Collaboration in a competitive industry30 October 2001
The emerging e-marketplace will increase collaboration between utilities. The very survival of the nuclear industry will depend upon it happening, but it will not happen overnight.
Collaboration has been a valuable tool in the utility industry for many years. It began between individuals and has grown to encompass whole systems. In the nuclear industry, concerns for public safety, high capital investment requirements and the potential savings will ensure this continues. The infrastructure needed is immense but it is being built now.
Increased collaboration in the international nuclear utility community will optimise the collective supply of engineered replacement parts by:
• Reducing plant outage and operating risks.
• Reducing net investment in parts inventories.
• Helping to solve urgent supply problems of obsolete parts and frequent shortages of critical items.
• Improving market economics for the nuclear industry’s suppliers by aggregating demands.
Those involved in the engineering support and procurement of replacement parts for plants know that sourcing engineered parts has become more difficult in recent years. Numerous vendors have left the market due to perceived reduction of business opportunities in the nuclear industry. That has been further complicated by issues of plant ageing, life extension, parts obsolescence, and maintaining of nuclear equipment qualification.
The nuclear utility industry has been collaborating for years and has developed a culture that encourages the exchange of information in order to improve the safety and reliability of nuclear power. Scientech has provided collaborative engineering and information management services to the nuclear utility industry for over 20 years. Those services are based upon an information exchange model that collects, organises and communicates data among all members.
Examples of those services include the Equipment Qualification Databank (EQDB) offered in cooperation with EPRI, the Licensing Information Service (LIS) used widely by US nuclear utilities, and the rapidpartsmart network, a collaborative commerce and distributed parts asset management system used by every nuclear utility in North America for optimising spare parts supply and investment while simultaneously reducing plant outage risks.
Several years ago in the US when utility deregulation was a new concept, we would get this question from nuclear utilities: “If my company will soon be competing with other utilities for new business, why should my company collaborate with those same utilities to solve nuclear parts supply problems?”
Our answer is that experience shows us that many highly competitive industries collaborate for mutually beneficial solutions. Collaboration has always been easier in industries that have public safety as part of their primary mission or that require large amounts of capital investment, or both. Certainly the nuclear utility industry meets those criteria, but others do too. The airline industry, for example, now has become dependent to a large degree on collaboration as a means to business success, maybe even survival. The golden rule of collaboration is that it works best when participating companies achieve quantifiable benefits from the common solution and when those benefits outweigh the costs, including opportunity costs.
Few industries are as competitive as the airlines, yet they collaborate on many fronts. For example, they may “code share” flights with one another. Instead of several airlines operating flights for the same route with the likelihood that all companies lose money, those companies operate one flight jointly and, hopefully, make a profit.
Even better examples of airline collaboration exist in supply chain management. Many airlines at the back end of their spare parts supply chain collaborate in the Air Transport Association’s AIRS network (Airline Inventory Redistribution System, a part of the ATA Spec 2000 Marketplace) to liquidate their surplus spare parts. The collaborating airlines use AIRS to buy and sell one another’s excess stock and thereby reallocate precious capital away from non-working assets.
Another example exists at the front end of the airline spare parts supply chain. Most major airlines and their thousands of worldwide vendors and service companies collaborate in the ILS (Inventory Locator Service) network. This is a system where sellers and buyers worldwide display new and refurbished spare parts stocks in a searchable format for uniform access. The ILS aviation database contains over 5 billion records. A similar system, but far smaller, is offered under the ATA’s Spec 2000 Marketplace. For vendors, the potential for increased business volume through better access to the market in either the ILS or ATA network far outweighs any negatives for them, particularly when they can respond to lucrative urgent parts situations when airlines have jets sitting on the ground unable to fly due to lack of a replacement part. When an “aircraft on ground” (AOG) alert is heard, the supply chain responds immediately, even to the point of the airlines directly supporting one another on the scene by selling or temporarily borrowing critically needed parts.
These examples of collaboration show how the airlines and their vendors have learned to both profit and to serve the flying public better by competing on their real strengths rather than by a non-core competence such as the ability to keep a hoard of spare parts.
