OM in the News: Terrorists, the Electric Grid, and OM

“Large U.S. utilities are joining forces to stockpile critical pieces of electrical equipment that can be rushed to power companies if they are hit by terrorist attacks, earthquakes or other disasters that could cause extended blackouts,” writes The Wall Street Journal (April 7, 2016). The new Grid Assurance Corporation will store circuit breakers, large transformers and other crucial parts at secure, unidentified locations, and sell them to participating utility companies who need them during emergencies. The venture underscores the growing concern about coordinated attacks and natural disasters that could cripple parts of the country’s electric grid. In 2013, gunmen stood outside an electrical substation near San Jose, Calif., and shot up 17 transformers funneling electricity to Silicon Valley. The transformers were damaged but not destroyed. Nevertheless, the incident spread fear that attacks on multiple substations could unleash lengthy power outages that would cripple other services, such as water treatment and police and fire response.

Currently, there is no federal requirement that power companies share equipment. While all utilities keep replacement equipment, some parts, such as spare transformers, typically sit close to where they may be needed because they can weigh more than 500,000 pounds. That makes them vulnerable to being damaged alongside the equipment in use, in an attack or a natural disaster. “The last thing we want is for someone to do a physical attack and wipe out our spares, too,” said one power company VP.

Many electric power components are hand-built, manufacturing capacity is limited, and ordering them anew requires waits of up to 18 months. While that is acceptable for routine replacement, since the gear often lasts 30 years or more, it is too slow for an emergency.The participants in Grid Assurance estimate they will need at least 100 transformers, often costing $2-$10 million each, so the venture will be expensive, but far less costly than a major blackout.

As we note in the text, combining (aggregating)  inventory  can reduce costs, reduce maintenance repair time, and increase up-time.

Classroom discussion questions:

1. Why is this inventory issue different from other industries?
2. What OM tools can be used to tackle a problem such as this?