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Mining Gold From The Supply Chain
Utilities and vendors take a hard look at online procurement.
Feel like saving your company $50 million? That's the question Joseph Zelechoski, director of supply chain at PPL, has for those who haven't tried online supply chain management.
He thinks many executives don't view supply chain management as a critical resource. Yet, if utilities are buying $1 billion in materials and services-not unlikely at the larger energy companies-and could save 5 percent, they would save $50 million. "Fifty million against your bottom line is huge!" Zelechoski exclaims.
E-Marketplaces Still Hanging On
At the height of the dot-com boom, online supply chain management (SCM) was hot. Millions were poured into several flavors of online B2B (remember that moniker for business-to-business?) portals, all of which promised to fulfill the potential of e-commerce, bringing buyers and sellers together to save buyers money and help suppliers find more markets. Tombstones and dark Web sites are all that remain of many B2B portals, but two portals focused on the energy industry, Pantellos and Enporion, have survived and may yet thrive.
With online marketplaces, and indeed by using specialized software packages in-house, energy companies can issue online requests for proposals (RFPs) for recurring procurement needs-wood poles, for example-and hold auctions for spot purchases, such as turbines. The initial appeal to buyers is cost savings through lower unit prices, achieved by pushing potential suppliers to compete directly against one another-a sort of LendingTree.com for utilities.
But some of the savings comes from consolidating spending on things like janitorial supplies. Steve Newland, vice-president of sales and marketing at Pantellos, points out that such purchases are typically fragmented purchases throughout the company, with as many as 20 different suppliers. The act of rolling up total demand into one or two suppliers in and of itself can create cost savings through volume purchasing, he says. In addition, mandating online procurement throughout an organization can prevent "maverick buys," says Diana Dykstra, manager of auction services and e-commerce development at Pepco. Through the use of online catalogs, she says, employees can get the goods they need, using suppliers who have already committed to offering competitive prices to the company.
Early Misgivings Give Way
When online auctions and procurement started, there were a lot of misgivings among potential energy company buyers, who wondered how an auction could be better than an RFP. Many buyers weren't all that ready to commit, and when suppliers balked at participating, some buyers took their toe out of the water.
Early on, sellers were deeply skeptical about participating. They didn't want anything like an online marketplace between them and their customers.
In fact, there was a crisis of sorts for a while at Enporion, when sellers did not want to participate. George Gordon, chairman and CEO of Enporion, says he had to remind the founding members that they put a lot of money into the company, and that if they decided to make Enporion work, it would work. Once the members committed to using the online marketplace, their suppliers got on board,