Raise Efficiency of Procurement to Support Substantial CAPEX Programme

Raise Efficiency of Procurement
to Support Substantial CAPEX Programme
Vienna, 8 May 2015
Udo Giegerich (CFO), 50Hertz Transmission GmbH

2 / 27Raise Efficiency of Procurement to Support Substantial CAPEX Programme / Vienna, 8 May 2015 / Udo Giegerich (CFO)
50Hertz
Procurement at 50Hertz
P2P Project
Agenda

- Ensures the supply of electricity to over
18 million people in Germany
- Transmission System Operator for Berlin,
Brandenburg, Hamburg, Mecklenburg-
Western Pomerania, Saxony, Saxony-Anhalt
and Thuringia;
active in nine German Länder
- Responsible for the operation, maintenance
and the development of the "Electricity
Highways“ (220 kV and 380 kV)
The Transmission System Operator 50Hertz
Hamburg
Berlin

50Hertz at a Glance – Situation in Late 2014
4
109,360 km² (31%)
9.855 km (29%)
~ 95 TWh (20%)
~ 16 GW (21%)
Area
Total length of lines
Maximum load
Energy consumption
(based on electricity supplied to final
consumers in acc. with the EEG)
Installed capacity:
- of which renewables
- of which wind
Turnover
- of which grid
Value (Share in DE)
~ 47,802 MW (~24%)
24,938 MW (~29%)
14,637 MW (~40%)
8.569 billion €
0.976 billion €
Workforce 893
Provisionaldata,approvedvalueswillbeavailableonJune2015;Source:50Hertzasat31/12/2014

60 %
(publicly listed in Belgium)
50Hertz – a Fully Unbundled TSO
50Hertz with two shareholders and as member of the Elia Group.
Amprion
Transnet
BW
TenneT
TenneT
Energinet.dk
40 %
(Australian pension-fund manager)
100%
100%
100%
50Hertz Offshore GmbH
50Hertz Transmission GmbH
Cash Pooling agreement and Profit and Loss sharing
50%50%

Grid Expansion Projects 2014
380-kV grid connection substation Förderstedt 12 km
380-kV line Bärwalde – Schmölln 46 km
Grid connection substation Parchim/Süd 1 km
South-West Interconnector 2 (SWIC 2) Vieselbach-Altenfeld 57 km
New construction substation Wolmirstedt 6 km
Connection Offshore-Wind park (OWP) Baltic 2 ~ 135 km
Connection OWFs Wikinger and Arkona Basin South-East ~ 100 km
SWIC 3 Altenfeld – Redwitz (to border Thu/Bav) ~ 26 km
3rd Interconnector to Poland (to border GER/POL) ~ 10 km
380-kV Northern Ring Berlin ~ 80 km
Uckermark line Neuenhagen – Vierraden – Bertikow ~ 120 km
Bertikow-Pasewalk ~ 30 km
Wolmirstedt – Perleberg ~ 106 km
Offshore connections Baltic Sea ~ 100 km
Kriegers Flak Combined Grid Solution ~ 15 km
Grid connection substation Jessen/North ~ 3 km
Grid connection substation Putlitz/South ~ 5 km
17
16
11
14
12
13
2
3
4
5
6
7
8
9
1
10
15
Completion in 2014 ~ 60 km
Under construction ~ 200 km
Approval procedure ~ 500 km
X
X
X
In operation
Under construction
Approval procedure
17
16
11
14
12
13
2
3
4
5
6
7
8
9
1
10
15
Existing 50Hertz grid
Planning / approval stage
Under construction
In operation
Other grid companies
HVDC / DC connection
Switching stations
Switching stations planned /
under construction
Other companies
Conventional power plant (lignite-
fired, coal-fired or gas turbine
power plant), pumped storage
plant, onshore/ offshore wind farm
Planned /
under construction

Offshore Grid Projects
2011 Commissioning of Baltic 1 (48,3 MW)
2012 Start of construction on Baltic 2
2014 Handover to wind farm operators in
the Westlich Adlergrund region;
OWF Arkona Basin South-East
(400 MW) and Wikinger (400 MW)
first cables ordered
2015 Connection of Baltic 2 (288 MW)
to the grid shortly before completion
Potential of offshore wind power in the
Baltic Sea: approx. 5,000 MW
Ordering cables for offshore cluster “Westlich Adlergrund” for about € 730m – highest
contract volume at 50Hertz

