Column: Supply chain management
Supply chain complexity in power transformer industry
The complexity of the supply chain in transformer industry is usually not well understood. This article aims to create a better insight into this area by first analyzing the characteristics of supply markets for power transformer industry.
Then the product characteristics are analyzed, and appropriate supply chain is defined. Finally, some of the methods for supply chain optimization are described.
- Characteristics of supply markets for power transformer industry
Transformer component supply markets have very unique features, which are not similar to other industries. Let us try to describe these features:
- Low volume business: First of all, power transformer industry is not a high-volume business. If you consider that the total number of power transformers produced in a year is around 20,000 units, it is obvious that the global market size for transformer components is not in the order of millions of pieces. If a certain component is used as a one piece in a transformer, the global market size is then around 20,000 pieces. This restricts the volume leverage of the buyers.
- Tailor-made product: Power transformers are almost always a tailor-made product. Even if the customer orders the same transformers, the designers may still prefer to make a new design to optimize them based on the existing cost ratios of different raw materials. This enormously increases the number of variations for every part. For a good portion of transformer components, stock keeping is not possible. Consequently, the parts have to be produced “make-to-order” and they cannot be ordered before the design is completed. This shortens the available lead-time and increases the time pressure on the supply chain. Obviously, that has further negative impact on costs.
- Small-sized supplier profiles: Actually, a global market exists only for some high value items like GOES, OLTC`s, HV bushings, etc. For lower value parts, the markets are local or regional. This limits the size of the companies. Typical transformer component suppliers are small, family-owned companies. This brings with it all the associated problems, like lack of a strong management structure, being dependent on one single person, risks related to succession, higher quality and delivery risks, etc.