Lorraine Longato Lorraine Longato

Purchasing Manager Energy, Plastics & SustainabilityPurchasing Manager Energy, Plastics & Sustainability

Category Management PresentationCategory Management Presentation

CIPSA Qld Event CIPSA Qld Event -- 22nd March22nd March

Items we will cover...Items we will cover... 1.1. Electricity Electricity Market In Australia (NEM)Market In Australia (NEM) 2.2. Gas Market in Australia (So What)Gas Market in Australia (So What) 3.3. What you need to knowWhat you need to know 4.4. Where is Parmalat (Energy)Where is Parmalat (Energy) 5.5. Category Management, how it appliesCategory Management, how it applies

Existing Interconnects Proposed Interconnects

NEM

NEM (Wholesale and or ‘Spot’ Market)

Retail Market (Contract Market)

May register with NEMMCO as Market Customer and purchase

electricity from the w’sale market

Another Retailer

Host Retailer

Contestable Customer

Choice of the majority

NEMMCO/AEMO

AER (Australian Energy

Regulator)

Over the next twenty years, final energy consumption is forecast to grow, on average, by 2.3 per cent p/a: • Coal & oil will continue to supply the vast bulk of Australia’s domestic energy needs, although the use of natural gas is expected to grow strongly • Electricity generation is forecast to grow by 2.3 % a year on average over the projection period, with black coal expected to continue to account for over 50 % of the mix • Energy use in road freight and air transport are both expected to grow strongly. • In manufacturing, gas consumption in the iron and steel sector is forecast to increase sharply, reflecting a positive outlook for direct reduced iron. • LNG exports are projected to grow, on average, by 5.9% a year & to account for over 40 % of total Australian production of natural gas by 2019-20. • In the absence of major new discoveries, Australia’s reliance on imported crude oil is expected to increase significantly.

Source: ABARE Australian Energy Outlook 2020

∞ ‘Variances’ between States, Regions and Sites

∞ ‘Key dates’ in a year when there are changes to cost components

∞ Daylight savings, Public holidays impacts (some suppliers treat as off peak)

∞ Preliminary ‘invoice review’ & key points to look for that may indicate further investigation required*

∞ Cost components & budget forecasting, changes in usage

∞ Metering data, interpretation thereof & quantities on invoices

∞ Environmental Charges (they vary between states)

∞ Environmental Trading Scheme (ETS) aka: Carbon Tax

∞ Cost components & budget forecasting, changes in usage, etc

∞ What is your ‘Strategy’ & how well do you ‘know’ your profile?

• Market Contract (Negotiated + Regulated Pricing : which are a State by State basis and jurisdictional for Network Pricing)

– Large Market (ranging from >100MWh pa Qld and >160MWh pa rest of NEM)

– Mass Market (ranging from <100MWh pa Qld and <160MWh pa rest of NEM)

• Non Market Contract (Regulated Pricing Structures)

• Large Market and Mass Market – different contractual terms and conditions

Do you know the difference between Negotiated & Regulated Market Contracts?

How will your organisation apply strategy in Contract Negotiations &/or Alternatives?

What are your options, trends, do you know?

Negotiated

• Energy (i.e. commodity) – Retail Rates – Time of Use (¢/kWh)

• Queensland, Victorian and South Australia businesses

– Peak , Off Peak

• New South Wales businesses – Peak, Shoulder, Off Peak

– Environmental Rates – Volume (¢/kWh) • LRECs & SRES (Renewable energy certificates) –

Australia wide • GECs – (Gas energy certificates) Queensland only • VEECs – (Victorian energy efficiency certificates)

Victoria only from 1 January 2012 Large Market Customers

• NGACs, ESC – NSW Greenhouse Gas Abatement Certificates, NSW Energy Savings Certificates

• Metering Services ($/day/meter) – Meter Provider (MP) – Meter Data Agent (MDA) – Responsible Person (RP) ($/day/National Meter

Identifier (NMI) ) & or other charges if have own meter service provider contract (MP, MDA)

Regulated

• Network Use of System (i.e. Transmission and Distribution) – Variable rates – Time of Use (¢/kWh) & sometimes

seasonal • Currently Queensland, Victorian and South Australia

businesses – Peak , Off Peak – Seasonal, – For States with Daylight Saving Time DST may

apply to ToU definitions

• New South Wales businesses (Queensland changing to three part)

– Peak, Shoulder, Off Peak

– Fixed rates – $/day or $/mth – Demand rates - ($/kW/day or $/kW/mth or

$/kVA/day) • Time of Use • Seasonal • Contract, Capacity, Authorised or rolling maximum

12 month value • Actual monthly maximum demand • Victoria ¼ hour maximum, all other States in NEM ½

hour maximum

• Market Participation ($/MWh or ¢/kWh) – Market Administration – Market Ancillary Services

If a phone rings in the office, can

anyone hear?

