UNIVERSITY OF ECONOMICS AND LAW

Group Assignment
ALG Energy case study
Subject: Supply Chain Management

Lecturer: PhD. Nguyen Hoang Dung

 GROUP 9

GROUP LIST

No Full name MSSV

1 Dương Thùy Dương K184080992

2 Bùi Cẩm Hường K184081000

3 Lê Thị Ngọc Lan K184081002

4 Nguyễn Minh Thư K184081033

5 Nguyễn Phương Trúc K184081045

 1) Why is it difficult to align supply and demand at AGL Energy?

There are many reasons why it is difficult to align supply and demand at AGL
Energy.

❖ Customer information management

Its systems are specially developed to meet the needs of diverse business units,
one power generation and supplier and customer care side. Information is entered
and stored in different ways across many different customers and payment
platforms. And the messy arrangement of data and analysis by many customers
makes required information difficult to check and analyze.

❖ The capabilities to analyze data

Employees cannot analyze system data to benefit the company. Employee

motivation to adapt to the new data flow is a matter of discussion. A lot of work for
employees ranges from rarely or never analyzing available data, to constantly
maneuvering their movements/actions in response to incoming data streams. There
will be a lot of pressure on the AGL employee system to be able to analyze such
informational and stratified data.

❖ Uncertainty

The third factor is uncertainty from both sides: supply and demand. Not
excluded from the mainstream, uncertainty appears at AGL in many shapes and, of
course, neither side benefits from uncertainty. A trading company that relies on its
ability to actually predict short- and long-term needs. Profit maximization relies on
the ability to minimize excess or shortage energy. In short, it is based on the
predicted ability to match supply with demand.In short, there is uncertainty about
the prediction of supply with demand. Uncertainty also comes from Customers who
have become increasingly energy conscious and feel strongly that they need to do
something about rising energy bills.

❖ Customer segmentation
 Traditional customer segmentation based on current energy use and
demographics that have been the mainstay in the energy industry will likely provide
limited understanding about what the customer of the future might look like.

2) What data challenges are facing the upstream (merchant) and

downstream (retail) parts of the business? In your answer, consider the core data
required to manage the supply chain (e.g., customers, usage, generation, prices)
and the advantages and disadvantages of data consolidation (merchant and retail)
onto a single IT system/platform.

❖ Data challenges that the upstream (merchant) and downstream

(retail) parts of the business are facing:

➢ Firstly, both the upstream and downstream are facing uncertainty in the
demand forecast which is always a major problem. Challenges in developing core
competencies in data governance and control are equally important.

➢ Secondly, the challenges each part has to face is:

+ The upstream (merchant) challenges:

Electricity shortfall can result in a situation in which an energy company has

to buy additional electricity from the short term wholesale market at uncertain and
volatile spot and contract prices.

Significant volatility in wholesale prices due to severe weather conditions, or a

breakdown in energy production or transmission can easily blow away any profits
for a month. Wholesale supply prices can range from $25 to over $10,000 a
megawatt hour at different times of the year. And its also affect to the retail's price.
 The possession of capabilities to analyze data in an efficient and effective
manner BUT the IT systems have grown in a haphazard way as the company
acquired new companies and their customers. At any one time, there were 12 to 15
different customer billing platforms. The challenge arises when information is
entered and stored in different ways across different payment platforms and
customers.

+ The downstream (retail) challenges:

At AGL the firm relies heavily upon the ability to retain its customer base.
The customer base provides the platform to make upstream investments in gas and
electricity generation, BUT in the retail business, the rate of customer churn is high
(26%). It creates strong pressures for innovation and continuous improvement.

Uncertainty from the customer. Customers have become increasingly energy

conscious and feel strongly that they need to do something about rising energy bills.
Traditional customer segmentation based on current energy use and demographics
that have been the mainstay in the energy industry will likely provide limited
understanding about what the customer of the future might look like.

The vertical integration strategy makes the risks not disproportionately

allocated: A downstream retailer lacks upstream capacity then becomes vulnerable
and subject to wholesale price variability.

❖ The advantages and disadvantages of data consolidation

(merchant and retail) onto a single IT system/platform.

