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Keeping essential parts flowing is getting more challenging and expensive for distribution cooperatives pursuing their seasonal work plans or rebuilding their systems after major outages. But logistics and supply co-ops are finding creative solutions to help control costs and meet demand, even as they warn that stability in the supply chain could be many months away.
“We are getting letters from manufacturers and their representatives about lead time extensions, price increases, shipping delays and production curtailments,” said Bret Curry, manager of sales for Little Rock-based Arkansas Electric Cooperatives Inc.
AECI is one of several members of the Electric Utility Distribution Association noting spot shortages of key items such as transformers, fiberglass cross arms and sectionalized three-phase cabinets used on distribution systems and meter sockets required to install new service.
“You wouldn't think that something so simple as a piece of bent metal with a socket to hold a meter would be that difficult [to locate], but there is definitely a shortage of those,” said Curry. “Challenges to this industry right now certainly give opportunities for those that are creative to get in the game.”
EUDA represents the nine logistics and supply vendors that provide much of the material support for electric cooperatives and public power districts. EUDA members have responded to supply challenges by broadening their vendor bases, turning to more manufacturers and encouraging others to expand their product lines.
“Many manufacturers have put their customers on product allocations, which has continued shipment delays even further. Demand has exceeded manufacturing capacity,” said Jason Caudle, chief operating officer of Raleigh, North Carolina-based Tarheel Electric Membership Association.
Challenges that began during the early months of the COVID-19 pandemic in 2020 have worsened amid burgeoning domestic and global demand, suppressed manufacturing capacity and rising transportation costs.
“Lead times have continued to go out as price increases continue. The commodity market remains extremely volatile,” said Caudle. “We have extended our procurement to other manufacturers that we may not have traditionally bought certain products from to ensure we maintain a level of inventory to keep our members’ orders fulfilled as quickly as possible.”
And rising fuel surcharges are an increasing concern for logistics wholesalers and their member co-ops.
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“One supplier has told us that since Jan. 1, they experienced a fuel surcharge increase of 66% and an average freight rate per mile increase of more than 5% for all inbound and outbound deliveries,” said Cherie McLellan, purchasing manager for the Florida division of GRESCO. “Since we operate our own fleet of trucks, we’ve managed to avoid passing on added fuel costs to our members.”
Forsyth, Georgia-based GRESCO is managing weight and space to help control fuel costs, said Mandy Roberson, purchasing manager of the Georgia division. “We strive to make sure our trucks are full of material when they leave the yard for deliveries to our customers.”
Current supply chain challenges are the worst many industry veterans have seen in their careers. They compare them to temporary disruptions from major hurricanes that produce widespread damage across multiple regions.
“Lead times have increased significantly in the last 12 to 18 months and we are on allocation for transformers and conductor,” said Todd McLellan, GRESCO’s senior vice president. “As the demand increased, so did the prices. Many manufacturers increased prices multiple times in 2021 and continued that trend in the first quarter of 2022.”
EUDA members describe the ongoing transformer shortage as a “supply imbalance” worsened by inadequate global manufacturing capacity and stalled delivery of raw materials.
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Middleton, Wisconsin-based Rural Electric Supply Cooperative is advising members that long lead times for key deliverables could continue at least into late 2023. And some warn that, with truck utilization at its highest levels in history, recent increases in freight carrier rates of 20% to 34% are impacting prices.
“We experienced a 14% cost inflation rate on the basket of utility products RESCO sells our members in 2021, and in the first quarter of 2022 alone, inflation on those key products averaged 7%,” said Matt Brandrup, RESCO’s CEO. “In the past 15 months, utility material costs increased by 20%. That’s a significant burden on our members’ budgets.”
But creative solutions are helping electric co-ops build and expand their systems. With thousands of different items in their inventories, EUDA members are suggesting substitutions to prevent operational delays. Existing inventories of parts to maintain and repair older systems are helping to keep new projects on schedule.
“Fiberglass cross arm lead times have increased, but we have thousands of wooden cross arms, so they're used,” said AECI’s Curry. “There are many items in our inventories that can help our co-op customers keep projects going.”
Stepped-up communications are also paying off—including shared access to client warehouse data to help identify usage patterns before supplies get depleted.
“Electric supply chain challenges affect the entire industry, but United Utility Supply has worked with our co-op partners to clearly communicate and provide transparent and reliable information so they can plan accordingly,” said Chris Perry, president and CEO of Louisville-based United Utility Supply Cooperative. “This challenge demonstrates the value of cooperative partnerships and relationships.”
While EUDA members don’t think supply and delivery challenges will last forever, most agree that for the foreseeable future, advanced planning could help co-op customers limit disruption.
“We are dedicated to serving the co-ops who are our longtime partners, and we are working closely with manufacturers to provide long-range forecasts for supply needs,” said Perry.
“We advised co-ops earlier in the year to plan ahead for this spring and summer. Many did so and placed orders months ago for jobs through the end of this year,” said GRESCO’s Cherie McLellan.
“We’re encouraging cooperatives to carry more backup material inventory, which helps ensure the availability of needed supplies,” said RESCO’s Brandrup.
This represents a change from the just-in-time philosophy that’s dominated inventory management in recent years.
“Cooperative boards may want to consider granting their operations multiyear budget approval,” Brandrup said, citing lead times of up to two years on orders needed for big projects. “Granting purchasing budget approval on distribution and transmission supplies and general equipment like bucket trucks and other construction fixed assets could help avoid costly delays in the future.”