In aSSocIatIon wItH

nuclear Supply chain Gap analysis 2013

Report Prepared and compiled by: Dr Malik Khalid Mehmood PhD Chief Technical Advisor

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Supply chain Gap analysis 2013

In 2012 the US nuclear supply chain market was estimated at

$100 billion and recent industry analysis anticipates that nuclear

new-build investment will reach some $1.5 trillion by 2030.

Over the next 15 years $500 billion will be spent globally on

international procurement to support nuclear new build - this

anticipated growth calls for the support and development of a

robust and reliable nuclear supply chain.

A nuclear plant requires millions of components, and if new

suppliers of nuclear-grade components are going to support the

supply chain industry and manufacture reliable safety critical

parts, they need to gain the required certification.

We invited industry experts to comment on the gap in the nuclear

supply chain and asked them - whether they saw it as an issue,

where the main gaps were and how they planned on tackling

them.

After interviewing 250+ nuclear experts working in the US and

the global supply chain industry, nuclear energy Insider

have collated the results to give you the latest market data.

The results indicate that there is ample capacity and demand in

the supply chain - and a developing international market will lift

investment, add more competition to the market place and hence

encourage improved services, innovation and modernization.

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Playing to win in the nuclear Industry

"A renaissance within a renaissance?" could be the heading that depicts the outcome of nuclear energy Insider's recent supply chain gap analysis. We view this concept with a positive frame of mind.

Over the past several years the renaissance banner flew high over the industry; the goal was US domestic new-build. Since nationwide new-build has not fully materialized, that goal is different.

This survey illuminates those new insights. even without the traditional

renaissance there is perceived opportunity in the supply chain, according to 80+ percent of respondents. they see growth in emerging needs across the board -- the availability of equipment, engineering skills, and facilities management are identified as the three major gaps.

Almost half the respondents identify 'existing operations' of some sort as the

greatest demand for supply chain services.

A Whole new Meaning

What does that mean? "Existing asset utilization" may be the code words for "renaissance" now.

Without extensive US new-build in the near future, our existing nuclear facilities have become ever more valuable. The 20 percent of the electricity we supply to the nation, especially as the economy gains momentum, is needed juice for growth. our end-product becomes more valuable. So do our plants.

In the US vendor base, equipment, engineering skills, and facilities management

are noted as critical needs along with quality assurance, training, safety and consulting services as important needs.

What is the thread? People. Talent, the knowledge and skills that are the foundation

of any industry's integrity.

Industry cluster experts talk about the 'social glue' that makes clusters and supply

chains work well. The personal touch is the grease in the gears. In Start-up nation, a book that describes the way Israel has been innovative and successful, one official says, "...everybody knows everybody, and there is a very high degree of transparency." Knowing each other and working together are traits of cluster success.

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People Drive Success

A critical supply chain gap is in our future workforce. One estimate says that

within the total 59,700 US employees in the industry, there can easily be 23,200+ jobs to fill in the next five years. There is that much turnover. "The contraction in the nuclear workforce in the 1990s and the slow pace of hiring in the last decade has left an incumbent workforce that is aging, with up to 39 percent eligible for retirement in the next five years," says this source.

This Insider survey is one more marker that we need to address the gap sooner

rather than later. Addressing workforce issues requires a unified industry approach.

In the carolinas' nuclear cluster - in fact across the carolinas' energy cluster - we prefer to look at teamwork like this:

"coordination means we share data; cooperation means we

share resources; collaboration means that we share goals."

We have the data. That’s easy.

In some regions there are companies that have come together to support academia, that is good coordination. That’s a bit more of a challenge.

Collaboration is toughest and most productive. Let’s introduce collaboration in a profoundly meaningful way. Unbundle traditional higher education and corporate training models to meet our talent and skill needs. Add more options. For instance, carolinas' nuclear cluster companies band together to develop the highest potential young nuclear leaders in our states. Industry competitors work side-by- side to teach about policy, innovation, managing, and other critical thinking skills. This leadership energy carolinas program is in its fifth year, and makes these valuable human assets more valuable to us.

Our cluster just finished an intense two-year effort of supply chain education for small firms, bringing networking and industry education to companies that would not easily find such resources. We put a personal face on a big industry....eye-to- eye...building transparency and relationships.

Sound like any industry you know?

"Learn to let go of the past... what is done is done...."

What next?

Act decisively to close the gaps, but that means more than traditional training or

procurement work. It requires a revitalized state of mind. Our young leadership class reviews a book each year called, Sway - the Irresistible Pull of Irrational Behavior by Ori Brafman. That book has a lesson for us, "... learn to let go of the past....what is done is done..." Sway says that people can be fenced-in by the past and what others say. As a result, people play not to lose, they don't play to win.

Instead, let's chart our own success. We can look at the developing gap as a real threat or, as Sway describes, treat it as an opportunity.

