Building an electricity customer base
The Irish electricity market was fully opened to competition in February 2005 and we are now in the electricity market. We are launching a major sales drive into the domestic residential market towards the end of this year and we are looking for a substantial market of new electricity customers in Ireland. We have what is called a dual fuel strategy now in terms of the customer base. We are offering two products – natural gas and electricity – from one supplier.

On electricity, our big selling point is we can offer reductions in electricity costs.

Bord Gáis the national gas company of Ireland. It owns and operates the network of pipelines and supplies natural gas to the end customer – both transporting and supplying the gas. Bord Gáis recently restructured significantly into four very distinct business units:

1) networks, which builds and operates the pipelines;

2) energy supply, which services a base of 600,000-plus customers;

3) a trading unit, which buys gas and electricity; and

4) strategic investments, which is focussed on the development and growth of new  
   businesses.

Bord Gáis is currently in the construction phase of building a power station in Whitegate in Cork, a €400 million investment. It is for the generation of electricity to supply the customer base.

We conducted a major tendering process to award the EPC contract. All the contracts are in place and the main contractors are Gamma, which is well known in Ireland, and General Electric, which provides the turbines.

The significant portion of the gas purchased by Bord Gáis on the wholesale market comes from the UK and is imported through the inter-connectors.

Defining Bord Gáis’s competitive advantage
The current economic downturn, in Ireland and globally, is made up of a number of factors that spring from different causes but have come together almost simultaneously – the credit crunch, the construction slump, rising food prices and rising energy costs.

The price of gas and electricity at the moment has very little to do with regulation or of the energy companies in Ireland. It has to do with overall world commodity markets, where, the price of gas is directly linked to the price of oil. When the price of oil goes up, so does the price of gas.

This is a very specialised market and we have a dedicated trading wing to do that at the most economical price we can get and secure the best advantage for the Irish customer. In addition to gas, Bord Gáis has taken on electricity supply.

It comes down to price advantage, corporate reputation and ease of switching, which is a seamless process. For this to take effect and for the regulation in the market to open up, all the processes, technical and back office have been put in place. The changing of a bill from, say an ESB customer, to a Bord Gáis account is very easy. The national campaign will be launched later this year and the target market is industrial and business, with the main emphasis is on the residential consumer.

Bord Gáis is focussed on its core competencies as an energy company. We have built up huge expertise in the gas business and we have built a substantial customer base. And we can now transfer our competencies in gas into electricity.

We’ll be using the same structures to supply our customers – the same CRM systems and effectively the same people and there are great synergies around that. The new factor is power generation.

We never built a power station before but we are inherently an engineering company and we have huge engineering capability within the company. We are also very strong on outsourcing in areas such as construction and call centres..

Bord Gáis as an outsourcing organisation
Outsourcing falls under my procurement area. We were one of the first companies in Ireland to engage in a comprehensive outsourcing strategy and we are one of the major outsourcers among public utility bodies in Ireland. Outsourcing, in many respects, is redefining our business around our core competencies, helping us to achieve maximum flexibility, and giving us the scope to access cost efficiencies that ordinarily may not be possible within a public utility company. There is great flexibility in the outsourcing model. Internally, it may be difficult to move structures around the place and it is something that we have been able to achieve over the past fifteen years – a move over to a more flexible and cost efficient outsourcing model.

Within Bord Gáis, there has been a process of learning now to manage outsourcing. It has meant dealing with supplier relationship and partnership management. We have learned a great deal. Over the past two years or so have moved from many of our old suppliers to a whole new range of strategic partners, with the objective of raising the competencies of our suppliers to a whole new level.

There were strengths and weaknesses in our previous contracts, which we addressed through the procurement process. We undertook a comprehensive supplier search and assessment and the outcome is that we have a range of new suppliers and contracts that has allowed us to transform and restructure our outsourcing supplier base.

