Raise Efficiency of Procurement to Support Substantial CAPEX Programme

Raise Efficiency of Procurementto Support Substantial CAPEX Programme

Vienna, 8 May 2015

Udo Giegerich (CFO), 50Hertz Transmission GmbH

2 / 27Raise Efficiency of Procurement to Support Substantial CAPEX Programme / Vienna, 8 May 2015 / Udo Giegerich (CFO)

50Hertz

Procurement at 50Hertz

P2P Project

Agenda


- Ensures the supply of electricity to over18 million people in Germany

- Transmission System Operator for Berlin, Brandenburg, Hamburg, Mecklenburg-Western Pomerania, Saxony, Saxony-Anhalt and Thuringia;active in nine German Länder

- Responsible for the operation, maintenance and the development of the "Electricity Highways“ (220 kV and 380 kV)

The Transmission System Operator 50Hertz

Hamburg

Berlin


50Hertz at a Glance – Situation in Late 2014

4

109,360 km² (31%)

9.855 km (29%)

~ 95 TWh (20%)

~ 16 GW (21%)

Area

Total length of lines

Maximum load

Energy consumption(based on electricity supplied to final consumers in acc. with the EEG)

Installed capacity:

- of which renewables- of which wind

Turnover

- of which grid

Value (Share in DE)

~ 47,802 MW (~24%)24,938 MW (~29%)14,637 MW (~40%)

8.569 billion €0.976 billion €

Workforce 893

Provisionaldata, approved

values will be

available

on June 2015; Source: 50Hertz as at 31/12/2014


60 %(publicly listed in Belgium)

50Hertz – a Fully Unbundled TSO

50Hertz with two shareholders and as member of the Elia Group.

Amprion

TransnetBW

TenneTTenneT

Energinet.dk

40 %(Australian pension-fund manager)

100%

100%

100%

50Hertz Offshore GmbH

50Hertz Transmission GmbH

Cash Pooling agreement and Profit and Loss sharing

50%50%


Grid Expansion Projects 2014

380-kV grid connection substation Förderstedt 12 km

380-kV line Bärwalde – Schmölln 46 km

Grid connection substation Parchim/Süd 1 km

South-West Interconnector 2 (SWIC 2) Vieselbach-Altenfeld 57 km

New construction substation Wolmirstedt 6 km

Connection Offshore-Wind park (OWP) Baltic 2 ~ 135 km

Connection OWFs Wikinger and Arkona Basin South-East ~ 100 km

SWIC 3 Altenfeld – Redwitz (to border Thu/Bav) ~ 26 km

3rd Interconnector to Poland (to border GER/POL) ~ 10 km

380-kV Northern Ring Berlin ~ 80 km

Uckermark line Neuenhagen – Vierraden – Bertikow ~ 120 km

Bertikow-Pasewalk ~ 30 km

Wolmirstedt – Perleberg ~ 106 km

Offshore connections Baltic Sea ~ 100 km

Kriegers Flak Combined Grid Solution ~ 15 km

Grid connection substation Jessen/North ~ 3 km

Grid connection substation Putlitz/South ~ 5 km

17

16

11

14

12

13

2

3

4

5

6

7

8

9

1

10

15

Completion in 2014 ~ 60 km

Under construction ~ 200 km

Approval procedure ~ 500 km

X

X

X

In operation

Under construction

Approval procedure

17

16

11

14

12

13

2

3

4

5

67

8

9

1

10

15

Existing 50Hertz grid

Planning / approval stage

Under construction

In operation

Other grid companies

HVDC / DC connection

Switching stations

Switching stations planned /

under construction

Other companies

Conventional power plant (lignite-

fired, coal-fired or gas turbine

power plant), pumped storage

plant, onshore/ offshore wind farm

Planned /

under construction


Offshore Grid Projects

2011 Commissioning of Baltic 1 (48,3 MW)

2012 Start of construction on Baltic 2

2014 Handover to wind farm operators in the Westlich Adlergrund region;

OWF Arkona Basin South-East(400 MW) and Wikinger (400 MW)first cables ordered

2015 Connection of Baltic 2 (288 MW)to the grid shortly before completion

Potential of offshore wind power in the

Baltic Sea: approx. 5,000 MW

Ordering cables for offshore cluster “Westlich Adlergrund” for about € 730m – highest contract volume at 50Hertz