The nuclear industry is in an environment to win: assets growing in value, a carbonless product when carbon constraints are desired, a place for steady jobs when regional economies cry for employment, and an energy resource essential to build local economies.

There is a renaissance within a renaissance. As long as we collaborate - truly

share goals - how could we not win?

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Who was surveyed?

Nuclear energy Insider took a cross section of the industry to ensure a fair forecast of industry movements

and developments in the supply chain. What is your primary job role within your company? in which region are you based?

30.7%

15.8%

14.0%

14.9%

9.3% 5.6%

2.8% 3.3% 1.4% 1.4% 0.9% 0.0%

Which of the following best describes your organization??

tier 2 contractor

ePc contractor

tier 3 contractor

oeM

utility

regulator

25%

22%

19%

19%

12%

3%

uSa uK asia europe

68.1% 8.0% 4.2% 8.0%

asia Pacific canada Middle east other

1.4% 6.6% 2.3% 1.4%

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Is there a gap in the U.S. supply chain?

How much of your time is dedicated to supply chain related activities? Do you agree there are current gaps in the U.S. supply chain vendor base?

all 10.2% Strongly agree 29.8% Majority 21.4% agree 59.5% Moderate 44.2% Disagree 9.8% little 21.9% Strongly Disagree 0.9% none 2.3%

Nearly 90% of respondents recognize that there is a gap in the U.S. supply chain vendor base and nearly 60% of the respondents Strongly agree there is a gap.

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What is causing the gap in the U.S. supply chain? What do you identify as the main driver(s) for the gap in the u.S vendor base?

There is a clear lack of experienced young personnel coming into the industry to replace the ageing workforce. There is a need to focus on integrating more experienced personnel into the processes supporting manufacture, maintenance and operation, and management."In the absence of in-house personnel, hire experienced consultants."

53.1%

36.3%

21.3% 21.3% 18.1%

14.4% 13.1%

lack of lack of lack of lack of lack of lack of lack of nQa1 specific efficient competitive Quality training experience

suppliers equipment delivery / pricing / assurance / ageing availability long lead high cost workforce

times

Research demonstrates there are 'significant impacts to Doe/nnSa nuclear

construction projects' and that it is 'always the customer / tax payer that is most affected. never the stock holder or Board members.'

"Ultimate impact is at the utility level, however the industrial

and ePc element suffers from years of marginal investment in

capital equipment and professional talent."

Who does the gap in the U.S. vendor base affect the most?

utilities 42.5% oeM's 11.9% ePc's 24.4% tier 2 contractors 10.6% regulators 5.0% rate payers 5.6%

Suppliers feel that nQa1 is open to so many interpretations there is a lack of understanding, direction and that the "attitude in supply chain management is lacking collaboration". This absence of "clear & concise specifications along with appropriate oversight of the supply chain" is hurting the industry and preventing an efficient timely strategy being implemented.

The utilities take a similar stance citing the "lack of coordination and political vested

interest" as a key problem area. But predominantly, there is a lack of engineering skills, trained personnel for project oversight and not enough competition amongst nQa1 suppliers that "provide a quality product beyond good paper". Specific parts are expensive with long lead times and there is not enough focus on the success of the outcome.

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the biggest challenges in the nuclear supply chain Which do you think are the 3 biggest gaps in the U.S. vendor base?

There is demand for increased training efforts to better manufacturing capabilities and skills, as well as stronger

business infrastructure to support nuclear manufacturing.

75.0%

60.6% 64.4%

41.3%

24.4%

10.6% 9.4% 10.6% 6.3%

equipment engineering Facilities Safety services Quality training It systems consulting legal services availability skills management assurance programs services

(nQa1 compliance)

One of the main issues stressed by the utilities was the need for better education, transparency and

knowledge. there is a lack of supply chain vendors with current modern technology and experience in

engineering, construction and decommissioning services.

The lack of modernized manufacturing equipment and skills means that there are very few success stories

of new nuclear projects that have been completed within budget, scope and schedule.

The industry is lacking in specific skills sets such as efficient welding services,

procurement services and qualified craftsmen for example electricians, health

Physics, technicians, etc.

"A supply chain 'gap' does

not necessarily mean no

availability. We are in a global

marketplace. It means supply

chain efficiency - which can

always be improved."

Additional points that were highlighted:

• Forgings and raw materials compliant with nuclear codes

• Obsolescence

• Lack of understanding of fraud/

counterfeiting prevention

• Ability for nuclear fleet across companies

to share critical spares and consistent processes.

