Resiliency, diversity, certainty all critical for supply chains – AES executive

➤ Varying policy decisions are among the potential disruptors that companies must accommodate as they work to secure supply chains.

➤ The US Inflation Reduction Act encourages companies to onshore manufacturing, but the US solar sector still largely relies on imports.

➤ Planning for different scenarios is crucial for staying on top of changing conditions and lead times for supply chain resiliency.

S&P Global Commodity Insights spoke with Jennifer Cooper, vice president of global supply chain at AES Corp., during the American Clean Power Association's CLEANPOWER conference earlier in May about how the global independent power producer, which also operates two regulated US utilities, is managing its supply chains. The following is an edited transcript of the conversation.

Jennifer Cooper, vice president of global supply chain at AES Corp. Source: AES Corp.

S&P Global Commodity Insights: What are the biggest things you are seeing for supply chains?

Jennifer Cooper: In general, where we're seeing long-lead items is in high-voltage equipment, with COVID and manufacturing capacities not expanding. [Engineering, procurement and construction firms] are struggling to get things like breakers and switch gears, etc. One of the things that we are trying to tackle on the supply chain is managing those long-lead items. Things are getting past three to five years. We're now thinking through: How do we go in and manage with our pipeline when it takes time to go in and develop these projects? We're going to make sure we have the right equipment that we can deliver to meet those project time frames. Lead times are probably the biggest thing that we deal with from a supply chain. We're constantly managing the political environment to understand what the impact of tariffs may be on our future supply.

What are some key priorities for supply chain that you are focusing on?

One of the biggest things we're focusing on is resilience. We see a lot of change that is going to occur. To be resilient from a supply chain perspective is imperative for us to be able to manage. We also need to make sure we have a diversified group of suppliers. One of the key things to do that is thinking through domestic manufacturing, making sure we have very strong strategic partnerships with people that can manufacture in different locations, and making sure that you can adjust and be agile enough to be able to deal with epidemics or supply chain disruptions or even changes in political views.

What does that look like?

Resiliency first starts with your strategy. The idea is to have a resilient strategy that allows you to manage and to adjust based on potential planning things that can occur. We think through our strategy from good to bad and how should we adjust our supply chain associated with that. We do scenario planning to understand the strategy that we need to do. And then it's being able to execute on that strategy with strategic partners that are by our side that can adjust with us.

Are you looking at it overall, on a project-by-project basis, or by technology?

We look at it on a portfolio basis. We look for strategic suppliers that can support us in multiple areas. We do have some that are technology focused, but we do try to find suppliers that can help us in multiple renewable-type environments. We're not just a renewables company; we also have other types of generation, and we utilize the same suppliers to support in other parts of our business too.

Can you expand upon your priority for diversified supply chains?

Definitely want to have more than one supplier. You don't want to sole-source to one supplier because if something happens to them, you don't have the flexibility to be agile enough to change. We typically like to have several suppliers for any category that we have. It's also good to understand, what geographic regions do you want to participate in? What are the risks associated with being in those geographic regions? Part of our strategy is to have some domestic manufacturing to be able to support as well as to have some other geographies that can manage as things change.

How have you seen the supply chain change over the past few years?

Pre-COVID there's a lot of ideas of globalization. Almost just-in-time inventory, you work with the same suppliers and really not agile. COVID forced supply chains to rethink. So, you're starting to see in every single country people bringing back supply to their countries. You see people bringing it back to Europe, to the United States. You're going to see more of that over the next few years as people are trying to manage the fact that globalization, especially with some of the thoughts on China, are not productive to long-term sustainability. You're going to see people manage to have more resilient supply chains. They're going to basically diversify their supply chain across different regions to make sure that they have flexibility. And you're going to see people manage not just-in-time, but actually have buffers in their inventory to make sure they can withstand small blips of disruption.

Are there regulatory or policy items that would be helpful for supply chains?

Supply chain is about planning. They have to think long-term, readjust. Where it would be helpful is understanding government's policy so that we can execute. For example, the domestic content rules aren't completely out. Having clarity on calculations, on how things are exactly going to be calculated so that we can plan and adjust our supply chains is important. We can make some estimates or guesses, to manage risks, but until we know, sometimes it's hard to get manufacturers to think about or move forward in case there's uncertainty on rules. So, generally, uncertainty is not good for our business. The more certainty that you can put into rules and policies so that people can plan for it, the better that supply chains can adjust.

What is on your wish list for supply chain?

I'm actually quite excited about artificial intelligence. The ability to have data quickly and be able to analyze it and adjust your strategies quickly is an area that I definitely see in the next few years will provide innovation and different ways of managing than we've probably done supply chain in the past. So that one excites me because of where we go; the more data we have, the better we can make more intelligent decisions for our business. It's the connections that you don't always make that AI provides great potential.