050100150200250300350

2008 2009 2010 2011 2012 2013 2014

Offshore

Investments at Record Level

40114 107 105 114 144

248 264

0

3 46 72131

110

154

308

0

45

3738

43

51 39

37

535

38

0

100

200

300

400

500

600

700

Onshore Offshore Maintenance Plan

050100150200250300350

2008 2009 2010 2011 2012 2013 2014

Maintenance

050100150200250300350

2008 2009 2010 2011 2012 2013 2014

Onshore


50Hertz


P2P Project

Agenda


Approx. 10,000 operational order processes a year

Up to 1,000 million € of procured volumes a year

20 buyer (project / department / strategic buyer)

Organisational breakdown into Offshore, Onshore Technical + General

Products & Services


Direct spend:

• Large devices such as transformers, circuit breakers, isolator, switches, phase shifters

• Offshore submarine cables

• Steel for transmission line towers and substations

• Assembly / services

• IT/TC

• Communications and environmental management

10


Initial Situation - Driver For a Much NeededRestructuring of The Procurement Organisation

Internal: procurement organisation

− The assumption of responsibility (empowerment) requires an appropriate management structure

− The procurement organisation must "keep pace" with the reorganisation of the asset organisation �negotiability

− Appropriate demonstration of management competence to the outside world

Internal: asset organisation

− Targeted management responsibility for offshore and onshore projects

− Increasing resources for projects and permits

− Insourcing of grid service activities has an impact on procurement and storage

− Creation of offshore storage

External

− Increase in investments, more projects

− Market resources (suppliers) become scarcer

− Offshore still in the "learning phase" / great need for adjustment

− Financial risks very high as a result of individual contracts with suppliers

− Increased necessity for global sourcing leads to increased travel activities

Internal and external factors call for a reorganisation of Procurement in order to meet theincreased demands in terms of volume and complexity.


50Hertz


P2P Project

Agenda


− New positioning of Procurement by implementing a company-wide commercial process and an efficient procurement organisation

− Increase transparency of the current status in the procurement process

− Standardisation of the global procurement processes with a general platform for the procurement process

− Need for more active supplier management with the objective of a common development of strategic partnerships through process cost optimisation etc.

− Ensuring acceptance and use of P2P in the entire organisation through professional change management with a focus on technicaluser competence, commitment to the new role Procurement and the new processes

− Reduction of operational processes and improvement of strategic competences for supplier and product management. Early involvement of Procurement in the projects

Objectives of Our P2P Project


Project StoryPreparation phase

Aug 2010 - Analysis of the problem areas and concept for implementation of SRM 7.0

Jan 2011 - Project relaunch "process optimisation" - developing a rough concept

May 2011 - Call for tenders for process optimisation and customising

Aug 2011 - Kick-off process optimisation with Kerkhoff Consulting (KC)

Sept/Oct 2011 - Stakeholder interviews / workshops

Jan 2012 - Target concept presented by KC

Juni 2012 - Presentation of final concept by KC & Apsolut

Realisation phase

Aug 2012 - Start of the implementation and customising (without portals)

Jan 2013 - Project relaunch – adjustment of deadlines and budget due to issues with

the portal integration as well as a change in project requirements

May 2013 - Go-live CM

July 2013 - Go-live release processes and additional clearing modules

of the internal portals

May 2013 - Go-live SUS and SLC

Oct 2013 - Go-live of the external portals

Nov 2013 Implemented


− Organisation diagnosis with regard to the position of Procurement, expectations of stakeholders and cultural factors

− Analysis of the overall commercial process

− Evaluation of the used IT and online systems as well as information channels

− Structured interviews with project-relevant managers and clients on the context and objectives of the change

− Assessment of the Procurement team and determination of a subjective qualification need

− Risk assessment and estimate of the degree of maturity

− Workshop with the project management on the definition of the change mission and the change journey

Analysis Phase – Preparation/planning


Organisation− Positioning of Procurement as "order initiator" with a high

operational stake− Late or no involvement in new procurement initiatives, no proactive

exchange with the requesters.

