The UK’s largest utility, National Grid Transco (NGT), was

formed in October 2002 from a merger between National

Grid Group and Lattice Group. The company’s operations

now cover gas and electricity transmission, distribution and

infrastructure services. In the UK, NGT owns 170,000 miles

of pipeline and distributes gas to around 21 million homes

and businesses. In electricity, it manages 7,250km of high

voltage overhead electricity lines and 640km of underground

cables. In telecommunications, NGT’s interests have recently

expanded with the acquisition of Crown Castle UK,

increasing its provision of infrastructure to the mobile

operators, with a portfolio of almost 5,000 active sites.

In 2004, the combined Group generated turnover of £9

billion and it employed 24,500 members of staff across its

global operations.

Turning up the Heat

In common with most businesses, the goal behind

merging the National Grid and Lattice Groups was to

create synergies between lines of business and achieve

significant cost savings. In line with this objective, the

post merger procurement and logistics directorate,

headed by David Thomas, set about identifying what each

of the former companies had been spending and where.

However, this challenge was beset with problems, as

Thomas and his team soon discovered. “The major

challenge we had was the fact that both companies were

completely different in the way they conducted their

procurement activities,” explains Paul McGinnes,

Data & Business Services Manager, Procurement

and Logistics.

Not only did each company use different ERP

systems for procurement—SAP was dominant

across Transco, while both Oracle and MIMS were

used within National Grid—but also the way in

which those systems were structured and the type

of coding used differed from each other. To

make matters more complicated, the Group did

not have a consolidated UK contracts repository, let

alone any consistency in the definition of a contract.

“We had a serious spend visibility issue, where

we had a plethora of different databases

containing miscellaneous contract information,

and the pressure was on the procurement team

to demonstrate the synergy objectives of the

merger to the executives of the newly formed

company,” explains McGinnes.

Clearly NGT needed to move forward quickly.

To find out where the company was spending

its money, the procurement team had to

collate all available spend information.

Given that there were already three

dominant back-office systems in place,

this meant creating a consolidated data

repository and sourcing platform on top

Ariba Spotlight

“

We had serious spend visibility issues and no means of being able to

give senior management a view of the synergy benefits we could achieve post-

merger. Since implementing Ariba’s Spend Management system, we have been able to gain

visibility into what is being bought, can drill down into different spending patterns and negotiate better

with multiple suppliers. This has been reflected in our ability to place over one billion pounds worth of

contracts through Ariba so far this year—that is 50 per cent of our total annual spend.

”

David Thomas, Director of Procurement and Logistics

•

International energy delivery business

•

One of the world’s largest utilities with

core skills in management of large,

complex energy delivery networks

•

Owns and operates assets in Europe and

North America, as well as interests in

Australia, Argentina and Zambia

of these, from which the Group could extract

the necessary spending information for

executive reports.

Going Out to Market

This was not something the IT team could readily

implement behind the firewall as the team was

already snowed under delivering projects to other

parts of the business in the wake of the merger.

So NGT decided this business-imperative should

be delivered through a hosted solution. This way,

the company could benefit from the system

without having to manage the development or

maintenance of the new platform.

NGT already had some experience in sourcing

as both companies had previously engaged with

e-sourcing initiatives from third-party providers.

However, what NGT was looking for this time was

a more comprehensive sourcing service.

NGT visited a number of service providers and

assessed the various technologies available on the

market over the December 2002 / January 2003

time period, before choosing Ariba hosted by

IBM in March 2003. “We liked what we saw: it

was flexible and suited our purpose,” says Lea

Humphries, eCommerce manager, NGT. “Another

reason why we chose Ariba was because it

offered additional functionality in the form of the

Ariba Supplier Network (ASN). None of Ariba’s

competitors were able to offer that type of

facility at the point of our market investigation.”

Building out

the Pipeline

The implementation

project formally began

mid-April 2003 and the

project team—consisting

of procurement experts

within NGT, IBM and

Ariba—were given a

timescale of 16 weeks in which to implement the

new system.

Part of the implementation process involved

building three interfaces to draw the procurement

spend information from the back-office systems

into Ariba Buyer™ and then into Ariba Analysis™.

The Ariba system effectively sits across what

NGT labels ‘upstream’ procurement activities

(spend evaluation, e-sourcing and contract award),

and provides the procurement team with a high-

level view of spend across the entire organisation.

To enable the procurement function to gain some

early insight and in-depth visibility into spending

across the newly formed organisation, the project

team took the decision to

upload historical spend data

from May 2002 into the

Ariba system. “This gave us

a headstart in interrogating

our spend profile going

forward,” explains

McGinnes. “We now have

approximately £4 billion of

spend in the Ariba system

that we can analyse.”

Given the complex nature of

its business, NGT decided

to build up its capabilities in eSourcing slowly. First,

it started using the Ariba system to conduct

auctions for simple, operational services (such as

stationery), before moving into high-volume, low-value

products (engineering goods). The team is now

turning its attention to more complex buying areas,

such as construction (gas and electricity projects).

By August 2004, NGT had completed 13 auctions,

and an additional 40 are planned in the run-up to

Christmas. But auctions only form a sub-set of

NGT’s sourcing strategy. Equally important are the

many sourcing processes leading up to the auction

where many milestones must be satisfied before

With average savings of

16.7 per cent across the

auctions, NGT plans to

spend another £400

million through the

system before the end

of the calendar year.

