Highlights from the 2010 Wind Energy Buy-Chain Survey
In the midst of difficult economic conditions, the US wind power industry faced significant difficulties in 2010. Installations were hindered by factors such as ongoing challenges in securing project financing, low natural gas prices favouring gas-fired generation, and decreased electricity demand caused by the recession. In total, the USA added 5,115MW of wind capacity in 2010, about half the total of installations added in the previous year (American Wind Energy Association). Such a rapid drop in one year, especially following a stretch of 39% compound annual growth over the previous five years, would shake many industries to their core. What are US wind industry manufacturers and service companies looking for now?
By Tim Kumbier, Loch McCabe and Terri Schroeder, Shepherd Advisors, USA
In November 2010, Shepherd Advisors and the University of Michigan Ross School of Business conducted the second annual US Wind Energy Buy-Chain Survey. Survey invitations were sent to more than 2,000 wind ‘supply chain’ participants located in the USA, including utilities/power producers, wind farm developers, wind turbine original equipment manufacturers (OEMs), manufacturers (Tier 1, Tier 2, components), manufacturing equipment suppliers and service providers (e.g. engineering services, construction services). We received 166 survey responses (8%), of which 90 responses were completed surveys (4%). Manufacturers represented 47% of the respondents, including wind turbine OEMs (5%), Tier 1 suppliers (13%), Tier 2 suppliers (9%), component suppliers (13%) and equipment suppliers (7%). Service providers accounted for 35% of respondents, while utilities represented 8% and developers 10%. For more about the survey, its methodology, demographics of respondents and complete findings, please go to www.shepherdadvisors.com/home/publications.
Wind Industry Market Expectations
Business Prospects: Overall, despite the challenges in 2010, the majority of respondents expressed optimism for the wind industry, and positive expectations for steady or rapid growth. A total of 60% were ‘positive’ or ‘very positive’ about prospects for the wind industry in 2011, and 79% were ‘positive’ or ‘very positive’ about the industry’s prospects when the time horizon was ‘over the next three years’. Respondents were generally bullish on expectations for their companies’ wind revenue growth in 2011. Fully 75% of respondents expect their company’s wind revenues to increase this year. About one-third of respondents (34%) expect wind revenues to grow more than 10%, and nearly a quarter (23%) expect wind revenue growth to exceed 20% (see Figure 1).
Impact of 2010 Election: Respondents were less sanguine about the results of the November 2010 election. With the election fresh in their minds, 45% of respondents indicated that the ‘outlook for the industry as a result of the election’ was ‘worse’ or ‘significantly worse’, 39% believed the outlook was ‘no different’, while 16% believed the outlook was ‘better’ or ‘significantly better’.
Supplier Expectations
Adding New Suppliers? In 2010, 16% of the respondents added four or more suppliers to service the wind industry, 30% added one to three suppliers, and 54% added no new suppliers. ‘New capabilities are required’ was cited most often as the primary reason for adding new suppliers. Going forward into 2011, 44% indicated that they expect to add suppliers in the next year, while 26% said that they did not expect to add suppliers, and 30% were unsure. For those expecting to add suppliers, ‘new capabilities are required’ and ‘anticipating increase in volume’ were cited most frequently as the reasons.
Supplier Attributes: The survey asked respondents to rate the level of importance of 14 different supplier attributes they may consider when choosing suppliers to serve the wind industry. Respondents indicated the level of importance on a scale of 1 to 5, where 1 is ‘not important’ and 5 is ‘extremely important’.
The most important attributes (score 4.0–5.0) were:
When compared to the results of the US Wind Industry Buy-Chain Survey conducted by Shepherd Advisors and the University of Michigan in 2009, all of the most important attributes were the same with one exception: in 2010 the attribute of ‘financial stability/strength of supplier’ rose to the top five, displacing ‘rapid turnaround/delivery’ from the upper tier. Perhaps this is not surprising!
