Supply chains compete – not companies

The Humber and other places around the North Sea are buzzing with news on Renewable Energy. Prompted by projects like the Siemens factory and the Green Port Hull development, big and small companies alike all over Europe are being urged to be part of the network that will supply this emerging industry. As Logistics guru Professor Martin Christopher puts it: “supply chains compete not companies” and the offshore wind industry is a team game.

If all goes well, an estimated £15 billion will be invested in offshore wind turbines. A lot of pieces will have to be sourced, made, assembled and installed to build a very big jigsaw out at sea. In other words, a huge logistics and supply chain challenge.

Logistics is all about moving things around within a business and the supply chain is what connects that business and its products with a market and customers.

It is like winning the ball in a rugby scrum and moving it along the line to score against the opposition. You have to get the right products at the right price to the right place consistently. Information technology is now the way to order, track and trace from start to finish.

Moving stuff is 10 to 15 per cent of the cost of anything we buy and every time the price of oil rises, so does the supply chain cost.

Energy security is a concern for the UK. We need alternatives to increased imports of oil, gas and coal. Just like steam power back in the late 18th century, the cost for renewables right now is high, so this supply chain has to be subsidised until innovation can give us better, cheaper and faster technologies that will reduce operating costs to market rates.

Before we link the supply chain, we start with the development, environmental, regulatory and legal framework that can make this all possible – this will be up to 5 per cent of total offshore costs.

All supply chains are made up of three key flows from start to finish – the physical flow of goods, the information to process, track and trace components and services, and the cash flow that funds the whole process. In support, we have the services and skills that provide the resources to make things happen. Let’s look at the end-to-end flow:

  1. Infrastructure. The grid that will connect the three fields off the Humber will become part of a European-wide supergrid. Wind does not blow all the time in one place, so this will facilitate balancing across fields. This extends to the subsea cables and the resources required to install the connecting framework for the supply chain to function.
  2. Manufacturing. With assembly, it accounts for 50 per cent of total costs. Wind turbines are big and heavy and the Humber ones will stand in 50m of water. A 7MW Vesta turbine weighs 800 tonnes and the blades sweep an area three times the size of a football field. The big ticket item are the blades, at 20 per cent of total costs, and with turbine components are made in specialist factories in places such as Bremen, Germany. The UK is not a manufacturing player right now, so our supply chain picks up the story with collection and transport to the quayside at Green Port Hull.
  3. Assembly. These days, no product is sourced and made in the same place. Take a typical pair of jeans with denim from Thailand; thread from Vietnam; rivets from China and zips made in Japan. The same goes for the Airbus, with about half manufactured in the UK. The wings are built in Broughton in North Wales; the undercarriages are made in Gloucester; the sophisticated avionics by small businesses in the Midlands and the North and, the best engines in the world are made by Rolls Royce in Derby. Logistics is the means to pull this all together and the Humber will be the assembly hub for all components that will go into the turbines and wind farms offshore. The £80 million Siemens assembly factory will be one such catalyst. Able UK on the South Bank should follow.
  4. Shipping and support. After years in the doldrums, things are moving for local shipyards. Local firms Rix and Dunstons are building three state-of-the-art aluminium vessels at Paull worth £5.1 million. MMS is another company developing support vessels. Our estuary is unique and the expertise of Humber pilots will be invaluable in reaching the wind farms.
  5. Installation. Twenty per cent of total costs. Try changing a light bulb on a three-legged stool while standing on one leg, or install a turbine in the North Sea with waves twice the size of a two-storey house and winds moving fast. First, we will have to transport about 7,000 to 10,000 tonnes of sand and cement for the foundations and then, erect the structure. Health and safety requirements are leading to local firms such as Arco designing fit for purpose equipment and tools from hard hats to workwear.
  6. Operations and maintenance. The price of a Mercedes Benz is about 20 per cent of its total cost – the real cost is over a lifetime and supply chains have to adjust to replacement components and repair. This is where money will be made or lost and will be 25 per cent of total offshore costs. A major innovation will be to use digital technology so that each component offshore can be monitored remotely. RES Offshore in Grimsby is working hard on integrated services in this area.
  7. Decommissioning. North Sea Oil and Gas will have to take down and dispose of more than 470 rigs over the next 30 years – this £30 billion project, with £3 billion up to 2016 – will put pressure on supply chains and impact offshore wind. This is happening now.
  8. Cross cutting services. Running through the offshore oil, gas and wind energy supply chain like a stick of rock is heavy lifting. We will need the cranes and the skills to move components and turbine blades all along the line and this skill is exportable.

Then, there is the rest. I asked an oil industry expert what his biggest headache was in offshore projects in Africa and South America: “The supply chains for food and equipment and the last mile into the ports.”

From hotels and sandwich shops near all Humber Port facilities to Hull Truck Theatre for a night out. This is like a Football Stadium on match day – there is more to this than kicking a ball around the pitch.

This post was written for, and published by, the Hull Daily Mail as part of a series of articles on renewable energy and skills in the Humber.

 

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