By Rob Wilhite, KEMA Consulting
AMI and smart grid initiatives currently under consideration by many utilities depend upon a complex interaction of available and emerging automation, communications and metering technologies. However, there is growing realization by proponents of this technology that the increased needs for quality and reliability of these investments will be subject to greater risks and will place new demands upon their business operations.
While other regions of the world have experience with the deployment and operation of advanced meters, the combination of advanced meters and communications technologies, in-home devices, and load control capabilities (including under-glass, remote disconnect) has only been deployed on a limited scale in the United States. In addition to the general lack of deployment and operational experience, North American utilities will face further challenges to both supply chain operations and to product quality management, as manufacturing of individual components, as well as entire assemblies, will increasingly be outsourced to off-shore markets.
Addressing these emerging challenges requires utilities to radically re-craft traditional meter quality programs, outline new protocols for communications components and seek to partner with third-party providers with whom they may not currently have relationships. Specifically, a revamped quality initiative is required to integrate traditional metering quality validation (e.g., meter testing, certification) with additional capabilities, including vendor assessments,communication systems testing and certification, and manufacturing standards validation. As a complicating factor, there is an absence of a complete portfolio of appropriate standards against which integrated devices will be tested. Finally, any revised or newly-implemented quality program will also need to address quality controls uniquely required in an environment of rapid technology innovation, large-scale volumes and accelerated installations of the final AMI or smart grid products.
Indeed, some utilities are already making strides in addressing these issues, including program managers with the Edison SmartConnect AMI program.
Paul De Martini, vice president, Southern California Edison said, “Utility adoption of emergent technologies to realize smart grid and AMI opportunities requires new paradigms for successful technology management. Fortunately, best practices already exist in other business sectors. The high-tech sector, for example, uses proven business models for hardware development and venture capital to manage the supply chain risks and to manage “Ëœinvestments’ in product development with growth companies. Over the next decade, utility success will be dependent on effectively integrating these types of practices.”
Time and Money
The lengthy timeline associated with the development and deployment of AMI metering technology presents unique challenges for utility supply chain management. Unlike “traditional” utility products, AMI hardware has characteristics more closely resembling those of computers and consumer electronics, such as rapidly evolving technologies that render previous generations suddenly obsolete; emerging features and functions that build upon lessons learned from similar applications; the need to conform to changing customer requirements and preferences related to design and usability; obsolescence created by a changing application standard as a result of an evolving utility market place; embedded communications technology made obsolete by continuing advances in related, but external, telecommunications markets; and, a rapidly changing market in which vendors are constantly emerging, evolving, and converging.
The rapidly evolving nature of this industry demands unique capabilities within a utility’s supply chain practice that differ from today’s procurement norms. Specifically, a product set evolving as quickly as AMI or smart grid requires the buyer to consider the opportunity cost of delayed purchasing, while balancing this against the value of buying early.
Assuming that a vendor has demonstrated that its technology is sound and meets the utility’s business requirements, the challenge is developing an appropriate due diligence effort to assess the vendor’s projected delivery capabilities–often in a situation where it has no track record or demonstrated capability. This process therefore is fundamentally an assessment of the supplier’s processes and associated results, measured against the utility’s technical, life expectancy and deployment schedule requirements. This information is used to establish an informed prediction of “what will be” as opposed to the more traditional due diligence approach which focuses more on “what is.” The advantage of this approach is early identification and mitigation of risks to the utility’s program.
In the past, utilities have taken for granted that trusted and well-established suppliers would provide needed equipment, materials and services in a timely and high-quality fashion. Today, global suppliers are facing unprecedented demand not only from the United States, but also from Europe, China, Australia, and India. A number of manufacturers and service companies are, or soon will be, facing capacity constraints due to the demand bubble, and given the choice between heavy capital outlays to increase capacity, several are turning to outsourcing as a means to relieve the constraint.
The lucrative AMI and smart grid market has also fostered numerous startups. Much of these firms’ primary expertise is in either telecommunications or electronics, with minimal experience in metering or grid management. Placing a large order with a start-up is an “investment” in that company, and provides a cash infusion that enables the process of scaling up design, manufacturing, quality assurance and delivery systems, some of which may not be fully developed at the time the order is placed. Most of these start-ups incorporate outsourcing as a key component of their strategy.
Because of the rapidly increasing rollout of AMI and smart grid deployments across the globe, demand from various utilities can exceed market manufacturing capacity, which will compound the effect on the supply chain. This is already resulting in longer lead times for AMI products and vendor responses. Indeed, we are already finding shortages of metering product in some markets.
In India, for instance, the Lahore Electric Supply Company and the Ludhiana Punjab State Electricity Board are both unable to meet their growing demand for electric meters. In Australia, one of the asset owners in Victoria has been informed by its supplier that AMI meters are subject to significant delays, causing setbacks in the program rollout.
