Procurement Management and Electricity Industry Analysis Report

This report provides a comprehensive analysis of procurement management within the Australian electricity industry. It begins with an overview of current and past power generation methods, highlighting the industry's significance to the Australian economy and detailing the evolution from fossil fuels to renewable sources. The report then examines the procurement practices of different organizations in the electricity industry, emphasizing the importance of effective strategies for securing resources and meeting growing demand. It explores the structure of the Australian electricity market, including its distribution networks and regulatory frameworks, and discusses the impact of technological advancements on procurement processes. The report concludes by outlining procurement strategies for suppliers, including the adoption of technology and adherence to government policies, with a focus on encouraging the use of renewable energy sources and ensuring a stable and cost-effective electricity supply. This report is contributed by a student to Desklib, a platform offering AI-based study tools for students.

Running head: PROCUREMENT MANAGEMENT
Procurement Management
Name of the Student
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Author Note

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Table of Contents
Detailed current and past power generation....................................................................................2
Procurement practice of Different organizations in the electricity Industry...................................6
Description of the Electricity market in Australia and its Future changes......................................9
Impact of technology on the procurement market of electricity....................................................14
Procurement Strategy for suppliers to make them use of technology...........................................17
References......................................................................................................................................20

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Detailed current and past power generation
The electricity industry is one of the most important industries of Australia. Since the
entire power supply of Australia is dependent on this industry, hence the sector has a key role in
the Australian economy. The sectors of the electricity are involved in the generation of
electricity, along with its transmission and distribution ("ABC - Australian Broadcasting
Corporation", 2017). The retail sales of the electricity are also involved as a part of the activity of
the electricity supply industry. The social, industrial as well as commercial success of Australia
is dependent on the reliability of the electricity supply. In this way, the economy of Australia is
significantly dependent on the electricity industry.
The production of electricity has changed significantly over the years. Electricity could
be produced, either by chemical means or by mechanical actions ("ABC - Australian
Broadcasting Corporation", 2017). The electricity production by the chemical means relies on
the flow of the charged particles from the cells in a battery. This type of production of the
electricity is expensive in the modern day ("Australian Energy Regulator |", 2017). This is
because; the rise in the demand of the electricity has forced the electricity industry to look for
alternative sources of energy production. With this process of electricity production, only a
limited amount of electricity could be successfully produced ("ABC - Australian Broadcasting
Corporation", 2017). In order to meet the increased demand of the production of electricity,
mechanical actions are used widely. Powerful magnets spin very fast inside the coils of
conducting wires. Gas, water turbines or steam usually drives these, thus assisting in electricity
production. In the present day situation, more than 90% of the electricity produced in Australia is

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obtained by burning of fossil fuels, such as gas, oil and coals. The chemical energy that is stored
in the fossil fuel that is used to heat water as well as produce steam ("ABC - Australian
Broadcasting Corporation", 2017). This steam is then forced under high pressure through a
turbine that drives the generator, to produce enough electricity for supply all over Australia. This
complete process helps in conversion of the chemical energy into kinetic energy and then
eventually to electrical energy. The kinetic energy of water, falling from a great height, drives
the blades of the turbine that produce electricity ("ABC - Australian Broadcasting Corporation",
2017). The use of wind energy is also seen in the production of modern day electricity. The
kinetic energy of the wind force drives the blades of the wind power turbine, to produce
electrical energy. Before the period of the 1800s, the production of electricity was majorly
depended on wood, water, sun and wind as their energy sources. However, in the 19th century,
the introduction of coal-fired power was first introduced. In the 20th and the 21st century, the use
of burning of fossil fuels for the production of electricity was mainly used ("Australian Energy
Regulator |", 2017). However, with the increase in the need for the production of electricity, the
solar and tidal energy was also being used.

