Corey Kuhar – MBA 610 Supply Chain Sustainability

Sustainable Supply Chains – Energy Sector

Corey Kuhar
June, 2015

Executive Summary – Energy companies

Research into the supply chains of ten major energy companies stationed in the U.S.
provided great insights into an industry we all rely on, but few truly understand. Though
the types of energy provided and processes for generating that energy differentiated,
many of the regulations and best practices remained constant.
CONSOL Energy, Inc. is a producer of natural gas and coal located in Pittsburgh, PA.
Some of the best practices of the company are its supplier diversity program and move
from traditional transactional purchasing to e-procurement/SRM software called
Hudwoo (cloud-based e-procurement system). This e-procurement system net
CONSOL a rating of 3 in spend management, 3 in SRM and 2 in category management.
They stress supplier diversity and recently implemented a Life Cycle Management
program using KPI’s to determine designation of future business, though further
information was not available to determine the extent of their sourcing strategy, so a
rating of 2 was given. Other than the standard Equal Employment Opportunity
language, not much was found regarding a LHR policy. Furthermore, a supplier code
was not found so I was forced to give a rating of 1 in both LHR and Environmental
Sustainability. That being said, CONSOL does publish an annual CSR report and the
measures they have taken in both land management and water reclamation are
admirable.
Located in Oklahoma City, Devon Energy is a leader in oil and natural gas exploration
and production. Some of the companies’ best practices are its SAP ERP system and
Ryder Logistics Solutions Center, which provides consulting and services to their
business partners in a variety of supply chain facets. Furthermore, all invoicing is done
electronically through a program called LEAPS, which streamlines payment, ensures
accuracy and offers transparency throughout the entire process. Devon rated as a 3 in
spend management, 2 in category management, 2 in SRM and 2 in strategic sourcing.
They have a supplier code of conduct, though only a few of the ILO conventions are
referenced in their LHR policy. There is a separate policy for EH&S and their CSR
report gives good detail on environmental practices. For these reasons they were rated
at a 2 for both LHR and environmental sustainability.
Chesapeake Energy is a leader in oil and natural gas production. Best practices
included Oracle PeopleSoft, Kronos Workforce Central and the implementation of a
Supply Chain Management Team. This SC management team has centralized supplier
decisions, leveraged purchasing power and created a detailed pre-qualification process
to ensure suppliers have strong safety and environmental performance. They received
 Corey Kuhar – MBA 610 Supply Chain Sustainability

a rating of 2 for SRM, spend management, category management, and sourcing

strategy. The main reason for these ratings was the lack of review and evaluation over
current procedures. Looking ahead to 2015, the Supply Chain Management team plans
to implement a software application that will drive significant improvement in operational
planning, cost management and the reporting of supplier performance. There is a
supplier code of conduct in place, however the ILO conventions are not closely followed
and enforcement of the environmental requirements appears questionable. For these
reasons, they received a rating of 2 for LHR and environmental sustainability.
Tesoro Corporation is a refiner and marketer of petroleum products. Tesoro uses Ariba
for supplier registration, SAP BPC (Business Planning and Consolidation) for capital
budgeting/forecasting and SAP xEM for emissions management. SAP xEM in particular
offers Tesoro the ability to respond more quickly than ever before to problem situations
and creates a clear audit trail to track those problem situations. SAP BPC has given
Tesoro an automated, systematic process with a centralized database that allows for
easy performance valuation using reliable metrics. Tesoro has also implemented a
Procure to Pay Process (P2P) which streamlines procurement processes and
procedures, improving overall efficiency and relationships with suppliers. For these
reasons Tesoro was rated as a 3 in spend management, 2 in category management, 2
in strategic sourcing and 2 in SRM. Tesoro does not have a specific supplier code of
conduct, but rather expects all suppliers to adhere to their company Code of Business
Conduct. The Code of Business Conduct follows the ILO conventions, suppliers are
bound by their contracts to follow these guidelines and periodic audits are performed to
ensure the adherence to these guidelines. They received a rating of 3 for LHR. Tesoro
does not have a specific code of conduct for environmental sustainability but does make
mention of environmental expectations in their Code of Business Conduct.
Furthermore, they have developed a board that oversees all issues related to
Environment, Health, and Safety. For these reasons, they received a rating of 2 for
environmental sustainability.
Exxon Mobil is the world’s largest oil and gas company. Some of their best practices
include a pilot supplier human rights assessment program, supplier outreach/training
programs in Nigeria and Russia, and a streamlined procure-to-pay process using the
Ariba Network and SAP Invoice Management. This procure-to-pay process has led a
faster procure-to-pay cycle while increasing visibility throughout. Exxon makes it a
general practice to partner with as many indigenous companies as possible, going as
far as offering training programs to assist. Exxon was rated as a 3 in spend
management, 2 in category management, 2 in strategic sourcing and 2 in SRM. There
is no specific supplier code of conduct, however suppliers are expected to follow their
Standards of Business Conduct. These standards follow the ILO conventions, all
contracts have clauses that enforce these regulations and Exxon engages in auditing to
ensure compliance with these regulations. They scored a 3 in LHR. The Standards of
Business Conduct has a section dedicated to Environmental policy. They track
 Corey Kuhar – MBA 610 Supply Chain Sustainability

