Should Utilities and IPPs strive to achieve greater OEM Independence?

I’ve had the pleasure of supporting some of world’s leading Original Equipment Manufacturers (OEMs) across electrical, mechanical and automation equipment for the last 5 years of my career. GE, Siemens, Ansaldo, ABB, Yokogawa, Schneider, CMI, Nooter Eriksen and NEM to name a few. Having worked closely with these clients and supported them with various installation and planned maintenance activities all over the world I’ve come to realise that the sheer organisation required by these Fortune 500 companies, to fulfil the demands of their customers globally, is truly phenomenal.

I recently started engaging more closely with Utilities and IPPs to better understand their supply chain, their methods of operation and how maintenance activities affect their bottom line. It’s apparent that signing LTSAs with 10+ years on favourable payment terms can be beneficial for a businesses’ cash flow. However, at what point does that affect an organisations own talent development and investment in their own operations?

I’ve come across some Utilities whose business models include third parties for day-to-day operational staff is subcontracted by third party engineering firms, or even their competitors. Others go a different way. In the United States for instance, Outages and Shutdowns occur on a much more “transactional” basis whereby Service Providers and OEMs all compete for the same work and LTSAs are few and far between. Further still, some utilities even have their own departments that provide Owner’s Engineer services and sell those services globally to other IPPs and Utilities.

But how do you strike the balance?

There is and always will be a need for OEMs. After all, when you buy a car, you’d rather the manufacturer service the vehicle than an independent mechanic albeit the cost/quality. But how much should you know about your own car before you take it to the garage?

For example, I’ve supplied resources to almost every Power Plant in the UK; either through an OEM, a Service Provider or third-party that holds the labour contract directly with the Utility. Only in the last year have I really started to engage with any of the Utilities.What has been incredibly apparent is that whilst the OEMs, Service Providers and their competitors invest heavily in R&D and their resource/logistics teams improve their services year on year, the Utilities and IPPs haven’t really changed. The only thing that’s changed is the name. They still work in the same way they worked 50 years ago, they’re similar people to who worked there 50 years ago and they’re still set in their old ways. With every merger or acquisition, process and operational improvement is promised but in the end only the old logo is stripped and a new one plastered.

Whilst OEMs fight to monopolise the market and inevitably increase costs to customers all over the world, those same customers aren’t making the strategic changes in their businesses to ensure they adapt and grow too.

As an example, in the UK the big 6 (or big 5) all hold Master Service Agreements with partners that provide contingent labour without any specialisation. The same supplier that provides the cooks and cleaners to the site also provides their NDT technicians, their Controls Systems Operators and also their Engineers. What happens is that the utilities themselves end up recommending people and the managed service providers act as payroll agents. The challenges encountered by the Power Station Asset Managers, their P&L holders and procurement teams means they end up using Engineering Subcontractors to provide them with specific labour at a cost sometimes triple that of a Manpower/Contingent Recruitment Agency. If they don’t, they often receive irrelevant personnel to their sites, or even those who have never encountered the equipment they’re working on before.

Earlier this year, I saw that one particular Utility not only benefitted from immense cost savings (it halved) but also from increased quality of the work and thus improved outage times. This was key for them because it gave them an independence from the OEM LTSA that didn’t make the need for LTSA redundant, but complimented the contract. This was because the additional 50% of technical labour required during Outages were technical personnel with specific experience and relevant background to those types of plants and equipment. This meant that the OEM was working with a customer that really understood their product, had experience working with the OEM and could seamlessly work through problems and processes efficiently and effectively.

What are your thoughts?

Raphael Penque - Sales Director

Raphael.Penque@Samuel-Knight.com

+44 7864092944

+44 (0) 203 196 7512