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Best Practices in Services Procurement for Utilities. Gregory M. Thornbury - Lead Manager, SAP Program Pacific Gas and Electric Company. Shaz Khan - Managing Director, Supply Chain MyITGroup, LLC. Objectives . PG&E Corporate Overview and Transformation SAP Overview

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best practices in services procurement for utilities

Best Practices in Services Procurement for Utilities

Gregory M. Thornbury -Lead Manager, SAP Program

Pacific Gas and Electric Company

Shaz Khan -Managing Director, Supply Chain

MyITGroup, LLC

objectives
Objectives
  • PG&E Corporate Overview and Transformation
  • SAP Overview
  • Understand services procurement scope at PG&E
  • Key successes and challenges for sourcing complex service requisitions
  • Lessons learned
  • Going forward
pacific gas and electric company corporate profile
Pacific Gas and Electric CompanyCorporate Profile
  • One of the largest Gas & Electric Utilities in the US; Over 100 years old
  • Founded in 1905 in San Francisco
  • Environmental Leader – www.letsgreenthiscity.com ; www.wecandothis.com
  • Serving 1 in 20 Americans – 15 million people including:21,000 schools, 3,300 hospitals, 21,000 High-Tech Corp.
  • 123,054 circuit miles of electric distribution lines and 18,610 circuit miles of interconnected transmission lines.
  • 40,123 miles of natural gas distribution pipelines and 6,136 miles of transportation pipelines.
  • 20,000 employees with Revenues of $13.2 billion in 2007
  • Assets of $34 billion - 1 Nuclear, 2 Fossil, 110 Hydro Plants; 1 Fossil Plant under construction
  • 70,000 square mile service area in California
pg e vision
PG&E Vision
  • Market Dynamics
  • Utility Industry Changes at Large
  • Significant Pressure – Reliability, Cost, Services Delivery
  • IT as a Strategic Advantage
  • Consolidated Technology
  • Standardized Processes
  • Integrated Solutions
  • Accelerated Delivery
  • IT Governance
  • Budget Planning & Spending
  • Organization
  • Decision Making
scope of business transformation
Scope Of Business Transformation
  • Human Resources
    • Personnel/Org
    • Payroll/Time
    • Benefits
  • Nuclear
  • Business Intelligence
  • Energy Delivery
    • Work Order Management
    • Scheduling
    • Job Estimation
  • Supply Chain
    • Strategic Sourcing

OperationalExcellence

Understand theCustomer

Technology/

Innovation

  • Back office – Customer
    • Integration
  • Change Management
    • Learning
    • Communications
  • Solution Delivery Center
  • SAP Operations
  • Service Oriented Architecture
  • Compatible Units
sap journey to date
SAP Journey to Date
  • SAP since 1996
  • Currently on SAP ERP 4.72 (upgrade to ECC 6.0 in 2009)
  • SRM version 4.0 (upgrade to version 7.0 in 2009)
  • 8,500 users for all back office and field operations
    • Supply Chain Management -- Materials Management and Supplier Relationship Management
    • Equipment/Work Order Management in Plant Maintenance
    • Finance/Controlling
    • HR Org/Benefits/Personnel/Payroll
    • Employee Self Service for 20,000 employees and 18,000 retirees
    • Manager Self Service
    • Business Warehouse
  • Go live of 50,000 person day project in October 2007
services procurement overview at pg e
Services Procurement Overview at PG&E

Transformation Objective -- Drive incremental supplier performance management and process efficiency benefits through technology

  • Key purpose of service based procurement is to support procurement of services originating from unplanned and planned based service requests
  • Services represents 75% of total purchasing across all business units
  • The SAP Supplier Relationship Management (SRM) tool is the key sourcing and procurement platform for service requests
  • With the October 2007 implementation of SAP/SRM, PG&E enabled a procurement technology that for the very first time automated company contracting policies
srm as complementary solution for sap mm pm
SRM as Complementary Solution for SAP MM/PM

SRM leverages SAP MM functionality with an ‘easy-to-use’ application, building upon basic processes to provide solutions to business challenges.