Helping each other
Can the nuclear utility industry learn from these examples? Will utilities collaborate with one another? Will suppliers collaborate with one another? Will utilities collaborate with their suppliers? To all these questions the answer is yes – when the benefits outweigh the costs, as in the airlines examples.
Many of the nuclear industry’s collaborative organisations such as EPRI, INPO, WANO, FORATOM, NUPIC, NMSG, NUOG, NMME, and WNA already recognise the need for greater support of collaboration in the industry’s spare parts supply chain. Historically, some of these organisations have been a closed club or tended to be homogeneous in their makeup, consisting of utility participants only. But recently some have become heterogeneous in their membership and suppliers have been brought into the mix as it is recognised that some problems, like equipment obsolescence, plant life extension and continued supply of parts, require collaboration within the entire supply chain to reach economic ongoing solutions.
There are four factors that build the business case for collaborative commerce in the worldwide nuclear industry. Firstly, there is the nature of the nuclear utility industry – high risk and high capital investment. Secondly, there are large cost savings possible if you remove inefficiencies from the supply chain. Thirdly, there are the large investments already made in the technologies needed to support system collaboration. And finally, there is a mass exodus of the knowledge base looming just over the horizon.
In some ways, the benefits of system collaboration are similar to those provided when we installed networks and ERP systems within our companies. With ERP systems, information can easily flow across boundaries within an organisation (at least in theory) thereby reducing the costs to the enterprise of sharing information and revealing rewards not easily seen when the information was locked away in one of its segments.
The same logic applies across enterprise (company) boundaries. Resolve those problems and all members of the supply chain will benefit. Not everybody will agree, as some companies will fear losing the competitive advantage of being an intermediary in the market. But the large savings made possible by timely and complete information will continue to pull us in this direction. It won’t happen overnight, but it will happen.
Large investments have already been made by utilities in technology needed for collaboration between systems by virtue of investments made in infrastructure to support e-commerce. Most of us thought we would reap major rewards from e-commerce already but recently there has been recognition that e-commerce and collaborative commerce require the build-out of a large infrastructure before much reward can be reaped (similar to railroads in the US during the 19th century). Yet technology investments and new sensibility will continue to push us down the road toward system collaboration.
Finally, the nuclear work force is ageing. Most companies rightly fear the loss of their knowledge base. One approach is to mitigate the effects of this loss by providing systems that allow both people and systems to collaborate, capture, share and even expand that knowledge base. These systems can capture and store the collective knowledge base of the industry so that new participants have access to the knowledge of those who have long since retired.
The e-marketplace is not one or two specific companies that offer an e-marketplace technology as one of their services. Rather, the e-marketplace is forming as a result of the numerous suppliers and buyers disseminating information through the Internet and connecting their systems to one another directly or indirectly using the Internet. Companies like GE, Westinghouse, Freemarkets, Scientech, Enporion, Pantellos, Enron, and so on have developed or are developing supply chain solutions that they deliver using the Internet. They are connecting their systems and databases to their customers’ systems and databases using the Internet. Although it will take years, the good news is that, while under development, it provides immediate benefits along the way.
Collaboration between nuclear utilities will increase within this e-marketplace environment. Emerging technologies and standards now allow us to share problems and solutions easily, to exchange information with one another quickly and cost-effectively, to integrate our systems so that routine problems can be detected and resolved without our intervention, and to see and analyse larger data sets so that we can optimise our supply chain decision-making beyond that which was possible just a year ago.
Further, collaboration will increase as telecommunication technologies improve. The new technologies have changed the types of problems that collaboration can help to solve.
Collaborative commerce represents a technological breakthrough by its basis in system-to-system integration, or “system collaboration”.
System collaboration reveals information that was too difficult to collect in the past. Information that spans organisational boundaries allows a better understanding of the supply chain. Strategies such as aggregating the demand data of multiple utilities in an easily searchable and accessible format, if communicated to the vendor side of the supply chain, will enable action by vendors on the joint needs of utilities to allocate setup costs in an equitable way to ensure material supply while also ensuring profitable and forecastable business for the vendor.
