Cost Insights
by PowerAdvocate

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

Collaboration and the Art of Utility Cost Transformation

January 26, 2017 at 10:20 AM / by PowerAdvocate

When it comes to the utility cost transformation journey, every group has a different role to play. Supply Chain organizations are in a unique position to apply their deep spend, cost, and supplier management expertise to help advance enterprise-wide objectives. One path for sustained value creation is through enhanced stakeholder collaboration – both internally with business units and externally with suppliers.

Optimize Business Unit Engagement

Many utilities are defining new operating models and service levels, as well as implementing materials and equipment standardization. By going above and beyond traditional strategic sourcing, Supply Chain can enhance BU engagement and to help them identify opportunities and develop solutions to achieving cost targets.

A key to BU engagement success is positioning Supply Chain as a competitive advantage. Become part of the team and help stakeholders understand how Supply Chain impacts margins and the balance sheet. Approaches to consider in optimizing BU collaboration include:

  •  Apply an influencer model. Understand the drivers of BU needs and align with their operational targets. Speak in their language by discussing Supply Chain’s impact in operational terms. Inventory existing BU meetings and ask to join and embed buyers within groups and partner with the Work Management team.

  • Be stewards of value. Change any perceptions of Supply Chain as “upholders of rules and procedures.” Challenge some of the rules and include BUs in the change management process. Use phase gates on project teams t 
    o bring strategic insight and perspectives in short and long-range planning.
  • Demystify the process. Help build transparency through Supply Chain process education campaigns, communications, and career development rotations. Help BUs understand metrics to manage. Develop shared metrics and goals by engaging BUs on panels. Gain their sign-off to help them “own” the metric. Roll out with one BU then expand to others.

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Leverage Suppliers as Partners

Supply Chain can also involve suppliers in cost transformation initiatives. The “3 bids-and-a-buy” days are long gone. Upward of 80% of spend is external to the organization. Transforming transactional relationships with suppliers into collaborative partnerships is a valuable pathway to staying aligned with evolving corporate goals.

Collaborative planning and joint activities offer new avenues to leverage suppliers as partners in driving down costs or improving service. Supply Chain can serve as a center of excellence for innovating with suppliers best positioned to impact the bottom line. First it’s important to identify which of your suppliers offer the best opportunities for value-driving partnerships.

  • Develop data-driven supplier profiles. Aggregate and analyze internal and external cost, spend, and capability data to gain deeper insights into supplier efficiency and productivity. Catalogue unique strengths, weaknesses, capacity, and level of self-performance vs. subcontracting. Use open-book contracting and have collaborative discussions to establish standard “rules of engagement” around supplier-furnished data required to participate in bids.
  • Segment based on strategic goals of your organization instead of the type of work a supplier does. Think about which suppliers are best suited to help achieve corporate goals and evaluate whether the right mix of players are in place. Leverage profiles to focus on a smaller set of suppliers based on strengths and capacities needed for particular projects.
  • Develop a maturity model to go beyond measuring supplier performance on specific contracts and transactional relationships. Establish consistent criteria to evaluate whether / when a supplier is ready for a managed relationship approach. Build a supplier partnership roadmap and help them understand the corporation’s strategic objectives, its cost pressures, and compliance considerations.

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Collaborate for Mutual Benefit

Supply Chain is working to engage in new, more powerful ways with their stakeholders, suppliers and internal customers alike. Finding ways of collaborating for mutual benefit takes brining Supply Chain’s experience-based expertise, as well as data-backed insights, to the table. It also requires embracing new sources of data and information to help design new, more impactful ways of reducing costs.

This is the second in a series of posts exploring the utility Supply Chain transformation. Read the first post in the series, Adapting Supply Chain to the New Utility Business Model.

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

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