Ken Silverstein EnergyBiz Insider Editor-in-Chief

Because all utilities are subject to competitive pressures, they are looking at electronic solutions to improve processes and increase efficiencies. E-procurement and supply chain management are tools that allow utilities to collect spending data, channel buying power and communicate with business partners throughout the supply chain.

In the case of e-procurement, the utility and its suppliers work through a common interface to determine exactly what items are needed and often at pre-set costs. It's a vast improvement from the way business was transacted previously.

"Spend management is not a process but a journey," says Bob Calderoni, CEO of Ariba in Sunnyvale, Calif. "And while the path may be different for each company, the most successful organizations have adopted spend management solutions" through technology and expertise. If done right, it can result in both cost savings and productivity gains.

According to industry research, companies control about 30 percent of their cost and the remaining 70 percent is determined by customers and suppliers. Utilities, for example, must ensure that their production, inventories and procurement practices are all working in synch to curtail inefficiencies.

Advances in software technologies are allowing corporations to manage effectively their supply chains -- a strategy that minimizes inventories, brings products to market faster and reduces human error. Efficiencies increase and profitability grows. And returns on investment are measured in months, not years.

According to Forrester Research, the market for the type of software that instantly connects companies with their vendors is expected to grow 25-30 percent over the next three years. The growth is tied to the fact that companies are under constant pressure to cut expenses. And streamlining the supply chain will accomplish this.

Solutions vary and so do the associated returns. Nevertheless, the key to a bigger bottom line is collaboration among trading partners through software that is connected to the Internet. The Net, with its real-time communication tools and its centrally stored servers, can wring fat out of the system. Utilities, for example, can learn if one of their suppliers falls behind so that it can order parts from a new supplier.

"We intend to maximize the benefits of these solutions in our quest to simplify commerce, enhance efficiencies and accelerate bottom-line results for our customers," says Sandy Kemper, CEO of Kansas City-based Perfect Commerce, a software provider.

Transforming Relationships

British Energy is implementing a system that it says will transform its relationships with strategic suppliers by improving contracts, quality and safety -- all under a 15-year vision it says is necessary, particularly as the global market becomes increasingly attracted to nuclear energy. For example, steel is now in short supply. If more nuclear plants get built, market pressures will only increase. Therefore, it needs to enhance its communication tools with suppliers beginning right now.

"Lots of markets are opening up across Europe," says Gavin Jones, an IBM exec in London, who worked on the British Energy contract. "Deregulation and the increase in cost of fuels are forcing utilities to become more efficient and more responsive to the market." Therefore, he says that utilities will need to quickly repair and replace parts. Planning and processes are essential -- "setting the right expectation and getting the right contracts in place so you can get products just in time and in the right quantities."

Jones says that beyond ensuring a stable supply chain, British Energy seeks to prevent untimely delays, unnecessary purchases and inordinately expensive parts -- all under better contracts that are better suited to an individual company's needs. Indeed, software maker Sterling Commerce says that by properly matching supply and demand, revenues can increase by 3 percent, inventories can drop by 15 percent and operational costs can improve by 35 percent.

Fuel procurement is one area ripe for change. Buying energy is complex, both for wholesale providers of power and for commercial and industrial entities that do not have in-house experts. The best deals are derived when consumption patterns are understood and marketing that load profile to all the suppliers.

World Energy operates an energy exchange and works with one division of Ford Motor Co. World Energy set out to understand and chronicle the division's energy consumption. Today, it auctions that usage, looking for the best short-and-long-term deals. It then advises its clients on the positions to take.

The exchange estimates the Ford's division was able to cut its fuel procurement costs by 15 percent -- in large measure because the purchasing process is electronic and not a manual one. It also says it saved one department in Pennsylvania's state government nearly a $1 million in natural gas costs through such auctions and did so by advising the unit to enter into 12-24 month contracts that stabilized costs.

"If buying energy is not your main business, it is a money loser," says Phil Adams, COO with World Energy in Worcester, Mass.

Indeed, electronic commerce is effective when it comes to improving supply chain management, including fuel procurement. Indeed, E-procurement tools allow utilities to collect valuable data and to use that information to gain leverage in the market. By-and-large, utilities have broken away from the old business models and are now operating in the newer, technologically driven economy.

More information on this topic is available from Energy Central:

The Future of E-Commerce EnergyBiz, Sept./Oct 2005

For far more extensive news on the energy/power visit:  http://www.energycentral.com .

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