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Buyers Beware

Buyers, are you ready to achieve breakthrough savings? Isn't that the core of your job after all? To save your utility hard money.

Buyers, are you ready to achieve breakthrough savings? Isn't that the core of your job after all? To save your utility hard money. Measurable dollars. And sourcing consultants are standing by to help you do just that. You have access to individuals who are eager to assist you in purchasing supplies and equipment manufactured in low-cost countries at fantastic discounts.

What is Their Pitch?

“We, your sourcing consultants, can share with you how low-cost country sourcing of products in high-spend categories is a proven strategy to achieve savings for your company and your ratepayers while expanding your supplier base. The time is right to realize these benefits.”

What's not to love? You buyers are under tremendous pressure from your executives to find lower-cost alternatives. Some of you receive veiled threats as to the longevity of your career if you don't unearth ways to cut purchasing costs. Some threats are not so veiled: “If you won't do it, we will find someone who will.”

Others will find carrots in the form of bonuses dangling in front of you: “Cut costs now and you will be rewarded with substantial bonuses.” Never mind that you will make out-years a nightmare. You are instead encouraged to “Get through this year first.”

I attended an IEEE Transformers Committee meeting in Chicago and talked with utility engineers whose management mandated that any equipment purchased from vendors other than those of low-cost countries must be justified.

Aha. So, instead of justifying why you are purchasing a product from a company you've never heard of with support that is likely nonexistent, you now have to justify purchasing from vendors who have stood the test of time and who know almost as much about your system as you do.

What Are Sourcing Consultants Telling Us?

Their claim: You can save 10% to 25% on electrical equipment, wire and cable by buying from low-cost countries.

My retort: That might be true on the purchase price, but remember, there is a huge difference between first cost and total owning cost.

Their claim: You can deliver significant savings by expanding your suppler base while driving down costs from existing vendors.

My retort: You get what you pay for. And you pay dearly when you drive down the value of the products and the quality of the service from those very vendors with which you have developed good relationships over decades.

Their claim: Our overseas experts can execute low-cost sourcing agreements in relatively short time frames.

My retort: Decide in haste, repent in leisure.

Their claim: Utilities should enforce rigorous processes to ensure product quality and conformance to specifications.

My retort: Easy to say, but tough or impossible to do. Talk is cheap. No, strike that; talk can be incredibly expensive.

Their claim: The time is right to leverage the proven strategy of low-cost country sourcing.

My retort: With delivery times dropping along with the global recession, sourcing experts are desperate for new victims (customers).

My Take on Low-Cost Country Sourcing

When working with a vendor with whom you have no experience, you can skip the trust in “Trust and Verify.” Don't stoop so low as to threaten existing vendors with potential purchases from low-cost countries or you will ruinously impact your relationships. Trust is tough to build and easy to trash.

And verifying long distance is ugly at best. Remember that testing is only a snapshot in time and often on samples that were handpicked to pass.

Here are some questions you should ask: Does the company you are purchasing from understand your delivery system? Does the company invest in research? Do they have sales and service staff in your territory? Do they offer a warranty? Will they back it up? Can you successfully enforce a contract in the legal system of that low-cost country?

If you do succumb to the pressure and buy low, don't merely plead mea culpa when all hell breaks loose. Instead, come clean and help clean up the mess. Admit to your role in what went down so you can set measures in place to keep you from stepping in it again.

As we build out our power-delivery system, let's focus on the total designing, building, maintaining and decommissioning costs. Yes, we still want to buy equipment that will last 30 years from vendors who will be around for those same 30 years, offering products and services as they have for the past 30 years.

Let's do business with vendor partners who hurt when we hurt and who celebrate when we celebrate. Let's work with people who have spent their careers building up their brands through sound engineering, quality manufacturing and impeccable service.

I'm not pushing for American-made, European-made or Asian-made for that matter. Let's not push products from low-cost countries either. Instead, let's demand value.

As we seek best-of-breed partners, we will find that many of the best companies are not geographically bound. Let's deal with companies who have a proud heritage, stand behind their products and believe in their brand.

To you buyers out there, Latin is a dead language, but individual phrases live on. When looking to source from low-cost countries, you would do well to heed the following, “Caveat emptor.”

Wallboards and Transformers

I was watching a documentary on the impact of poor-quality wallboard that was made in China that had made its way into the United States back in 2007. I did a little more digging and found that this drywall is under investigation by the Consumer Product Safety Commission and various state agencies for emitting sulfide fumes that are causing corrosion of electrical wires and plumbing.

Builders estimate that replacing both the defective wallboard and the corroded components in a typical house will cost $80,000 to $100,000. And with more than 100,000 homes affected — many rebuilt after hurricanes swept through Florida — we are talking massive dollars. It gets worse for those homeowners whose insurance companies are refusing to pay damage claims because of exclusions in fine print.

So let me pose a question. We have built out our careers while building out our T&D homes. Are we willing to bet our future on the assumption that wallboard and transformers are but commodities to be purchased from the lowest bidder?

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