0
50
100
150
200
250
300
350
2008 2009 2010 2011 2012 2013 2014
Offshore
Investments at Record Level
40
114 107 105 114 144
248 264
0
3 46 72
131
110
154
308
0
45
37
38
43
51 39
37
535
38
0
100
200
300
400
500
600
700
Onshore Offshore Maintenance Plan
0
50
100
150
200
250
300
350
2008 2009 2010 2011 2012 2013 2014
Maintenance
0
50
100
150
200
250
300
350
2008 2009 2010 2011 2012 2013 2014
Onshore

50Hertz
P2P Project
Agenda

Approx. 10,000 operational order processes a year
Up to 1,000 million € of procured volumes a year
20 buyer (project / department / strategic buyer)
Organisational breakdown into Offshore, Onshore Technical + General
Products & Services
Direct spend:
• Large devices such as transformers, circuit breakers, isolator, switches, phase
shifters
• Offshore submarine cables
• Steel for transmission line towers and substations
• Assembly / services
• IT/TC
• Communications and environmental management
10

Initial Situation - Driver For a Much Needed
Restructuring of The Procurement Organisation
Internal: procurement organisation
− The assumption of responsibility (empowerment) requires an appropriate management structure
− The procurement organisation must "keep pace" with the reorganisation of the asset organisation
negotiability
− Appropriate demonstration of management competence to the outside world
Internal: asset organisation
− Targeted management responsibility for offshore
and onshore projects
− Increasing resources for projects and permits
− Insourcing of grid service activities has an
impact on procurement and storage
− Creation of offshore storage
External
− Increase in investments, more projects
− Market resources (suppliers) become scarcer
− Offshore still in the "learning phase" / great need
for adjustment
− Financial risks very high as a result of individual
contracts with suppliers
− Increased necessity for global sourcing leads to
increased travel activities
Internal and external factors call for a reorganisation of Procurement in order to meet the
increased demands in terms of volume and complexity.

50Hertz
P2P Project
Agenda

− New positioning of Procurement by implementing a company-wide
commercial process and an efficient procurement organisation
− Increase transparency of the current status in the procurement
process
− Standardisation of the global procurement processes with a general
platform for the procurement process
− Need for more active supplier management with the objective of a
common development of strategic partnerships through process cost
optimisation etc.
− Ensuring acceptance and use of P2P in the entire organisation
through professional change management with a focus on technical
user competence, commitment to the new role Procurement and the
new processes
− Reduction of operational processes and improvement of strategic
competences for supplier and product management. Early
involvement of Procurement in the projects
Objectives of Our P2P Project

Project Story
Preparation phase
Aug 2010 - Analysis of the problem areas and concept for implementation of SRM 7.0
Jan 2011 - Project relaunch "process optimisation" - developing a rough concept
May 2011 - Call for tenders for process optimisation and customising
Aug 2011 - Kick-off process optimisation with Kerkhoff Consulting (KC)
Sept/Oct 2011 - Stakeholder interviews / workshops
Jan 2012 - Target concept presented by KC
Juni 2012 - Presentation of final concept by KC & Apsolut
Realisation phase
Aug 2012 - Start of the implementation and customising (without portals)
Jan 2013 - Project relaunch – adjustment of deadlines and budget due to issues with
the portal integration as well as a change in project requirements
May 2013 - Go-live CM
July 2013 - Go-live release processes and additional clearing modules
of the internal portals
May 2013 - Go-live SUS and SLC
Oct 2013 - Go-live of the external portals
Nov 2013 Implemented

− Organisation diagnosis with regard to the position of
Procurement, expectations of stakeholders and cultural factors
− Analysis of the overall commercial process
− Evaluation of the used IT and online systems as well as
information channels
− Structured interviews with project-relevant managers and clients
on the context and objectives of the change
− Assessment of the Procurement team and determination of a
subjective qualification need
− Risk assessment and estimate of the degree of maturity
− Workshop with the project management on the definition of the
change mission and the change journey
Analysis Phase – Preparation/planning