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Figure 1: Electricity distribution in Australia
(Source: "Australian Energy Regulator |", 2017)
The distribution of electricity is also important, as the effective transportation is
important for the successful utilization of electricity. The speed of electricity is similar to that of
the speed of light ("ABC - Australian Broadcasting Corporation", 2017). Though as users, people
see that the electricity supply comes to the electrical appliances instantaneously as soon as the
application is switched on, yet a number of stages are followed ("ABC - Australian Broadcasting
Corporation", 2017). A transformer coverts the electricity, that is produced in a generation plant.
The electricity then arrives to a location, where a substation transformer changes the high voltage
to a lower voltage, for distribution. The distribution channels then carry the low voltage

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electricity to the consumers. The consumers then use it, according to their needs. The distribution
of the electricity has changed over the years ("ABC - Australian Broadcasting Corporation",
2017). With the rise in the use of the various electrical gadgets such as air-conditions, the
demand in various states of Australia has risen. The increase in the number of households also
resulted in the changes in the distribution of electricity all over Australia. Statistics show that
with the increase in the demand in the household, the deficit in the supply to the industries is
witnessed. The increase in the use of air-condition have increased the demand in the household
for the supply of electricity increased ("ABC - Australian Broadcasting Corporation", 2017).
However, with the increase in the use of solar energy and other cost effective forms of energy,
the demand in the electricity is seen to be lowered.
The modern electricity distribution networks are expensive as well as geographically
specific. This means that the distribution of the electricity is confined to geographical limits, and
hence natural monopoly is established ("ABC - Australian Broadcasting Corporation", 2017).
Moreover, the electricity industry is highly regulated as the access to reliable supply of
electricity is considered important by the government. The Australian Energy Market
Commission (AEMC) regulates the distribution of electricity all over Australia. However, in the
past, the National Electricity Market regulated the industry ("ABC - Australian Broadcasting
Corporation", 2017).
Thus, significant changes in the past and the present power generation in Australia have
been witnessed. The changes are appropriate in order to ensure that demand of the electricity
among the people of Australia is met. Moreover, the electricity distribution industry is dominated
by the state-owned enterprises, such that stability could be maintained over time ("ABC -

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Australian Broadcasting Corporation", 2017). The most significant impact of the capacity
extension, over the past five years has been on the cost structure of the industry.
Procurement practice of Different organizations in the electricity Industry
Procurement management practice is a systemic approach where business organization
secured goods and raw materials, from respective suppliers which will ensure that they have
enough resources to sustain the future of the company. It is essential for all companies to
procure their resources in order to improve upon their value and business practice. Edquist et al.,
(2015), have added in the context that securing the resources in form of procurement
management practice will help to save both time and money for the company. The procurement
management can help a company to identify all the issues related to purchasing products
suppliers and thereby able to make a business deal with all third party organizations. It is also
possible to ensure Proper delivery of the required resources within definite time. According to
McMurray et al., (2014), securing the dealership with all suppliers is the primary step of
procurement management, which can help you identify all the major relevant issues. It is also
essential in this context for the company to maintain effective communication with the suppliers,
which will help them to resolve all issues related to securing management. The procurement of
goods and other resources from external supplier on outsourcers is a critical path, which decides
upon the success of the project (Sanchez et al., 2013).
With the demand of electricity going up in Australia, all the power supplying companies
need to implement effective procurement management practices in order to ensure that there is
no shortage of supply that can lead to a crisis situation. In the current time, most of the supply of
power generation in Australia is either from power generating plants or production from natural

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gases. This power is then provided to the houses with the help of retail servicing, which are
responsible for maintaining the billing service. There are separate forms of business, in each
component of electricity supply chain of Australia. It is essential for every Organization in this
entire system of power supply chain to have effective strategy of procurement practice, which
will ensure that the growing demand of power generation are fulfilled. It is also relevant to
mention that due to the Global change in electricity supply market, new types of procurement
strategy are necessary in the context that it can have huge impact on the entire system of
distribution.
The procurement strategy that needs to be implemented in the Australian electricity
supply chain is dependent upon the centralized power. The companies of power distribution in
Australia need to adopt short term contract policy during the time the prices of electricity supply
goes higher (Lember, et al., 2013). It is essential for every company of Electric Supply Chain
within Australia to have separate Department, who will be in charge of making and
implementing procurement strategies. Procurement officer should also be recruited in order to
ensure that proper planning for the future resources are done properly.
The government in Australia has from the State Procurement Board, Who is in charge of
monitoring on the procurement strategies implemented by Electricity Distribution agents at
various levels. The major component of the procurement strategy implemented by various supply
chain is to ensure that there are alternative sources, from where it is possible to generate
electricity (Dowling & Kent, 2015). With the growth of the non conventional mode of electricity
generation, all the major companies in the Australian Electricity Board are implementing
strategies that will help them to get the power supply from alternative sources other than the
forms of regular modes. It is also the responsibility of the electricity supply agent to strictly

