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The Next Level of E-Procurement

Utilities must embrace supply chains that include planning, inventory optimization, and logistics.

Fortnightly Magazine - November 2006

will occur in the supply chain processes:

• Utilities will reduce their need for warehouses and inventory by partnering with integrated suppliers such as Hughes Supply and WESCO. Integrated suppliers provide multiple organizations with managed warehousing facilities, at which the supplier plans and optimizes inventory. Inventory is not committed until it is used by the utility. Frequently, the integrated supplier will “kit” inventory for usage at the service centers. The supplier also can provide just-in-time replenishment for maintenance, repairs, and operations inventory items.

• Utilities will create partnerships or joint ventures with construction, maintenance, and engineering firms to bring expertise and efficiency to the utility. More important, they will transfer risks to the partner organization. For example, TXU Electric Delivery, a subsidiary of TXU Corp., recently signed a 10-year, $8.7 billion agreement with InfrastruX Energy Group for utility infrastructure and management services. Under terms of the agreement, TXU Electric Delivery will contract for design, construction, and maintenance services from InfrstruX Energy Services.

• Utilities will employ third-party logistic providers to separate their purchase prices from their logistics/transportation costs and utilize their entire logistics network to optimize logistics and network costs.

• Utilities will outsource their supply-chain processes to service providers with core supply-chain expertise. These firms can manage integrated supply chains and provide the required technology. Back-office supply chain processes such as purchase-order transaction processing, order releases, inventory set-up, catalog load and maintenance, auction events, and market analysis likely will be sent offshore by the provider to generate labor savings for the utility. The utility will receive standardized, repeatable best-practice processes from the service provider. For activities like strategic sourcing, the utility also benefits from a sourcing methodology, timely industry/market trends, and real-time category knowledge that produces a rigorous process with sustainable results.

Service providers can provide supply-chain technology for spend analytics, event management (auctions/ eRFx), procurement, inventory management, logistics, and planning.

These technologies can be owned by the utility or provided as an ASP model by the provider.

The bottom line? The utility industry will be encouraged to embrace the sorts of integrated supply chains common in other industries by linking core competencies with other strategic partners to targeted core competencies.

Toward the Virtual Utility

The integrated supply chain of tomorrow will be vastly different from today’s utility operations. The virtual utility of tomorrow is one that is managed by small teams of people from just about anywhere in the world. In the virtual utility, managers focus solely on the generating and delivery functions because their company’s non-core business functions are being performed outside their walls. And in the virtual utility, management wants it that way.

Once a utility makes the correct decision that it cannot be the best at managing its construction needs, its warehouse functions, its supply chain, its finance and accounting, its human resources and even its engineering, it will create the strategic partnerships with third-party companies that can provide those functions. The utility is no longer burdened with managing everything it needs or building its own when it senses it needs something new. Instead it can draw