There are some especially bright spots of collaborative commerce solutions available. SAP provides a collaborative commerce suite that allows the sharing of data and designs between partners in the supply chain. This reduces the time and cost for specifying and delivering products and services. Enporion and its Alliance partner New York Nuclear Corporation are currently working with SAPMarkets to employ SAP technology in several areas of the nuclear supply chain. They are targeting quality parts, components and services, the document security aspects and NRC regulatory requirements needed to implement web-based solutions designed to address needs of the nuclear procurement process worldwide. In addition, we are beginning to see the formation of private exchanges that allow existing supply chain partners to share information over the Internet that they currently share using other means. Many of these technologies hold the promise of significant improvements in the supply chain’s ability to better service the enterprise.
Collaborative commerce and system collaboration will be adopted worldwide sooner rather than later. That is especially true if we in the nuclear industry make it so by driving the process forward for our mutual benefit and reward those vendors who support it by participating in the heterogeneous supply chain by taking initial steps to integrate their systems with utility systems, at least to the extent of sharing their supply capabilities data. Those vendors will find that such information sharing will build business and improve their customer service among their valued utility customers. Vendors, however, who do not collaborate with utilities at least to that degree, will discover in the long run that it is fruitless to guard such information. To hope to obtain a competitive advantage by restricting access to supply capabilities and refusing to participate in opportunities for open client interfaces with reciprocal access to utilities’ demand data is a losing game in the e-marketplace environment.
Utilities can participate in collaborative practices and systems for optimising the supply of engineered replacement parts assets by becoming an active participant in the growing rapidpartsmart network. This is an online system for locating, buying, selling, and managing engineered parts in the power industry. Its mission is to provide the content, community and tools needed to bring buyers and sellers together in order to improve supply chain efficiency and create value for all participants.
The rapidpartsmart system provides an industry parts supply database of over 5 million items. The success of the system is such that all North American nuclear power plants now use it to display their active parts inventories and their surplus sale inventories for collaborative access by utilities and vendor firms. The network also supports the needs of vendors and member utilities by providing any buyer in the world a free account for search access to listed sale catalogues of vendors and the listed surplus inventories of utilities. Those “guest” buyers may even transact business with vendors and utilities by e-mail tools to request sales quotations and to execute purchases. In 1999 rapidpartsmart also undertook an initiative to promote the sharing of solutions to nuclear utilities’ obsolete item replacement problems. That system continues to evolve technologically in response to the specified needs of the special interest group known as NUOG, the Nuclear Utilities Obsolescence Group.
The content of rapidpartsmart consists of four continually updated databases: the member utilities’ pooled active inventory, the utilities’ surplus inventory catalogues, the member suppliers’ catalogues, and the obsolete item replacement database of utility and vendor problem parts needs and available supply solutions. Since its inception over a year ago at the urging of NUOG, this database had grown to contain several thousand records of items that utilities either list as problem parts for which there is no known source, or listed parts which were previously scarce but which have now been researched for new sources, the records of which may include valuable technical equivalency data or full reports. For utilities it is a tool to announce problems needing joint action or contributions of solution data from other utilities and from vendors. For vendors, it is an excellent tool to communicate solutions to utilities regarding problem parts.
The collaborative facilities provided by rapidpartsmart include project centres, web conferences, membership e-mail broadcasts, special interest group e-mails, physical conferences, periodic training seminars, and members’ optional participation in industry issue groups for solution of targeted technical or management problems. These collaborative facilities are a key factor in rapidpartsmart’s value to the nuclear industry. For example, the use of rapidpartsmart project centres on the Internet is a powerful means for industry issue groups to quickly share documents for consensus building and problem resolution.
The Figure offers a simple yet complete picture of rapidpartsmart’s current services and interfaces with an end user utility’s (or vendor’s) asset management system (EAM or ERP) on the left side and with an e-marketplace service provider on the right side. Rapidpartsmart reduces utilities’ procurement costs, reduces inventory levels, and mitigates risks; it uncovers ‘hidden supply channels’ not accessible elsewhere; it creates value by promoting use of all available supply data routinely, rather than in emergency searches for material only; finally, it serves to assure utility management that all market sources are reviewed prior to purchasing, including internal utility stocks that are frequently overlooked due to the complexity of many current inventory management systems.