The Chief Procurement Officer’s organization has become a central driver of utility competitiveness and operational efficiency. During the EEI Annual Conference 2017 in Boston earlier this month, we had a number of discussions with CFOs around how Finance and Supply Chain can collaborate more closely to drive enterprise-wide value and efficiencies. Here's what we're seeing.
Utility earnings are under new pressures from slowing electricity sales growth, steadily rising capital expenditures, and increasing regulatory scrutiny. With upward of 80% of spend with external suppliers, managing utility costs adds to this challenging landscape.
Historically, Finance and Supply chain have focused on tactical, price-focused levers to generate savings. Today, however, creating sustainable efficiencies takes aligning around total cost of ownership (TCO)-focused value creation. Working together, Supply Chain and Finance can lead their utility using more advanced, consistent processes that deliver greater value and continued efficiencies.
Roadblocks to Value
It takes a lot of information to move up the supply chain maturity curve to focus on TCO. Two factors typically make it difficult to get at the insights needed to optimize value:
- The data challenge. Current state cost data is likely sufficient for Finance needs. But it's not accurate or granular enough to fluidly translate financial reports into insights and costs that the organization can restructure.
- The organizational challenge. Utility Supply Chain has traditionally operated within a Business Unit "tower" mindset, viewed as order-takers versus strategic partners. Today Finance and Supply Chain need to go as one to Operations and provide transparency into what is possible.
Getting beyond these limitations enhances Supply Chain's ability to help Finance answer a range of strategic cost-side questions, such as cash flow timing around projects based on attributes, insourcing versus outsourcing decisions, and more accurate burn rate forecasts for better budgeting. Success is in the data.
Connected "System of Insights"
Moving from a "system of records" to a "system of insights" will help overcome organizational barriers to Supply Chain's strategic value. Advances in data, data analytics, and “robotic” process and cognitive automation open up new avenues to tackling strategic cost-side questions across a utility’s capital investment, O&M, and business model decision-making process. These technologies can help break down the data and organizational roadblocks that typically hinder supply chain’s impact.
Read our executive brief (eBrief) Align Finance & Supply Chain to Create Value & Efficiencies for a look into how these two organizations can get at the information and strategic insights needed to collaborate more closely and lead their utility into the future.
Want to find out how you can deliver more value from your spend, cost, and supplier data?