Managing Direct Material Spend For Utilities
Direct material spend accounts for a significant portion of the core operational expenditure for utilities. Hence, even subtle savings in the direct spend can translate into significant value for the organization, providing a boost to the operating margin in these times of rising energy prices. Although procurement of direct material is typically managed through long-term supply contracts, these costs are subject to frequent and significant variations – on account of volatility in energy demand (usually on the higher side), as well as market rate of the underlying commodity.
Need of the hour is to enable end-to-end visibility across energy demand, purchasing activity, and suppliers – in order to mitigate supply and price-volatility risks. This would enable utilities to bring in more actual spend under contract, thereby realizing higher savings while reducing supply risks.
SAP procurement benchmarking analysis shows that more than two-thirds of utilities assign high importance to:
- The ability to aggregate purchases across all business units for accurate global analysis of supplier spend data
- Conducting regular spend reviews to identify new areas of contract opportunity
However, only 21% have the necessary maturity.
It further indicates – utilities that conduct regular spend reviews to identify new areas of contract opportunity and have the ability to aggregate purchases across all business units for accurate global analysis of supplier spend data, show 8% higher direct controllable spend under contract, and 138% higher annual average savings on direct spend
for the full blog, please go to the link: http://blogs.sap.com/innovation/industries/monday-metric-managing-direct-material-spend-utilities-01248325#comment-5212
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