Processes− Unclear competences in the overall commercial process that do not

match the tasks− In the context of the expanded business model, the limits of the old

process scope are exceeded (release steps, processing times etc.)

Engineering / IT− Solution for investment delays and structure deficits as a result of

the carve-out are needed− Significant need to shape the IT landscape and support

HR− Reduced procurement-specific operational know-how and hardly

any knowledge of SAP− Little experience in the development of goods groups and

procurement strategies

Analysis Phase - Findings


− Development of a change architecture within an overall strategy(first schedule incl. list of all measures) with regard to the positioning of Procurement, HR and Engineering

− Performance of a profitability analysis of the project

− Development of a new process landscape within an overall commercial process

− Conceptualisation of a key user organisation to thoroughly instruct the entire organisation on the use of P2P.

− Development of a P2P-adequate role concept for Procurement

− Conceptualisation of change measures with regard to qualification, competences, mindset and culture

− Planning and design of the new P2P IT system

− Development of project parameters to direct and continuously evaluate the change progress with a permanent option to adjust the change architecture

− Concept for the IT infrastructure requirements

Planning Phase - Overview


P2P Modules And Their Results

Release processes

(not in the SAP standard due to

complexity)

− Digitally traceable release processes− Basis for local works (e.g. release)

Automation of tendering

procedure

− Cross-departmental optimisation & standardisation of the procurement processes / reduction of operational processes (integrating purchase requisitions in a tendering procedure, publishing them on a portal, submission of tenders via the portal, allocation of supplements via the portal, order etc.)

Automation of supplier

communication

− Complete execution of the operational processes via the portal (order, confirmation of acceptance, despatch advice, service registration, credit note)

Payment process − Clear simplification as a result of credit note procedure

Tracking Cockpit

(is postponed)− Transparency and basis for liquidity planning

Supplier management

− Automation of the supplier communication− Improvement of the supplier portfolio through targeted supplier

assessment and development

Contact management

− The objective is clearly improved transparency, currently there are technical problems with the implementation

− Improved user-friendliness


Preparation of The Call For Tenders

Advantages:

� Fewer errors owing to a standard system without media discontinuity� Same standards and clearly increased transparency� Accelerated processes owing to the elimination of regular mail� Traceability of each process step� Bills of quantities in SAP and iTWO make it possible to work in the usual environment� Document-based work saves time during the preparation of the call for tenders and when replying to

bids

Integration of purchaserequisitions in call for tenders

Purchaser

Addition of structured questionnaires(clarification of minimum requirements,assessment etc.)

Purchaser in coordinationwith requester

Release and transmission toportal and notification to bidder

AFP

Approver FP

above 400.0 K€

Download from the portalor direct editing in the portal

Supplier

SPortal PortalR

Purchase requisition

1 –––––

2 –––––

3 –––––

TS

1 –––––

2 –––––

3 –––––

TS

1 –––––

2 –––––

3 –––––

+

FK

TS

1 –––––

2 –––––

3 –––––

+

FK

+ iTWO


Submission And Assessment of Tenders

Entry of tender via portal orupload to portal

Supplier

S

Tender

Assessment of tenders by Procurement andrequester

Purchaser

Tender

A1

Tender

XYZ1

Requester

Assessment ofcontents and prices

Comparison oftenders by thesystem

+ iTWO

Portal R

Purchaser Requester

R

Tender

XYZ1

��

Tender

A1

��System

A1 XYZ1

Advantages:

� Higher quality of the tenders owing to longer processing by supplier� Submission of all tenders via the portal� Traceability of each process step � Increased transparency of the assessment process� Ranking according to price-service ratio to determine the most cost-efficient tender� Clear gain in time owing to the elimination of regular mail� Document submission in digital quality� Reduction of errors


Advantages:

� Lower expenses for supplier - service registration becomes "invoice"� Improved compliance by introduction of four eyes principle� Deviations between service registration and invoice are no longer possible� Growing transparency as a result of the cockpit function (traceability of the different stages for

50Hertz and suppliers)� Timely registration and inspection of services to document the construction progress, reduce

callbacks at the end of the project and enable a faster payment process� Improved construction progress control on supplier side and 50Hertz side

