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< Gas should learn from water and develop a common framework for capital expenditure | Accessing land for essential works can be a tortuous process >
Astra Zeneca spells out what it wants from utility suppliers
In an occasional series, customers tell Utility Week what they want from their utility suppliers . Here, Tricia Holly Davis talks to AstraZeneca.
As one of the world's largest pharmaceutical companies, AstraZeneca's energy and utility needs are dictated by a variety of activities, from research and development of new medicines, to manufacturing and marketing.
"Our key priorities are to optimise reliable, secure and cost-effective supplies of electricity, gas and water, to ensure we maintain our development and operations activities, but do this at the best cost and with least impact to the environment," says Mark Jervis, AstraZeneca UK utilities procurement manager.
"The key priorities for AstraZeneca when procuring energy and water are security of supply, value for money, carbon emissions reduction, and demand management," he adds. "We have a long-term approach, based on total cost of ownership, looking at the sustainable benefits of our energy and utilities management, rather than being solely focused on short-term wins."
An example of this is the company's investments in combined heat and power (CHP) at its manufacturing sites. These plants ensure security of supply and reduce its energy consumption and carbon emissions.
The organisation takes an integrated approach to utilities, where procurement works closely with an in-house energy and utilities management team to manage budgets, demand and the company's obligations under the European Union Emissions Trading Scheme (ETS) and the Climate Change Levy. Procurement also works with AstraZeneca's internal risk management committee, which manages the company's risk and exposure to energy markets.
Accurate data
Receiving accurate and reliable data is critical to the company's operations. This is particularly important when it comes to ensuring compliance with government regulations such as the ETS. AstraZeneca has four UK sites that are covered by the ETS.
"We have found that utility services companies in the UK provide an enormous amount of market intelligence and strong reporting systems," says Jervis. "We have also found that our suppliers are very proactive in informing us and supporting us on requirements brought about by legislative changes."
Moreover, Jervis says the company's utility partners provide strong and experienced account management, which enables AstraZeneca to develop good strategic partnerships with key providers and negotiate long-term flexible-tariff contracts that deliver significant cost avoidance and savings benefits.
Nonetheless, Jervis says AstraZeneca faces a number of key challenges in the management of utilities. First, he says a lack of competition in the UK energy and water sectors and an inability to leverage multinational benefit, reduces the company's cost-savings opportunities.
"Contracts based on industry standards also require significant legal and commercial review. Transco service levels are also a challenge, and there is a disconnection between supplier and consumers regarding metering issues," he says. "It is also often difficult to assess the value of small differentiation between suppliers."
Managing volatility
Other challenges, according to Jervis, include managing market volatility and a variety of contract tariffs, across the company's asset portfolio. It is also a management headache to monitor utility prices for leased sites where the utility services are provided by the landlord. Coping with changes in pass-through charges and regional variations in fully delivered utility prices is also a challenge.
While Jervis says AstraZeneca has a robust asset and volume forecasting process, consumption is always affected by weather. This, coupled with the volatility in commodity prices, adds an additional layer of complexity in terms of budget adherence and the company's ability to maintain concurrent delivery of short and longer-term objectives.
Jervis says AstraZeneca also needs to balance cost and risk in consumption reduction activities and work with supply change across all categories to provide a win-win in utilities consumption and spend. It must also track legislative changes that have an impact on the organisation. To address these challenges, Jervis says it is "critical to have a clear strategy and to stick to it".
"AstraZeneca's utilities are centrally managed by a team adhering to strict processes under a robust governance structure," he explains.
Jervis emphasises the importance of maintaining strong supplier and internal stakeholder relationships across all functions and having a strategy of forward price fixing. Keeping a forward programme of projects and activities across both supply and demand and managing the company's fuel mix is crucial.
In-house knowledge
Maintaining in-house technical and commercial knowledge with the skills and experience to know what to do when something goes wrong is also critical in the successful management of utility contracts, according to Jervis. External experts are called in as necessary.
Emissions reduction is vital to AstraZeneca's strategy. Looking ahead, Jervis says AstraZeneca wants its utility partners to do a better job of delivering alternative, low carbon energy solutions and help the company to limit its energy consumption.
"We would like to see a significant increase in renewable energy sources and additional government financial support to help in the business cases for on-site renewable energy generation and in wider energy management," says Jervis.
In addition, he says the company would like to see more flexibility in planning laws to enable greater use of on-site renewables.
Energy award
AstraZeneca was recognised for its environmental efforts in 2007, winning the UK Chemical Industries Association Energy Award. The company employs low carbon energy solutions wherever possible. For example, at its Macclesfield site, gas is taken from the grid and converted into electricity and steam. This steam is used for its high pressure manufacturing processes and also to heat the site. The electricity produced is used to power the site, and the combined heat and power plant allows it to export some electricity back to the grid, as a by-product of satisfying site steam requirements. "This makes AstraZeneca a net exporter of electricity from this site," says Jervis.
Outside the UK, the removal of geographical market boundaries would be a positive step for AstraZeneca, Jervis says. Closer to home, more support from local authorities would be helpful to encourage district schemes.
Jervis is keen to see water competition progress. "Deregulation of the water industry, opening the market to competition to allow tendering and negotiation between water supply and drainage contracts cannot come soon enough for AstraZeneca. This will further help us to get the best value from our utilities spend and continue to reinvest our resources most appropriately, into the research and development of new medicines," he says.
AstraZeneca would also like to see energy and utility companies taking the lead in facilitating the sharing of good practice across their customer organisations, says Jervis. "This would be beneficial for everyone."
Tricia Holly Davis is a freelance journalist.
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