Westar Energy Inc.
Seven-hundred-thousand customers across 55 Kansas counties depend on Westar Energy every day. Seventeen power generation facilities fueled by wind, coal, natural gas, uranium and landfill gas generate more than 27 million megawatt-hours of electricity per year to serve its customers. The power travels across 35,000 miles of transmission and delivery lines to keep the homes and businesses of eastern Kansas buzzing, and without the right plan in place, it would be a mess to manage.
“We have a great management team that strongly encourages process improvement throughout the company,” says Michael Denman, director of supply chain. “We have a program called Keeping Westar Successful where innovation and new ways of doing things are strongly encouraged to drive down cost. The CEO, who was previously the CFO, started this program. The drumbeat right now from corporate is Keeping Westar Successful, and ultimately it’s about process improvement.”
Denman is leading the way for the supply chain department on this campaign and has successfully engaged its employees. One hundred percent of the department has been indoctrinated in Six Sigma processes, and 20 percent of the supply chain workforce so far has earned Greenbelt Six Sigma certification. Denman says for the past few years, the focus for his department has centered around lean processes , which he defines as “how to drive out waste, do things with fewer resources, and do things cheaper, faster and better.”
To improve its processes, however, Denman says the organization first has to know where it stands. “Over the past couple of years, we have built 31 metrics to track performance areas,” he says. “We measure everything, because if you can’t measure it, you can’t improve. We’ve used it around consignment programs, to reorganize our warehouses and distribution centers. We use it around centralized inventory planning, and inventory stabilization and reduction programs. It’s the way we approach every task we take on.”
Westar Energy operates two primary distribution center and 21 forward stocking locations that also serve as service centers. From these centers, Westar Energy stores and distributes all equipment that is necessary to transmit power such as the lines and transformers attached to utility poles. The supply chain department has redesigned its yards and warehouses to reduce operating costs and is transitioning to a vertical stocking system rather than a horizontal one for its wire spools – which are the size of half-a-car. It also is outfitting the locations with radio frequency identification technology (RFID) to track inventory coming in and going out of the yard and reduce the time to assess inventory.
“It will require fewer man-hours to do this in the future,” he says. “Once we have the RFID technology, they can go through the storage yard and take inventory in a matter of minutes rather than being out there for hours at a time. As far as I know, we are the first utility company in the United States to start using RFID technology for inventory management.”
Denman explains that these improvements are crucial to keeping costs down. Increasing regulation and updating infrastructure drive expenses up faster than demand for electricity grows. Internal improvements are necessary to maintain affordability.
“The end-user is the retail customer in Kansas,” Denman says. “Everything we can do to drive costs down in the process means lower rates for the customer. The fewer rate increases we have to ask for, the better it is for the customer.
“We do what we can do to lean-out the operations and drive out cost so the residential consumer and commercial businesses are faced with fewer and smaller rate increases,” he adds.
While Westar does that in-house, the company also looks outside to reduce costs in the supply chain. Technology and inventory management have gone a long way to improve its supply chain, but the organization does not ignore another key link in the chain – the actual supplier.
The ‘Supply’ in Supply Chain
The company’s alliance management program lays the groundwork for mutual trust between Westar and its suppliers that leads to better service and pricing for Westar and steady business for its suppliers. Westar’s contracts with suppliers establish the basis of the relationship as well as measurement points for both parties to track the success of the relationship. Executive-level representatives of both parties to Westar contracts – decision makers – maintain the working relationship.
Westar’s contract with one of its suppliers, which provides power line hardware, stipulates that in the event of natural catastrophes, Westar is first in line for materials, even over larger customers.
“We have a real strong alliance management program – an extremely strong alliance management program – with our key suppliers,” Denman says. “The contracts are multi-year agreements – some of them up to decades in length. And we have at least biyearly or quarterly meetings, depending on the supplier, where we measure each other and complete scorecards and they complete one on us. They measure if we live up to our responsibilities, and we measure if they keep up to theirs. It’s a mutual benefit.”