Service Registration Process

50Hertz books service entry

50Hertz checks service registration

Register servicesin portal and scan measurement sheet

Measurement

S S

Supplier and local construction supervisor,or requester

Local constructionsupervisor

or requester

Supplier

Measure

ment

LCS

Portal

Measure

ment

LCS

PLPortal

TPL/PL/cost centermanager

System

Always the same service registration approval process


Advantages:

� After the entry of goods / registration of service, a credit note has to be issued if the payment-relevant event has occurred (e.g. completion of works)

� Automatic transmission of credit voucher via the portal� Automatic payment according to payment target, insofar as the payment conditions have been fulfilled

(e.g. securities)� Increased efficiency as a result of credit note procedure� Shorter invoice entry process as a result of credit notes

Payment ProcessBookingservice registration

Issue creditnote in case ofpayment-relevant event

Payment acc. topayment targetsand positive plausibility check

Upload credit note to portal

System Portal

Supplier

System

Requester

R

Bookingentry of goods

Requester

R System

System

SCredit note

Plausibilitycheck

(available securities, penalties, exemption certificates etc.)


Analysis of the maturity level of Procurement and overall organisation− Analysis of the maturity level of the department's and overall organisation compared to

existing system landscapes, processes, documents and guidelines as well as the strong points and development potential of the Procurement employees

Early involvement of central stakeholders− Early involvement of all internal (departments, controlling, accounting) and external

stakeholders (suppliers, service providers) participating in the process.

Flexible adaptation of the change architecture− Adaptation of the change architecture depending on opposition, obstacles, technical

challenges and problems when implementing P2P

Mentor concept − Assigning mentors in the Procurement department as first point of contact for the key

users and supporter of the Procurement team with regard to P2P and in the scope of the new procurement roles (advice from colleagues)

Project control− Continuous control of the project with regard to the relevant terms and milestones,

documentation, conceptualisation of contents, coordination meetings with project participants, planning of meetings etc.

Success Factors For The Implementation of P2P (I)


Management competences− Establishing a systematic management process incl. continuous feedback to the

purchasers with regard to the defined quality criteria in the use of the P2P modules and the specific tasks of the new roles

Qualification concept for the purchasers and key users / road shows− Efficient instruction of the total organisation by the key users / mentors− Implementation of P2P-specific training courses and reviews for purchasers and key

users− Implementation of departmental and cross-departmental training courses for the

purchasers (e.g. "Procurement as consultant" etc.)− Provision of comprehensive user manuals for purchasers and key users− Integration of the subject matter by closely linking the training content with the everyday

procurement activities of the purchaser (e.g. direct application of the subject matter to discussions with requesters, entry of new contracts etc.)

Communications− Successful change communication via existing 50Hertz communication channels and

media based on an analysis of the relevant stakeholders' specific need for information and discussion.

Success Factors For The Implementation of P2P (II)


• Reduction of the paper-based workflows with approx. 60 %, target 80-90 %.

• Media discontinuity only for contracts according to AÜG and HOAI

• Procurement is organised more strategically

• Creation of a general process landscape in SAP, from the PM order to the credit note, incl. many document workflows.

• One system for everything, both internally and externally

• General 4 eyes principle

• Implementation of the compliance guidelines of the Group

• 1:1 conversion of the solution, also for mobile devices

• Implementation of a comprehensive key user and training concept

The optimisation of the reporting structures was postponed!

P2P Project Balance

25


Main contract partner P2P; process analysis; benchmark; conceptualisation target / final concept; documentation

Our P2P Project Partners

Final concept and technical realisation of the new process landscape; customising; coordination of the interfaces with SAP; support

Realisation of the portal solutions on the 50Hertz intranet / website

Change management; implementation of the key user and training programme; contract partner for the Procurement fitness programme

26

Thank you very much for your attention.

Vienna, 8 May 2015

Udo Giegerich

50Hertz Transmission GmbH

Eichenstraße 3A

12435 Berlin

030 - 5150 - 2400

[email protected]

www.50hertz.com

Economy & Finance

Raise Efficiency of Procurement to Support Substantial CAPEX Programme