Organisation
− Positioning of Procurement as "order initiator" with a high
operational stake
− Late or no involvement in new procurement initiatives, no proactive
exchange with the requesters.
Processes
− Unclear competences in the overall commercial process that do not
match the tasks
− In the context of the expanded business model, the limits of the old
process scope are exceeded (release steps, processing times etc.)
Engineering / IT
− Solution for investment delays and structure deficits as a result of
the carve-out are needed
− Significant need to shape the IT landscape and support
HR
− Reduced procurement-specific operational know-how and hardly
any knowledge of SAP
− Little experience in the development of goods groups and
procurement strategies
Analysis Phase - Findings

− Development of a change architecture within an overall strategy
(first schedule incl. list of all measures) with regard to the
positioning of Procurement, HR and Engineering
− Performance of a profitability analysis of the project
− Development of a new process landscape within an overall
commercial process
− Conceptualisation of a key user organisation to thoroughly instruct
the entire organisation on the use of P2P.
− Development of a P2P-adequate role concept for Procurement
− Conceptualisation of change measures with regard to
qualification, competences, mindset and culture
− Planning and design of the new P2P IT system
− Development of project parameters to direct and continuously
evaluate the change progress with a permanent option to adjust
the change architecture
− Concept for the IT infrastructure requirements
Planning Phase - Overview

P2P Modules And Their Results
Release processes
(not in the SAP standard due to
complexity)
− Digitally traceable release processes
− Basis for local works (e.g. release)
Automation of tendering
procedure
− Cross-departmental optimisation & standardisation of the
procurement processes / reduction of operational processes
(integrating purchase requisitions in a tendering procedure,
publishing them on a portal, submission of tenders via the
portal, allocation of supplements via the portal, order etc.)
Automation of supplier
communication
− Complete execution of the operational processes via the portal
(order, confirmation of acceptance, despatch advice, service
registration, credit note)
Payment process − Clear simplification as a result of credit note procedure
Tracking Cockpit
(is postponed)
− Transparency and basis for liquidity planning
Supplier management
− Automation of the supplier communication
− Improvement of the supplier portfolio through targeted supplier
assessment and development
Contact management
− The objective is clearly improved transparency, currently there
are technical problems with the implementation
− Improved user-friendliness

Preparation of The Call For Tenders
Advantages:
Fewer errors owing to a standard system without media discontinuity
Same standards and clearly increased transparency
Accelerated processes owing to the elimination of regular mail
Traceability of each process step
Bills of quantities in SAP and iTWO make it possible to work in the usual environment
Document-based work saves time during the preparation of the call for tenders and when replying to
bids
Integration of
purchase
requisitions in call for
tenders
Purchaser
Addition of structured
questionnaires
(clarification of minimum
requirements,
assessment etc.)
Purchaser in
coordination
with requester
Release and
transmission to
portal and notification
to bidder
AFP
Approver FP
above 400.0 K€
Download from the
portal
or direct editing in the
portal
Supplier
SPortal PortalR
Purchas
e
requisiti
on
1 –––––
2 –––––
3 –––––
TS
1 –––––
2 –––––
3 –––––
TS
1 –––––
2 –––––
3 –––––
+
FK
TS
1 –––––
2 –––––
3 –––––
+
FK
+
iTWO

Submission And Assessment of Tenders
Entry of tender via
portal or
upload to portal
Supplier
S
Tender Assessment of tenders
by Procurement and
requester
Purchaser
Tender
A1
Tender
XYZ1
Requester
Assessment of
contents and prices
Comparison of
tenders by the
system
+
iTWO
Portal R
Purchaser Requester
R
Tender
XYZ1

Tender
A1
¡¡
System
A1 XYZ1
Advantages:
Higher quality of the tenders owing to longer processing by supplier
Submission of all tenders via the portal
Traceability of each process step
Increased transparency of the assessment process
Ranking according to price-service ratio to determine the most cost-efficient tender
Clear gain in time owing to the elimination of regular mail
Document submission in digital quality
Reduction of errors

