Managing Supply Chain Risk at Duke Energy

Soon, we’ll all be a lot more energy efficient, thanks to new digital technologies transforming the utility industry.

At Duke Energy, a global utility with $25 billion in sales and over 30K employees, this change is well underway.

Behind the transformation, there's a procurement team working tirelessly to retool the entire supply chain. Steve Ruger, Vendor Materials Manager for Grid Modernization at Duke Energy (aka the "Smart Grid") is in charge of this extensive transformation.

We had a chance to talk with Steve recently. Here's some of what he had to share.

Evaluating Vendors: Taking the Long View

Will the vendors that Duke Energy works with today still be there 20 years out? It's Steve’s job to ensure that they are.

To ensure business continuity and manage risk, Steve created a comprehensive supplier scorecard and a process for evaluating risk. He then undertook a systematic review of each vendor’s business stability and financial strength.

Tips from the process include supplier scorecard, vendor audits and more.

Supplier Scorecarding

The team has created a supplier scorecard, updated monthly. Each key vendor receives a composite score and is classified as either Red, Amber, or Green. 

Vendors that fall below a cutoff are placed on a watch list and receive extra scrutiny until performance metrics improve. Of thousands of suppliers, 10 to 20 critical suppliers may be on the "watch" at any given point in time.

Industry Monitoring and Benchmarking

To keep the supplier scorecard up to date, Steve carefully tracks vendor financial health. He relies on the CreditRiskMonitor Frisk® Score and News Alerts service to flag new financials and other changes that could impact the vendor score.

He also benchmarks vendor performance in relation to industry peers, assessing vital capabilities for product development and product support over the long haul.

Vendor Audits

Periodic vendor audits are conducted to supplement the scoring process, pinpoint vulnerabilities, and assess longer-term risks.

Downstream Risk: Your Customer's Customer

To ensure continuity in a global business, it's essential to catch early-stage problems that can ripple through the supply chain. To detect potential risks, Steve’s team looks not just at immediate vendors, but who THEY buy from, three and four levels down.

Steve's team investigates these second and third degree suppliers and closely monitors any situation that could affect supplier delivery of critical products or services.

For one project, he shared how delays at a troubled maker of components in Germany could have impacted plants in USA and Mexico had the risk not been understood early and mitigated. This situation would have delayed an $800 million deployment by six months had it not been caught early.

He cautions: “Don't just count on your vendors to be on top of the financial health of the downstream supply chain. They won't know. It's your job to look, or else when they get surprised, you'll be surprised.”

Final Advice

For every company, supply chain continuity is critical to achieving longer-term business goals. Like Steve’s team, conduct a thorough initial supply chain partner evaluation, and monitor vendors carefully to spot changes early.  And, don’t forget to consider financial risk, to ensure that longer-term business goals are met.

We thank Steve for his wise advice.

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