Serving more than 15 million people in the 70,000-square-mile area in northern and central California, Pacific Gas and Electric (PG&E) Company is one of the largest combination electric and natural gas utilities in the nation. Providing safe, reliable and affordable energy to such a large customer base is an enormous responsibility, and one that PG&E leadership takes very seriously. The company’s supply chain operations are an extremely important part of how it runs its business.
PG&E is recognized as an industry leader in supplier diversity and supply chain sustainability and is continually implementing industry best practices.
Within the last few years, PG&E has focused on taking its supply chain operations to the next level by taking lessons from some unlikely sources. This initiative has been spearheaded by Senior Vice President of Safety and Shared Services Desmond Bell, who came to PG&E from the aerospace industry. By incorporating many of the best practices and models Bell observed in the aerospace and automotive sectors, PG&E has improved its supply chain operations and given it greater capacity to provide the best service to its customers at the best value.
By concentrating on the relationships it has with its suppliers and contractors, PG&E has created a supply chain process that could be viewed as a progressive model for other utilities around the country to emulate. As infrastructure becomes a growing concern across the country, Bell says PG&E has put itself in a good position to avoid the pitfalls that could affect other utilities in the near future. For PG&E, an effective supply chain means having good relationships in place, Bell says.
Focus on Quality
One of the most significant lessons PG&E has taken from other sectors is the idea of having materials and services in the right place at the right time while optimizing inventory levels. Vice President of Supply Chain Gun Shim says inventory management has been an area that many utilities traditionally have overlooked. “We have some leading practices within our industry focused on inventory optimization. One example is how we work closely with our internal customers on our supply and operations planning process. It gives us insight into planned work so we can align supply with demand. Another example is we’ve leveraged our suppliers to shorten lead times to reduce our inventory investment and at the same time improve our fill rate to our internal customers,” Shim says. “That’s something we’ve been putting in place over the last three or four years.”
In addition to having everything in the right place at the right time, PG&E also has concentrated on quality assurance, another lesson Bell says came from the aerospace and automotive industries. “Supply chain quality assurance is considered relatively non-traditional in the utility space, and we’ve implemented a comprehensive supply quality program here,” he says.
PG&E has done a lot to ensure its own operations are using best practices to improve value and affordability. Shim also emphasizes the importance of supplier and contractor quality of work. PG&E has spent a lot of time over the last few years focusing on mitigating supplier risk. This involves not only carefully vetting suppliers and contractors to make sure their work lives up to PG&E’s standards, but also making sure that the subcontractors they have relationships with, do as well.
For the major suppliers there is a formal scorecard program that reviews safety, cost, operations, customer satisfaction, diversity and sustainability. “Recently, we had our first two-way scorecard review where our suppliers gave us a score,” says Shim. “We do this so we can get feedback, improve our processes and continuously strengthen our relationship with suppliers.”
Bell says, “In particular, PG&E emphasizes the importance of safety with all of its suppliers and contractors. If you think about the work we do, they’re working around electricity and high-pressure gas environments, so there are public safety implications to the work they do as well as industrial safety considerations,” he says.
According to Bell, the most substantial challenge to PG&E in the near future will be the impact felt when the United States begins to work on upgrading its aging infrastructure. He says resources such as materials and labor could become scarce and pricey once those upgrading efforts ramp up.
“We’re also seeing competition for labor, especially in the San Francisco Bay Area environment we operate in,” Bell explains, noting that Silicon Valley firms are increasingly recruiting for top supply chain talent with the proliferation of tech companies in the region.
The watchword for the future will be value creation by partnering with key suppliers, Shim says. “We must also expand the way we conduct business in coming years by leveraging opportunities such as mobile technology and online marketplaces,” he adds.
In the end, Bell says, PG&E’s efforts must be geared around doing what’s right for its customers.