Quality Assurance Becomes an Essential Element
Given these new market realities for AMI and smart grid products, the focus of utility procurement efforts needs to adapt accordingly. AMI program leadership must now turn to outlining, developing and implementing an enhanced quality assurance (QA) program and methodology to be applied throughout the AMI effort (from scoping through deployment). Based on typical business case expectations for long-term, life-cycle reliability and low annual failure rates, there is greater significance of taking appropriate precautions to manage the quality issues before product is delivered for installation. Additionally, most utilities should seek to instill proper monitoring and controls throughout the AMI deployment, which includes meters, communications devices, field installation logistics and final program delivery.
Utilities should seek to identify, assess and mitigate the potential risks associated with candidate AMI vendors and their solutions, before and during long-term arrangements with them as supply chain partners. This is not just a quality assessment of the supplier’s capabilities or just an audit based on established quality standards (e.g., ISO 9001). Instead, utilities should seek a deeper understanding of a supplier’s capabilities at all stages of design, production and distribution. In particular, utilities should validate whether the vendor’s processes in the early and critical stages of development and ramp-up can support their technical and business objectives.
This new focus on QA seeks to answer a number of key questions, including (but not limited to) the following:
- What methodology and processes are needed to identify and resolve key risks associated with each aspect of the AMI equipment supply chain–e.g., design, component sourcing, manufacturing, packaging, shipment, receipt, distribution, and/or installation?
- What key process indicators (both corrective and predictive) are required for both internal external performance measurement and control?
- How do these indicators need to change over the course of the program, once full-scale deployment is initiated?
- How does the utility AMI team need to incorporate changes to other program processes in response to identified supplier risks and mitigating actions?
- What detailed inspection, test and certification procedures for test laboratories are needed to support supplier qualification and efficient implementation of the AMI program?
Vendor Quality Assessments
A key component of a well-designed QA program is an in-depth assessment of the AMI or smart grid vendors of choice. This is a relatively new aspect to supply chain practices within the utility industry. The assessments can be performed on-site at the design or manufacturing operation–in close collaboration with the vendor’s key engineering and management staff. Assessments identify vendor capabilities within key risk elements, as noted below, and also identify areas where improvement is needed for the vendor to ensure that a utility’s program requirements are met or exceeded.
Elements of a well-designed assessment include (but are not limited to):
- Risk identification and mitigation,
- Design process predictability,
- Manufacturing process predictability,
- Supply chain predictability,
- Improvement and problem mitigation,
- Configuration management / traceability,
- Concurrent business activities impact and predictability,
- Service and support delivery process predictability,
- Management process predictability, and
- Software/ firmware development, test and integration with hardware systems.
Within each element, key questions should be explored that drill down into the specific aspects of the vendor’s systems, processes, capabilities and management approach. The output of this process not only facilitates the successful development of the QA program, but also provides direct and independent validation of the capabilities espoused by the targeted vendors in the utility’s procurement evaluation.
Periodic, follow-up assessments are conducted focusing on specific issues identified in the initial reviews and validating core and emerging priorities established by the utility. As a utility AMI or smart grid program evolves, portions of the risk elements would not require additional follow-up. In addition, the frequency of assessments would decrease from the initial assessments, particularly as consistent results are obtained and the utility gains confidence in each supplier’s capabilities and quality/ risk mitigation levels. In the end, the goal is not for a utility to seek to disqualify a particular supplier from further business consideration, but instead to focus on the factors needed for success. With the development of a sufficient quality assurance program, supported by in-depth vendor assessments, utilities will be better positioned to address the uncertainties of emerging AMI and smart grid technologies. Given further advancements and familiarity with the deployment and operations of these systems, these practices should become a standard for future utility supply chain practices.
Rob Wilhite is vice president of intelligent networks and communications for KEMA.
Utilimetrics: Alliance for Advanced Metering & Data Management Solutions (formerly AMRA) is planning.Autovation 2008: The Utilimetrics International Symposium, Sept. 7—10 in Atlanta, Ga., to bring together AMR/AMI experts and key personnel for four days of the latest and most innovative utility automation strategies and technologies.
Delegates can take advantage of:
Intensive Pre- and Post Autovation Courses such as “Pre-Assessing Communication Technologies for AMR and Smart Grid Applications,” which focuses on the fundamental requirements of a large-scale communications system for AMR and the major building blocks of the system architecture.
Educational sessions designed for electric utility professionals such as:
- “Fixed Network Provides Advanced Metering Functionality”
- “Leveraging Data to Identify Energy Theft”
- “Early Detection of Failed Meters”
- “Implementing AMI Technology”
Electric Utility Peer Forums: Roundtable discussions for electric utility professionals to talk about hot topics, triumphs and challenges.
Autovation Exhibit Hall: A utility’s best source of information about products and services designed to derive more value from an AMR/AMI investment. Up to 100 vendors will exhibit.
Plus, maximize AMR/AMI networking and education opportunities with Breakfast with the Experts, Special Interest Group Breakfast, First Time Attendees Orientation, Opening Reception and exhibit hall receptions.
Utilimetrics is a nonprofit trade association that brings together the industry’s diverse stakeholders to share best practices and promote innovative communication networks and data management solutions that link utilities and customers.
For more information about Autovation or Utilimetrics visit www.utilimetrics.org or call 847-480-9628.