Cost Insights
by PowerAdvocate

Intelligence for energy companies seeking a data-driven approach to cost management

Adapting Supply Chain to the New Utility Business Model

January 24, 2017 at 6:01 PM / by PowerAdvocate

Utility Supply Chain continues to be in the spotlight, reflected in how much these organizations are asked to adapt and change. Driven by short-term earnings pressure, revenue challenges, and debt limitations, the C-suite needs more cost savings more quickly. The challenge for Supply Chain is to stay ahead of changing priorities and secure executive buy-in on the budget. While it may be easier said than done, earning the respect of business units helps pave the way to shared success.   

Tackle Cost Transformation

The utility playing field has changed. As a result, utilities are undergoing a cost transformation – adjusting operational cost models and investment strategies. Declining energy consumption and lower levels of rate recovery are putting pressure on total revenue. This pressure will continue to build as demand-side management, customer-owned distributed generation, microgrids, and new market entrants accelerate the rate of change.

Supply Chain’s task is to get the enterprise’s costs in line with its revenues. However, doing so will require many Supply Chain organizations to transform, embrace new ways of working, and think differently about its approach – introducing best practices from elsewhere to realize desired business outcomes.  

Supply Chain Continues to be In the Spotlight

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Technological solutions continue to be drivers of cost transformation. Growing sophistication enables utilities to address more complex challenges, such as:

  • Customer engagement, new products and services including social media communications and 100% on-line relationships with customers, smart homes, and custom rate structures.
  • Operational performance spanning advanced metering and smart grid, fleet management, near real-time pricing models, spare parts management, and outage management.
  • Supply Chain spend and cost modeling to support strategic sourcing with “good” data, benchmarking, and should cost calculations. Supply Chain has also started capturing historic data to improve capital project estimates and own the “P” in EPC; and leveraging usage data to improve budgets and forecasts through demand planning.

Bridge Organizational Gaps

Regardless of Supply Chain structure (centralized or decentralized) or its reporting line (to operations or finance), nimbleness and transparency will help to bring savings opportunities to the table early and bridge the gap between Operational needs (e.g. reliability) and financial tensions.

So how are Supply Chain executives approaching the cost transformation challenge? Here’s what we’ve heard from some our utility customers:

  • Market internally to show how Supply Chain has impacted the bottom line, helped mitigate risk, and partnered with stakeholders to make key decisions.
  • Build trust and support from the “culture.” Relationships and buy-in across the organization are critical to implementing and sustaining Supply Chain strategies and initiatives.
  • Ensure teams have the “will and skill” to align with the organizational drivers and effectively deliver on cost transformation. Take advantage of career development, technology, and governance models to help enable success.

Leverage Better Data

There is a common thread underlying these approaches – data and intelligence. Supply Chain executives are tapping into more complete and accurate spend, cost, and supplier data that aligns with how their organization actually buys. They’re applying robust analytics to enable strategic, fact-based stakeholder discussions. By delivering actionable intelligence they help inform capital and operational strategies and planning. 

This is the first in a series of posts exploring the utility Supply Chain transformation.  Read the second post in the series, Collaboration and the Art of Utility Cost Transformation.

Want to find out how you can deliver more value from your spend, cost, and supplier data?

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