Department of Business Development and Technology

Innovating the Supply Chain for Lower LCOE: - The Effect of Introducing System Suppliers

Research output: Contribution to book/anthology/report/proceedingArticle in proceedingsResearch

The wind industry experiences a significant end customer pressure for lowering LCOE (Levelized Cost of Energy).
The gap between electricity produced by wind turbines and traditional fossil fuel based production is still too high for wind power to be a real competitive alternative energy source. This combined with an overcapacity in the
industry puts pressure on prices and shrink margins for WTG (Wind Turbine) manufactures.
A downward pressure on prices and margin erosion puts pressure on cash flow (working capital).
At the same time customer demand is project based and fluctuates based on project uncertainties.

The paper will base on theory and models of supply chain innovation and show a supply chain innovation case of the change from component supplier to system supplier and the effects for both the customer (WTG OEM) and the supplier taking on the new role of system provider.

Main body of abstract
Product (turbine) variants are created for any condition including product designs with complex and expensive components, resulting in low volume on parts and long lead times. Innovation in supply chain seems to be the tool to
mitigate the issues of increasing complexity and cost of operating the supply chain and securing lower LCOE.

New innovative ways of designing the wind industry supply chain involves a change in supply chain architecture and roles for some of the members of the turbine supply chain. A change from component supplier to system supplier, being an integrator for parts for a turbine and creating real system supplies to the turbine OEMs (WTG OEM) assembly factories or to turbine site. This change in architecture of the supply chain is a response to the increasing complexity and makes it possible to concentrate the complexity in the supply chain where it
can be controlled and optimized.

Effects for the WTG OEM are that fixed costs are converted to variable cost. Financial effects are improved cash flow, lower working capital level, logistics effects are supplies directly to the assembly line or to site.

The system supplier gains a closer integration to the customer and a direct demand signal from the assembly line or site. Also the system supplier is handling the entire process throughout planning, contracting, purchasing, financing and delivery, giving the opportunity to optimize and lowering cost of
operating the supply chain. Apart from the quantifiable improvements and gains, the role of a system supplier implies new demands on both the customer (WTG OEM), and the supplier

Learning objectives
The WTG OEM must accept less direct control of the upstream supply chain in return for dedicated system supplies. The system supplier must develop competencies and organization to handle a broader range of component suppliers and the sourcing and logistics of a variety of components potential requiring new competences and manufacturing processes.
Original languageEnglish
Title of host publicationProceedings from EWEA Offshore 2015
Place of publicationRue d'Arlon 80, B-1040 Brussels, Belgium
Publisher European Wind Energy Association - EWEA
Publication year1 Jun 2015
Publication statusPublished - 1 Jun 2015
Externally publishedYes

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ID: 154492918