(by the 3 Phase Associates – Engineering/Design Team)
What has happened to the U.S. supply chain over the past decade or more significantly, in recent years? How has the past robust and seamless supply chain converged into the mess we have today? With the increases in technology, software, and artificial intelligence (AI) assisted improvements, why has the supply chain moved several steps backwards instead of many steps forward? How has the once acceptable durations of receiving and acquiring parts, supplies, connectors, and raw materials for performing manufacturing, assembly, construction, implementation, and so on, become so crippled?
According to Wikipedia, the supply chain is essentially “the most efficient manner in the flow of goods.”, where this disrupted state in the “flow of goods” has become a disaster for certain industries. According to basic and most fundamental economics, the law of supply and demand have been out of balance for the past several years, where the amount of supply has been much less than the current demand for major interworking parts and necessary materials, causing major price increases and stretching out delivery lead time durations.
Just about all industries and sectors have been affected by the halted supply chain, from suppliers, retailers, assemblies, distributors, logistics, end users, and so on. Predominately the manufacturing, engineering, and construction sectors have been the most widely affected. According to the Insurance Journal, June 23, 2023 article by L.S. Howard & Allianz Global Corporate & Specialty (AGCS), Construction/Engineering Sector Ranks BI/Supply Chain Disruption as Top Risk, it states, “business interruption/supply chain disruption ranks as the top risk facing the construction and engineering sector, which has been hit by soaring construction costs, supply chain disruptions and labor shortages.”
Since manufacturing facilities are no longer able to quickly acquire the required raw materials needed, promised deliverable dates for their produced components and widgets are more than doubled, tripled or quadrupled in some cases. With the slowdown in the supply chain and overall delays in components reaching the end users, it has inadvertently caused the demand to rise with major price increases from 30% to as much as 300% for certain items. Even though in 2021, the U.S. Congress signed into law $1.2 Trillion in infrastructure improvement projects to take place over the next decade, the supply chain in the short term has deteriorated where many expected and anticipated major advances.
Another sector adversely affected that may be overlooked – is Engineering. Engineering small to medium sized projects that used to take only 9-months or less are now strung out over 16 to 24 months – if not more? This is mostly due to engineering having to perform more construction interface and continued support until the project is fully constructed and implemented. Engineering resources require more handholding during the construction phase as before since the project may not be able to acquire certain OEM specified components in time or that line up with the owner’s approved and final construction schedule, or final “in-service date.” This additional and more complex coordination requires construction to revisit the procurement phase to make material substitutions from various suppliers that can promise faster delivery times at increased costs, where engineering resources have to once again review specifications and jointly approve material substitutions before final purchases while ensuring the same level of quality is maintained.
Combined with macro-economics on the increased inflation caused by higher food and energy costs, it’s a triple whammy for all engineering and construction projects. The increased rates for engineering resources and added engineering level of effort required has caused the price for implementing projects from an engineering standpoint to rise from an average of 150% to over 300% more. Engineering is affected during the design phase when specifying particular parts, supplies, connectors, or materials to be combined, constructed, and implemented on a given project where proper documentation is not quickly accessible or is unavailable. Many times, construction would not procure engineering recommended materials until the engineered design was complete or during the final design stages (90% to 100% complete, etc.) where the overall schedule allowed for it. This was because past projects had acceptable lead times and durations for receiving goods that were more manageable compared to today’s material lead times that are plagued more and more with double if not triple or quadruple delivery durations.
Today, construction is more and more pressured into purchasing materials much sooner, where the engineering and design stage is incomplete or only at the 30-60% completion. This stresses the project by creating additional rework when the engineering & design takes a turn down an altered path after the 30-60% milestones are completed causing additional changes, modifications, and substitutions to materials already procured by construction, thereby wreaking havoc and costly rework by all parties involved. Like engineering, construction durations for smaller to medium type projects could have been constructed and implemented in 9 months or less in the past but now drag-on to nearly 2 years or more due to major delays in receiving goods and materials, or worse – unable to acquire certain goods at all.
If we look at an electrical engineering (EE) project as an example, EE resources today that are spread thin across multiple projects are requests at a higher demand in additional labor for construction and procurement support. EE projects now have to include additional contingencies for added rework that may not have been anticipated before in past projects when the supply chain was more acceptable. Also, the EE resources and their level of effort are required for longer durations for each project than compared to before. A good EE project comparison is engineering, designing, constructing, and implementing a new high voltage (HV) to medium voltage (MV) power substation for a local electric power utility. Four to five years ago, a substation power circuit breaker (PCB) could be delivered onsite in 6-months or less after procuring. Today, that same substation PCB will take 1.5 to 2 years depending on the vendor type and will cost the power utility 150% to 300% more. These statistics are very similar for substation circuit switchers.
A substation main power transformer (XFMR), which is the heartbeat and main component of the power substation, four to five years ago, had a delivery time of approximately 9-months depending on vendor type, but today may take 3 to 4 years for delivery and can cost up to 300% more. We could continue to provide other substation components with similar statistics, but you get the picture.
Similar to the HV and MV substation electrical equipment, MV to low voltage (LV) power delivery electrical components that are used in industrial, manufacturing and commercial facilities, like main power delivery XFMR’s, electric distribution panels, power switchboards, switchgear, panelboards, load centers, power meters, circuit breakers, smart breakers, fuses, fused disconnect switches, electrical bus, steel structures, electrical pedestals, motor control centers (MCC’s), motors, pumps, motor starter circuits – soft starters and/or variable frequency drives (VFD’s), robots / robotics, electrical controls, PLC’s, SCADA, transfer switches (manual / automatic), emergency & standby generators, elevators, HVAC equipment, mechanical equipment, fire protection, electric wiring and cabling, raceways, conduit, cabinets, enclosures, grounding, lighting, emergency egress equipment, and so on are all affected by the supply chain disruptions.
So, what has happened? What is to blame for these supply chain disruptions? How has our adequate and trustworthy supply chain gone from good to worse, operational to malfunctioning, accessible to nearly unreachable, and so on?
In the electric power generation and power delivery industry, many electric utilities, power cooperative, power generators, power suppliers, and independent power owners have switched to and settled for acquiring refurbished equipment with a much less lifespan, where short term serves their ultimate need. Although refurbished substation equipment like transformers, breakers, circuit switchers, and so on is somewhat cheaper than the original purchase price, the delivery lead times are much better.
In addition, some substation equipment manufacturers have promised better lead times of 25-40% shorter durations for faster delivery at an added purchase price of 75% or more for major substation equipment. Many electric power providers and distributors are choosing faster delivery times as being more important over and compared to the increased purchase prices for substation equipment.
Due to the necessity and high demand for major power substation equipment, electric rates will continue to rise while continued power quality could reduce for consumers, ultimately a direct result of the disruptions in the U.S.’s crippled supply chain. Hopefully the supply chain has experienced its worst and will improve going forward!
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