Challenges
Facing
Operations An energy company such as Progress Energy faces tremendous
operational challenges.
One of the main difficulties lies in the fact that
energy cannot be stored in inventory. In addition, Progress cannot simply
employ a chase strategy when producing energy because customers do not have the
ability to order energy in advance and wait for it to arrive. Once energy is
produced and put out on the power grid, it is either used or lost. Therefore,
any mistake in forecasting demand too high can be very costly to Progress. However, Progress absolutely cannot
under-
forecast demand either. Many of Progress' customers are businesses, such
as the Charlotte Observer, that must halt their
operations and therefore lose
much money every time they are without power. For the mutual benefit of both
Progress and its customers, a main focus is ensuring that demand is met and
power outages are as short and infrequent as possible. To do so, Progress has a
team that measures the length and frequency of all power outages. Based on
these figures the operations management at Progress makes decisions on how to
correct these problems. Progress may decide to hire outside contractors to trim
trees to keep lines clear of danger. Also, Progress may decide to increase
voltage in an area of growing demand to ensure there is enough energy available
to meet demand.
A particular challenge in forecasting demand is predicting
seasonality. There are two peaks in energy demand throughout the year: one in
summer and another in the winter. Progress has a formula similar to a
regression technique in which they forecast based on trends from previous
years' data. In addition, Progress takes into account such factors as weather
and economy in their forecast formula to ensure all demand is met in each of
these peaks.
Forecasting Demand
Probably the most difficult time for the operations
team at Progress Energy is after hurricanes and ice storms. It is impossible to
forecast the extent of a storm's damage, so Progress is forced to use a chase
strategy. Progress has a number of outside contractors they hire on a need
basis after the storm. The first step taken after a storm is a damage
assessment team is sent out to take a statistical sample of the extent of the
damage and where the damage is. They then plug the data collected by the team
as well as data about the severity of storms winds, rain, etc. into a model
devised based on previous storm's data. The model will then produce an estimate
of the number of contractors that need to be hired to help repair all the
damage as quickly as possible