Over recent years, there have been various industry developments that served as or caused trends in procurement. These procurement trends include technology changes, novel strategic approaches, new processes, and necessary adaptations to change. As supply chains become increasingly complex, procurement has become highly crucial and influential in the production process and continues to grow.
SpendEdge’s procurement solutions cover various segments of the energy procurement services industry, that can help category managers optimize their sourcing goals..
Energy Industry Overview
The energy industry is a dynamic area with a promising future, but technological advances, increasing operational expenses, and the need to develop sustainable energy solutions pose major challenges to energy industry players. Moreover, the emergence of alternate energy sources creates the need to procure new equipment. By leveraging our expertise in procurement market intelligence, we provide granular market- and category-specific insights that will help players in the energy industry identify new markets and expand their businesses across geographies. We also offer sourcing and procurement intelligence solutions that will help energy industry companies recognize savings while focusing on their core business operations.
- Power Generation, Transmission, and Distribution
- Oil and Gas and Oil Field Services
- Nuclear and Renewable Energy
Power Generation, Transmission, and Distribution
The power generation sector is faced with several long- and short-term challenges, from the increasing demand for power generation and the need to renew and expand power transmission and distribution units, to complying with regulatory changes that will demand investments towards procuring pollution control equipment. These challenges create the need to adopt sourcing strategies that will reduce operational expenditures and help achieve improved cost savings. By providing highly customized sourcing and procurement market intelligence strategies, we help clients track saving compliance, reduce time-to-value on investments, and maximize returns on material and service investments.
Oil and Gas and Oil Field Services
Since players in the oil field services sector depend heavily on the oil and gas companies for growth, the current decreasing prices that led to the slowdown in drilling activities have a significant impact on their revenue shares. Though the identification of new oil reserves offers new market opportunities, the uncertainty in prices of new technologies and the associated supplier risks pose a major challenge. With an in-depth understanding of the factors creating supply disruptions and the geopolitical risks involved, our procurement market intelligence solutions help clients identify suppliers across various regions and also improve their visibility across the supply chain.
Nuclear and Renewable Energy
Stringent regulations that curb pollution are demanding the adoption of alternate energy sources, providing the renewable energy sector with huge growth opportunities. However, the need to connect renewable energy sources with existing grids and construct new plants— especially off-shore—to meet the increasing demand poses a major challenge to sourcing specialists. By analyzing data from multiple sources, our procurement market intelligence experts provide actionable insights that will help clients identify and realize the impact of price fluctuations, and identify alternate suppliers for various business units.
Direct and Indirect Spend Categories
- Metals and alloys
- Fabricated structures
- Sheet metal
- Reactors and pressure vessels
- Drilling equipment and services
- Heat exchangers, boilers, and cooling towers
- HVAC systems
- Chemicals, fuels, and additives
- Electronic and electrical equipment
- Mechanical equipment and components
- Turbines, pumps, and compressors
- Transformers and generators
- Piping, valves, and fittings
- Fire fighting equipment
- Personal protective equipment
- Fuel storage facilities
- Oil spill equipment
- Safety equipment
- Storage yards and warehousing
- Fabrication and welding equipment
- Waste management
- Motors and drives
- Packaging materials
- Facility management services
- Facility equipment and supplies
- Corporate services
- Professional services
- Travel and entertainment
- Telecom and networking
- IT services
- Office supplies and equipment
- Computers and peripherals
- Logistics and transportation
Trusted by Industry Experts
The insights were quite granular in nature and were very useful to the category strategy, especially the supplier risk assessment exercise.
We appreciate the quality of the reports and the way they were structured. Very easy to understand and acts as a good reference in our category specific sourcing decisions.
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COVID-19 Impact on the Energy Industry
The global economy is in a state of paralysis as the novel coronavirus impact has forced countries to take extreme measures for the well-being of their citizens. The pandemic has exposed global value chains irrespective of industry, even as companies continue testing the resilience of their operations.
A direct and substantial coronavirus impact on the energy industry is evident, punctuated by dampened demand for oil and resulting in plummeting oil prices and production cuts across the globe.
Procurement and Supply chain disruptions?
The distinct sub-segments of the energy ecosystem will go through critical changes and disruptions in the short term because of the deepening coronavirus impact. SpendEdge presents a quick dashboard that summarizes the impact on the energy industry so far and what to expect in the global energy ecosystem for the next 2-3 months.
Energy Impact Analysis: Key Insights
The next few weeks are crucial for the demand curve as the coronavirus impact on the energy industry becomes more evident. The exponential rise in COVID-19 cases will result in serious supply bottlenecks that could lead to increases in energy prices across the globe. Some of the preliminary key findings are outlined below:
- Oil and gas prices are in a tailspin due to reduced demand from transportation and manufacturing industries as a result of economic shutdowns caused by the coronavirus.
- Recent failed negotiations between OPEC and Russia have led to price wars, leading to further decreases in demand for oil.
- Utilities are finding it challenging to provide business continuity as they are unable to function properly without enough employees present on premises. Operators are looking to partner with temporary workforce agencies to make up for worker shortages.
- Increased prices of equipment may lead to increased operational costs for power generation, transmission, and distribution companies, which will eventually be passed on to buyers.
Energy Demand-Supply Trends
The oil and gas industry has seen an atmosphere of reduced oil prices, revenue, and production across the globe. The oil and gas industry will observe a reduction in demand from COVID-19 hotbeds such as the US, UK, and other European countries that are major revenue-generating geographies. This will lead to a decline in oil prices across the globe, which will cause a decrease in revenue for suppliers.
