With the renewed emphasis on green energy, and a national net-zero greenhouse gas emission imperative planned for 2050 by the Biden Administration, significant investments must be undertaken to improve procurement processes — in excess of $2 trillion, as estimated by the U.S. Department of Energy.
A significant percentage of that spend will be concentrated in the electric utility sector. To ensure maximum return on the investment, industry procurement management will have to embrace best practices for streamlining processes and implementing next-generation technologies. The drive toward digitizing procurement will be a major focus initiative for the utilities industry.
Over the past decade, procurement organizations in many electric utilities have significantly advanced their capabilities, introducing concepts of strategic sourcing and seeking better ways of managing spend, suppliers, and contracts. Opportunities for improvement still abound, however, since the procurement function in utilities has often evolved independently across multiple business operating units:
The varying initiatives and objectives of the procurement function across utility companies can lead to siloed operations and suboptimal performance. Looking across business processes, technology and performance measures, leadership sees significant disconnects — and with them, opportunities for improvement.
Procure-to-pay processes execute the complete procurement cycle from the time a purchase requisition is created to when the invoice is paid. A fully integrated procure-to-pay process will provide end-to-end coverage and tracking functionality.
Typically, most utilities have implemented manual processes with limited standardization and integration across operating units and with suppliers. As a result, companies often are faced with time consuming and expensive operations.
A minimal level of automation might exist throughout the procure-to-pay process, requiring a high level of manual interaction. Spend analytics should be undertaken as an ongoing initiative every few years to establish more control over spend dollars and value generated. Procurement management should explore opportunities such as the implementation of e-procurement technology with punch-out catalogs, to drive toward a more optimal state of procurement.
Utilities should plan to initiate improvements in order to:
New systems aid in the procurement process and can produce output reports to measure, improve and control uniform performance across the organization. Preferably, the technology will provide a single integrated system that is fully automated and produces timely analytics and reports for effective decision and management.
Typically, most utilities are managing procurement activity in functional silos across multiple operating units, with a mix of manual and electronic processes with basic reporting capabilities. Typically, we see utility organizations utilizing manual systems such as Excel or Access databases, as well as enterprise resource planning (ERP) applications, to support the procurement lifecycle across multiple operating units.
Significant investments in technology will have to be made over the course of the next three to five years in order for utilities to mature their processes and enhance existing systems. Implementing new applications will also be critical to recruiting, developing and retaining human resources from a reduced talent and labor pool. If your technology is older than the people using it, your human capital is at risk. The new generation of talent is growing up on NextGen technologies, and won’t tolerate a less-than-current technology support infrastructure.
Master data management is another key success factor that’s often missing in aging multi-system environments.
Given this state of affairs, utilities should set their procurement technology strategy to implement:
Utility companies need to be able to measure the performance of their supply networks. Valuable tools include executive dashboards, balanced scorecards, key performance indicators, and benchmarking.
Typically, utilities have some basic metrics along with ad hoc benchmarking activities to measure procurement performance. However, there’s no standardized approach to procurement and supplier scorecards. There are no well-defined metrics or processes to track and report procurement performance in a consistent and meaningful manner. There isn’t a consistent definition or shared meaning of “cost savings,” with no follow-up confirmation of the actual savings achieved. And operating companies often don’t value cost savings when they’re not involved in the supplier selection.
To ensure a consistent performance-measurement system, utility companies should move toward the following:
As utilities face challenges arising from the pandemic, bad weather and a shrinking labor pool, they need to embrace next-generation technologies to power procurement performance. Utilities must act to capitalize on available funding and public awareness, so that they can continue to efficiently deliver power to the communities they serve.
Sandeep Shah is global procurement consulting practice head, and TK Subramanian is an engagement director, with Tata Consultancy Services (TCS).
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