POWER March 2014 - 61

SUPPLY CHAINS
and operations, it can better establish its
credibility and demonstrate ways to improve
performance.
Category Management
The concept of category management, in
which procurement for classes of products is
managed as an ongoing business in collaboration
with suppliers, has been around in retail
since the 1980s but is still making its way
into utility procurement.
As Seidler and Levesque explained, category
management is an evolution of strategic
sourcing but is cyclical rather than
linear (Figure 1). It is an ongoing process
of continually tracking, managing, and
improving the sourcing of material rather
than an episodic, contract-focused process.
It requires both alignment with business
units and close collaboration with suppliers.
This allows procurement to better engage
business unit leaders to build lasting
expertise in the supply chain, as well as
respond proactively and swiftly to changes
in the market.
Obviously, moving toward category management
is not an overnight process. Luminant,
Seidler explained, began the shift with
its privatization in 2004 but only began getting
a robust category management system
into place in the 2010s. Getting the supply
chains aligned with business units took several
years, during which better strategies,
skills, and metrics had to be developed.
Seidler and Levesque offered some other
tips for making category management work
most effectively:
■ Start with categories that will quickly
demonstrate high impact to business units
to gain support early on.
■ Set regular cross-functional business reviews
with leadership to review process,
spend, and other performance metrics.
■ Structure roles such that responsibilities
for strategic planning and day-to-day execution
fall to different people.
■ Embed category management inside technology
tools to ensure that data, and the
process, is sustained in the event of personnel
turnover.
Supplier Integration
Of course, making all this work isn't simply
an internal process-suppliers have to
be deeply involved as well. That's why integrating
suppliers into supply chain management
is an increasing trend. While it's
not yet common, with the utilities furthest
along in this process the supplier, procurement,
and business unit function as a seamless
supply chain, simultaneously sharing
information up and down the chain. This
level of cooperation and communication allows
capturing efficiencies and cost savings
that are not visible otherwise.
Stocking and inventory decisions are
made collectively, depending on what options
are most efficient and advantageous.
Materials may be stocked with the supplier
or the utility warehouse; management
of many materials-particularly high-turn
items needed regularly and/or rapidly-
may be entirely in the hands of the supplier,
who may assume direct responsibility
for fulfillment goals with the business
unit. In such a system, the supplier's inventory
essentially becomes the utility's
" virtual inventory. " If implemented effectively,
the result can be lower labor costs,
better resource availability, more efficient
logistics, lower transactional costs, and
better risk management.
Rodney Long and Ron Jangaon of Duke
Energy explained how the utility giant has
moved toward integrated supply with WESCO
Distribution, which helps manage the
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Water & Steam Sampling & Analysis Systems
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