Key Business Challenges for Retail Energy Providers: Part II
By Charlie Palmer
In Part 1 we discussed some ways retailers can better manage their commodity risks and improve their margin forecasting and analysis. In Part 2, we will focus on reducing costs.
What are the key levers for a retailer to improve their operation and reduce costs?
- Streamline business processes to increase efficiency and improve reliability
- Reduce back-office costs & increase flexibility
- Evaluate outsourcing options
Streamline business processes to increase efficiency and improve reliability
You’ve successfully grown you retail company from start-up to mid-tier status with over 100,000 customers? Congratulations! You’ve also probably got dozens of spreadsheets being manned by a growing number of employees. While your business processes may be solid, they’re likely very manual and dependent upon what’s in a few key employees’ heads. Risk from version control and ‘fat-finger mistakes’ grows by the day!
This is not unique to mid-size retailers; the plight of many major retailers is similar. Growing through acquisition, in the time-crunched integration you’ve largely left each to run ‘as-is’ on existing systems, piecing them together with manual processes and leveraging people to integrate all the data.
The dilemma for both types of companies is similar: a lot of manual processes, disparate data and systems, growing risk for errors, and higher than needed costs. How do you get out of this vicious conundrum?
- Get out of the manual, spreadsheet world
- Develop your systems and technology roadmap
- Stage the implementation to fit within your budget and capability but stop putting it off
- Improve reliability, reproducibility, and transparency with good systems and processes
- Automate data management processes
- Reduce risks
- Reduce manpower requirements
- Spend time on analysis, not data manipulation
- Reduce on-going staffing costs
Reduce back-office costs & increase flexibility
Where is the head-count the highest for many retailers? How do you navigate the cost/benefit tradeoff of adding more new products? How well do you understand the increased costs and risks associated with increasing new products offering? How well do you quantify the associated benefits? Do you have a way to pilot new offerings in a cost-effective manner?
These are some of the challenges retailers face in defining their optimal solutions for CIS/billing systems and processes. For most retailers, a more disciplined focus on developing reliable, lower cost systems and processes will reap major benefits. What are the keys to success?
- Select a billing system that is tailored to your business strategy but flexible enough to evolve with your business
- Improve analysis through better data accessibility provided by a more robust CIS/billing system
- Reduce staffing costs through efficiency provided by better CIS/billing system technology
- Consider incorporating non-commodity product flexibility if you can effectively defer the costs
Evaluate outsourcing options
Increasingly retailers are finding attractive options to economically outsource parts of their business operations. The keys are to accurately know your own internal costs for each process, know what is really core to your business strategy and should be kept in-house (hint: it’s probably less than you think), having the internal skills to manage external service providers using clearly defined KPIs. Doing these well can save precious operations costs and keep you focused on what’s really critical, but how?
- Evaluate outsourcing options to reduce costs and increase focus on core competencies
- Understand carefully what you still need to manage internally to ensure quality and mitigate risks
- Don’t limit your focus; there are many options to consider:
- Load forecasting
- IT infrastructure and cloud hosting – ramp up/down to optimize usage and minimize costs
- Supply & scheduling – keeping key risk management efforts internal
- Customer acquisition – examples: brokers, telemarketing, door-to-door, online
A longer-term view on better systems and processes will actually help reduce costs, improve reliability, and increase flexibility.