Across our strategic base we’ve completely renewed our suppliers and have turned over our supply base up to 60%-70%. Effectively, we’re a contract outsourcing company in terms of our supply and this is now embedded in our corporate culture. So, if you’re the customer services manager, for example, you have the entire customer interface processes managed by an outside company on an outsourcing contract – in this instance by FEXCO.

I could summarise it by saying that we operate very much as a commercial professional organisation that, seeing opportunities in the marketplace due to deregulation and other factors, is expanding its offerings through an outsourcing model that allows for flexibility and change over a relatively short period of time in a complex and challenging environment, and if we identify that a contract is not working as we wish, it can be changed.

Using public procurement to advantage
EU public procurement regulations are good for Ireland because it give Irish suppliers access to the enormous EU public procurement market. So we are very conscious of our responsibility to operate within this framework. Taking this fully on board, we encourage Irish companies to tender for our business. We are fully compliant with these regulations and our contracts are open to Europe-wide competitions and, on our major contracts, we receive tenders from all over Europe and this is good because our aim is to get the very best.

We have found that Irish companies do have a competitive advantage in the domestic market because they don’t have set-up costs, whereas for companies coming from abroad, this can be a stumbling block. A second factor is that overseas companies selling into Ireland for the first time can have difficulties in integrating into culture and accessing resources, including skilled human resources. For these reasons, a substantial majority of the work is distributed in Ireland, up to 70% on an annualised basis goes to Irish companies, either on direct contract or through the supply chain. I think this is a very positive outcome for Irish business and Bord Gáis.

We use leading international companies competing for the major strategic projects, especially in construction, such as Gamma and GE, which I mentioned. When international companies win the contract, we welcome the fact that these companies sub-contract work to Irish firms. In Whitegate, for example, the firms in the Cork region are getting work from that site. The kit for the big turbines comes from the United States but the onsite mechanical work tends to be done by Irish companies.

We take a very holistic approach to procurement right through the supply chain because it is good business and benchmark practice. All global international companies look at their supply chain right down the line. Bord Gáis, as a public body in Ireland, owned by the Government, has certain standards to meet in terms of professionalism. We cannot allow a situation, for instance, if a small local subcontractor doing work for us suddenly finds himself out of pocket as a result of unfair price squeezing up the chain.

Neither can we accept lax standards down the chain. We have a responsibility that anybody who is working on our sites complies with all the legislation, pays their bills and behaves appropriately with subcontractors and employees.

We have significant codes and regulations to follow and we have to ensure that these are adhered to. We are very conscious within Bord Gáis of the need to be a good corporate citizen in Ireland. There is huge turnover in the business and, even though we’re involved in very large contracting, Bord Gáis has a reputation of maintain high standards.

All public sector organisations must do business within the EU procurement regulations. I know that there are those who complain of over-regulation. I don’t agree. We are absolutely diligent in observing compliance. In reality, there is flexibility within the procurement process.

This approach, as I say, reflects our position as a public body but it also makes good sense in commercial terms. You have to look at the total lifecycle cost of a project. There is a lot of focus in our commitment centred around getting the right deal on the table for Bord Gáis.

We are very careful that project creep does not occur, or changes happening that may not have been reflected in the original contract. A lot of value is generated from contracts through enforcement. So, complying with legislation is very good practice and is a significant indicator of professionalism.

Developing a centralised procurement system
Bord Gáis has a centralised procurement function. We set the strategy and policy, we manage the procurement process; and we manage all strategic sourcing, for example, recent acquisitions included , electronic payment systems. We set the policy; we go to the board once a year to validate the procurement policy, which is a combination of both our strategy and procurement procedures, and demonstrate how we ensure compliance with regulations..

We have a contract management system, recently developed, which centralises all our procurement contracts.

Group contracts are an important feature of our procurement. These are contracts where we buy for the whole company, in areas such as stationery. Just a few years ago, it seemed as though everyone was buying his or her own stationery everywhere. So we aggregated all these purchases and requirements into a single contract.

