© 2008 Eventure Events. All rights reserved.

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

• Understand services procurement scope at PG&E

• Key successes and challenges for sourcing complex service requisitions

• Lessons learned

• Going forward

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

IT Governance

• Budget Planning & Spending

• Organization

• Decision Making

IT as a Strategic Advantage

• Consolidated Technology

• Standardized Processes

• Integrated Solutions

• Accelerated Delivery

Market Dynamics

• Utility Industry Changes at Large

• Significant Pressure – Reliability, Cost, Services Delivery

Scope Of Business Transformation

Understand theCustomer

Understand theCustomer

OperationalExcellence

OperationalExcellence

Technology/Innovation

Technology/Innovation

• Energy Delivery•Work Order Management•Scheduling•Job Estimation

• Supply Chain•Strategic Sourcing

• Human Resources• Personnel/Org• Payroll/Time• Benefits

• Nuclear• Business Intelligence

• Solution Delivery Center• SAP Operations• Service Oriented Architecture• Compatible Units

• Back office – Customer•Integration

• Change Management•Learning •Communications

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

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

Types of Services

Category Examples MethodRecurring Services Sand and gravel, tree

trimming, wood removalSRM Purchase Order

Project Services Patch-paving, station and sub-station construction

SRM Purchase Order

Small-Dollar Services Locksmith, catering P-Card, Invoice only, SRM Purchase Order

Return and repair services

Repair work SRM Purchase Order, Invoice only

Professional Staff Augmentation, Consulting Services, Legal

Invoice only

SRM as Complementary Solution for SAP MM/PM

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

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

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 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

Su

pp

lier

S

RM

SA

P M

M

Catalog Materials

Services

Coded Materials

Buyer Portal

Supplier Catalog

Shopping CartApprovalShopping Cart

Punch out to Supplier Catalogs

Single Buyer Portal

Material ReservationMaterials Issue

Reservations for coded mat’ls

Automated workflow

rules

Catalog orders

Sourcing Cockpit

Buyer intervention as

required

Supplier Purchase Order

Work Order Purchase Requisition

Non-coded materials

and Service

SRM Enabled Requisitioning Process

Compatible Unit Services Integration with SRM SourcingSolution• 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 Compatible Unit ID: PG-POLE1 (CU selected four times)

– PGE 35 Foot Yellow Pine Pole, Class 3

Pole (1)Material # 23444

Labor – 8 Hrs.

Cross Arms (2)Material # 1234Labor - 4 Hrs.

Insulators (4)Material # 3455Labor - 2 Hrs.

Special EquipmentBucket Truck

Material & Labor Totals4 Insulators $ 502 Cross Arms $501 Pole $350Labor $2800Cost of CU $ 3250Total cost of job $13,000

Contract Management in SRM for ServicesSolution• 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

Su

pp

lier

S

RM

SA

P M

M

Shopping Cart Sourcing Cockpit

Supplier Bid

Outline Agreements

Bid AwardApproval Contract Creation Contract

Approval

Work Order Purchase Requisition

Non-coded materials

and Service

Supplier PO / CWAAward Notification

SRM Enabled Sourcing Process

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 2008Currently 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)

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)

SRM Usage Since Inception (Oct. 2007)

SRM Purchase Order Totals:

Count Of PO's Total Amount100,373 2,065,734,188.15

SRM Catalog Based Purchase Order Totals:

Count Of PO's Total Amount74,916 44,860,872.89

Shopping Cart Counts:

MonthShopping Cart

Count12 Month Total 125,879

Total SRM PO's

Total SRM Catalog PO's

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• 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

Procurement and Sourcing Roadmap

Today Tomorrow

Catalog procurement for simple services

Contract managementAutomated approval

worklfow for services procurement

E-invoicing capabilities with certain suppliers through third-party tool

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

2009 +

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

Questions

© 2008 Eventure Events. All rights reserved.

Gregory M. ThornburyPacific Gas and Electric Company

Email: gmt4@pge.com

Shaz KhanMyITGroup, LLC

Email: skhan@myitgroup.com