Gaps between Importance and Satisfaction: Respondents were also asked to indicate how satisfied they were with their key suppliers across this same set of attributes. The scores for importance and satisfaction are juxtaposed on a chart (Figure 3), displayed from highest importance (top) to lowest importance (bottom). Interestingly, the largest ‘negative’ margins or gaps (difference > 0.40) between satisfaction and importance were generally for the most critical supplier attributes. In descending order, those attributes with the greatest gaps were:
In comparing the 2010 and 2009 survey results, the largest gaps between importance and satisfaction existed for the same five supplier attributes. But, the relative order of these attributes shifted quite a bit, underlining both the intensive competitiveness of the industry and its greater maturity (see Table 1).
Table 1. Largest gaps between importance and satisfaction (top five)
Strategies to Improve Competitive Position in 2011
In terms of improving their competitive position, 50% or more respondents mentioned cost reduction, product differentiation and strengthening of sales/marketing most often among their top strategies for improving their competitiveness in 2011. As shown in Table 2, much less important were strategies such as vertical integration or strengthening distribution channels.
Table 2. Strategies and tactics to improve competitive position in 2011 (% of time respondent selected among ‘top three’ strategies)
Summary
Despite a challenging year in 2010, US wind industry respondents are optimistic about growth prospects in the wind industry in the USA in general, and their prospects in particular:
Research Limitations
Shepherd Advisors recognises that there are research limitations in both sampling and survey design. For instance,
survey respondents were required to identify themselves as either manufacturers (which included OEMs; Tier 1, Tier 2 & component manufacturers; equipment suppliers), service providers, developers, or utilities/power producers. All respondents were asked to categorise themselves into a single type of company, though we recognise that some respondents may actually fit across multiple types, and others may not quite fit any of the given types.
Acknowledgements
Shepherd Advisors wishes to extend its sincere thanks to Dan Marano, Suzy Salib, Masaru Tarui and Tomoya Watanabe, and Dr Anocha Aribarg of the Ross School of Business at the University of Michigan, for their extensive assistance in the survey design and execution.
About Shepherd Advisors
Shepherd Advisors is a customer-centric management consulting and market research firm that helps companies and communities accelerate business success in clean energy and other markets. Managements hire us to build and implement growth strategies, improve marketing and sales, diversify market opportunities, sharpen their competitive edge and access public funding. Communities engage Shepherd Advisors to improve resource sustainability and economic development success. Utilities, universities, government and non-profit organisations engage Shepherd Advisors to support their organisational success, especially in clean energy programme implementation, constituent training, resource modelling and forecasting.
About University of Michigan Stephen M. Ross School of Business
The Stephen M. Ross School of Business is the business school of the University of Michigan in Ann Arbor. It offers bachelor's, master's and doctoral degrees, as well as an executive education programme. The Ross School of Business is consistently ranked as one of the top business schools in the world and prides itself in developing strong leaders for the global marketplace through its unique action-based learning approach.{/access}
In the midst of difficult economic conditions, the US wind power industry faced significant difficulties in 2010. Installations were hindered by factors such as ongoing challenges in securing project financing, low natural gas prices favouring gas-fired generation, and decreased electricity demand caused by the recession. In total, the USA added 5,115MW of wind capacity in 2010, about half the total of installations added in the previous year (American Wind Energy Association). Such a rapid drop in one year, especially following a stretch of 39% compound annual growth over the previous five years, would shake many industries to their core. What are US wind industry manufacturers and service companies looking for now?
By Tim Kumbier, Loch McCabe and Terri Schroeder, Shepherd Advisors, USA
{access view=!registered}Only logged in users can view the full text of the article.{/access}{access view=registered}In the USA there is understandably considerable attention given to the ‘supply chain’ of components and services that come together to create wind turbines and projects. Shepherd Advisors examines this flow of products and services from a different angle – what we call the ‘buy chain’. We seek to understand what drives buying decisions at various links in the chain from raw materials to finished product. Our aim is to gain more robust knowledge of ‘Who is buying what?’, ‘Why are they buying?’ and ‘How they are buying?’ In other words, we are interested in the circumstances surrounding buyers’ purchase decisions, and the key factors driving them.