The benefits have been substantial in savings, waste elimination, efficiency and quality. It gives structure internally to staff in day-to-day operations. Previously, we had about numerous stationery companies providing our supplies, from the local shop to some of the larger national companies.

When we migrated to one contract with one supplier, in this case Axis, we negotiated substantial volume discounts. That model of aggregation of one contract and one supplier has given huge benefits to Bord Gáis.

Once the contract is up and running, actual transactions are made at local departmental level. When someone has a requirement, they put the request to procurement, once the purchase is justified and we then procure from the appropriate contractor, knowing from the contract the price, the standard, the terms and conditions. We tender so much and we are such an outsource organisation, it is already ingrained in staff that they are constantly involved in procurement.

We have about one hundred group contracts operating in Bord Gáis, covering a very wide range – aggregated marketing and advertising, security services, office equipment, waste management, vehicles. The cost benefits are clear but the structure is equally beneficial: everyone in Bord Gáis knows where and how to get their requirements.

I have a team of three managers, with support staff. I’ve devoted considerable time to supply chain processes in the past year and I have introduced Six Sigma into the supply chain process, which has been beneficial.

We operate some 400 procurement activities a year, large and small and up to 100 OJEC notices. This represents a very high activity, which is a reflection of the outsource model. It probably reflects as well that we are committed to full compliance and being a good corporate citizen.

We go for as much open competition as possible, which is the only way to ultimately push up the standard of suppliers and get value for money. There are a number of elements in that, primarily a culture of quality and safety and you can’t cut corners with that. Beyond that, in the long run, we know that companies need to make a margin in doing business with Bord Gáis, out of which they can survive and develop. There is no value in trying to take away this margin because, in the end, you do get what you pay for.

I know that there is a procurement philosophy that says: focus above all on driving down the price and that is appropriate for companies that buy standard products and components. But you really can’t apply it when, for example, you’re building a power station or large infrastrure like pipeline networks.

We have built up quite a strong relationship with our suppliers. They are always under pressure, they know the tendering competitions, for instance, they are well attuned to it and they know about the regulations and standards that operate in our business. We tend to have suppliers who understand our business, who come through difficult times with us, and become committed themselves, so that, if Bord Gáis has a problem, they know that there is a long-term relationship going on in the background.

They will pull out all the stops; there are many suppliers out there who would do virtually anything for us if, for example, we have a specific requirement for kit or whatever. It’s quite impressive.

Suppliers are very attracted to doing business with us because we aim to build a long-term relationship and they are, for instance, guaranteed business in a downturn. Imagine, for instance if you had a four-year contract with us for the supply of software solutions or IT components. That’s a great contract to have right now.

Aggregate, aggregate, aggregate!
Procurement in Bord Gáis is progressive, it is constantly changing, and we are constantly working to move things forward in innovative ways. Procurement is a complex discipline in an organisation as large as Bord Gáis.

We have put in a model that optimises the procurements of the large number of people involved in the process – many different departments, and managers, each with their own set of priorities and requirements.

The centralised contract management system has been a major driver over the past twelve months and we’ve really rolled it out in Bord Gáis. We developed our own system, customising existing Microsoft software and it was a very interesting project. We turned it around in five months, all our procurement contracts are migrating onto it and, incidentally, Microsoft is very impressed with what we’ve done.

There is a lot of best practice supply chain procurement and we network with other public bodies. There are many large public sector organisations in Ireland that don’t centralise their procurement at the present time. In many respects, Ireland is some way behind international views on how to manage public procurement. In the UK, for instance, there are large national procurement organisations that drive procurement process improvement and outsourcing right through the public sector.

We do have a public procurement unit in the Department of Finance, which is involved in policy development and networking and publishes documents on e-procurement.

Centralised procurement should be key throughout the public service: aggregate, aggregate, aggregate! Bulk buying reduced our costs and supplier base and, across the whole public sector in Ireland, a huge amount of money can be saved.