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The Challenges of Expanding Supplier Lists in Utilities and Contractors

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Luis Juarez's picture
CEO Babelus

I have 27 years of experience. I started as a design engineer at Fluor Daniels, then worked at AES and became an overseas business manager at Phelps Dodge. For 17 years I operated and founded a...

  • Member since 2022
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  • Mar 15, 2022
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For the past three years, we have been working with utilities to solve the challenges of expanding the list of suppliers, especially in critical equipment. We have been implementing and collecting information that has allowed us to draw relevant conclusions and shape our strategy towards our market proposal.

We have identified the following challenges:

  • No commonplace to find suppliers.
  • The impersonalized or cold cabin that suppliers have to deal with when they approach utilities. 
  • Procurement departments are dependent on the company's engineering teams.
  • Marketplaces where the supplier must mandatorily register and even pay.

The challenges of the utilities to expand their list of suppliers

Abstract

Unlike many industries, operators have strict procedures for enrolling material suppliers for their networks.

There are two visible steps for a supplier who wants to sell to a utility:

1. Supplier Registration

2. Homologation

This not-so-complex but tedious procedure, standard in most of the world's global utilities, results in companies ending up working with their traditional suppliers. Although reliable, it weakens their negotiating position and makes them buy more expensive.

On the other hand, it is not common to get utilities to go out and find their suppliers, either because of lack of time or because there are no easy tools to reach and connect with new suppliers.

The next challenge for the buyer is to persuade the homologation unit to take the time to qualify the suppliers achieved. This may be the biggest bottleneck to expanding the supplier list.

Construction companies, as an example.

Global contractors and IPPs must buy at the best price, so they look for the best suppliers anywhere globally and pre-qualify them at the end-user, if necessary. 

Many construction companies just do not have the registration and homologation scope which makes the discovery processes dynamic and effective.

The impersonalized or cold chamber that suppliers must deal with

We have observed that large world manufacturers have difficulties entering large utilities: 

"If you want to be our supplier, sign up in our E-procurement"

The user experience turns the utility into a sort of black box. Not having the chance to promote their company and their product, much less the opportunity to feed the utility with updates of their new projects, generates such a huge turn-off that many lose interest. 

It explains the vast gap between the suppliers who start registration and those who finally finish it. The differential becomes even more significant when considering the number of suppliers approved for a bidding process.

Procurement departments dependent on the company's engineering teams

Another common problem is that since buyers are usually not specialists in the product, getting suppliers is much more complicated, making them dependent on the end-user and often killing the chances of getting new suppliers.

Marketplaces and risk analysis platforms where the supplier is required to register or pay

One of the considerable limitations of marketplaces and risk analysis platforms is that the supplier must register and generally pay. 

It means that none of these two solutions guarantee the buyer’s total visibility of the market.

So, when utilities look for new suppliers, they must go through dozens of e-commerce, read dozens of reports, analyze websites through internet searches and then deal with hundreds of people to find out which of them are a perfect fit for their company.

Conclusions

Neither utilities nor suppliers are fully connected, generating what Deepak Maholtra describes in his book Negotiation Genius, as negative value generation. What the manufacturer fails to sell more than the buyer fails to save becomes a negative value.

The market must look for solutions to break all these barriers through strategies and resources such as:

  • Supplier hunting, utilities looking for suppliers according to their needs
  • Total scan or digitalization of suppliers’ market through market research, without the need for supplier registration, so that no one is left out.
  • Low-cost, dynamic, and effective services to homologate factories under the parameters of each utility. More than ever in this new post-COVID-19 stage, where it will be difficult for utility inspectors to travel to qualify factories.
  • Offer interesting factories a place to showcase their successes and highlights and where they can interact with purchasing teams, always with respect for the buyer's contact information.
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Thank Luis for the Post!
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Matt Chester's picture
Matt Chester on Mar 15, 2022

Another common problem is that since buyers are usually not specialists in the product, getting suppliers is much more complicated, making them dependent on the end-user and often killing the chances of getting new suppliers.

With regard to the utilty space specifically, is this because there's a central buyer who isn't as specialized in the equipment each department (transmission vs. distribution vs. generation vs. etc. etc.)? Can that be overcome by segmenting these decisions rather than centralizing them? 

Luis Juarez's picture
Luis Juarez on Mar 25, 2022

It would be ideal, but it is most likely that the specialist in the category belongs to Engineering or Operations. The easiest way to resolve this is for the buyer to have external support to suggest suppliers based on technical specifications. We do that for example.

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