SAP SRM

  • Web based tool requiring no desktop management
  • ‘Easy to Use’ features and functions
  • eCatalog based requisitions with parametric search to ‘ease’ buying and promote compliance
  • User friendly graphical interface for workflow
  • Advanced electronic connectivity with suppliers including punch out to suppliers web sites
  • Electronic bidding capability to assist in sourcing initivatives
  • Advanced reporting, analytics, and supplier evaluation

R/3 MM

  • Requires installation of windows-based application SAP GUI on each user desktop
  • More complex screen which is often suited for power users
  • Extensive R/3 workflow however, it can be cumbersome and complex
  • More traditional communication channels Autofax/EDI
  • Basic purchasing reporting and supplier analysis
  • Significant functionality and capabilities for complex processes and financial requirements
key successes in service procurement
Key Successes in Service Procurement
  • Service-based rate cards and service catalogs
  • Integrating PM/Compatible Unit work orders to identify and source service requests
  • Increasing contract compliance for service orders
  • Develop consistent and automated approval procedure for service orders
service catalogs in srm
Service Catalogs in SRM

Solution

  • Load service-based rate cards for certain recurring services (which require a Contract Work Authorization – CWA):
    • Tree Brush Removal Services
    • Wood Removal Services
  • Catalog items have links to pricing schedule and additional document requirements such as a CWA template
  • Shoppers in the SRM system can browse catalog and add requested services to shopping cart

Benefits

  • Uniform description, material group, unit of measure assignment for service requests stored in catalogs
  • Streamlines order processing cycle
  • Increases contract compliance by assigning fixed vendors to service catalog requests
slide12

Supplier

SRM

SAP MM

SRM Enabled Requisitioning Process

Supplier

Purchase Order

Supplier Catalog

Punch out to Supplier Catalogs

Catalog orders

Buyer Portal

Catalog Materials

Buyer intervention as required

Single Buyer Portal

Automated workflow rules

Services

CodedMaterials

Sourcing Cockpit

Shopping Cart

Approval

Shopping Cart

Non-coded materials and Service

Reservations for coded mat’ls

Materials Issue

Material Reservation

Work Order

Purchase Requisition

compatible unit services integration with srm sourcing
Compatible Unit Services Integration with SRM Sourcing

Solution

  • Partnership with SAP to co-develop Compatible Unit (CU) functionality. CU orders are schedulable and have financial significance when associated to a PM/PS order
  • Combined standardized and repetitive units of work
    • Patch-paving
    • New Service Installation
  • CU Order with services generates a SAP Purchase Requisition which is lifted to the SRM Sourcing Cockpit for strategic sourcing activities

Benefits

  • Higher cost accuracy and consistency
  • Planned service work is integrated into sourcing cycle
  • Buyers have information on service request including requestor name and contact information
sap compatible unit example
SAP Compatible Unit Example

Compatible Unit ID: PG-POLE1 (CU selected four times)

  • PGE 35 Foot Yellow Pine Pole, Class 3

Insulators (4)

Material # 3455

Labor - 2 Hrs.

Cross Arms (2)

Material # 1234

Labor - 4 Hrs.

Material & Labor Totals

4 Insulators $ 50

2 Cross Arms $50

1 Pole $350

Labor $2800

Cost of CU $ 3250

Total cost of job $13,000

Special Equipment

Bucket Truck

Pole (1)

Material # 23444

Labor – 8 Hrs.

contract management in srm for services
Contract Management in SRM for Services

Solution

  • Purchasing contracts are created in SRM to establish a valid source of supply for service requests
  • Value contracts created based on service category, performance zones, validity period, and target value
  • Contract (transactional documents) integrated with approval workflow process to ensure signature linkage before release

Benefits

  • Increasing compliance of services spend
  • Increasing contract compliance by forcing Buyers to only use valid contracts
  • Integrated approval process for signature release
slide16

