Although it executes a vital task, it could be doing much more for the business. The procurement function at most utilities is thus a largely untapped resource. Unfortunately, this channeled focus on immediate concerns prevents the procurement function’s leadership from thinking strategically about how it might approach the task of procurement-and the utility’s relationships with suppliers-differently and to greater advantage. Instead, most of them limit the function to tactical execution of the business’s day-to-day sourcing needs. So the delivery of cost savings becomes an ongoing focus and a repeatable event.įew utilities currently enable this sort of contribution from the procurement function. This, in turn, can free up even more time for the function to focus on creating more-robust sourcing strategies. Many of the organizational changes needed to effectively empower the procurement function can also foster greater efficiency across the function’s suite of day-to-day activities. Moreover, the utilities have often begun realizing these savings immediately, with cash accruing during the same year as implementation. When the procurement function is enabled in this way, we have seen step-change reductions in supplier costs, with savings that reach as high as 10% to 20%-without any sacrifice in the safety or quality of delivered goods or services. Procurement can indeed be fertile ground for identifying and realizing cost savings in organizations that give the procurement function a strategic role and sufficient latitude to work effectively. In short, they have trained their sights on areas such as procurement in pursuit of cost-cutting opportunities. regulated utility sector as cash flow is reduced by tax cuts,” Energize Weekly, June 27, 2018.Īgainst this backdrop, utilities have been focusing on cost reduction while avoiding layoffs. regulated utility sector as cash flow is reduced by tax cuts,” Energize Weekly, June 27, 2018. Simultaneously, they have had to contend with depressed wholesale power prices and, in the US, recent changes in corporate taxation that have led to reduced cash flows.ġ 1 See “ Moody’s downgrades U.S. In recent years, utilities have faced mounting pressure to replace their aging infrastructure (most coal-fired power plants are now more than 30 years old, for example) and expand their grid functionality. It is battle-tested, readily customizable to individual businesses, and designed for minimally disruptive implementation. BCG has designed a comprehensive and effective approach to getting there-one that spans strategy, organizational design, people and skills, metrics, and other key considerations. But the rewards of doing so can repay the cost of the effort many times over. Unfortunately, this narrow approach to procurement comes at a sizable opportunity cost to utilities at a time of unprecedented financial and operational strain.Įmpowering the procurement function to participate in high-level business strategy and incorporating it seamlessly into the daily operations of a utility can be quite challenging. Instead, the function remains confined to its traditional, purely tactical role-executing purchasing at the behest of the business and ensuring that suppliers comply with company guidelines. Yet few utilities unlock the procurement function’s full capabilities. Potential benefits include substantial cost savings, stronger and more productive ties with suppliers, and shared, innovative solutions to problems. When deployed strategically, the procurement function can be a powerful source of competitive advantage for utilities. Technology, Media, and Telecommunications.
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