a need to compensate with lower costs on the component end.  That’s especially frustrating for supply chain managers for wind turbine OEMs with domestic content goals who’ve worked hard to develop a strong local supply chain—and realize that their partners are under fire like never before. 

 

“We’re doing everything we can to collaborate with our suppliers to improve their competitiveness,” states David Buley of Northern Power, a growing US wind turbine OEM with production facilities in Vermont, California, and Michigan.  “By adopting best practices that will reduce their actual costs of manufacture, our suppliers become more globally competitive on a full landed cost basis, and that helps us become more cost efficient.”

 

And that’s the reason, according to GLWN Director Ed Weston, that Buley--along with supply chain managers from six other wind turbine OEMs and leaders from across the industry---will be speaking out at a national conference in Cleveland on July 13-14.  “Making It Here: Building Our Next Generation Supply Chain is for supply chain companies that have invested in wind are now looking for answers on key issues that are choking their growth and threatening their future,” he added. 

 

The conference, sponsored by GLWN, will feature town-hall style forums on six key issues threatening supply chain growth, says Weston. Session topics include Achieving Global Competitiveness, Leveling the International Playing Field, Lowering Costs through New Design, Managing Foreign Specifications, Joining in Wind Farm Construction, and Installing Offshore Wind in North America. 

 

Participating as a panelist will be AWEA’s Rob Gramlich, who acknowledges the importance of growing US wind turbine manufacturing and supply chains.  “The enemy of job growth continues to be on-again, off-again tax credits,” he explained, “so we need to work on options and strategies for more predictable energy policy as well as manufacturing-specific policies.”

 

“Purchasing decisions are now being driven by price more than ever before, “says Sam DiRenzo of bearing manufacturer SKF USA.   “For our US operations, cost-effective engineered solutions are one answer, and adopting ways to improve the efficiency of our customers’ supply chain is another.  We’re attending Making It Here to see what else we can do to support the growth of domestic manufacturing.”

 

More information is available at www.MakingItHere.org.

 

3 Lessons from New Markets

In conjunction with MAGNET, WIRE-Net has been conducting meetings to acquaint local manufacturing suppliers with OEM and Top Tier companies.  The New Markets Initiative or NMI is a process to bring companies, who had found success in previously traditional markets and supply chains, like automotive, into new markets based not on product, but the capabilities of the company – that is, process capabilities which will allow them to move to new markets with little or no redesign of a company’s business model, machinery or staff. The biggest change we find is in attitude.  The premise is, if you have CNC capabilities and are serving one market, you stand a chance, with little redesign, to supply that capability to another market.  In the course of developing the initiative we came across concepts and principles to consider while on the road to moving into new markets:

 

Low Volume High Mix in New and Emerging Markets – the newer and emerging markets, like Medical, Energy and Aerospace, are seeking high quality parts in small quantities.

 

There are Macro Supply Chains and Micro Supply Chains – one of our biggest findings is that OEMS own the macro supply chains and have a very rigorous process for suppliers often requiring ISO certification, but top tier companies own a micro supply chain and often can bring a smaller companies product in under their certification.  This opens a large area for smaller companies to play. 

 

Quality is Everything - If you can supply in a micro supply chain, you still need to show quality.  This does not have to be ISO, but some form of QMS needs to be in place to work with a top tier company.  While to some this may seem daunting, much of what a top tier is looking for already exists in most companies and it is merely a process of documentation in order to qualify.

 

While new market entry is a great opportunity, only healthy companies should consider making the journey – it is not a stop gap measure for companies on the brink. What lessons have you learned from new markets experience.