The pace of digital change is staggering across the energy value chain. With fast-paced adoption of emerging technologies such as AI / ML, Cloud Native, and Distributor Ledger Technology, to name some of the key enablers of digital transformation, energy cos CIOs and CDOs have to take critical decisions on sourcing that can either help them gain or lose the edge over their competition. It is also a major lever at the CIO’s disposal to survive, sustain, and future-proof the business from disruption.

Some of the steps mentioned in my POV deal with how an energy company’s CIO can adopt an effective sourcing methodology to select the best fit Supplier and Product Vendor, which can be single or multi-sourced for the organization.

A step-by-step approach to effective sourcing & procurement in the Energy business

The prime drivers for procurement and sourcing stem from the acute need for the business to stay relevant and grow in the hypercompetitive digitally transforming marketplace. The SI and product license procurement methodology consider several factors such as validation of pilot scale solution designed and realized by the supplier through MVP (Minimum Viable Product) demonstration.

Leading energy companies have now appointed Chief Digital Officers to define digital roadmaps for next-generation energy businesses to work in a seamless, integrated manner; from energy exploration and production to refining and distribution across global supply chains in the most cost-optimized and efficient way possible.

Current IT & OT Portfolio Analysis

The energy business looks at existing vendor / SI’s service offerings in the context of its own IT & OT landscape to determine uniqueness in the vendor’s value proposition. The buyer digital procurement organization performs a 360-degree evaluation of the SI with respect to its market positioning in the specific upstream or downstream segment of the solution as well as its relationship with SI relative to other vendors / suppliers working as part of its ecosystem.

Identify Sourcing Approach

The sourcing approach helps identify the best fit SI or supplier based on strategic positioning of the supplier in the global marketplace, as well as the type of sourcing model (single source or multisource) to be adopted for the enterprise. The strategic positioning includes four categories of vendors /suppliers who are Strategic (high-cost, long-term view and high-value impacting), Leverage (short-term view, high-cost and low-value impact) and Tactical (low-cost and low-impact value, mostly support services) and Legacy (low cost, high impact and important for BAU).

Apart from this, the current trend in the digital transformation journey has been to realize incremental benefits through Minimum Viable Products. This helps the CIO and his team to assess and evaluate the benefits gained from digital solutions on a pilot scale. This acts as the acceptance criteria for the minimalistic set of product capabilities to be realized. Based on the acceptance outcome, the CIO and his/her team will decide to scale globally.

Identify Vendors

Vendor identification should be conducted on the principle of a 4-step evaluation process-

1. Preparation of a long list of vendors using market analysis, industry solution segment expertise, vendor business profiles, and research analyst’s reports
2. Preparation of a short list to be done using RFI and vendor screening report focusing on delivery capability and sustainability, skill and competency on the technology solution proposed
3. Matching vendor solution capability with the buyer solution needs and maximizing the functional gains
4. Assessment of vendor solution in terms of 
   • Solution Architectural capabilities in terms of cloud adoptability as private, public or hybrid modes, scalability, resilience to fault, usability, integration and interoperability with 3^rd parties without vendor lock-in 
   • Vendor Alliance Partnership ecosystem including support and SLA 
   • Flexibility in licensing model and services through leveraging relationships
5. Assessment of the vendor Proof of Concepts level solution design and its eventual outcome in terms of realization of the Minimum Viable Product.

Request For Proposal

The RFP should consist of the following

• Organizational vision and objectives for the Initiative
• Implementation Scope of Work
• Conceptual Solution Framework
• Functional, Non-Functional & Technical Compliance list
• Budget and timeline requirements

The RFP can be floated as a single RFP for both implementation services and product licenses or separate RFPs for implementation services and licenses. Both have their own pros and cons in terms of legal complexity, contracts management, contract transition & flexibility in finalizing product licenses.

Negotiate & Select

Using the feedback from the preceding stages, Energy Business Procurement can assess the fitment of the vendor in terms of the value creation in the context of its IT & OT COTS and bespoke portfolio, existing relationship with the vendor vis-à-vis' other vendors and market positioning of the vendor in terms of its product and services.

Manage & Monitor

Once the vendor has been onboarded, a governance structure needs to be put in place in the form of a Project Management Consultancy Organization, which may be in or outsourced. The key function of the body would be monitor project outcomes and alignment with the Goals and Objectives of the initiative undertaken by the Energy business CIO organization. Critical success factors such as periodic measurement of business objective KPIs are vital at this point.

Summary

A six-step process is prescribed to assess and select vendors/suppliers by Energy and Utilities business CIOs to stay competitive and ahead of the curve. This enables enterprises to leverage the best of solution, functionality, skills and competencies, and vendor relationship management, to achieve the most desired outcome with the least acceptable agreements.