Today’s guest post is from Robert A. Rudzki, President of Greybeard Advisors LLC, who has (co-) authored a number of acclaimed business books, including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise, On-Demand Supply Management, and the just published text on Next Level Supply Management Excellence that is a follow up to the now-classic Straight to the Bottom Line.
Even the largest and most sophisticated companies tend to look at energy costs in a piecemeal way — plant by plant, facility by facility. One reason for this is the inherent complexity of the energy marketplace. Another is the need for local facilities to ensure adequate supplies.
Yet, by adopting a comprehensive approach to energy management, many companies discover significant opportunities to add value and reduce risk.
As the chart below illustrates, energy management embraces a variety of activities that are cost focused, such as establishing commodity prices, mission critical such as ensuring adequate supplies, and even policy- or community-focused such as green initiatives.
Comprehensive energy management is the process of systematically analyzing all the aspects that influenced total energy cost, with the goal of arriving at an optimal energy cost.
Chapter 10 of the just-released book Next Level Supply Management Excellence (Rudzki, Trent), is devoted entirely to the subject of comprehensive energy management. You can also obtain additional information by downloading the linked two-page PDF.
A recent article in the Sourcing Interests Group Newsletter on understanding tail-spend management noted that while ROI for tail spend categories will generally be lower than for core categories, those companies that keep their eye on the efficiency/effectiveness equation and approach tail-spend intelligently can still find significant savings that make the effort worth while. So how does an organization properly approach tail spend, which:
- rarely includes direct materials
- contains a disproportionately high percentage of spend from the furthest-flung subsidiaries
- contains suppliers that no one in procurement has heard of
- contains large percentages of non-compliance and maverick spend
Intelligently. And iteratively. Data must constantly be reviewed in the light of changing business requirements to determine the best course of action using the following process:
- Spend Analysis
Focus in on the tail-spend data and figure out what is being bought, from whom, where, and for how much compared to market value.
Focus on commodities that can be reclassified into a category that will have enough spend to be worthwhile.
- Sourcing Strategy
Once the category with the biggest opportunity has been identified, determine the right sourcing approach. If a sourcing project is the right approach, accelerate it with standardized templates, RFX, and/or auctions.
- Spot Buy
If the right strategy is to spot-buy in a weak market, then aggregate demand across the organization and spot-buy through e-RFX or automated auctions.
And, regardless of the right sourcing strategy, drive as much spend onto technology platforms, like P-cards, so that it can be tracked and analyzed.
And, most importantly,
- use procurement technology
- simplify processes and increase controls
- establish resources and manage performance