Master Slide

1
The Purchasing Function within a Large
Electricity/Power Companyin the French Utility
SectorKey features in the procurement process
Daniel LEVY(EDF, France) Regional Conference on
Public Procurement Reform in West
Balkan"Pristina, 16-17september 2008
2
The Purchasing Function within a large
Electricity/Power Companyin the French Utility
Sector- Key features in the procurement process

• I EDF a new type of Company public owned
  with a private status and an International
  Group
• II Purchasing at EDF A continuous evolution
  facing changes in its environnement as well as
  new profitability requirements
• III The present procurement organisation and
  its challenges

3
The Purchasing Function within a large
Electricity/Power Companyin the French Utility
Sector- Key features in the procurement process

• I EDF - a new type of Company which is publicly
  owned with a private status and an International
  Group

4
REASONS FOR CHANGING THE EDF STATUTE (17 november
2004)

• Increased financial needs to support an
  international strategy
• Competition laws in the electricity sector
• changing the principle of speciality, that is not
  only production, transport and distribution but
  also undertaking any type of activity in
  relation to those, enabling the company to
  develop its activities

5
AN ORIGINAL STATUTE

• EDF remains a public undertaking
• (more than 70 of its capital belonging to the
  state)
• EDF becomes a company with a private status
• EDF keeps its public utility missions

6
WITH MAIN CONSEQUENCES

• Public undertaking - governance (notably through
  the board and the crucial influence on the
  Chaimans choice)
• - legal prescriptions (regulation, fiscal
  aspects)
• Private status - following the rules of a company
  which is listed on the Paris Stock Exchange
• - an International Group (which must adapt to
  local laws)
• - employee representation (but the personal
  status is unchanged)
• Public utility sector - tariff regulation
  including help of the poor clients, -
  territorial solidarity and local obligations
• - preservation of common goods (management of
  water)
• These missions have to be defined and
  contracted through written agreements with the
  State

7
DIRECTIVE 2004/17/EC OF THE EUROPEAN PARLIAMENT
AND OF THE COUNCIL0F 31 MARCH 2004

• The Directive 2004/17 of 31st March 2004
  Co-ordinating the programme procedures of
  entities operating in the water, energy,
  transport and postal services sectors remains
  totally applicable after EDFs status changed.
  The exemption clause depends upon the level of
  competition in the electricity sector but not the
  status of the companies themselves.
• EDF has a long experience of this legal framework
  requiring a systematic call for competition
  except for given cases, described in the
  Directive considering elements, such as the
  specific technicality of products or services, or
  additional phases of works very closely linked to
  those of the previous contract.
• EDF takes benefit from the new possibilities of
  the Directive (most economic choices criteria)
• New questions may be addressed with the evolution
  of the energy sector (commercial and partnership
  matters)

8
The Purchasing Function within a large
Electricity/Power Companyin the French Utility
Sector- Key features in the procurement process

• II Purchasing at EDF A continuous evolution
  facing changes in its environment as well as new
  profitability requirements

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PURCHASING AT EDF A COMPLEX ENVIRONNEMENT

• Long cycle industrial sector
• historical often oligopolistic suppliers
• Technical constraints and habits
• Weight of nuclear safety

• Increased role expected from the purchasing
  activity
• Increased pressure for
  utilities entering
  competition
• Legal framework
• Specific missions for a public utility

PURCHASING AT EDF
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Main steps of the EDF Procurement Division
construction to achieve performance objectives
and quality (1)
A CONSTANT ADAPTATION AND EVOLUTION

• 2000 foundation of the Procurement Division on
  the following basics
• a centralized and highly-qualified business line
• No purchase without a purchaser above 20 000
• performance achieved by teamwork between
  technicians (business units) and purchasers
• strategy is defined, segment by segment, by a
  lead buyer through a close relationship with
  technicians and business representatives. For
  important issues, management is involved on
• both sides.
• Since 2002, new improvements consisting of
• enhancing and broadening framework agreements
• organising strategic sourcing and optimising
  suppliers panel
• helping business units in controlling their
  expenditures (volume and price effects)

11
Main steps of the EDF Procurement Division
construction so as to reach performance
objectives and quality (2)

• 2005 2008 an increased ambition
• Introduce new levers not giving up former
  levers such as strategic sourcing, massification
  of contracts, duration of contracts optimisation
  - so as to increase performance
• achieve better estimation of costs, especially
  when the level of competition is low, and use it
  during negotiations
• simplify and redefine specifications with
  respect to general standards
• Enhance productivity and create win/win
  situations through partnership relationships
• Develop purchasing synergies within the Group,
  from simple co-ordination to common tenders.

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The Purchasing Function within a large
Electricity/Power Companyin the French Utility
Sector- Key features in the procurement process

• III The present procurement organisation and its
  challenges

13
Organisation chart of the Procurement Division
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Key figures of the Procurement Division in
2007EDF France (except the TRANSMISSION
SUBSIDIARY)
OPEX CAPEX
Four Procurement Domains
Totalizing 8,3 bn among which
OPEX 5,6 bn CAPEX 2,7 bn
STAFF 850 People located on 15 Sites
15
LOCALISATION OF PURCHASING Teams
PRI
D
I
Donzère - Mondragon
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24 PURCHASING SEGMENTS ACCORDING TO THE  SUPPLY
MARKET 
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THE PURCHASING PROCESS MAIN STEPS
STRATEGIC STAGE
With strong involvement of business units and
management

• Management role
• Anticipate
• make or buy decisions
• Manage risks

• Evaluate needs
• quantitative
• qualitative (including specification)

• Allotment
• Panel optimisation

• Level of globalisation
• Management of interfaces
• Strategic and global sourcing
• Qualification criteria

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THE PURCHASING PROCESS MAIN STEPS
OPERATIONAL STAGE

• Post award evaluation
• quality of products and services
• ways of using contracts by business units
  (respect of allocation between suppliers)

• Organize tenders
• Publicity
• Technical assessment (including final
  qualification)
• negotiation
• Award of contracts

• Evaluate suppliers
• Prequalification
• Qualification (emphasis on the product
  itself)

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The Purchasing at EDF present and new
challengesEnhance Performance and quality in
all its dimensions

• Performance
• - Purchasing must work closely with its
  internal customers, at all
• levels and stages (strategic, tactical and
  operational)
• - Purchasing must contribute to EDFs ambitions
  to increase its performance objectives of its
   Operational Excellence  program by
  introducing new levels of productivity, such
  as the redefinition of needs, process and
  products, which requires the convincing of
  internal customers (often technically
  orientated) and methodical support.
• - Purchasing must contribue to Group Synergies,
  notably by extending the scope of common
  tenders

20
The Purchasing at EDF present and new
challengesEnhance Performance and quality in
all its dimensions

• Quality, Sustainable development, and Social
  responsibility
• - Human resources maintain and develop skills
  in a changing
• environment notably international
• - Process
• Maintain ISO 9001 and ISO 14001 certification
  
• lead audits and control activities within a
  constant improvement philosophy, including
  coaching and mentoring
• involve suppliers on environmental ambitions
  (environmental chart)
• - Socal responsibility and ethics respect of
  commitment
• qualification of suppliers
• subcontractors treatment and consideration