Not in over 60 years.......

Stuart Park

Nambour (Gympie)

Brisbane

Rowville

Bendigo

Rocky

NSW

WA

TAS

Coffs Harbour x 2

Dubbo

Goulburn

Lavington Albury

Port Macquarie

Taree

Windsor

Alice Springs

Katherine

CBD Sth Brisbane Montague St Riverside Drv Boundary St SEQ (GC) Burleigh Heads Labrador

Cairns

Blackwater

Bowen

Townsville

Charleville

Clermont

Emerald

Dysart Moranbah

Moura

Mt Isa

Ballina

Barcaldine Gladstone

Hervey Bay

Innisfail

Mundubbera & Gayndah

Proserpine

Roma

Biloela

Caboolture Geebung

Sunshine Coast Noosa Heads Maroochydore Caloundra Moffat Beach

Toowoomba Warwick Ipswich

Kingston

Kingaroy Nanango Yamanto

Longreach

Mackay

Maryborough

Middlemount

Clarence Gardens

Broken Hill

Mt Gambier

Renmark

WEST Mildura Hamilton Swan Hill Ballarat Horsham Maryborough Warracknabeal

NORTH Deniliquin Bendigo Shepparton Wangaratta Cohuna Kerang

EAST Morwell Sale Bairnsdale Orbost Maffra

SOUTH Tullamarine Sunshine Geelong Leongatha Somerville Hallam 830 Wonthaggi

Kununurra

Newcastle Wyong Gosford French’s Forest Eastern Crk Market St Lidcombe Homebush Rockdale Lurnea Wollongong Bomaderry Bateman’s Bay Canberra Wagga Wagga Cooma

Monto

Bundaberg

Whyalla Port Augusta Port Lincoln Port Pine Cavan Murray Bridge Seaford Berri Kinston Naracoorte Robe Millicent

Gulgong Lithgow Parkes Orange Springwood Katoomba

Tamworth

NT

SA

QLD

VIC

Facilities:

Factories x 8 Vic x 2; Qld x 3; NSW , SA, NT x 1 each Warehouses x 7 Vic x 2; Qld x 2; NSW , SA, NT x 1 each Depots x 103 Vic x 21; Qld x 33; NSW x 27, SA x 11 NT x 11

The Parmalat 8 Step Strategic Sourcing Process Wheel removed due to PA ownership & PA Copyright agreements in place

Benefits include: Providing a model for valuable business & marketing information, develops competitive advantage via information and understanding, an opportunity to build relationships with supply market & increase profitability

0

20

40

60

80

100

120

140

160

180

0

1

2

3

4

5

6

7

8

9

2008 2009 2010 2011 2012 2013

$/M

Wh

Pay

bac

k Ye

ars

Carbon Price begins

Electricity Price Trend

Payback

What is your Organisation doing to mitigate the escalating Energy & Operating costs?

0

20

40

60

80

100

120

0 1 2 3 4 5 6 7 8 9

2008 2009 2010 2011 2012 2013 $/M

W h

or

Au

ce

nts

pe

r U

SD

Year

s

Payback (w/o Funding or Forex Impact) Payback (with funding and Forex Impact) Exchange Rate (AU cents per USD)

25% Clean Energy Funding

Note: Energy Australia network costs Forex Impact assumes 100% overseas capital purchase (USD)

Exchange rate

Strategic Planning with proper Category Management will allow you to target investment

that will assist in cost reduction/mitigation

1. Set out to determine spend, categorise spend & forecast future category requirements (projections)

2. Have a full understanding of WHO your stakeholders are, and what type of influence they have over ‘change’ (Power/Influence)

3. Understand where your category ‘benefits’ align with stakeholders’ ‘business drivers’ or needs in order to create buy-in and to generate support 4. Conduct an economic analysis to understand the “competitiveness of the supply market” and the linkage to your category strategy (Porters 5 Forces)

5. Understand how do your supplier’s perceive your organisation within the market place and use attractive points to leverage category and gain their interest. (market)

6. Utilise hypothesis based work planning to focus data collection and outcome analysis 7. Work to uncover additional sources of meaningful category value

The key benefit of Category Management of a category management model is the ability to gain greater stakeholder support and influence via the in-depth understanding of the make/buy/sell decision process.

As such this enables you, the Category Manager, to further influence internal demand as opposed to just concentrating on price, compliance and risk as is the case with traditional sourcing practice

Tasks

Purpose

Output

Tools

Identify Opportunities & Benefits Capture Benefits Sustain Benefits

1. Communicate your Category’s Value 2. Drive Category Utilisation 3. Cultivate a Market Intelligence Network 4. Create Value and Minimise Risk 5. Optimise your Category Portfolio