Supply Chain Assurance: Challenges & Solutions

Supply Chain Assurance: Challenges & Solutions

2 Expertise. Reliability. Compliance.

Supply and Demand Scenarios •  In 2012 CEH/SRI Consul;ng es;mated that there were approximately 140

million pounds of annual excess domes;c virgin ac;vated carbon capacity in the U.S. and Canada.

•  That same study projected demand growth to be over 600 million pounds by 2017 with 500 million pounds of the growth driven by developing demand for mercury capture.

•  ADA Carbon Solu;ons es;mates that demand growth by 2017 will be more moderate driven by further coal fired power re;rements, advanced PAC products and alterna;ve control technologies.

•  However, even based upon conserva;ve assump;ons on demand growth, supply and demand balances are expected to be ;ght on an annual basis.

•  The greater concern is associated with the seasonal and unpredictable nature of the demand along with a prolifera;ng product mix.

Supply Chain Responsiveness Is Cri;cal

Source: CEH


Seasonality and Product Mix Create Significant Complexity

40 50 60 70 80 90

100 110

Jan

Feb

Mar

Apr

May

Jun Jul

Aug

Sept

Oct

Nov

Dec

EIA Total Coal Consump0on (M Short Tons)

2010

2011

2012

2013

2014 Act July

2015 Est

Source: DOE EIA

22.0% 0.1%

0.1%

9.7%

13.4%

8.7%

5.4%

33.5%

7.1%

•  Coal dispatch seasonality suggests a bi-‐modal peak where summer months could be more than 20% above the average.

•  The implica;on is that even if on average the supply/demand balance is close, there will be periods where demand exceeds supply.

•  The factors that will influence the actual ;ming and loca;on of these peak demand periods are highly uncertain (weather, gas prices etc) and anomalies can be geographically biased (polar vortex, e.g.).

•  Specialized carbon products are being developed in an effort to achieve op;mal performance in specific flue gas condi;ons. In 2013, we predicted 8 products would be necessary to adequately address the varying technical needs of each power plant. Today we project over 12 products will be needed.

•  Due to the low density of ac;vated carbon and the need to store it in an enclosed environment, many plants will have less than 2 weeks of on-‐site storage during peak demand periods.

•  Even if your plant is a base-‐load plant and will not operate with seasonal varia;on and even if the product mix across your fleet is simple, the above challenges will impact each supplier and therefore could impact you.

ADA-CS Estimate of Demand Mix Profile by Product Type


Supply Chain Strategies and Associated Limita;ons

Strategy Limita0ons

Develop Accurate Demand Forecasts

Demand will be impacted by many uncertain and uncontrollable factors. In our interviews with mul;ple power plants, demand is highly uncertain and will remain so un;l these plants gain a few years of opera;ng experience with PAC.

Excess Reserve PAC Produc;on Capacity

PAC produc;on capacity is very expensive. Since capacity payments are not standard in this industry, PAC Producers will be economically mo;vated to sell available capacity.

Mul;-‐Vendor Sourcing In a short or ;ght market, everyone will have limited available capacity which means that if one supplier is short, it is unlikely that the other will be able to respond to addi;onal demand. Furthermore, we will advocate that the best solu;on is an integrated and collabora;ve supply chain strategy. Mul;-‐vendor sourcing makes these strategies harder to execute and it diminishes the leverage you have with your preferred vendor.

Carry Excess Finished Goods Inventory

This seems like the obvious strategy and although we would also advocate for it as an element of any supply chain strategy, it is highly vulnerable to demand forecast accuracy. If the forecast on what plant and therefore what product will peak and when and also where is not accurate, you may find that there is plenty of total inventory in the network, but it is the wrong product or is in the wrong place. If the inventory storage capacity is dependent on trailers or railcars, this can exacerbate the problem crea;ng a shortage of transporta;on assets.


Reliability. is Our Middle Name

•  We are 100% focused on the power industry. Why should that maeer?? –  Our reputa;on in the power industry is ALL that maeers to us. –  We are keenly aware of your service expecta;ons and have built the capability to meet them. –  There is no confusion about where our priori;es lie when things get ;ght. For some…the mercury

capture market is one of several compe6ng priori6es….for us it is our core strategic focus.

•  Our strategy is mul;-‐faceted and involves assets, processes and people. –  We are ver;cally integrated into our core raw materials. –  We own and control our transporta;on assets. –  We only produce mercury carbons , which aggregates inventory and reduces priority conflict. –  We operate two separate plants and have developed a variety of redundant systems, lig capacity

and con;ngency plans to assure supply reliability. –  We have an in;mate and focused Customer Rela;ons group that engages the customer proac;vely

in a contemporary S&OP process. –  We forward deploy inventory through transload sta;ons which posi;ons inventory close to the

customer providing greater security and responsiveness. –  We have developed a proprietary manufacturing and supply chain strategy that enables unparalleled

RESPONSIVENESS. WE CAN GO FROM ZERO FINISHED GOODS INVENTORY TO SHIPPING MATERIAL TO YOUR PLANT WITHIN 48 HOURS!!!


Recommenda;ons

•  Although it is temp;ng to assume supply security is a “given”, recognize that the most significant dis;nc;ons between vendors may be in their commitment and ability to execute reliably.

•  Develop a thorough due diligence process and checklist that include a full assessment of the supply chain strategy. –  Assess exposure to 3rd party raw material or technology providers. –  Assess transporta;on asset control. Is the finished goods inventory strategy highly dependent on

transporta;on assets?? If it is, what are the poten;al implica;ons??

–  Assess opera;onal con;nuity effort including investments in preven;ve maintenance. Ask for on-‐stream ;me and assess redundancy/con;ngency plans.

–  Visit the plants, meet the people and assess first hand the capability of considered vendors.

•  Recognize that your supply could be impacted by other customers or industries. –  Ask what percentage of total revenue will be represented by the power industry. –  Assess the product mix and porkolio of prospec;ve vendors and how this could affect supply chain

responsiveness.

Take Time to Inspect The Capability to Deliver What you Expect


Summary

•  The supply/demand balance combined with an;cipated demand vola;lity and product mix imply likely supply challenges.

•  Supply assurance should become a significant part of the supplier evalua;on and PAC procurement strategy.

•  ADA Carbon Solu;ons welcomes the opportunity to describe our approach in greater detail in person and would also like to invite you to our facility in Coushaea, LA to assess first hand our commitment to reliability.

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Supply Chain Assurance: Challenges & Solutions