Procurement and sourcing – two very closely related expense management areas we’ll address in this article – are interesting in that these areas can drive significant savings for enterprises. Yet, they do not typically draw major attention in many utility expense management discovery sessions, at least with first-time utility expense management enterprise customers.
The old saying, “You don’t know what you don’t know,” comes to mind and likely represents many newcomers. Let’s dive deeper into why utility sourcing and its close sibling procurement are crucial for enterprises that want to manage their utility needs at the most competitive costs.
It’s where things start with utilities, so getting off to a strong start on the front end of the utility expense management lifecycle is important.
These areas are important because they can save your organization hundreds of thousands of dollars – if not millions– depending on the size of your enterprise throughout a standard 3-year expense management contract.
Utility Sourcing and Procurement – What’s the Difference?
For our purposes, they are so closely related that it’s a distinction without a difference. Yet, let’s provide some clarity around these terms to minimize potential confusion and best set ourselves up for the broader key takeaway ideas to follow here.
The term procurement is the broader term of these two terms. It’s a more generic name for acquiring utility services for an enterprise. Its focus is centered on the lifecycle management of utilities, with the goal being to purchase utility services smartly and then manage and pay for these services just as smartly.
Everything from processing orders to managing utility vendors and contract management is done to tightly manage the newly acquired utility services at the most competitive costs for the enterprise.
On the other hand, the term sourcing has a narrower focus in terms of its general usage. Sourcing is highly focused on more of the research and identification stage for utility services. Those assisting in this area, i.e., utility expense management providers such as Tellennium, will provide consulting support to evaluate various utility vendors, select vendors and desired services, and facilitate and maintain supplier relationships.
The goal is to assist in the highly strategic exercise of sourcing/ procuring /acquiring needed utility services from the right suppliers with competitive contracts. Again, the aim is to provide the right utility services at highly competitive costs.
To reiterate, it’s best not to get too caught up in seeing these areas as too distinct; it’s more helpful to understand that they have the same general aims, with sourcing more tightly focused on the initial research and acquisition support of utility services.
Let’s review some key considerations around acquiring new utility services in more detail. It will help better understand why utility services (e.g., electric, water, gas, waste management) sourcing/procurement support will help your organization more effectively manage your utility services and their associated costs.
The real savings are derived from “not making mistakes,” and therefore why, many often overlook these areas. (Prevention is always the best cure.)
2 Ways Utility Sourcing / Procurement Support Helps Save Enterprises Money
1. Third-party sourcing support will provide excellent utility vendor expertise and agnosticism: A reputable third-party utility expense management provider will have far more experience with available utility vendors (e.g., daily experience for them). This type of experience can help best inform your organization when it comes to evaluating and selecting utility providers to work with.
For example, at Tellennium, we believe in vendor agnosticism. Every sourcing exercise begins anew, given all current conditions during the time of sourcing.
- Current market state and regulatory requirements fluctuate: Are prices generally higher or lower than they were two years ago? Did any regulations change? Did the offers and terms of utility providers – certainly, the main players – change significantly?
A reputable third-party utility expense management provider will be able to assist in this regard, so there is no guessing involved; all utility services’ decisions will be properly informed and fact-based on needs and costs relative to all current market conditions.
- Clarity on your organization’s utility needs: When working with a third-party expense management provider, you can best assist them by being clear on your organizational utility needs and your realistic budget expectations.
They will help you think through all key aspects of this process and then proceed to the market to find alignment options with utility vendors and their services. Again, the end goal always focuses on the necessary utility services at the most competitive costs and favorable contract terms.
2. Third-party sourcing support will provide expertise around utility sourcing strategies: This is a really important area to understand and an area where a reputable and experienced third-party utility expense management provider can deliver tremendous value.
A skilled expense management provider will employ time-tested utility sourcing strategies to help negotiate and achieve best-in-market utility prices and terms for its enterprise customer. A skilled expense management provider will help to get your organization into the top tier of enterprises that enjoy the most competitive utility pricing as well as terms and conditions available within the marketplace during the sourcing process.
Provider special pricing awareness helps your organization: An experienced expense management provider will have knowledge of how best to navigate between intra-company groups i.e., the default vendor account teams versus their special pricing teams, which are more responsive to executive finance-level concerns, which is where the great deals can get done.
Negotiation strategy expertise will help your organization: A competent expense management provider will know how to perform all level-setting research to define the current leading edge of the market. The incumbent vendor, for example, will often be provided the opportunity to acknowledge and meet current expectations for pricing and contract terms.
This gives them the first opportunity to make a competitive offer before proceeding to a request for proposals (RFP) evaluation scenario whereby multiple vendors will be invited to a highly competitive proposal situation.
In many cases, this negotiation tactic alone will prompt an incumbent vendor to make their new offer highly competitive and in line with the current market as going to a formal RFP process becomes much more perilous for them. (There can be as many as five or more other vendors invited in a typical RFP.)
Vendor coaching provided to utility vendors is in your organization’s best interests: A reputable expense management provider will be able to help direct or “coach” utility vendors during negotiations to help minimize unnecessary back and forth. They will provide direct feedback substantiated by market knowledge to help move the vendor decision-makers forward more expeditiously in terms of good-faith negotiations.
Request for proposals (RFP) is useful if prior efforts do not yield desired results: This is where incumbent providers do not want to end up. This opens a highly competitive situation whereby multiple providers will bid for the pending business.
Many reputable expense management providers will offer sourcing and benchmarking services as part of a request for proposals process to actively steer all competitors through a systematic process. And this process is designed to minimize the negotiation process by leveraging market intelligence and best practices to arrive at the most competitive pricing offers as quickly as possible.
When considering a utility expense management provider, you will want to inquire about their capabilities and track record with sourcing/procurement help. Again, this is important because your organization will be immediately behind the eight-ball if you start your utility expense management lifecycle with inadequate services and/or overpriced services.
Playing catch-up does not work well in the expense management world; you always want your organization in a proactive position, not reactive.
Terms and Conditions are especially important as part of the negotiation process: A reputable expense management provider also knows the importance of negotiating strong terms and conditions within agreements.
It’s not simply about the right services and pricing. There will be many other variables that need consideration such as:
- MAC Considerations
- Business Downturn / Divestiture Clause
- Technology Change / Improvement Clause
- Annual Rate Review Clause
- Data and Access Service Level Agreements
Without getting too mired in specifics here, the main takeaway around all these examples is: As change inevitably occurs, do I have contractual flexibility and remedies available to adjust and make changes that will not be overly onerous – financially or operationally – for our organization?
A reputable expense management provider will be able to provide good counsel around terms and conditions, so your organization has the means to adjust as necessary as business conditions and the overall marketplace change.
Closing Thoughts on Utility Sourcing/Procurement Value
Another popular saying comes to mind when considering the value that strong sourcing/procurement support can provide and it is: “Addition by subtraction.” People and organizations are often focused on what they need to do to create value. But it’s often what we don’t do that can generate the most value.
A competent and reputable utility expense management provider can assist your enterprise in these critical areas and help to avoid common and costly mistakes made at the front end of the expense management process.
Its virtue is best demonstrated in what it avoids: poor services, overpriced services, and agreements with unfavorable terms and conditions.
If you’d like to consider Tellennium in your utility expense management vendor comparisons, contact us to schedule a brief demo of our solution.
Call now for a no-cost or obligation demo.(800) 939-9440
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