Preparing your business for next generation energy procurement
Simon Skillings, Head of Business Development at Open Energy Market, shares his insight on why and how the energy industry needs to ready itself for a new generation of procurement professionals who are addressing the industry’s challenges head-on.
Historically, the procurement element of a business was the sole responsibility of facilities or engineering managers. Their relationship management expertise – from the golf course to the meeting room – was instrumental in getting the signatures on energy contracts that had, at that time, a limited impact on the business. But now, processes, data, legislation, and tighter margins have made energy-buying a far more significant and demanding role within an organisation.
With energy falling into the top three costs for most companies, procurement decision makers are under greater pressure and scrutiny to deliver best results. Until now, those working in energy procurement have been the dealmakers. They have demonstrated their industry knowledge, negotiating skills and talent for fostering relationships. However, with heightened expectations coming straight from the top, they will also have to be far more analytical going forward.
What this means is that the old analogue approach to procurement won’t cut it anymore: there needs to be improvement across the board to enable greater savings, more efficient processes and better analytics to understand spending, controls and risks. To achieve this, legacy structures and approaches will need to make way for next-generation procurement.
Energy buyers are faced by a number of sticky challenges. It is imperative that the next-generation of procurement professionals not only take the traditional costs and terms and conditions into account but consider the following when creating their procurement strategy: reporting and forecasting, spend analysis, market exploration and SLAs. More recently, supplier risk is also an increasing factor given seven energy firms went bust in 2018. To help them solve their problems and drive stronger business results, a push for more tech innovation will be crucial – which will actually give way to a more simple, transparent and intuitive buying experience that users will actively embrace.
Digital procurement – and the use of bots and apps, for example – automates tasks to increase efficiency by streamlining the manual, routine procurement tasks. As well as reducing costs, it also prepares all involved with a greater understanding of real-time insights and analytics through AI and user-friendly platform tools. Ultimately, digital procurement deploys new and smarter ways to permeate data models to improve routine decision making.
The demand for tech innovation – and its benefits – is becoming clear in this field: according to consumer insights analyst, Aleksei Gontsarov, the Procurement Leaders’ Category Planning Guide indicates, for the first time, what category managers hope to achieve in 2019 and the levers they intend to use to succeed. These include e-auctions, supplier collaboration strategies and demand management. Therefore, in spite of (or because of) financial or political uncertainties facing a business, category managers will need to redefine their strategy to incorporate advances in technology if they are to be in a position where they can deliver greater savings and added value in the coming years.
Procurement and supply chain fields are now facing disruption from AI and IoT and, while there is a positive move towards embracing technology, we, as an industry, need to stay smart about the ‘how’, ‘why’ and ‘where’ investment in technology should be made, and not just join the procurement revolution through a fear of missing out.
We have put together some pointers for businesses on what they need to be thinking about to get themselves ready for next-generation procurement.
To kick start the right changes, procurement players – new and old – need to review their approach to buying. This will help them understand where sticky processes need modification. It isn’t just about driving down unit costs, it’s about divergent thinking, being smarter and removing cost from the process itself.
Make sense of the data
The world is now equipped with massive volumes of data requiring both accuracy and intelligence. Making sense of this data will be critical. And this means understanding what was purchased, as well as ‘why’ it was purchased. To do this, and to provide intelligent support, will require the right technology, especially analytics, AI and bots.
Leverage knowledge and tech:
There was a time when procurement decisions were based on past experiences and an individual’s knowledge or perceptions. But a deeper analytical approach is needed today. Implementing the right digital technology – combined with the know-how of expert energy and facilities specialists – can make this happen.
With any technology-powered change it will be vital for leaders to also focus efforts on the education and retention of their existing personnel. And it’s no different in the procurement landscape. Their knowledge and experience will be instrumental to the successful roll-out of these changes. Encouraging a more collaborative relationship with vendors will also help them to reap the real benefits the technology can deliver: stretching beyond cost savings, to delivering positive long-term financial results and ultimately a better service. If your procurement team isn’t educated on the changes or engaged, they won’t be able to deliver the results – so they shouldn’t be left behind in any digital transformation journey.
Today’s new breed of procurement professionals are in high demand. They are equipped with creative and agile thinking, and have an innate ability to navigate technologies that can impact your margins. But demand is fast outstripping supply. To be sure you don’t miss out on accessing the right talent for your business, it’s important to adopt a culture that welcomes, not fears, technology. Because, with the right technology-powered solution you open up opportunities that will benefit your team, your business and your bottom line.