OEMs to scale up production capacity without affecting the supply chain or increasing capital expenditure with outsourcing
Palo Alto, CA — July 20, 2006 — Demand for wind energy systems in 2005 touched 58.7 percent, pushing production capacities and maximizing the utilization factor of original equipment manufacturers (OEMs). Amid future expected increase in demand due to extension and/or sustenance of incentives and subsidiaries, tremendous pressure on the supply chain of the wind industry is forecasted.
In looking to alleviate this problem, the industry is increasingly looking at totally or partially outsourcing component manufacturing to avoid missing production deadlines on booked orders.
Consulting firm Frost & Sullivan finds that the World Wind Energy Generator Market earned revenues of $16.81 billion in 2005 and estimates this to reach $ 18.25 billion in 2012.
"Increased demand has capitulated OEMs 100 percent vertical integration strategy to a 100 percent outsourcing strategy," notes Frost & Sullivan Industry Analyst Pramodh Panchanadam. "OEMs that establish long term supply agreements with their component suppliers will be the ones capable of meeting customer requirements through short lead time and best price."
Outsourcing expects to help OEMs scale up their production capacity without affecting their supply chain or increasing their capital expenditure. Further, by effectively securing long-term contracts, OEMs can efficiently plan their production peaks and troughs in tune with the market trends. This move is not restricted to only the OEMs but also among other sections of the industry, like such developers as FPL energy that has managed to procure fixed supply contracts with OEMs over the next two years.
Moreover, strong dependence of the wind energy market on government support and political will has resulted in OEMs restricting their expansion of production facilities adopting a more sedate wait and watch approach. However, long-term policy commitments expect to change this attitude.
"The wind industry, to sustain growth, will need to look in to what it can do to pull away from a subsidy supported to market driven entity," explains Pramodh. "For this, it will need to entrench on market fundamentals such as restructuring its supply chain, distribution network and marketing structure."
In addressing supply constraints and rising prices, wind energy system and component manufacturers are looking to attack the problem through moving production of non-essential components to low cost centers and increasing the number of vendors supplying the components. This move expects to spread the risk and help the OEMs to better service their customers.
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