Strengthening the supply chain
An efficient supply chain can improve a power and utility company’s performance, profitability and predictability, particularly during large capital projects. So why do so few give the function the board-level leadership it deserves? Mark Yeomans reports.
Cost pressures of recent years have seen power and utility companies renew focus on their supply chain expenses.
But as the procurement process within the sector becomes more complex — exacerbated by the smart transformation, large infrastructure renewal and build projects, and a growing regulatory burden — utilities find themselves working with an increasingly large portfolio of suppliers across diverse industries and geographies.
These multiple relationships give rise to a number of new and challenging questions for utilities:
- How can companies identify an appropriate group of suppliers to meet the needs of particular projects?
- What services can be outsourced and which are more efficiently managed in-house?
- How can suppliers be encouraged to work together to achieve cost savings?
- What is the best way to derive optimum value from these relationships?
Extra pressures on supply chain
Despite these supply chain questions, few utilities have brought this important function into the boardroom by appointing a supply chain director.
This lack of leadership is limiting the ability of companies to adequately address the key challenges they now face and is reducing opportunities to improve supply chain performance that can benefit the entire company. And these potential benefits are significant — we have seen improvements to supply chain logistics save a utility more than half its operational costs.
It is time for utilities to learn lessons from other sectors, such as consumer products, where supply chain leadership is well established. In these sectors, the appointment of supply chain directors responsible for the entire procurement cycle is standard practice, and these senior managers take an important seat at the board table.
They also work closely with the CFO in a highly collaborative, enabling and supportive “business partnering” relationship, allowing both roles to work across other functional areas of the business rather than focusing purely on core responsibilities.
An EY survey showed that, among companies that had adopted the business partnering model, 48% reported earnings before interest, taxes, depreciation, and amortization (EBITDA) growth increases of more than 5% over the past year. Only 22% of those with a more traditional relationship reported the same.
Significant operational savings
The key benefit of appointing a supply chain director who partners with the CFO is the ability to establish a clear line of sight between a utility’s corporate strategy and the supply chain. Savings lie mostly in:
- Large capital and infrastructure projects: The major investment decisions behind large capital programs are best made with the close involvement of the CFO, who can ensure they are aligned with strategic objectives. Close collaboration also allows early warning of any unexpected problems, such as delays or overspends, enabling senior management to better communicate these issues to regulators and shareholders.
- Maintenance and repairs: Business partnering with the CFO helps maintain a supply chain that is lean, yet resilient enough to cope with disruptive events.
Building supply chain success
Building a procurement strategy that can withstand the rigors of current conditions and position a utility for success in future is a long-term process that begins with the appointment of a board-level supply chain director.
We are supporting utilities through this process by:
- Defining their procurement strategy
- Managing suppliers
- Helping the supply chain director work closely with the CFO to achieve the benefits of business partnering
As utilities’ supply chains become more complex, it is more critical that companies do as much as they can to ensure their alignment with strategy in order to unlock hidden value and strengthen financial performance.
For more information
Read more about the benefits of building a stronger partnership between finance and the supply chain.