The 2010 US Wind Energy Buy-Chain SurveyIn November 2010, Shepherd Advisors and the University of Michigan Ross School of Business conducted the second annual US Wind Energy Buy-Chain Survey. Survey invitations were sent to more than 2,000 wind ‘supply chain’ participants located in the USA, including utilities/power producers, wind farm developers, wind turbine original equipment manufacturers (OEMs), manufacturers (Tier 1, Tier 2, components), manufacturing equipment suppliers and service providers (e.g. engineering services, construction services). We received 166 survey responses (8%), of which 90 responses were completed surveys (4%). Manufacturers represented 47% of the respondents, including wind turbine OEMs (5%), Tier 1 suppliers (13%), Tier 2 suppliers (9%), component suppliers (13%) and equipment suppliers (7%). Service providers accounted for 35% of respondents, while utilities represented 8% and developers 10%. For more about the survey, its methodology, demographics of respondents and complete findings, please go to www.shepherdadvisors.com/home/publications.
Wind Industry Market Expectations
Business Prospects: Overall, despite the challenges in 2010, the majority of respondents expressed optimism for the wind industry, and positive expectations for steady or rapid growth. A total of 60% were ‘positive’ or ‘very positive’ about prospects for the wind industry in 2011, and 79% were ‘positive’ or ‘very positive’ about the industry’s prospects when the time horizon was ‘over the next three years’. Respondents were generally bullish on expectations for their companies’ wind revenue growth in 2011. Fully 75% of respondents expect their company’s wind revenues to increase this year. About one-third of respondents (34%) expect wind revenues to grow more than 10%, and nearly a quarter (23%) expect wind revenue growth to exceed 20% (see Figure 1).
Impact of 2010 Election: Respondents were less sanguine about the results of the November 2010 election. With the election fresh in their minds, 45% of respondents indicated that the ‘outlook for the industry as a result of the election’ was ‘worse’ or ‘significantly worse’, 39% believed the outlook was ‘no different’, while 16% believed the outlook was ‘better’ or ‘significantly better’.
Supplier Expectations
Adding New Suppliers? In 2010, 16% of the respondents added four or more suppliers to service the wind industry, 30% added one to three suppliers, and 54% added no new suppliers. ‘New capabilities are required’ was cited most often as the primary reason for adding new suppliers. Going forward into 2011, 44% indicated that they expect to add suppliers in the next year, while 26% said that they did not expect to add suppliers, and 30% were unsure. For those expecting to add suppliers, ‘new capabilities are required’ and ‘anticipating increase in volume’ were cited most frequently as the reasons.
Supplier Attributes: The survey asked respondents to rate the level of importance of 14 different supplier attributes they may consider when choosing suppliers to serve the wind industry. Respondents indicated the level of importance on a scale of 1 to 5, where 1 is ‘not important’ and 5 is ‘extremely important’.
The most important attributes (score 4.0–5.0) were:
- reliability of product/service
- quality of product/service
- ability to meet respondent’s specifications
- competitive pricing
- financial stability/strength of supplier.
- rapid turnaround/delivery
- ability to increase production
- quality of sales force
- experience in wind energy industry
- ability to collaborate on product development.
When compared to the results of the US Wind Industry Buy-Chain Survey conducted by Shepherd Advisors and the University of Michigan in 2009, all of the most important attributes were the same with one exception: in 2010 the attribute of ‘financial stability/strength of supplier’ rose to the top five, displacing ‘rapid turnaround/delivery’ from the upper tier. Perhaps this is not surprising!
Gaps between Importance and Satisfaction: Respondents were also asked to indicate how satisfied they were with their key suppliers across this same set of attributes. The scores for importance and satisfaction are juxtaposed on a chart (Figure 3), displayed from highest importance (top) to lowest importance (bottom). Interestingly, the largest ‘negative’ margins or gaps (difference > 0.40) between satisfaction and importance were generally for the most critical supplier attributes. In descending order, those attributes with the greatest gaps were:
- competitive pricing
- reliability of product/service
- quality of product/service
- rapid turnaround/delivery
- ability to meet respondent’s specifications.
