Three Keys To Controlling Costs In The Solar Industry

Contributors
Written by ABB Inc.
on February 09, 2012 No Comments
Categories : E-Focus

Although commercial-scale technology to harvest the sun's energy has existed since the 1900s, this decade undoubtedly will mark the dawn of ‘The Solar Age.’ In the U.S. alone, the market for solar energy is at least doubling annually, fueled by a combination of factors that have culminated in a tipping point for the industry.

This article examines the state of the global solar-equipment market in terms of labor, transportation and distribution, and supply-chain complexity. Additionally, we present examples that illustrate the importance of establishing a strategically aligned supply chain now to control costs while building revenues.
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When it comes to documenting hard-cost savings from suppliers, long-term collaborative relationships with trusted suppliers that have strong domestic distribution, engineering, and research and development capabilities beat out newer, smaller suppliers with the lowest per-unit cost.

These savings come largely from reduced labor requirements, lower transportation and distribution spending, and less supply-chain complexity. Let's take a deeper look at each of these:

Labor: To keep labor costs low and productivity high, solar equipment producers should look for suppliers that can provide a high percentage of required components, such as at least 75% of the components that make up a combiner box. This provides ease-of-assembly and enables fast, flexible configurations, which – depending upon design – can mean fewer parts, reduced cooling requirements and fewer labor hours needed for assembly. Parts should be modular, as well as easy to configure and integrate.

Having design input early on from component suppliers also will provide labor savings because the best-possible configuration will be identified prior to assembly. This ensures a smoother production process with fewer delays and less rework due to misapplication of parts, quality issues, etc.

Avoiding a line shutdown and/or overtime to make up for delays results in easily quantifiable hard-cost savings. And, with collaborative preplanning with suppliers, producers won't need to carry as much inventory, which reduces material-handling labor in addition to production costs.

If a supplier is not able to be deeply involved in product design from the start, it is a sign that the engagement will end up costing more over time than what's paid up-front for parts.

Transportation and distribution:
Even though an overseas supplier may have the lowest per-unit price on a component, it doesn't mean the supplier has the lowest overall price when the cost of transportation and distribution is added. To reduce costs in this area, look for suppliers with strong domestic distribution centers – i.e., they should be able to ship within 24 hours if needed. This eliminates the need to pay for expedited shipments over water.

Another way suppliers with strong domestic distribution provide savings to solar producers is with higher delivery quality. The shorter the distance traveled and less handling that parts require, the less likely they will arrive damaged. Furthermore, if a damaged or incorrect part is delivered, the supplier can send a replacement much more quickly from a domestic warehouse than from an overseas location.

Supply-chain complexity: In business, complexity can be costly if not managed properly, because it not only creates waste, but also tends to hide waste. One way that manufacturers can reduce the cost of complexity is to streamline their supply chains.

It makes sense that maintaining fewer relationships reduces procurement costs, as it requires fewer resources and allows both buyer and seller to take advantage of savings opportunities on a larger scale – e.g., consolidated shipments, returnable containers, better cube utilization in shipping containers, bulk purchasing of materials, etc.

Having fewer suppliers also improves a company's ability to align operations to forecasted expectations. Collaborative planning means deliveries of a greater number of parts are in sync with sales expectations. Such sequencing becomes more difficult as the number of suppliers increases, a scenario more prone to production delays and shortages/stockpiles of finished goods.

Example: Better Combiner Boxes, Lower Inventory-Carrying Costs
A provider of behind-the-fence utility combiner boxes for the U.S. photovoltaic market was carrying several weeks of safety stock for disconnect switches because the company's low-cost-country supplier shipped over extended periods, making it difficult to manage production and often causing line stoppages.

Additionally, a number of switches would arrive damaged, and receiving a credit for the damaged goods was a convoluted process, so the producer would absorb the cost instead.

The combiner box producer decided to re-issue a request for proposals on the disconnect switches, and, at a customer's suggestion, sought a quote from a larger provider with a slightly higher per-unit price but with strong domestic distribution and support and a stellar history.

The larger supplier responded quickly with a proposal that detailed not only the specifications on the disconnect switches, but also information on how using the switches could result in a superior, more compact design. The supplier also offered exceptional engineering support and timely product availability.

The combiner box producer calculated the savings based on inventory-carrying-cost reduction and improved quality – an amount that more than offset the perceived higher per-unit price difference.

Within three weeks, the larger company was named the new supplier of disconnect switches.

Watch a video – ‘Keys to Designing a Solar Combiner Box’ – by clicking here.

This article was excerpted from the white paper ‘Controlling Costs in a Highly Competitive, Dynamic Solar Industry.’ The white paper can be downloaded by clicking here. ABB is a leading provider of optimized solar solutions for both photovoltaic and concentrated solar power plants. We help ensure successful solar projects by working with solar developers from site assessment all the way through to installation and commissioning of the plant and have helped solar developers add more than 1,200 MW in capacity around the world.

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