Thinking Outside of Tradition: Energy Buying in Europe
In June 2018, Budapest hosted the 3rd annual Schneider Electric Perspectives Summit in Europe. The two-day event brought together 135+ energy procurement and sustainability professionals to explore market trends and practical ways to deliver value to their organization. One of the workshop sessions focused specifically on Procurement Strategies in Europe. The groups discussed market disruption and how this impacts procurement strategies, today vs. tomorrow. Considerations included; who in your organization do you need to bring to the table? What implications does that have? How can you plan to capitalize on the new market opportunities?
“Disruption happens when a new approach meets the right conditions. And the conditions, it turns out, are always changing.” (Deloitte)
The workshop focused on 3 specific disruptors:
- Data & Analytics in Energy Procurement
The growth of data is disrupting markets and business models across the globe and procurement is no exception. More data means more information to help with decision making, but before you can effectively act upon the intelligence, you need to manage the volume, variety and velocity. Marriot International is placing a high priority on data in their decision making, “Having the right data at the right time to make the right decisions is critical,” says Matt Straughn.
“90%+ procurement individuals are experimenting or heavily invested in big data” (Procurement Challenges – A ProcureCon Report)
Data transparency can help energy procurement professionals obtain actionable market intelligence and understanding their energy bill fully, specifically the growing complexities of commodity and non-commodity costs. In many cases, non-commodity costs represent 50%+ of the energy bill.
During the workshop, only 66% of the groups agreed or strongly agreed that they are successfully leveraging data and analytics to improve the procurement function.
- Complexity & Risk: Impacts on Decision Making and Skill Sets
Energy market risk and corporate decision making are both areas that have been disrupted by new technologies, geopolitical tensions and the global economic crash. The questions faced are familiar – which energy procurement strategy? regional vs. international? dedicated vs. generalized? The environment is different today with 82% of c-level leaders now involved in renewable energy & sustainability initiatives (The State of Corporate Energy & Sustainability Programs Research Report, Schneider Electric & GreenBizGroup, 2018)
The challenges of complexity have secondary effects on the procurement team in terms of acquiring the right team knowledge & behaviors. 51% of procurement leaders believe their current teams do not have sufficient levels of skills and capabilities to deliver on their procurement strategy (Deloitte The Global Chief Procurement Officer Survey 2018)
Complexity, increased risk and sensitivities due to wider market incidents have dramatically influenced how decisions are made, more importantly, how many people need to be involved; on average 3.7 functions and 7.2 stakeholders are required to make a strategic decision. Decisions are taking twice as long to make, the average purchase decision is 4.9 months, with the average no purchase decision taking 4.7 months. (CEB Global B2B Sales)
During the workshop, the groups highlighted volatility as the biggest risk and when asked if they believed their organization had the governance, structure, and policies in place to support timely and efficient decision making. On a scale of 1-10, where 10 is the highest, the group scored an average of 5.8.
- Sustainable Energy Procurement: Keeping green out of the red
The last of the three disruptors is the increasing requirement to introduce green energy into the procurement portfolio, which could mean green tariffs, or potentially onsite or offsite renewable options. 52% of companies now have renewable [distributed] energy projects in place (The State of Corporate Energy & Sustainability Programs Research Report, Schneider Electric & GreenBizGroup, 2018). This growing requirement on procurement teams demands a steep learning curve as the industry learns, understanding the wide variety of opportunities and associated challenges with each, from market specifics to international options.
In addition, Procurement and Sustainability teams within the organization need to collaborate to make the most of their renewable energy strategy, ensuring coherence and alignment in activities. This is often a new challenge but one that delivers synergistic benefits to both teams and the organization. This is a challenging shift in team activities, as demonstrated by the above-mentioned research report.
During the workshop, 73% agreed that they have Sustainability targets integrated in their procurement strategies and policies.
The Energy Procurement workshop session can be summarized by 4 key takeaways:
- Energy procurement remains important, and renewables growth and other changes to the generation mix have far reaching consequences.
- An active, strategic approach to commodity costs must be coupled with increased awareness, understanding and scrutiny of non-commodity costs.
- Data enables effective procurement; this becomes more important as energy data becomes more complex. Deploying technologies to navigate & optimize this arena is key.
- As renewable demand increases, the choices available to procurement functions increase – assessing those in light of sustainability initiatives is critical.
Learn more about the key takeaways from the entire Perspectives Summit, here.