i On the Market: Flipping the Switch

Ever since Thomas Edison transformed an idea into a light bulb, electricity has been transforming our lives. Today, electricity still chases away the darkness, and it is also chasing the e in e-marketplaces. But are the companies supplying that e staying current with e-commerce?

[From iSource Business, December 2001] Futiliflipping. It's not a well-known term, since I just thought it up, but it's something we've probably all done at one point. It's the act of flipping the light switch during a power outage, even though the house is shrouded in darkness and there's nothing electric humming, buzzing or sounding off anywhere inside. But we flip that switch anyway, because electricity is taken for granted.

Electricity is taken for granted because it is such a commodity, permeating our lives over the last century or so. To keep revenues flowing and limit instances of futiliflipping, energy companies are making the switch to an enabled supply chain. But in what might be strange news, e-commerce is making only halting steps in the companies that supply the "e."

A Flip of the Switch

Scott Choate, manager of statistics for the American Public Power Association, explains that there are two types of utility companies: publicly owned and investor-owned utilities, or IOU's. Speaking for publicly owned companies and their efforts to use e-commerce, he says, "I think folks are looking at the entire supply chain right now, trying to figure out where the electronic systems can add the value." Given the hardships some marketplaces have encountered in providing more than a trading place, that's probably not a bad position to take. Choate goes on to say that utilities are looking at electrifying all areas of the supply chain, from the determination of the need all the way down to the actual purchase.

He also says, in theory, e-commerce saves money in two ways: aggregation and cost savings. "I think a lot of people are too quick to think that savings come from aggregation or volume. ... But a lot of technology hasn't necessarily cut the cost like it was predicted."

Zap Everything

Kris Hillstrand, who is a partner at Deloitte Consulting responsible for global energy technology practice, sounds a similar note when he points out that energy marketplace Pantellos will be, in his words, "one of the marketplaces that is going to make it." This is largely due to its steps to move beyond just transactional efficiency and catalog content and into managing the entire supply chain. (Thereby providing the value that Choate spoke of.) This supply chain management is only possible through what Hillstrand calls the network effect of Pantellos' membership.

Hillstrand gives the example of wood products. (The electrons that power the highest of high-tech gadgets still run along metal wires supported by wooden poles.) According to Hillstrand, almost 50 percent of wood products' costs are incurred in transportation. That's obviously a target-rich environment for cost-reduction, but actually acquiring the targets requires more than a fancy computer interface. He explains that wood costs can be cut "if and only if you've got the capability to manage logistics through shared warehousing across multiple entities."

Wood is a commodity, readily available, but its visibility and coordination throughout the supply chain are anything but commodities. They require infrastructure investments and continued technology improvement to remain successful. They're also the kinds of network-enabled supply chain efficiencies that marketplaces will need to provide in order to survive. Right now, just as in many other verticals, the energy industry needs more support in this area for a truly visible and efficient supply chain. So, what's new?

Energy Never Sleeps

Marc McCluskey, research director at AMR Research, says utilities have needs that differ from most industries, which is another reason that value-added services are necessary for e-commerce efforts to succeed in this industry.

As he explains it, with the exception of fuel, the assets utilities purchase generally last between 15 and 30 years. (The aforementioned poles, cables, etc. are nothing if not hardy.) While that longevity might seem to make purchasing a little easier, since there's not a continual and wholesale turnover of capital as in the PC or cell phone industry, it's offset by a factor that actually adds to the necessity of total supply chain efforts: energy is always being generated and delivered. McCluskey says, "The crucial part of [e-commerce efforts] is having the right pieces of equipment at the right time, because it's a market where the product is constantly being delivered. You really have to manage when you go off and add capital or you work on capital."

A simple e-commerce effort can save money on widgets, but it can't tell what's the best time to shut down a plant for maintenance. Only an advanced supply chain and demand chain tool can supply that information. As the technology ramps up, the resulting opportunities for efficiency in this vertical continue to heat up. Industry leaders are broadening their expectations.

Wired for Success

Not surprisingly, such supply chain companies as i2 have also noticed the opportunities for tweaking the energy supply chain. McCluskey says i2 "is going in with the companies, such as Indus International and MRO Software, that develop the work orders that really open up the demand." He explains that these alliances are a good thing, because utilities might think of i2 and similar companies as only serving companies that buy direct material and turn it into product, and not offering any value for their company, which could be a costly missed opportunity. "There are aspects of leveling the load or reducing inventory costs by better planning that utilities can use, and they can also look at how their assets actually require parts through their life cycle and start doing some service asset maintenance planning."

But these efforts are still just halting steps. McCluskey says, "I'd like them to be thinking more and spending more in this area." He believes utilities are still trying to get over enterprise resource planning (ERP) implementation, initial e-procurement efforts and basic inventory management applications for improving their warehouses.

Hillstrand believes marketplaces will continue to evolve beyond simple transaction-based models to a point that complete collaboration becomes the focus. He says, "We're seeing everything from large-scale engineer-to-engineer collaboration; project planning; asset acquisition through disposal; as well as the transportation, logistics, financial and reverse logistics all being value-added services that are increasingly available through the marketplaces. That's the next frontier." All of which should keep the future bright for e-commerce efforts, and hopefully, keep futiliflipping to a minimum.