Achieving Excellence in Energy Networks

Achieving Excellence in Energy Networks

          
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Achieving Excellence in Energy Networks

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  • Eight Levers Used by Operational-Excellence All-Stars

    Working extensively with numerous utility companies throughout the world, BCG has gathered and analyzed best practices. Our experience with clients shows that the top-performing energy-network operators excel in at least some of the following eight critical processes, or levers, and this has allowed them to significantly improve both efficiency and effectiveness. (See Exhibit 1.)

    exhibit

    1. Planning That Focuses on Value Creation. Top performers leverage their advanced investment and asset-management strategy to include modeling economic parameters such as net present value and value at risk in investment decisions. The combination of efficient asset replacement, regular inspection, and preventive maintenance ensures that the prescribed quality level is achieved at a lower cost.

    2. Investment Efficiency Through Design. It is important to homogenize processes, topologies, equipment, and material at the project level by defining standardized constructive-network modules that repeat over projects. These should be designed and developed centrally to capture scale effects and facilitate the spread of best practices.

    3. Lean and Systematic Monitoring of Construction Processes. Construction processes should be standardized by asset classes, and clear role definitions should be provided to reduce interaction of the different parts involved in the construction process. Lean logistics can be leveraged to align supply and construction, and the level of direct shipping to the field can be increased to minimize the need for centralized warehouses. Furthermore, construction expertise should be centralized in critical high-value assets such as substations, and appropriate measures should be implemented to reduce budget overruns. For example, project duration can be controlled to limit the impact of labor and materials inflation on final project cost.

    In BCG’s experience, levers 1, 2, and 3 can reduce costs in the development of distribution infrastructures by 10 to 15 percent.

    4. Efficient Dispatching and Emergency Management. An automated outage-management system can be implemented to predict, locate, and optimize outage response and can be linked to the customer information system for better real-time information about the events. An integrated field-force-management system can coordinate outage responses with scheduled maintenance tasks.

    BCG case experience shows that improvements in lever 4 can result in companies’ being able to reduce their operations expenditure in this area by more than 10 percent while maintaining and, in some cases, improving quality factors.

    5. Advanced Maintenance Strategy for Ensuring Acceptable Levels of Service. Best-practice networks use wireless data-capture systems to collect data on the condition of network assets so that they are prepared to address pressing maintenance issues in a timely and efficient manner that doesn’t require them to defer critical tasks. They apply a defined asset-health index to determine a maintenance strategy for each asset class. (See Exhibit 2.)

    exhibit

    Maintenance criteria are selected on the basis of value at risk rather than cost and the level of monitoring needed. To understand root causes and apply remedial actions, top networks monitor their worst-performing assets and review selected assets to reduce the average outage duration per customer and the number of interruptions per customer.

    BCG estimates that networks can reduce capex by as much as 10 percent while maintaining or improving quality. Furthermore, they can reduce field service work as a result of network automation and advanced maintenance strategy.

    6. Effectiveness of the Field Service Force. Networks should focus on improving service levels at a lower cost in these key areas:

    • Optimizing Team Size. BCG experience shows, for example, that assigning one worker instead of two to a task can free up 10 to 15 percent in capacity.

    • Start-from-Home Initiatives. BCG has found that by adopting a start-from-home initiative, a network operator can reduce travel in company cars and trucks by as much as 450,000 kilometers per year.

    • Decreasing Nonproductive Time. Through detailed analysis of workers’ schedules, companies can identify opportunities to enhance workers’ productivity.

    • Optimizing the Workforce. BCG experience shows that management software that dynamically allocates tasks to worker teams frees up 40 percent of managers’ and 6 percent of workers’ capacity.

    • Benchmarking Field Force Teams to Improve Performance. BCG experience shows that internal benchmarking between regions and teams are key to finding performance gaps.

    Multiple initiatives in field force effectiveness can result in operating-expense improvements exceeding 20 percent.

    7. Category-Focused Procurement Function. By integrating procurement and construction functions, management can reduce overspecification—that is, ordering more functionality than is necessary—thereby reducing procurement costs. Management should have the procurement organization work with specialized staff according to asset class. The results of an analysis of the total cost of ownership can be applied toward improvement of purchasing decisions. Furthermore, global economic trends should be leveraged to lower cost and promote proactive planning of purchasing volumes.

    8. Refined Contracting Strategy and Supplier Management. A systematic contractor-selection process with clearly defined steps and solid scoring criteria includes leveraging advanced supplier management that prioritizes suppliers according to their criticality. It also involves innovative contracting strategies with key suppliers and launches supplier development initiatives regularly.

    BCG estimates that 10 to 15 percent of operating-expenditure and capex savings can be achieved by implementing levers 7 and 8. Applying best practices to the eight levers identified can reduce total expenditure by as much as 15 percent. (See Exhibit 3.)

    exhibit