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Technology Corridor

Utilities and vendors take a hard look at online procurement.
Fortnightly Magazine - January 15 2003

Gordon says.

In the first year or so of online marketplaces, suppliers could refuse to participate without much risk, and a few big ones-GE and Alstom-did just that, Zelechoski says. "They could go with that bluff the first year, but now they are getting their market share squeezed," he says.

It's not just about empowering buyers, though that alone would be sufficient for many energy companies. Sup-pliers, too, are starting to see benefits. Dykstra says suppliers get "unbelievable, phenomenal market intelligence" from participating in online marketing. Suppliers-and buyers-benefit from paperless transactions, too. The generation, routing, and tracking of purchase orders is all electronic, so administrative time drops. Lead time on orders for both sides is better, Dykstra says, and in some cases the use of electronic procurement can reduce inventories. Suppliers benefit from electronic funds payments, as well. "The whole supply chain is becoming integrated and streamlined, so we can give suppliers better information, so they can team with us more effectively," she says.

Zelechoski agrees. Suppliers now really like the consistent way they connect to customers who use online marketplaces, he says. With those customers, there isn't the fragmented communication of faxes from one, e-mails from another, and snail mail from yet another.

Zelechoski also sees order standardization as a real boon to suppliers. "Utilities have always been a group of companies that wanted things their own way," he observes. He argues that to remain competitive, energy companies must stop customizing everything they do. One way to do that is to develop common standards for common equipment. Take meters, for example. Each utility has different standards for shape, color, logo, and nameplate, Zelechoski says. Those all could be standardized, which would save suppliers money by allowing them to have fewer production lines. The savings could be passed on to buyers, he argues. Online marketplaces can drive such standardization, according to Zelechoski.

The Bottom Line

Those who have tried managing their supply chain online boast of some impressive savings. For example, Dykstra says that Pepco has saved up to 50 percent on goods and services purchased through their electronic procurement system. After a year of activity in online procurement and auctions, PPL boasts savings of around 13 percent. Their overall savings target for this year? Eight percent.

So why aren't energy companies flocking to online SCM? Gordon sums it up in one word: inertia.

"Inertia is our greatest competitor," Gordon says. There's no doubt that moving to online SCM requires change. Familiar ways of doing things are re-engineered. New suppliers may dislodge old suppliers. In other words, it's about change, something the energy industry typically has embraced slowly. While Enron pushed the industry to change and embrace the new economy, both the company and the concept are now flat on their backs.

Yet online exchanges have much more solid results to offer now than they did when they started up in 2000. Zelechoski recalls that when PPL helped found Enporion, "we were promising people things, and saying 'trust us, there will be group contracts, you'll save money on auctions.' " The first