Supplier

SRM

SAP MM

SRM Enabled Sourcing Process

Supplier

PO / CWA

Award Notification

Supplier

Bid

Bid Award

Approval

Contract

Approval

Shopping Cart

Sourcing Cockpit

Contract Creation

Non-coded materials and Service

Work Order

Purchase Requisition

Outline

Agreements

automated approval workflow for service requests
Automated approval workflow for service requests

Solution

  • Automated approval workflow for shopping cart service requests
  • Capability for line item rejection for purchase request
  • Approval notifications for purchase requests are sent to approver’s email inbox

Benefits

  • Consistent central process for delegation of authority and visibility of approval hierarchies
  • Additional approvers and reviewers can be added to workflow on an as-needed basis
catalog status as of october 2008
Catalog Status as of October 2008

Catalog Breakdown By Portfolio

  • Corporate Services Catalogs (115)
  • Energy Delivery Material Catalogs (5)
  • Energy Delivery Services Catalogs (74)
  • Environmental Health & Safety Catalogs (64)
  • Generation Catalogs (17)
  • IT/Telecommunication Catalogs (5)
  • Transportation Catalogs (0)

Currently Loaded: 280 catalogs

  • Punch-out material catalogs (16)
  • Internal material catalogs (5)
  • Traditional service catalogs (18)
  • CWA service catalogs (241)

Future Catalogs: 17 catalogs

  • Punch-out material catalogs for promotional and office supplies (2)
  • Information Technology material catalogs (4)
  • CWA service catalogs (11)
    • (Inspection Services; Misc. Energy Delivery Services; Corporate Services; Ergonomic Solutions)
key challenges in service procurement
Key Challenges in Service Procurement
  • Bringing spend under management for other types of services such as:
    • Advertising/Marketing
    • Real estate/Leases
    • Legal
    • Telecom
  • How to measure quality and delivery of services performed before payment?
  • Services specifications and performance dates are constantly changing. Need effective methods to manage purchase order change process.
  • Variable service rates and milestones (overtime, a la carte fees, etc.) are difficult to capture in a purchase order
lessons learned
Lessons Learned
  • Invest heavily in change management
  • Establish clear purchasing channels for service categories for your employees
  • Many ways to peel the ‘services procurement’ onion (not one magic solution)
  • Engage with suppliers early in the design process for service procurement tasks
  • Focus on the complete procurement lifecycle for services procurement especially invoice processing and payment
  • Manage change with business and IT
  • Simplify and rationalize tools, applications, platforms, and processes
  • Super-users are critical – Make sure each business area is represented with resident experts preferable from the line of business
  • Stretch your resources
srm services roadmap
SRM – Services Roadmap

2009 +

  • Catalog procurement for simple services
  • Contract management
  • Automated approval worklfow for services procurement
  • E-invoicing capabilities with certain suppliers through third-party tool

Procurement and Sourcing Roadmap

Today

Tomorrow

  • Complex service specifications and sourcing
  • RFx bidding participation for strategic sourcing initiatives
  • Supplier service confirmations for time and labor performed
  • Automated approval for unplanned service requests
going forward
Going Forward
  • Upgrade to latest SAP and SRM releases (2009) to take advantage of new service functionalities including service hierarchy and model service specification support in SRM
  • Improve capabilities for handling unplanned services
  • Launch supplier portal to enable increased supplier collaboration including:
    • Supplier self-registration in the supplier portal
    • Service confirmations initiated by suppliers
    • RFx bidding process
  • Introduce Blanket Purchase Orders for certain types of services
  • Increase contract compliance and improved quality review for temp labor and consulting services
gregory m thornbury pacific gas and electric company email gmt4@pge com

Shaz Khan

MyITGroup, LLC

Email: skhan@myitgroup.com

Gregory M. Thornbury

Pacific Gas and Electric Company

Email: gmt4@pge.com