Welcome to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I’ll be reviewing a whitepaper entitled “However You Slice It, Buying Energy Is Unique” from Summit Energy and Purchasing Magazine.
The simple premise of this whitepaper is to demonstrate that energy is a commodity unlike others and, therefore, the procurement of it should be approached differently. It bases this argument on five key differences, represented in five discreet sections of the document.
Difference #1 – Geography Matters. This section is packed with quotes from energy buyers who attest that regulations in different states complicate the buying of energy and that one has to be familiar with each market in order to optimally identify the right approach in each market.
Difference #2 – Volatile Pricing and Tight Timing. While commodity buyers certainly understand the roller-coaster-like nature of commodity prices, this whitepaper tries to establish that the timing of energy purchases is among the tightest of any commodity, with pricing validity often measured in hours.
Difference #3 – Necessity of Market Intelligence. While I would argue that market intelligence is necessary for any commodity, this section points out that some activities like being familiar with regulations that differ by location and keeping track of pending legislation are employed with energy buying but not with other commodities.
Difference #4 – Not Just Aggregation. Having never been responsible for multi-site energy acquisition, I found these excerpts from this section to be rather interesting: “Even if multiple sites can aggregate their buy from a single supplier, they may get better rates by going it alone. For example, one site may reside within a business unit of the parent company and not secure credit terms as favorable as the other site. Many factors can drive contract preference, and all too often, procurement professionals too quickly assume that aggregating volume is the most effective tool in the shed. In addition to the size of your load, the shape of your load can drastically impact pricing. The time of day when a facility requires the most energy and its pattern of use can significantly impact the site’s utility rate, contract terms or price offerings.”
Difference #5 – Measures of Success. Because the market prices for energy change frequently, one cannot expect energy costs to go down year-over-year for any significant duration of time. That makes reporting traditional cost savings difficult. David Bush, the CEO of procurement solution provider and Purchasing Certification Blog sponsor Iasta, was quoted in this section as saying “It’s hard to pin down cost savings with energy…You look at what you would have paid if you hadn’t acted versus what you did pay.” The whitepaper concludes this section by saying sometimes cost savings plays second fiddle to actually having predictable costs, which pleases investors.
I’ve always found learning about new categories – including those that I was not likely to purchase in the near future – to be fascinating and helpful in my development as a purchasing professional. If you’re like me, you’ll probably enjoy reading this whitepaper. You can download your own copy from Purchasing Magazine’s Web site (registration required).
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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