In comparing the 2010 and 2009 survey results, the largest gaps between importance and satisfaction existed for the same five supplier attributes. But, the relative order of these attributes shifted quite a bit, underlining both the intensive competitiveness of the industry and its greater maturity (see Table 1).
| 2009 Survey | 2010 Survey |
| quality of product/service |
competitive pricing (?) |
| reliability of product/service |
reliability of product/service (?) |
| ability to meet respondent’s specifications |
quality of product/service (?) |
| competitive pricing |
rapid turnaround/delivery (?) |
| rapid turnaround/delivery |
ability to meet respondent’s specifications (?) |
Table 1. Largest gaps between importance and satisfaction (top five)
Strategies to Improve Competitive Position in 2011
In terms of improving their competitive position, 50% or more respondents mentioned cost reduction, product differentiation and strengthening of sales/marketing most often among their top strategies for improving their competitiveness in 2011. As shown in Table 2, much less important were strategies such as vertical integration or strengthening distribution channels.
| Strategy | % time |
| Cost reduction | 54 |
| Product differentiation | 51 |
| Strengthen direct sales/marketing capacity/capability | 50 |
| Strengthen suppliers/supplier relationships | 46 |
| Geographic diversification | 33 |
| Lobbying of legislators & government agencies | 24 |
| Vertical integration | 16 |
| Strengthen distribution channels | 15 |
Table 2. Strategies and tactics to improve competitive position in 2011 (% of time respondent selected among ‘top three’ strategies)
Summary
Despite a challenging year in 2010, US wind industry respondents are optimistic about growth prospects in the wind industry in the USA in general, and their prospects in particular:
- 60% were ‘positive’ or ‘very positive’ about the industry’s prospects in 2011, rising to 79% when the outlook is extended over the next three years.
- Three-quarters of respondents projected their wind revenues to increase in 2011, with nearly a quarter expecting growth to exceed 20%.
- Respondents ranked reliability of product/service, quality of product/service, ability to meet specifications, competitive pricing and financial stability/strength of supplier as the most important factors in choosing their suppliers.
- Elevation of financial stability/strength of supplier to the top tier may reflect concerns about supplier staying power in uncertain economic times.
- Purchases are generally concentrated among relatively few suppliers, with 55% of respondents purchasing from three or fewer wind industry suppliers.
- The gap between importance and satisfaction scores is highest for competitive pricing, reliability of product/service, quality of product/service, rapid turnaround/delivery and ability to meet specifications, indicating a number of potential unmet needs in critical areas, the same ‘top five’ as in the 2009 survey.
- The gap for competitive pricing increased several notches from 2010, probably reflecting increasing cost pressures in the industry.
- 44% of respondents expect to add suppliers within the next year.
- Focus on wind energy and supplier’s market share ranked relatively low on the supplier attribute importance scale, suggesting opportunities for capable new entrants.
Research Limitations
Shepherd Advisors recognises that there are research limitations in both sampling and survey design. For instance,
survey respondents were required to identify themselves as either manufacturers (which included OEMs; Tier 1, Tier 2 & component manufacturers; equipment suppliers), service providers, developers, or utilities/power producers. All respondents were asked to categorise themselves into a single type of company, though we recognise that some respondents may actually fit across multiple types, and others may not quite fit any of the given types.
Acknowledgements
Shepherd Advisors wishes to extend its sincere thanks to Dan Marano, Suzy Salib, Masaru Tarui and Tomoya Watanabe, and Dr Anocha Aribarg of the Ross School of Business at the University of Michigan, for their extensive assistance in the survey design and execution.
About Shepherd Advisors
Shepherd Advisors is a customer-centric management consulting and market research firm that helps companies and communities accelerate business success in clean energy and other markets. Managements hire us to build and implement growth strategies, improve marketing and sales, diversify market opportunities, sharpen their competitive edge and access public funding. Communities engage Shepherd Advisors to improve resource sustainability and economic development success. Utilities, universities, government and non-profit organisations engage Shepherd Advisors to support their organisational success, especially in clean energy programme implementation, constituent training, resource modelling and forecasting.
About University of Michigan Stephen M. Ross School of Business
The Stephen M. Ross School of Business is the business school of the University of Michigan in Ann Arbor. It offers bachelor's, master's and doctoral degrees, as well as an executive education programme. The Ross School of Business is consistently ranked as one of the top business schools in the world and prides itself in developing strong leaders for the global marketplace through its unique action-based learning approach.{/access}
