American Gas - May 2013 - (Page 58)

B U R NER TIPS The procurement function can help utilities achieve significant improvements—and the first step is helping stakeholders understand its potential BY SAMIR KHUSHALANI AND PATRICE MAHEO PROCUREMENT MAKING THE CASE U tilities today face a variety of challenges, especially in terms of ensuring safe operations and upgrading infrastructure. But many are overlooking a key tool that can help them meet those challenges—the procurement function. Experience has shown that advanced procurement practices can help utilities control costs in several areas. For example, improvements to procurement have helped utilities save 5 percent to 13 percent in engineering and technical services costs; with distribution materials, such as pipes and valves, utilities have cut 6 percent to 12 percent. Often, these benefits are achieved relatively quickly, in just three to six months. As a rule of thumb, cost-savings opportunities from advanced procurement practices typically reach $60 million to $120 million per billion dollars of procurement spend. Those savings can help utilities deliver more infrastructure projects—and demonstrate their commitment to controlling costs to regulators and rate payers. To achieve those types of benefits, however, most utilities will need to take a different approach to procurement. Today, procurement in the industry is often seen as a traditional back-office operation. But it can be more. It can be transformed from a project- and transaction-focused organization to a strategically oriented group 58 AMERICAN GAS MAY 2013 that works across the organization to manage supplier relationships, focuses on total cost of ownership, and collaborates and is closely aligned with the business units. Moving procurement up this curve will take effort—and the key to getting started is to develop a clear, compelling business case for procurement transformation. This may sound like common sense, but it is not unusual for organizations to embark on a transformation initiative without going through this upfront exercise. The business case will not only help the organization understand the potential benefits of transformation, it can also provide a foundation for measuring progress and recalibrating programs as they are implemented. And it can be an effective vehicle for getting stakeholders engaged and behind the improvement effort. Overall, we’ve found that companies that develop a business case for transformation are twice as likely to realize their expected value on time or earlier than planned, compared to those that don’t develop one. The details of the business case will vary from organization to organization, but in general, a compelling business case will encompass three key qualities. To get the attention and buy-in of stakeholders, the business case should do the following: Be strategic. The business case should make a clear connection between the pro- posed improvements and the needs of the business. It should provide a rationale for the change and explain how it is aligned with corporate strategy. It should also lay out a high-level view of the associated risks, constraints, and dependencies that will be involved—all of which helps to give decision makers a full understanding of what to expect. Often, business decision makers are not looking for a broad, enterprise view of potential benefits. Instead, they want a value proposition that is linked to their situation. What will it mean, specifically, to their business unit? What timetable can they expect for realizing those benefits quarter by quarter as the effort is ramped up, and then over the long run?

Table of Contents for the Digital Edition of American Gas - May 2013

American Gas - May 2013
Contents
President’s Message
Subject Index
Sandy Coins Say Thanks
Digest
Issues
Update
Need to Know
By the Numbers
Places
Need to Know
Taking a Bite out of Food Truck Pollution
Canada
Capitol Hill
State House
City Hal
Safety: Getting Employees Invested
The Rails
Profile
AGA Ops Conference Preview
Procurement
Jobs
Buyer’s Guide
Marketplace
Headway

American Gas - May 2013