The Nature of Energy as a Purchased Item - Part Two

In our last posting, we began outlining some of the aspects that make energy unique among purchased items and why a “one set and forget” or “one size fits all” purchasing procedure does not apply.

By ·

Today’s guest blogger is Ted Eichenlaub, a senior advisor in the Energy practice at Greybeard Advisors LLC. Ted brings a wealth of energy experience, from both a corporate and a plant site perspective. He can be reached at: .(JavaScript must be enabled to view this email address)

In our last posting, we began outlining some of the aspects that make energy unique among purchased items and why a “one set and forget” or “one size fits all” purchasing procedure does not apply.  We continue now with other aspects while we keep in mind that the commodity cost of energy is only one part of the total cost of energy to the end-user, something that is addressed through a comprehensive energy management effort.

• Standardized contracts
Energy is purchased using industry-standard contracts.  Although they may be slightly customized, the basic terms are rigid.  There is little room for negotiation here, just the clarification of terms and expectations.  Time should be spent to make a legal review and also assure that specific concerns are addressed.

• Language
MW, decatherms, capacity, reservation, generation, LDC, spinning reserve; each energy type has its own language and acronyms that are technical in nature.  The purchasing party should be fluent in the linquistics.

• Worldwide sources
Depending on the commodity, it can come from sources that are local, across multi-state lines or overseas.  The end-user might be able to buy directly from the source.  It can be renewable or non-renewable, result in energy credits or not, can be subject to documentation requirements by the government and arrive to market through traditional or non-traditional methods. 

• Transportation and delivery
Each energy type has its own modes of transportation and delivery along with accompanying strict rules.  Delivery is a multi-stage, multi-provider process requiring daily scheduling, real-time related balancing and true-ups against ordered quantities.  Penalties for non- performance are levied.  All of this requires constant daily (at times fractional hour) oversight.  There are also intraday, inter-day and before the start of next month scheduling deadlines.

In addition, delivery of product can be curtailed or limited.  Loss of delivery can occur at the most inopportune of times thereby requiring backup strategies.  This is where the need for collaboration on overall comprehensive strategy between the various responsible parties in the organization starts to become obvious.

• Regulation
Due to its complexity, and unlike most purchased items, energy is subject to stringent government regulation and oversight of transactions and market rules for purchase and delivery.  These rules are rigorous, ever-evolving and government enforceable. 

• Responsibility
Depending on an end-user’s location, energy can be purchased in a bundled or unbundled format.  The unbundled format gives strategic sourcing type rigor even more of a chance to uncover opportunities.  All of this also emphasizes the “comprehensive” nature of energy cost management and the collaborative effort of multiple disciplines required within the organization.  Part of an organization’s task is to figure out who or how this will be handled.  Since the actual purchase of energy is the lead action, the Purchasing Dept sometimes leads the effort, but that can vary from one company to the next.

In summary, the purchasing of energy requires extra attention, expertise and strategy to navigate, communicate and work effectively within the purchasing marketplace.  Energy is unique among purchased items due to its ever changing regulation and the volatility of the factors that determine its market value.  The multidiscipline effort required to manage all of the aspects of energy (in all of its types) emphasizes the need for a comprehensive energy management strategy to control the total cost borne by the company.  Its recent acknowledged relationship to global greenhouse concerns will make it even more unique.

Interested to learn more? http://www.greybeardadvisors.com/services/energy_management_services/


About the Author

Robert A Rudzki
Robert A. Rudzki is a former Fortune 500 Senior Vice President & Chief Procurement Officer, who is now President of Greybeard Advisors LLC, a leading provider of advisory services for procurement transformation, strategic sourcing, and supply chain management. Bob is also the author of several leading business books including the supply management best-seller "Straight to the Bottom Line®", its highly-endorsed sequel "Next Level Supply Management Excellence," and the leadership book "Beat the Odds: Avoid Corporate Death & Build a Resilient Enterprise." You can reach him through his firm's website: www.GreybeardAdvisors.com

Subscribe to Modern Materials Handling Magazine!

Subscribe today. It's FREE!
Find out what the world’s most innovative companies are doing to improve productivity in their plants and distribution centers.
Start your FREE subscription today!

Article Topics

· All Topics
Latest Whitepaper
Your Guide to Voice for the Warehouse
Is voice a good fit for my operation? How would voice work in my warehouse? With the help of the Vitech Guide to Voice, you can find all the answers to your voice questions in one place.
Download Today!
From the October 2017 Modern Materials Handling Issue
An early adopter, Rochester Drug Cooperative is using robotic piece-picking technology to complement picking of slow-moving items. System report for Rochester Drug Cooperative, Robotic picking and inventory management, Innovative distribution center robotics solutions , IAM Robotics case study
Injecting agility into WMS implementation
The Big Picture: Business as Unusual
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
The State of the DC Voice Market
A lot has changed in the last 10 years, especially in voice technology. This webinar will cover the state of the voice market, review two leading voice solutions and help you gain a better understanding of the options and capabilities available today.
Register Today!
EDITORS' PICKS
Rochester Drug Cooperative: Robots ready for work
It’s still early stages, but Rochester Drug Cooperative is proving that mobile robotic piece...
Manufacturing Day: 2,716 events from Hawaii to Alaska to Puerto Rico
Events to be scheduled throughout the month, so the remaining 249,185 manufacturing firms in the...

System Report: Pouch sorter powers Stage’s fulfillment needs
How a hometown department store chain transformed its e-fulfillment processes with pouch sortation...
Cubing and Weighing Equipment: Measure Up
The use of cubing and weighing equipment is growing beyond dimensional weight applications.