Supplier Selection – Nuon Energy Shilen Patel, Tyler Shrubb, Amitkumar Shah

Nuon Energy Dutch-based utility company One of the top 3 suppliers of energy in the Netherlands with 2 million customers Approx. 4500 employees €3.124bn net sales in 2014

SWOT Analysis Growth in renewable energy Association with Vattenfall Electricity and fuel price risk Currency fluctuations Competition with other energy suppliers (E.ON, Centrica) Geographic concentration of revenues High lost time injury frequency rate Robust asset base Balanced fuel mix Strengths Weaknesses Opportunities Threats MarketLine, 2015

Nuon’s Responses to SWOT Customer retention by offering “It Pays to Stay” scheme. 10% off their electricity bill and a further 5% off each year afterwards up to 25% as long as the customer remains with Nuon Heavily investing in renewable energy sources. Invested EUR 73 million in wind power in 2014

Nuon’s Supply Planning positioning Supplier preferences Risk management Current market position Procurement marketing Reverse marketing Supplier Development programme Optimising the Supply Base Ideal market position Steele and Court (1996 p. 32) Kirlkaldy, A., ES4C9 Lecture 7 7

Kraljic’s Supply Positioning Low High Supply risk Leverage items Alternative sources of supply available Substitution possible Bottleneck items Monopolistic market Large entry barriers Routine items Large product variety High logistics complexity Labour intensive Strategic items Critical for product’s cost price Dependence on supplier Competitive bidding System contracting + E-commerce solutions Performance based partnership Secure supply + search for alternatives Supply’s impact on financial results Kirlkaldy, A., ES4C9 Lecture 7

Nuon’s Supply Planning positioning Supplier preferences Risk management Current market position Procurement marketing Reverse marketing Supplier Development programme Optimising the Supply Base Ideal market position Steele and Court (1996 p. 32) Kirlkaldy, A., ES4C9 Lecture 7 7

Optimising the supply base In 2011, Nuon had 12,000 suppliers with a total spend of €1bn Firstly Nuon assigned ownership of supplier list to gain more control Over the following 3 years, reduced supplier list by two thirds Reduced IT consultant contracts from 200 to 16 Removed suppliers from the list used for general expenses such as books and sundries and moved to credit card purchases

Suggested Improvements The outsourcing decision matrix Potential value to the organisation Low High Partnership outsourcing approach Core activity. Do not outsource! 10% of suppliers providing 90% of spend Transactional outsourcing 90% of nuisance suppliers providing 10% of spend (non-core activities) Decision based on financial considerations Low High Organisational Expertise Vitasek (2010) Nuon can take an inside-out approach to strategic outsourcing Kirlkaldy, A., ES4C9 Lecture 6

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