Suppliers should investigate relatively weak links within their supply chain, as their small-to-medium-scale vendors may have issues with respect to the procurement of raw materials due to the global shutdown. Power distribution companies should brace themselves for a serious worker shortage.
Oil and Gas and Oil Field Services Sector
- To contain the coronavirus impact, transportation restrictions across the globe will remain in place and therefore demand from the transportation sector will continue to be low. Reduced demand for jet fuel will continue to be the largest factor for the oil and gas industry.
- Reduced demand and falling prices are forcing production and investment cuts across oil fields. Therefore, oil field service providers will also be severely affected within the short-term horizon.
- Workforce-related issues may lead to supply-side constraints for suppliers which is seen as one of the worst coronavirus impacts on the energy industry. Companies are trying to mitigate this risk through deployment of stringent employee on-site health and safety plans.
- OPEC and its partners are working towards oil and gas production cuts of 10%, which will reduce the downward pressure on oil and gas prices.
- Global oil storage levels have almost reached their peak across geographical locations, which will lead oil and gas suppliers to shut down oil wells. Such a drastic measure taken by suppliers may lead to a dramatic reduction in demand for oil field services from suppliers. Also, such a shutdown scenario may lead to temporary layoffs of oil field workers by suppliers.
Nuclear and Renewable Energy Sector
- While fighting the coronavirus impact, global shutdowns have contributed to a reduction in renewable energy demand in more ways than one. Of course, a pause in economic activities has lessened overall electricity demand, but a bigger impact was caused by the sharp fall in the price of oil, which is a competing energy source.
- The coronavirus impact has slowed Chinese production of solar panels and other required materials. This has created significant supply bottlenecks across the globe.
- R&D work related to renewable energy sources has slowed considerably, which will contribute to product and supply shortages soon as the coronavirus impact on the energy industry continues to worsen.
- From a nuclear energy procurement standpoint, buyers should make a detailed risk mitigation strategy assessment of possible maintenance issues with respect to delivery of nuclear energy. Such maintenance-related issues must be clearly discussed with suppliers and an emergency maintenance-related execution plan must thereby be created. Such strategic initiatives need to be planned for by buyers, as suppliers are facing acute human resource shortages.
- Nuclear energy suppliers have minimized operations and have rescheduled or postponed outages for critical functionalities such as nuclear fuel loading activities. This will lead to minimization of human intervention within supplier operations.
Power Generation, Transmission and Distribution Sector
- Reduced demand from corporate offices and the manufacturing sector is slightly offset by increased consumption in the household segment owing to the coronavirus impact on people’s lifestyle.
- Buyers need to continuously evaluate their procurement of power from alternative means in case of distribution failure by suppliers. Power backup plans such as usage of generators and inverters need to be evaluated by buyers to ensure smooth running of buyer operations. A careful evaluation of critical vs non-critical operation requirements needs to be carried out by buyers, followed by putting in place the exact backup power requirement setup.
- Delays in delivery of power transmission equipment may lead to supply disruptions soon, especially within COVID-19 hotbeds such as the US and Western Europe.
- Power generation and distribution suppliers need to create a culture of mutual handholding. Suppliers can assist each other with respect to sharing physical resources such as generators and components to ensure continuity of supplier operations.
- Power generation is a matter of national importance. Consequently, governments across the globe are working with power generation suppliers to ensure power transmission is provided to buyers in a continuous manner. Suppliers should ensure that the macro-economic problems they face are clearly stated to the government so that appropriate steps are taken to solve such issues.
Risk Mitigation Activities to Address the Coronavirus Impact on the Energy IndustryIndustry
Uncertainties loom large and the industry will swing between extremes as the coronavirus impact makes its presence felt in the global economy. Executives across the world are examining their supply chains with a microscope to find risk elements.
Companies that can proactively identify or anticipate the bottlenecks in their supply chains will be closer to finding solutions for supply chain risk mitigation. Note that these solutions will have to be extremely customized for the sector, location and government responses and it is impossible to develop a “one-size-fits-all” solution.
Still, there are elements which are common for any resilient risk mitigation plan. We recommend a few of these below for immediate results.
Negotiation with respect to payment period
Buyers are well positioned to negotiate with suppliers to extend payment periods due to the economic downturn. Buyers should push payment periods by at least 30 days to ensure that there is enough time to generate funds for supplier payment.
Development of mutual risk-sharing strategy with suppliers
Buyers and suppliers should work in collaboration to identify issues associated with the distribution of power. One of the major areas where buyers and suppliers can collaborate in an effective manner is to identify maintenance-related issues and work collaboratively to solve such issues through minimal usage of human resources.
Develop relationships with vendors from countries that have a lower count of COVID-19 related cases or are still working in a relatively normal environment. However, buyers must also be aware of increased prices in these geographical regions due to the increase in demand.
Holistic risk-mitigation plan
It is not enough to look only at production centers: it is essential for energy buyers to evaluate logistics-related risks associated with delivery of the category and develop a procurement strategy accordingly.
Buyers need to be up to date on global developments as well as country-specific trends. The lockdown to contain the coronavirus impact can change suddenly in locations that are of importance from a supply chain perspective. Buyers also need to monitor emerging success case studies and learn from them.
Revisiting contract terms
Global commodity and energy prices are expected to behave in a very volatile manner for some time owing to the coronavirus impact on the energy industry. Companies that spend significantly on commodities and energy items as key inputs need to re-engage their suppliers and explore mechanisms to safeguard themselves from upswings in pricing. It is advisable to fix the short-term procurement price or at least keep a maximum limit on upward price movements.
Getting Down To Business
Lean on SpendEdge’s global expertise in identifying cost-saving opportunities by aligning business goals with short- and long-term business strategies.