Top 10 energy buying mistakes you didn’t realize you were making and how to avoid them
This series on the Top 10 energy buying mistakes now reaches its conclusion with a discussion on one of the most common – and yet most challenging – mistakes to overcome. Previous installments covered issues of not procuring proactively, missing the most competitive rates, developing an inappropriate procurement strategy for your specific needs, neglecting a pre-determined procurement goal, utilizing an aggregation for purchasing energy, taking a decentralized approach, hiring one company to handle all energy activities, focusing too much on the process instead of the results, and failing to properly negotiate the key clauses.
In this tenth and final installment, we will deal with an issue that, in some cases, may appear to be beyond your control as the purchasing professional for your organization. We will discuss the interpersonal interaction that occurs when multiple individuals and departments all vie to take control of the energy procurement process. The solutions to this issue are as customized and varied as the organizations in which they occur. There are, however, some commonalities to both the problem and its solution. In many ways, the concern is as old as society itself – as we wrestle with how best to address having “too many cooks in the kitchen.”
The Mistake: Multiple Individuals Involved in Making Energy Procurement Decisions
When one individual is responsible for a function or task, it is that person’s responsibility to handle it effectively. The task’s success or failure is essentially all up to the one person, as he or she is the sole decision-maker on how to proceed. Energy procurement is no different. When the procurement officer negotiates the most favorable contract terms for the right price, there is success; entering into an unfavorable contract spells failure.
Sometimes, however, the final mistake that stands in the way of success is one that occurs by virtue of the organization itself. Energy is an area of interest and concern for many individuals within a company or organization. As such, these individuals often take not just heavy interest but also some “ownership” in the process of procuring that energy. The complication for the procurement officer is two-fold:
You may be able to ensure that you do not make a mistake, but when others are involved, how do you also ensure that they don’t make mistakes of their own?
In many cases, the interests of all those others involved are then competing – how can you successfully manage this potentially tense and tricky situation?
Some of the results of having more than one person “responsible” for procuring energy include:
- Differing views on managing risk (such as contract term or fixed vs. index pricing)
- Failure to follow required procurement laws or policies
- Waiting too long to actually start procurement (bad market timing)
- Inaction because all parties can’t decide on a direction
Why It Happens: Lack of Centralized Ownership
If Party A and Party B both say they are responsible for a process, who is really in charge? Likewise, if both Purchasing and Facilities say that they “own” the process for procuring energy, who is right? These can be hard questions to answer when there are legitimate claims from all sides with regards to managing – and ultimately “owning” – the procurement of energy for the organization.
When you take a step back, it is easy to understand why this confusion regarding who is “in charge” seems to pop up more regarding the procurement of energy than it does for almost any other commodity, product, or service an organization procures. It stems from the fact that, not too many years ago, energy was not formally “procured through negotiation.” It has only been in recent history that electricity and natural gas have become competitive in many markets, meaning it can be sourced from more than one supplier.
The advent of utility deregulation in the late 1990s and early part of this century has taken a process that used to be an afterthought and turned it in to a strategic need. In the past, it may have been someone in Facilities who communicated with the local utility regarding energy supply, but today you have purchasing agents and buyers conducting RFPs and working with energy advisory firms to source energy supply.
This change in process has led to confusion of roles as old ways of managing butt up against the new procedures that are required.
How to Fix It: Create a Team Approach Adhering to the Procurement Process
Once you understand the various parties in your organization who should be involved in the procurement process, you must bring them all together. The best way to get all the parties together to accomplish a goal is to create a team. However, a team with no direction and no guidance is sure to fail. So, like any successful team, it must have a strong coach and a commonly understood set of rules to play by.
As long as the team operates in unison, the common mistakes found in procuring energy can be addressed as a group. One particular individual does not fall victim or hijack the process. The rules to play by are the same procurement policies and procedures that you as a purchasing professional adhere to. Being the most familiar with these rules often puts you in the position to operate as “the coach.” This doesn’t always have to be the case, but many times it is the purchasing group that manages and guides the process for procuring energy. Once you define the team, identify the coach, and establish the rules, you are ready as an organization to take on the energy procurement process and deal with the mistake of this final installment in our series head on.
Conclusion: Don’t Fall into the Same Old Trap
Now that we have reached the conclusion of our ten-part series on energy procurement mistakes, you may feel well prepared to deal with any and all supply issues as they relate to energy. Let’s just go on the assumption that this is the case. You have read and followed the directions regarding the first nine mistakes and how to fix them. Now it is easier to see why fixing mistake number 10 is so important.
Even if you, as your organization’s purchasing professional, have now dealt with all the key mistakes, you have no way of knowing if others in your organization have done so. The overwhelming likelihood is that professionals from other departments will be making many of the “Top Ten mistakes” of this series. This means that all the hard work you have done to avoid those can be easily undone, if someone else unwittingly makes the mistake for which you were prepared.
The solution is to create a strong, transparent, and highly interactive team where all departments that have an interest in the successful supply of energy are on the same page and rowing in the same direction toward the common good. You, as the reader of this series, will then be able to provide guidance for your team, as you learn and grow together. This holistic approach will ensure that the entire organization – not just one individual – truly benefits from fixing any mistakes. By addressing and rectifying these mistakes, nothing should hold you back from successfully meeting the energy supply requirements that enable you to address the real needs of both your constituents and your customers.
Bob Wooten, C.P.M., CEP, is Director of National Accounts for Tradition Energy, and has over 20 years of experience managing commercial, industrial and governmental procurement programs for a wide variety of clients. Bob holds professional certifications from the Association of Energy Engineers and the Institute for Supply Management, as well as a B.A. from Texas A&M University, and a Master’s Degree in Public Administration from the University of Houston.