Every year European utilities spend billions of Euros on power generation and transmission equipment. In a time of shrinking profit margins, any opportunity to reduce this spend while improving the entire procurement process would be more than welcome. A new European portal known as Eutilia aims at providing the environment to do just that.
“The annual spend by utilities across Europe is in the region of a40 billion ($36 billion). It’s a big industry in which Eutilia can play a part. Eutilia could expect to handle a double digit share of this market,” commented Chris Flanagan, interim marketing communications and services development manager of Eutilia.
Eutilia, incorporated as an independent business in The Netherlands on March 6, 2001, has been set up to improve efficiencies in the value chain processes of the utility and related industry sectors.
Discussions on Eutilia first came about during 1999 when a group of UK utility executives responsible for managing distribution and transmission system requirements began to look at ways of improving their procurement process.
Flanagan explained: “The procurement process is often long and drawn out. It typically involves things like sending out pre-qualifications, screening bids etc. And then the transaction process itself involves a lot of legal work, much of which has to be repeated for each transaction.”
Figure 1. The marketplace needs to support the entire breadth of the trading relationship process
The group of utility executives decided that by combining their efforts and adopting a portal strategy, they could cut down on much of the paper process and the repetition.
A dedicated portal for the utility equipment sector was seen as a potentially valuable tool for managing communication, trade and exchange between participants. The founding partners also believed that a successful e-marketplace for the trade could prosper with a solid understanding of the business needs of the industry.
Further analysis of the potential in the UK and the benefits of expanding the concept across Europe then led the group to open discussions with the other founding partners of the business.
With the concept in place, the next step was to set up a strategy group to explore the identity of the portal and the extent of its operations and place in the industry.
Flanagan explained: “The strategy group was set up to work on developing the idea as a formal business and outline a business plan. They had to address issues such as how it would be constructed; how it would be staffed; the costs of set up; market for operation; sales; investment costs etc.
“The group would conduct brainstorming sessions and workshops. We had to understand clearly exactly what Eutilia would be about and what would be its unique selling points,” he added.
Over the next 12 months, ideas and views were consolidated and the group arrived at agreements with a structure for operating the business and a clear mission for the organization. The mission, according to Eutilia, is to build the “e-marketplace of choice for utility and related industry participants”.
Figure 2. Although formed by the buyers, Eutilia will also benefit the suppliers
The 12-month period saw the group become a pan-European venture and on January 29, 2001, a group of 11 leading European utilities signed a shareholders agreement to form an independent industry procurement exchange.
Partners in Eutilia are: ScottishPower (UK), Endesa (Spain), Electricité de France (France), RWE (Germany), Enel (Italy), Iberdrola (Spain), Electrabel (Belgium), United Utilities (UK), Vattenfall (Sweden), National Grid Company (UK) and Nuon (Netherlands).
Ken Vowles, executive director of ScottishPower’s UK Power Operations, is the chairman of the supervisory board. Commenting on the creation of Eutilia, Vowles noted: “These leading European utilities have come together to improve performance, productivity and capital efficiency. This initiative is an exciting example of the application of the internet to promote efficiency and innovation.”
In addition, Eutilia also represents a good business opportunity to the utility partners. An independent company has been created to own and operate the exchange and currently all partners have an equal share in the business. At the moment, around 80 per cent of the equity in the new company is owned by the founding partners.
The first six months of 2001 will see the business go through a start up process. Business priorities are currently product development, building operations and recruitment of staff.
The business is currently being managed by a team of 25 interim personnel which will be built-up to around 40 prior to the full launch. Full-time appointments of the senior management team are expected shortly. Existing personnel are predominantly made up of secondees from the partner companies with consultants from Accenture to assist with specific areas of development.
Eutilia will provide a neutral, electronic marketplace which will provide value added services for suppliers and buyers in the utility industry by giving them greater market reach and reducing transaction costs.
The initial focus will be on the European electricity and water industries. In addition, the exchange will be designed to improve the efficiency of procurement, supply chain management and capacity utilization. The founding partners will work together to make the exchange attractive for all companies by establishing a collaborative platform for all industry participants.
In the first phase the focus will be on catalogue purchasing, forward and reverse auctions and procurement management information.
Although formed by ‘buyers’ i.e. utilities, Eutilia will also benefit suppliers. Any supplier, large or small, can participate to gain greater market reach and reduce its transaction costs.
Eutilia is now engaging supply side customers with the aim of getting them on board to help build tools and processes, which will in turn help them build their businesses. “Eutilia is not a ‘build and they will come’ portal. We will build hand in hand with the players so that the services will be endorsed by the players. We are meeting with companies to understand what functionality needs to be built into the portal to accommodate their business needs. The tools are not quite there yet but we have a good understanding of what they are looking for,” said Flanagan.
The portal could potentially provide a number of services. These might include:
- Supplier database services for sourcing appropriate service providers
- Pre-qualification services to enable screening of bids and due diligence
- Legal and financial services
- Industry information and news
- Training, conference, seminar and communication programmes
- E-tendering for effective communication
- E-transaction tools to allow on-line purchasing
- E-catalogues to provide access to product specifications and information
- Bill presentment and payment for fast, organized and effective payment service.
While these services are all possible product opportunities for Eutilia, not all are currently being developed. Eutilia is going through the process of prioritizing those services of greatest value to potential users to set a development programme.
These services will be available through a number of service modules – some of which will be built by Eutilia and others from systems solutions houses.
The delivery of service modules is an area of strategic importance to the business. Accordingly, Eutilia is currently building a strategy for alliance management including software vendor services. Several software vendors are being considered.
Already Eutilia has signed an agreement with CommerceOne to employ the CommerceOne/SAP Markets solution. The business is going through a due diligence process to appoint a permanent hosting partner and this is expected to be completed by the end of July 2001.
When all the agreements are in place and the marketplace goes live, US experience shows that Eutilia can expect to see a great deal of activity.
In the US, Pantellos, the independent marketplace for the utility and energy services industries, recently announced that more than 50 suppliers are now members in the Pantellos marketplace.
The company, founded by 21 of the leading utility and energy companies in North America, has now achieved $100 million in auctions within three months of going live.
Such figures show the potential of these portals. And with the harmonization of the European power markets and players there is no better time for Eutilia to make its debut.