Emerging Energy Trends — Why Spend Management is Growing

Spend Matters would like to introduce a new series of posts with partner NPI Financial on a range of topical procurement and spend management/supply chain issues.

Unpredictable costs in an unpredictable economy can make for business mayhem. Take energy, for example. Many who maintain large corporate and manufacturing facilities, spend an exorbitant amount on powering their infrastructure. And, like other practice areas, energy represents a complex spend category that is fraught with pricing disparity.

Below, NPI provides a few things you should know as you aim to cut operational costs in the second half of 2010:

Why is there a demand for energy spend management?

Across every industry, there is a huge financial waste in energy spending. Rising energy costs, compounded by a lack of competition in the marketplace, has made the cost of power volatile, and thus a liability for operational performance in 2010. Furthermore, with increased regulatory pressure for green initiatives, many energy providers are raising rates to compensate. This has put many companies at a severe disadvantage as they try to understand and negotiate complex rate structures.

Should my firm consider energy spend management?

That answer can't be determined without understanding your unique energy spend profile. But, the service is ideally suited for certain types of operations. The companies that stand to benefit the most from energy spend management services are those that maintain large and/or always-on facilities. Manufacturing facilities, corporate campuses and headquarters are typically large, sprawling infrastructures with high power demand. On the other hand, data centers and network collocation facilities may not be as big as a manufacturing plant, but they use power 24/7.

In considering any spend management solution when it comes to energy, you should ask the following questions:

  • What % of COGS is your energy spend?
  • Are you investing in new energy technologies in the next 12-18 months?
  • How are you mitigating the rising cost of energy?

By gaining insight and optimizing energy spend practices, you can provide yourself with the knowledge you need to accurately forecast, budget, and make better spend decisions without being left in the dark.

-- Jim Benjamin, COO and Head of Energy Practice, NPI

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