Table of Contents
Utilities: A Package of Complex Industries
How is purchasing utilities different than purchasing other services or goods? There are differing levels of regulation and competition depending on which utility service you are purchasing, but most of the costs associated with services can be reduced. Some of the most important aspects of purchasing, such as market information, knowing your internal customer's needs, negotiation skills, and supplier evaluation, are all essential to receiving the best price and service from your suppliers.
Lights, Camera, Action: Your Role in the Utility Purchase
How important is the utility buy? A 1995 study of 116 firms by the Center for Advanced Purchasing Studies (CAPS), a program jointly sponsored by NAPM and Arizona State University, reported that those organizations spent $6 million for utilities. "Purchasing of Nontraditional Goods and Services," by Harold E. Fearon, Ph.D., C.P.M., and William A. Bales, C.P.M., also reported, however, that the purchasing department is frequently not involved in the procurement of utility services. In fact, only 21 percent of these firms' utility dollars went through the purchasing department. (See the box on page 9 for more statistics on this topic.) Organizations may have a facilities manager, operations manager, or engineer responsible for these functions. The worst case scenario is that nobody is responsible. This means that when an invoice is received, a check is cut without any thought to what can be done to decrease this cost. What can you do in your role as a purchasing and supply manager to decrease your organization's utility costs?
Making the Most of Deregulation
Purchasing utilities, especially in a deregulated environment, will be a process for many purchasing and supply professionals. With any new process comes some uncertainty. The good news, however, is that many of the competencies and skills required in this arena are those with which many purchasing and supply professionals are already equipped. You can take many of the core value-added activities you already perform - strategic sourcing, market analysis, competitive bidding, solid negotiating, effective contract management - and apply them to this type of purchase.
Russell Shroyer, C.P.M.
Russell Shroyer, C.P.M., is senior purchasing manager at ChefAmerica in Englewood, Colorado. He has 18 years of experience working in the food industry and 13 years experience in energy commodities procurement. Mr. Shroyer has a bachelor of science degree in agricultural economics from North Dakota State University and a master of science degree in agricultural and applied economics from the University of Wisconsin in River Falls. In his experiences in energy procurement, he has participated in Public Utility Commission hearings in several states, written energy-related articles for national trade magazines, including Purchasing Today®, conducted energy procurement seminars, and is the national chairperson for energy procurement with NAPM.
- Fearon, H.E. and Bales, W.A., "Purchasing of Nontraditional Goods and Services," Center for Advanced Purchasing Studies, 1995
- Purchasing and Energy User News, "The Energy Buy," Purchasing, March 25, 1999
- Kranhold, K., "Current Event," The Wall Street Journal Reports, The Wall Street Journal, September 14, 1998
- Shroyer, R., "The 'Power' of Purchasing," Purchasing Today®, June 1998
FOR FURTHER READING
- Shroyer, R.,"Kilowatts and BTUs - Energy Procurement," 81st Annual International Purchasing Conference Proceedings, NAPM, 1996
- Shroyer, R.,"Energized for Change: Natural Gas and Electricity," NAPM Insights, August 1995
- Tree, T. and Fawcett, S.E.,"Case Studies: Deregulation in the Power Industry," Purchasing Today®, August 1998
- Bonneville Power Administration
- North American Electric Reliability Council
- National Rural Electric Cooperative Association
- Federal Energy Regulatory Commission
Back to Top