Advantages:
Lower expenses for supplier - service registration becomes "invoice"
Improved compliance by introduction of four eyes principle
Deviations between service registration and invoice are no longer possible
Growing transparency as a result of the cockpit function (traceability of the different stages for
50Hertz and suppliers)
Timely registration and inspection of services to document the construction progress, reduce
callbacks at the end of the project and enable a faster payment process
Improved construction progress control on supplier side and 50Hertz side
Service Registration Process
50Hertz books
service entry
50Hertz checks
service registration
Register services
in portal and scan
measurement sheet
Measurement
S S
Supplier and local
construction
supervisor,
or requester
Local construction
supervisor
or requester
Supplier
Measure
ment
LC
S
Portal
Measure
ment
LC
S
PLPortal
TPL/PL/
cost center
manager
System
Always the same service registration approval process

Advantages:
After the entry of goods / registration of service, a credit note has to be issued if the payment-relevant
event has occurred (e.g. completion of works)
Automatic transmission of credit voucher via the portal
Automatic payment according to payment target, insofar as the payment conditions have been fulfilled
(e.g. securities)
Increased efficiency as a result of credit note procedure
Shorter invoice entry process as a result of credit notes
Payment Process
Booking
service registration
Issue credit
note in case of
payment-relevant event
Payment acc. to
payment targets
and positive plausibility
check
Upload credit note to
portal
System Portal
Supplier
System
Requester
R
Booking
entry of goods
Requester
R System
System
S
Credit
note
Plausibility
check
(available securities,
penalties, exemption
certificates etc.)

Analysis of the maturity level of Procurement and overall organisation
− Analysis of the maturity level of the department's and overall organisation compared to
existing system landscapes, processes, documents and guidelines as well as the
strong points and development potential of the Procurement employees
Early involvement of central stakeholders
− Early involvement of all internal (departments, controlling, accounting) and external
stakeholders (suppliers, service providers) participating in the process.
Flexible adaptation of the change architecture
− Adaptation of the change architecture depending on opposition, obstacles, technical
challenges and problems when implementing P2P
Mentor concept
− Assigning mentors in the Procurement department as first point of contact for the key
users and supporter of the Procurement team with regard to P2P and in the scope of
the new procurement roles (advice from colleagues)
Project control
− Continuous control of the project with regard to the relevant terms and milestones,
documentation, conceptualisation of contents, coordination meetings with project
participants, planning of meetings etc.
Success Factors For The Implementation of P2P (I)

Management competences
− Establishing a systematic management process incl. continuous feedback to the
purchasers with regard to the defined quality criteria in the use of the P2P modules and
the specific tasks of the new roles
Qualification concept for the purchasers and key users / road shows
− Efficient instruction of the total organisation by the key users / mentors
− Implementation of P2P-specific training courses and reviews for purchasers and key
users
− Implementation of departmental and cross-departmental training courses for the
purchasers (e.g. "Procurement as consultant" etc.)
− Provision of comprehensive user manuals for purchasers and key users
− Integration of the subject matter by closely linking the training content with the everyday
procurement activities of the purchaser (e.g. direct application of the subject matter to
discussions with requesters, entry of new contracts etc.)
Communications
− Successful change communication via existing 50Hertz communication channels and
media based on an analysis of the relevant stakeholders' specific need for information
and discussion.
Success Factors For The Implementation of P2P (II)

• Reduction of the paper-based workflows with approx. 60 %, target 80-90 %.
• Media discontinuity only for contracts according to AÜG and HOAI
• Procurement is organised more strategically
• Creation of a general process landscape in SAP, from the PM order to the credit note,
incl. many document workflows.
• One system for everything, both internally and externally
• General 4 eyes principle
• Implementation of the compliance guidelines of the Group
• 1:1 conversion of the solution, also for mobile devices
• Implementation of a comprehensive key user and training concept
The optimisation of the reporting structures was postponed!
P2P Project Balance
25

Main contract partner P2P; process analysis;
benchmark; conceptualisation target / final
concept; documentation
Our P2P Project Partners
Final concept and technical realisation of the
new process landscape; customising;
coordination of the interfaces with SAP; support
Realisation of the portal solutions on the
50Hertz intranet / website
Change management; implementation of the
key user and training programme; contract
partner for the Procurement fitness programme
26

Thank you very much for your attention.
Vienna, 8 May 2015
Udo Giegerich
50Hertz Transmission GmbH
Eichenstraße 3A
12435 Berlin
030 - 5150 - 2400
udo.giegerich@50Hertz.com
www.50hertz.com

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