• Heavy / ultra heavy forging

• Nuclear qualified foundries

• Training simulators

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Key problem areas

Some of the key problem areas identified were equipment availability in the U.S., engineering skills and effective site management. We asked what the key causes were - these were the most commonly sited:

equipment availability engineering Skills facilities management

lack of experience in young Heavy equipment / major parts Procurement skills

workforce - training programs

Pumps, valves ageing workforce Bad communication

Software, It welding engineers Plants operations and maintenance

reverse engineering for obsolete Better leadership - poor senior obsolete parts parts management skills

control and Instrumentation design no flexibility in production nuclear grade capabilities skills

Seismic testing equipment, Managing new equipment / new lack of training programs emergency and safety related plant activities

ageing workforce / retiring Specialist equipment Site construction personnel engineers

understanding digital control long lead times I.t. / Digital skills systems

Succession planning - start to loss of manufacturing capabilities Program implementation

finish skill sets

lack of Qa program Parts with pedigrees and certs Procurement understanding implementation / clear guidelines

The ageing workforce is not all bad news -

companies should embrace it as an opportunity to take advantage of the more tech savvy generation and implement on-going training programs and platforms to mentor young career individuals. "You can mould young recruits as they are not stuck in old ways"

"Gap in retiring engineers and

incoming, new graduates"

Again much of the feedback from ePc's was

based on the fact that 'far too many sites are managed with displaced workers who don't have the skill base to efficiently manage the facilities'. utilities sited equipment availability as an issue due to the lack of qualified U.S. manufacturers. In addition, there is the need for more competition for quality hardware with fewer paper requirements as numerous parts are currently sourced oversees instead.

The suppliers stated that the number of "legal and financial liabilities mean that many vendors prefer to sell commercially and make the purchaser bear the cost of dedication", as opposed to the expense of becoming a qualified supplier.

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Global supply chain

Over 80% of the companies surveyed see opportunities in the U.S. supply chain market, 45% citing North

America as the second biggest opportunity for growth behind china. Do you see opportunities within the U.S. supply chain for your company?

Yes 81.5% no 5.3% n/a 13.2%

Does your company have plans to explore the global supply chain market to

Where do you think the biggest supply chain opportunities are for growth?

49.0% 45.7%

27.8%

12.6% 14.6% 11.3%

20.5%

fill the gap in the u.S. market?

37.1%

North America

Canad

a

Europe U.K. India China Middle East

An internationally diverse supply chain is evolving to support the nuclear plant 29.8% construction and there is plenty of scope for competition, a large global market

will boost investment, and a diverse range of players in the market will encourage innovation.

12.6% 10.6% 9.9%

"With regards to new construction, suppliers could fill the gaps

if it was obvious that there would be a steady stream of need. Yes, already

have a global supplier base

Yes, in the

next 12 months

on going debate

Increasingly

likely

no, we

use local suppliers

the unsure future of new plants will restrict uS suppliers from

doing what is needed and many of the items will need to be

sourced internationally"

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We asked 250+ specialists to identify the area with the greatest demand for

nuclear supply chain services Where is the greatest demand for supply chain services in the nuclear industry?

39.7%

23.8% 19.9%

7.3%

"Suppliers need to take an interest in developing QA programs that can confirm acceptability of their product. There seems to be a significant lack of interest in satisfying nuclear QA requirements - a major education program should be undertaken by an industry/regulatory consortium to train suppliers." aside from a lack of clear regulations there seems to be a huge gap in communication, especially for the smaller vendors. There is the need for "better communication between small mills, the middle men such as the distributors who deal with the utilities directly, and better understanding of what is required, both commercially and technically."

The U.S. needs to recover the leadership in the civil nuclear plant

business, 6.6% successfully introducing new NPP's and understand what will trigger new projects

2.6% abroad, in order to develop the supply chain market to support the industry enhancement.

construction projects

Plant maintenance

projects

Plant enhancement

projects

Decommissioning emergency projects preparedness

upgrades

constructing on site waste

storage facilities

"while the US nuclear industry has not been building new

reactors over the last 30 years, other countries (e.g. Korea,

China, canada, etc.) have been. These countries have

amassed a wealth of knowledge, people and supply chain

equipment that The principal comment was with regard to increasing engineering skills, improving supplier quality and encouraging a more competitive market. other responses included: M&A on plants and Fukushima regulatory response Initiatives.

can be used to fill the gaps in the US vendor base."

the US has the potential to take advantage of a cash rich growing nuclear industry

and provide quality services where the industry is lacking. But at present it seems that a lack of understanding, clear cut regulations, efficient training programs, vendor quality and long lead times is hindering the U.S. nuclear supply chain industry from reaching its full potential. It is time to address these long standing issues, and as carolina nuclear cluster suggests, look at the developing gap as

an opportunity for growth, and a chance to do things better.

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Nuclear energy Insider Thank you for your interest in the Supply chain Gap analysis study. Nuclear energy Insider hopes you found the information collected interesting. Dr Malik Khalid Mehmood PhD Chief Technical Advisor