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Procurement Best Practices of Power Generation Utilities

  • July 2014
  • 66 pages
  • Frost & Sullivan
Report ID: 2238107


Table of Contents

Power Utilities Move from Cost- to Value-based Procurement to Gain Supply Chain Efficiencies

This research service focuses on the evolving material and services procurement practices of major power generation utilities globally. It provides an in-depth analysis on the evolving procurement practices in power utilities and discusses common challenges. Based on the on-going transformations in procurement practices, this research offers a glimpse into the future of procurement. Receding profit margins, volatility in fuel prices, over-subsidisation of electricity tariffs, increasing customer focus, the globalisation of the supply chain, and eco-friendly government sourcing guidelines are the major reasons for the shift in power utilities’ procurement practices.

Research Scope
-This research service focuses on the evolving materials, equipment, and services procurement practices of the power utilities across the world. Both public and private power utilities have been considered for this research service.
-It provides an in-depth analysis of the evolving procurement practices in power utilities in different regions and discusses the common challenges faced by power utilities.
-This research service also includes insight on the future of procurement in power utilities and highlights the best practices of the leading utilities.

Key Findings
-Prior to the 1990s, the procurement of products and services in power utilities was a business function like any other part of business. However, in today’s world, procurement activities are carried out in alignment with the business strategy of power utilities.
-Power companies’ notion of fixing an ideal tariff was the only way of improving the bottom line; cost reduction measures were never considered. The change of ownership of utilities from state to private companies and franchising the operations of utilities have also affected the evolution of procurement in power utilities.
-Supply chain expenditures account for almost % to % of the operating and capital costs for a power utility. Power utilities can save up to % to % of their non-fuel procurement expenditures by implementing strategic sourcing and category management initiatives.
-In the future, for better efficiency in the supply chain, power utilities will need to have distinct departments in their supply chains, such as purchasing, strategic sourcing, planning, and logistics, with clear goals and objectives defined for each department.
-Global sourcing has helped utilities in the Western world to bring down the cost of equipment by almost % to % by procuring from emerging countries, such as China, South Korea, Brazil, Mexico, and India.
-To achieve efficiencies in the supply chain, power utilities can use some of the best procurement practices adopted by companies in other industries, including electronics, white goods, and automobiles.
-Modern utilities have adopted an alternative, more customer-centric approach that considers the impact of asset management on financial returns. Upgrades to transmission and distribution (T&D) systems are a means to improve reliability.
-This, in turn, positively affects customers’ perceptions of their utility supply chains and reduces the frequency and duration of outages. Utilities are trying to quantify such effects in system reliability indices and translate them into the cost of procurement.
-Power utilities with best IT practices in procurement have observed huge cost savings at a maximum of %.
-Advanced data analytics systems will have a big impact on procurement practices. For procurement, the analysis carried out will be mostly for the identification of compliance issues, demand, and price tracking.
-Power utilities in diverse parts of the world are in different stages of procurement evolution based on their overall power infrastructure development, their receptiveness to new technologies, and their existing regulations. Utilities in Western countries, such as the United Kingdom and the United States, including National Grid and Pacific Gas and Electric (PG&E), have started green procurement activities.
-However, power utilities in emerging markets, including India, South Africa, and Malaysia, have yet to adopt green procurement practices because of a lack of government or regulatory guidelines. Many of these utilities are in the process of centralising their procurement groups and implementing strategic sourcing.

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