performance data, contracts includes clauses for enforcement and periodic auditing
takes place. For all this, they scored a 3 in environmental sustainability.
Edison International, Inc., through its subsidiaries, is a generator and distributor of
electric power. Looking solely at Southern California Edison, some of their best
practices include the publication of an annual Supplier Diversity Report, the creation of
a Supply Chain Management Group, SAP ERP software and the implementation of
Ariba’s Spend Management Platform. The SCM Group has developed comprehensive
purchasing strategies and combines these strategies with tools like Electronic Data
Interchange (EDI) to create an effective procurement system. The SCM Group is also
responsible for the Supplier Performance Program and category management
practices. Taking all of this into account, they scored a 3 for spend management, 3 for
category management, 2 for strategic sourcing and 2 for SRM. Their Supplier Code of
Conduct follows the ILO conventions and failure to follow these guidelines is grounds for
contract termination. In addition to the Supplier Code of Conduct, they have created an
EH&S Management System aimed at continuous improvement of EHS performance.
They were rated at a 2 for both LHR and environmental sustainability.
Based in Chicago, American Electric Power provides electric supply for retail customers
in the Northeast U.S. Some of their best practices include using AribaPay to encourage
dynamic discounting, supplier registration through Ariba and implementing Electronic
Data Interchange (EDI) throughout the procurement/supply chain process. The Ariba
network has resulted in consolidation of payment terms and streamlined the entire
procure-to-pay process. AEP received a rating of 3 in spend management, 2 in
category management, 2 in strategic sourcing and 2 in SRM. There is no separate
supplier code of conduct and their Principles of Business Conduct do not appear to
apply to suppliers. They automatically received a 1 in LHR and environmental
sustainability for this reason.
Southern Company is an electric utility holding company based in Atlanta, GA. Some of
their best practices include a supplier mentor program, Oracle PeopleSoft for HR and
payroll, and implementation of EDI. To automate their procure-to-pay process, they
have implemented Eqiq software. The result has been improved visibility and reduction
in supply management costs. They received a rating of 2 for spend management,
category management, sourcing strategy and SRM. There is no separate code of
conduct for LHR or environmental practices, however the Compliance Principles do
mention some of the ILO conventions. In addition to a CSR report, they publish annual
reports on water action, carbon disclosure and coal combustion disclosures. They
received a rating of 2 for both LHR and environmental sustainability.
Consolidated Edison, Inc. is one of the largest investor owned energy companies in the
U.S. Best practices include an extensive vendor qualification process, EDI solutions,
Oracle’s e-Business Suite for ERP and iSupplier (part of the Oracle Business Suite).
The iSupplier Portal self-service module enables suppliers to manage purchase orders,
submit invoices, view payments, and respond to requests for quotes. Con Edison has a
 Corey Kuhar – MBA 610 Supply Chain Sustainability

comprehensive vendor qualification process and monitors key risk indicators of all
suppliers via periodic review. Additionally, they have broken down all purchase
categories for potential suppliers to see. For all this, they received a rating of 3 for
spend management, SRM and category management and 2 for strategic sourcing.
There is no separate code of conduct for LHR and environmental policy and the Vendor
Code of Conduct does not follow ILO Conventions. For this they received a rating of 1
for LHR. The Vendor Code of Conduct does mention environmental issues and there is
contractual language enforcing these policies, so they received a rating of 2 for
environmental sustainability.
Based in Minneapolis, MN, Xcel Energy, Inc. is a major electrical and natural gas
company. Some best practices include a Supplier Diversity Program, Oracle’s Utility
Management System and the web-based product Emportis sourcing application. In
addition to using Emportis e-sourcing, all suppliers are classified into 4 tiers based upon
annual spend. Those classified as tier 1, or critical, are included in their Supplier
Relationship Management program to help push for continuous improvement initiatives.
Sourcing follows a strict process and supply chain spending has been broken down into
31 categories, with 800 subcategories. The Supplier Qualification program uses an
independent firm to monitor all active suppliers for violations, criminal proceedings,
disasters, etc. Xcel received a rating of 3 for spend management, category
management and SRM. They received a rating of 2 for strategic sourcing. There is no
separate code of conduct for LHR, however the general code of conduct follows the ILO
Conventions, there is contract language enforcing these guidelines and periodic reviews
are performed. They received a rating of 3 for LHR. There is no separate
environmental policy code of conduct, but the general code of conduct does mention
environmental policy. Additionally, there is a formal Environmental Management
System to ensure compliance and improvement, periodic reviews from an independent
firm to ensure compliance and a detailed CSR report. They received a rating of 3.
Every company I reviewed published an annual CSR report and most companies
stressed supplier diversity. Additionally, all companies seem to have some sort of ERP
system in place to assist in spend management/category management. Surprisingly
little has been done in the area of LHR for a lot of companies. Furthermore, it seemed
like the companies with the best policies were the ones who had faced labor related
lawsuits in the past. To effectively manage all aspects of supply chains, companies will
need to 1) increase transparency; 2) develop programs for supplier evaluation; 3) work
directly with suppliers so it is understood why a particular score was given and 4)
encourage improvement through public reporting, compensation, and future business.