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follow the policies of State Procurement Board, which will help them to meet up with their
business demands. The major policies that are implemented in this process are the fact that it is
only the public authority, which will be in charge of making supply contracts related to power
distribution.
State Procurement Act 2004 is one of the major government policies in this context
which are responsible for managing the entire contract between Electricity Distribution
companies and supply chain organizations. All forms of Electricity Distribution which includes
solar power or Thermal form of electricity generation are included within this act (Ravenswood
& Kaine, 2015).
In order to encourage the increase uses of renewable electricity supply, there is separate
procurement Strategies for encouraging Electricity Distribution companies. The Australian
Electricity Board has encouraged all the distribution companies to procure their source of
renewable electricity generation. The implementation of solar energy distribution program in
Australia, it has encouraged all the major Electricity Distribution companies to implement new
contract with suppliers, in order to get regular supply from the Electricity Distribution boards.
All the major companies in the domain of electricity supply chain in Australia have on new
contract with the solar power distribution supply chain, which is believed to be one of the
measures of procuring the generation of electricity and meet up with the growing demand of the
younger generation (Grob & Benn, 2014). It is also relevant to mention in this context that the
economic progress of industry and all other manufacturing sectors are entirely dependent upon
the procurement strategies that are implemented by the Australian electricity suppliers.

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There are few issues that the distribution companies have to face due to the fact that there
will be a rise of cost, while they are procuring their distribution from renewable supply chain.
For example, there will be a rise of cost of maintenance that is required for the supply chain of
electricity from solar sources. Hence, it is evident that the overall capital that is required in
operational activities of electricity supply will rise to some extent. However, it is believed that
considering the project activities, which is implemented initially there is huge cost in the overall
infrastructure. However, with the improvement of solar technology and other renewable form of
Electricity Distribution Technology, it is possible to reduce the operational cost and thereby
making it possible to procure the power supply for the future at lower capital expenditures
(Lember, et al., 2014).
Description of the Electricity market in Australia and its Future changes
The electricity industry of Australia is one of the largest manufacturing sectors of the
nation, which is responsible for meeting up all types of power demand for both household and
commercial purposes. The power throughout the nation is distributed with the guidelines of The
National Electricity Board (NEM), which is the wholesale market for the electricity generation.
The national electricity market is responsible for supplying 80% of the total electric power
generation in Australia (Elliston et al., 2013). The electricity market began its operation in the
year 1998 and is currently one of the leading power distribution organisations not only in
Australia but in all over the globe. The electricity is distributed by facilitating electricity with
the help of power generator and retailers. These retailers directly sell the power supply to

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business and houses. High Voltage suppliers and transmission line are used in order to generate
electricity and distribute them to various commercial and domestic houses.
The National Electricity Market of Australia has the operating range of 5000km that is
from the Port Douglas in the state of Queensland to the Lincoln Port in the Southern parts of
Australia. This is the world’s longest power operating system in the world (McConnell et al.,
2013). The Australian Energy Market Operator (AEMO) is in charge of all forms of activities
that are conducted by the NEM. The economic regulation of the electricity market in Australia is
generated by the AEMO, which helps to generate the policies related to the monopoly of power
distribution. The NEM currently supplies around 200 terawatt of electricity to all commercial
and business distribution per year. The total number of customers is of 9 million, who are
dependent on the power distribution of NEM (Bae et al., 2014).
With the advancement of the technology, it is possible for the NEM to use the
sophisticated forms of electricity distribution. With the help of this form of technique, it is
possible to deal with the challenges of power wastage that is caused due to the transmission of
the electricity. The infrastructure of NEM is contributed by the capital of both state and private
forms of assets.

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Figure 2: Process of Electricity generation in Australia
Source: (Anuta et al., 2014)
The pricing of the electricity system is determined with the help of the 5-6 minutes of
parameters, which helps in the matter of determining the spot price. This is one of the most
important matters that can help on to deal with the financial transactions of the electricity
generation systems. The rule of the pricing is set with the minimum value of $1000 per megawatt
hour. The term spot price is used to ensure that the pricing level of the electricity generation is
not over hiked. In the year 2015, the pricing of the electric generation is set with the help of the
cap technique, which is set at the inflation price of $13,800 per megawatt hour (Apergis & Lau,
2015). Most of the customers do not pay directly to the NEM due to the fact that they purchase