➢ Advantages:
 + Reduction in the high number of system outages

+ Reduction in the number of back office personnel helps reduce cost

+ A consistent organization-wide database for all customer-related data and

delivery of a single-instance billing platform

+ Create a platform that could collect, analyze, and use large data sets coming
in from both retail and merchant

+ Better position AGL for the challenges of an uncertain future.

+ Co-create value with customers and improve industry performance.

+ Meet AGL’s strategic goals of expanding the range of services to customers.

➢ Disadvantages:

+ The need to develop a core capability around governance and control of data

+ The need for appropriate governance controls to ensure data integrity,

supported by a data-driven culture throughout the supply chain.

+ Unless employees are willing to incorporate data into what they do and think
critically about the decisions being made on the database, there is a huge cost.

3) Why might it be difficult to move supply chain work practices to a data

analytics strategy?

There are five reasons why it might be difficult to move supply chain work
practices to a data analytics strategy:

❖ Characteristics of the market and product enhances high

competitiveness

The commodity market, in which any businesses offer non-differentiated

products, intangible components, and is sold primarily on the basis of price. The
core components of a commodity are well known, mostly stable, and widely shared
among competing firms. Each firm has its own core competencies, especially, as
aforementioned statements, the energy industry is a commodity market and data
analytics strategy is not only the further goal of AGL Energy in extending and
prevailing business, but also the universal objectives of any energy firm. From this
point, several quick actions need to be taken to guarantee its first mover’s benefits.
Nevertheless, AGL is not the one that specializes in data analytics, even in the past,
it has to make a collaboration through acquiring an external data analytic company,
so the lack of experiences and practical knowledge will exert a burden.

❖ The cost of managing, controlling and analysing data

“We have really given a lot of energy in recent times to smart meter
analytics.” (Anthony Fowler, Group General Manager Merchant Energy). The
Executive Chief in AGL has admitted that they had invested a large amount of
energy in flowing these data. Owen is aware that investment in analytics can be a
huge sunk cost unless employees are willing to incorporate the data into what they
do and think critically about the decisions that are being made on the basis of data.
This means that besides the expense of data transportation, there is labor cost
because the IT workforce is originally shortage and requires a high salary.

❖ Problems from customers themselves.

As we acknowledged from the case, smart meters deliver all the information
about how much gas and electricity a customer uses and how much it costs. Based
on it, utility bills (electricity and gas) are calculated, unfortunately, he/she can take
advantage of and cheat on it to minimally decrease his/her payment. Besides,
customers might not be willing to reveal their personal consumption (although AGL
makes sure that personal information regarding to name, address, bank account,...
will not be taken). Along with those, high customer churn rates make the data
system messy

❖ Unified data management system

AGL Energy has grown by acquisition. Its systems have been developed
separately to meet the needs of diverse business units one generates and delivers
power and the other looks after customers. So, information was entered and stored
in different ways in many different customer and billing platforms. At any one time,
there were 12 to 15 different customer billing platforms, the distribution business
was not well connected and costs were increasing. The haphazard arrangement of
data and fragmented infrastructure meant that the information technology (IT)
systems at AGL were buckling under the pressure to meet staff and customer
expectations. The IT systems have grown in a haphazard way as the company
acquired new companies and their customers.

❖ Demand forecast is affected by weather and time

The demand forecast bias would be larger when affected by another forecast
(weather forecast). In addition to medium and long term demand forecasts, AGL
also has short term forecasts such as daily or half an hour. This makes data analysis
complicated and costly

If you were in Owen’s position, how would you go about delivering the tools
needed to manage a network of supply and demand?

➢ Building a data analytics capability is the one point of focus that AGL
is trying to build. That’s why I think Owen should focus on developing “Big Data”
infrastructure because it always has some advantages to be the first mover.

➢ AGL should Enhance mid- and long-term forecasts to create a well-

balanced match between supply and demand at all times for the company to make
the best decision

➢ The forecasting energy demand based on weather and other historical

data more often will reduce pressure on the analysis skills within the business units.
 ➢ The company should invest into not only appropriate governance
controls to ensure data integrity but also data analytics capabilities and
corresponding IT systems.