NGT has…

…sourced close to £1

billion of contracts -

more than 50 per cent

of its total annual spend.

…uploaded 3,500

contracts from the ERP

systems.

…initiated 100 projects

through the Ariba

Souring platform.

the decision is made to source

through an auction. Such processes can include

market research, supplier identification and

validation, requirements analysis and management

of the RFX process—from Request For Information

(RFI) through to the final Request For Quotation

(RFQ). Indeed since their implementation began,

NGT has initiated 100 projects through the Ariba

Souring platform.

As such, the RFX tool in Ariba Sourcing is crucial

to NGT for a number of reasons. Ariba’s system

provides NGT with a superior way of selecting and

reducing the number of suppliers at each stage of the

sourcing process. Historically this has been one of the

most complicated parts of the procurement process

when conducted manually, and will often take weeks.

Through Ariba’s RFX tool, the process can reduce the

cycle time to days or hours. The evaluation of the

suppliers can then be done electronically rather than a

laborious manual cross-checking process.

In addition, Ariba’s RFX tool opens the way for

many more suppliers, “Ariba’s RFX allows our

buyers to submit their sourcing request to a much

larger quantity of suppliers. One event, for

example, was launched to 70 suppliers,” explains

McGinnes. “However, it is only upon the final

completion of the RFP, when we assess the

supplier returns, that a final decision is made

whether to take the event through to an auction or

not. Not every category can be concluded that

way. When an event is initiated we formalise the

process by using the Ariba system, the tool drives

best practice and process—not simply auctions.”

The

Business

Case for Ariba

Since going live with the Ariba system,

NGT has uploaded 3,500 contracts from the

ERP systems and created almost the same

number in new contracts. More significantly, it

has sourced close to £1 billion of contracts—more

than 50 per cent of its total annual spend—

through Ariba Sourcing, and plans to spend

another £400 million through the system before

the end of the calendar year.

The Ariba platform has also made the life of the

procurement team much easier. “One of the things

we initially had no idea about as an organisation

was our purchasing behaviour—what was being

bought on and off-contract, for example,” says

McGinnes. “The visibility that we have gained

through Ariba provides us with a crucial first step

towards managing our spend more effectively.”

In addition, NGT is now self-sufficient in being

able to conduct its own in-house auctions. Here,

the company has seen some significant cost

savings. “On average, we have achieved an

average saving of 16.7 per cent across the

auctions we have conducted to date,” says

Humphries. “One auction completed with as much

as 39 per cent cost savings.”

Equally important as building the solution has

been changing the cultural mindset amongst NGT

• Average savings of 16.7 per

cent across the auctions

• £1 billion of contracts

sourced—more than 50 per

cent of its total annual spend

• 3,500 contracts uploaded

from ERP systems

• 100 projects initiated through

the Ariba Sourcing platform

• Plans to spend another £400

million through the system

before the end of the

calendar year

“

The visibility that we have gained

through Ariba provides us with a crucial

first step towards managing our spend

more effectively.

”

Paul McGinnes,

Data and Business Services Manager,

Procurement and Logistics

Spend Management Results

employees.

Accompanying the

technical implementation,

NGT held a number of workshops

for all its buying teams, to develop a

consistent approach towards designing

contracts. This formed part of a larger

initiative to encourage all the buying teams

to embrace the new sourcing process.

In doing so, NGT has been able to build up a

critical mass of buyers putting data into the

system and therefore, generate significant

savings. As the company’s sourcing processes

become more established and it builds up a

number of templates in the sourcing system,

NGT will also be able to significantly reduce the

time taken to build, launch and complete events.

Future Developments

Looking ahead, NGT aims to reduce its

supply base and clear any duplicates that

might exist. “We are looking to use common

supplier identities to allow us to do more

complex things, such as group companies

under their parent name,” says Humphries.

“Rather than simply find out overall supplier

numbers, we want to get an idea of the real

number of suppliers we use. This will ensure

that we make the most of what we spend

with each company.”

Such has been the success of the system that

NGT has now negotiated an extension to the

hosted service.

“After the merger, we knew the procurement

team had a crucial role to play in demonstrating

significant cost-savings. Through the Ariba

system, we had an improved visibility,

contract compliance, and extended sourcing

capability which meant we were able to

provide tangible results to the entire business,

which exceeded our initial merger targets by

some margin,” comments Thomas.

About National Grid Transco

National Grid Transco is an international energy

delivery business, one of the world’s largest utilities

with core skills lying primarily in the management

of large and complex energy delivery networks.

NGT owns, operates and develop the high-voltage

electricity transmission network in England and

Wales as well as Great Britain’s principal natural gas

transportation system.

In the US, National Grid Transco owns and operates

electricity transmission and distribution assets in

New England and New York state as well as a gas

distribution network (also in NY state).

In addition, NGT has interests in telecommunications

businesses and energy-related infrastructure services

companies, including interconnectors in the UK, US

and Australia, and joint venture transmission networks

in Argentina and Zambia.

About Ariba, Inc.

Ariba, Inc. is the leading provider of Spend Management

solutions. Ariba helps companies realize rapid and

sustainable bottom-line results. Successful companies

around the world in every industry use Ariba Spend

Management software and services. Ariba can be

contacted in the U.S. at 1.650.390.1000 or at

www.ariba.com.

Copyright © 2004 Ariba, Inc. All rights reserved.

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