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Technology Corridor

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

year Enporion was up and running, he says, there were three auctions. Now, he says, there's an average of five contracts per month.

As far as Pantellos is concerned, the biggest barrier to growth is time-namely, the time it takes a utility to warm up to a new concept. Newland says that it takes anywhere from six to 12 months between a pitch to a new potential customer and getting into the Pantellos' online marketplace.

Another barrier to growth is what Newland calls the common misperceptions about online marketplaces, including:

  • Online exchanges are akin to country clubs;
  • A very costly investment must be made up front;
  • Online exchanges are just for "the big guys"; and
  • Companies must make big technology investments

None of these perceptions are true, Newland says. He points out that at Pantellos, there is no upfront cost to join, and that a number of à la carte applications are available based on a usage fee, akin to cell phone minutes. Pantellos charges a fixed fee for access to its transactions hub, and a percentage of customer spend on its workforce management systems.

Enporion's fee structure differs. There is an initiation fee, plus a subscription fee for services that is one-tenth of 1 percent of a member's non-fuel spending. Gordon says that as long as a company spends a set minimum amount for procurement and auction via Enporion, he guarantees that companies will save more on their purchases than they spend on fees in the first year, or Enporion will write them a check for the difference.

Top-Down Leadership Is Key

Zelechoski says that if he were on a board of directors at an energy company, he would be asking three questions:

  • Couldn't you be saving money on spot buys using online auction services?
  • Have you thought about joining a consortium of buyers to leverage your spending and get better pricing?
  • What's the number of staff reductions that you should be incurring if you had more electronic commerce?

Zelechoski hazards a guess that in some organizations, those questions are simply not being asked, perhaps because the executives don't view the supply chain as a critical service.

The key to success in implementing online marketplaces is leadership from the highest executive levels. Anything less, and the project is likely to run into insurmountable resistance. As Gordon puts it, the challenge to implementing online SCM in any organization "is 20 percent technical, and 80 percent cultural." Just consider something common, like meter procurement. Engineering creates specifications, operations must perform the installations, and legal needs to approve the contract. All have a say in the procurement-but without CEO or other high-level leadership, what are the chances of success in changing the way that procurement gets done?

Dykstra says that leadership support-from Pepco Chairman and CEO John Derrick on down-was pivotal to the success of online supply chain management at Pepco. Zelechoski echoes that sentiment, saying, "I would never have attempted to join an e-marketplace or put in place an extensive strategic sourcing program across all the PPL companies, if I didn't have upper