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WORKING WITH THIRD-PARTY COMPANIES
Entergy’s outsourcing of rubber goods testing to Hi-Line Utility Supply
BY ASBURY GAULT, Zenius LLC
An Electricity Today Magazine Case Study
One of the last projects I was involved in just prior to my retirement from Entergy was the outsourcing of our rubber goods testing lab that supported over 3,000 internal users. Since inception, this function had always been provided internally. However, the current marketplace and the financial forces driving down employee headcount made outsourcing of this function a viable option.
Entergy Corporation is a vertically integrated energy company engaged primarily in electric power production and retail distribution operations. Entergy owns and operates power plants with approximately 30,000 megawatts of electric generating capacity, including more than 10,000 megawatts of nuclear power, making it one of the nation’s leading nuclear generators. Entergy delivers electricity to 2.8 million utility customers in Arkansas, Louisiana, Mississippi, and Texas. Entergy has annual revenues of more than $10 billion and approximately 15,000 employees.
Initially, six companies responded to the request for proposal (RFP) and attended the pre-bid meeting. Of these six, only one of these offered this service as a sideline to their core business; it was not a core competency for them.
Entergy’s test lab also served to manage the new issue and replacement inventory of rubber goods. As the majority of new goods issued are directly related to test failures, this was the most efficient process. The scope of the Entergy’s RFP included pricing and providing of new goods. Vendors were also invited to include a proposal for the purchase of Entergy’s in-house testing equipment, which we were looking to sell. Interestingly, pre-bid meetings can provide the team insight to the potential vendors operations and how they plan to fit this additional work into their business.
For example, Entergy had the practice of testing all new rubber goods products from the vendor before they are issued. This practice served to establish significant failure rates of new products from the manufacturer. This is also the ideal time to capture warranty-covered failures. In the pre-bid meeting, one vendor chose to debate this practice, as this step was not being performed in their current processing of new goods being issued to their customers. Therefore, it is important to have as many team members/stakeholders present in the pre-bid meeting as reasonably possible.
Our next step was the team’s review of vendors’ responses to the RFP. While all of the attributes need to be considered in selecting a vendor, invariably pricing is the most accessible comparative data for the team to consider in its effort to narrow the field of competitors. Therefore, this is where the team started. This was done on a spreadsheet. This analysis revealed that all of the vendors’ pricing offered savings over the current internal operations. Given the number of qualified vendors in the marketplace, the question of sustainability was easily answered by the team. The next step was the selection of the vendor.
One of the bidders, while offering competitive prices, was considered by the team not to meet the minimum requirement of this service being a core competency of their business. Therefore, they were not given further consideration. With a competitive price for the testing services, shipping, and new rubber goods coupled with a strong list of current clients and the fact they are one of the largest stocking distributor for Salisbury rubber goods, the team selected Hi-Line Utility Supply in Elgin, Illinois as the leading candidate.
The team’s next step was to make a site visit to the Hi-Line’s Home Office in Elgin; where the actual testing was to be performed. There the team was able to review the quality of Hi-Line’s work processes, their quality control, and their offering of best practice synergies. An example of this latter value offering was the broad suite of reports Hi-Line was able to provide on a routine, upon request, or ad hoc basis. These capabilities were far beyond what our small, in-house lab was able produce for itself. Another example was the improved cleaning, packaging, and labeling processes Hi-Line routinely provides for all the products they handle. Also during this visit, we observed Hi-Line’s visual inspection process as being more aggressive than our own. As we anticipated, these failure rates did increase during the initial testing cycle after implementation. While these additional failures did cut into the initial anticipated, first-year savings of the project, this was acceptable to the team as this was only sacrificing some savings for the sake of improved quality control. This cannot be undervalued when it comes to a safety tool such as rubber goods and acceptance of the change by the users in the field.
Ultimately, Hi-Line was able to provide a turnkey solution that met or exceeded the team’s requirements. This included the absorption of Entergy’s lab equipment, which offset some of the anticipated one-time, implementation costs for the project. Their position with the manufacturer, their shipping system and the quality and administration of their testing and replacement processes provided a seamless and efficient solution. Subsequently, they have been working with the Entergy team by offering up solutions that will reduce failure rates in the long term, such as training on the care and keeping of rubber goods and more. This added support adds to the tangible value of the program while improving over-all quality control.