Group Assignment

ALG Energy case study

Subject: Supply Chain Management
Lecturer: PhD. Nguyen Hoang Dung

GROUP 9

GROUP LIST
STT Họ và tên MSSV
1 Dương Thùy Dương K184080992
2 Bùi Cẩm Hường K184081000
3 Lê Thị Ngọc Lan K184081002
4 Nguyễn Minh Thư K184081033
5 Nguyễn Phương Trúc K184081045
1) Why is it difficult to align supply and demand at AGL Energy?

There are many reasons why it is difficult to align supply and demand at AGL
Energy.
 Customer information management
Its systems are specially developed to meet the needs of diverse business units,
one power generation and supplier and customer care side. Information is
entered and stored in different ways across many different customers and
payment platforms. And the messy arrangement of data and analysis by many
customers makes required information difficult to check and analyze.
 The capabilities to analyze data
Employees cannot analyze system data to benefit the company. Employee
motivation to adapt to the new data flow is a matter of discussion. A lot of work
for employees ranges from rarely or never analyzing available data, to
constantly maneuvering their movements/actions in response to incoming data
streams. There will be a lot of pressure on the AGL employee system to be able
to analyze such informational and stratified data.
 Uncertainty
The third factor is uncertainty from both sides: supply and demand. Not
excluded from the mainstream, uncertainty appears at AGL in many shapes and,
of course, neither side benefits from uncertainty. A trading company that relies
on its ability to actually predict short- and long-term needs. Profit maximization
relies on the ability to minimize excess or shortage energy. In short, it is based
on the predicted ability to match supply with demand.In short, there is
uncertainty about the prediction of supply with demand. Uncertainty also comes
from Customers who have become increasingly energy conscious and feel
strongly that they need to do something about rising energy bills.
 Customer segmentation
Traditional customer segmentation based on current energy use and
demographics that have been the mainstay in the energy industry will likely
 provide limited understanding about what the customer of the future might look
like.

2) What data challenges are facing the upstream (merchant) and downstream
(retail) parts of the business? In your answer, consider the core data required to
manage the supply chain (e.g., customers, usage, generation, prices) and the
advantages and disadvantages of data consolidation (merchant and retail) onto a
single IT system/platform.

 Data challenges that the upstream (merchant) and downstream (retail)

parts of the business are facing:
 Firstly, both the upstream and downstream are facing uncertainty in the
demand forecast which is always a major problem. Challenges in
developing core competencies in data governance and control are equally
important.

 Secondly, the challenges each part has to face is:

+ The upstream (merchant) challenges:Electricity shortfall can result
in a situation in which an energy company has to buy additional electricity
from the short term wholesale market at uncertain and volatile spot and
contract prices.

Significant volatility in wholesale prices due to severe weather conditions, or

a breakdown in energy production or transmission can easily blow away any
profits for a month. Wholesale supply prices can range from $25 to over
$10,000 a megawatt hour at different times of the year. And its also affect to
the retail's price

The possession of capabilities to analyze data in an efficient and effective

manner BUT the IT systems have grown in a haphazard way as the company
acquired new companies and their customers. At any one time, there were 12
 to 15 different customer billing platforms. The challenge arises when
information is entered and stored in different ways across different payment
platforms and customers.

+ The downstream (retail) challenges:

At AGL the firm relies heavily upon the ability to retain its customer base.
The customer base provides the platform to make upstream investments in
gas and electricity generation, BUT in the retail business, the rate of
customer churn is high (26%). It creates strong pressures for innovation and
continuous improvement.

Uncertainty from the customer. Customers have become increasingly energy

conscious and feel strongly that they need to do something about rising
energy bills. Traditional customer segmentation based on current energy use
and demographics that have been the mainstay in the energy industry will
likely provide limited understanding about what the customer of the future
might look like.

The vertical integration strategy makes the risks not disproportionately

allocated: A downstream retailer lacks upstream capacity then becomes
vulnerable and subject to wholesale price variability.

 The advantages and disadvantages of data consolidation (merchant and

retail) onto a single IT system/platform.

 Advantages:+ Reduction in the high number of system outages+ Reduction

in the number of back office personnel helps reduce cost+ A consistent
organization-wide database for all customer-related data and delivery of a
single-instance billing platform+ Create a platform that could collect,
analyze, and use large data sets coming in from both retail and merchant.+
Better position AGL for the challenges of an uncertain future.+ Co-create
 value with customers and improve industry performance.+ Meet AGL’s
strategic goals of expanding the range of services to customers.

 Disadvantages: + The need to develop a core capability around governance

and control of data+ The need for appropriate governance controls to ensure
data integrity, supported by a data-driven culture throughout the supply
chain.+ Unless employees are willing to incorporate data into what they do
and think critically about the decisions being made on the database, there is
a huge cost.

3) Why might it be difficult to move supply chain work practices to a data

analytics strategy?

There are five reasons why it might be difficult to move supply chain work
practices to a data analytics strategy:
 Characteristics of the market and product enhances high
competitiveness.The commodity market, in which any businesses offer non-
differentiated products, intangible components, and is sold primarily on the
basis of price. The core components of a commodity are well known, mostly
stable, and widely shared amongst competing firms. Each firm has its own core
competencies, especially, as aforementioned statements, the energy industry is a
commodity market and data analytics strategy is not only the further goal of
AGL Energy in extending and prevailing business, but also the universal
objectives of any energy firm. From this point, several quick actions need to be
taken to guarantee its first mover’s benefits. Nevertheless, AGL is not the one
that specializes in data analytics, even in the past, it has to make a collaboration
through acquiring an external data analytic company, so the lack of experiences
and practical knowledge will exert a burden.
 The cost of managing, controlling and analysing data.“We have really given
a lot of energy in recent times to smart meter analytics.” (Anthony Fowler,
Group General Manager Merchant Energy). The Executive Chief in AGL has
 admitted that they had invested a large amount of energy in flowing these data.
Owen is aware that investment in analytics can be a huge sunk cost unless
employees are willing to incorporate the data into what they do and think
critically about the decisions that are being made on the basis of data. This
means that besides the expense of data transportation, there is labor cost
because the IT workforce is originally shortage and requires a high salary.
 Problems from customers themselves.As we acknowledged from the case,
smart meters deliver all the information about how much gas and electricity a
customer uses and how much it costs. Based on it, utility bills (electricity and
gas) are calculated, unfortunately, he/she can take advantage of and cheat on it
to minimally decrease his/her payment. Besides, customers might not be willing
to reveal their personal consumption (although AGL makes sure that personal
information regarding to name, address, bank account,... will not be taken).
Along with those, high customer churn rates make the data system messy
 Unified data management systemAGL Energy has grown by acquisition. Its
systems have been developed separately to meet the needs of diverse business
units one generates and delivers power and the other looks after customers. So,
information was entered and stored in different ways in many different
customer and billing platforms. At any one time, there were 12 to 15 different
customer billing platforms, the distribution business was not well connected and
costs were increasing. The haphazard arrangement of data and fragmented
infrastructure meant that the information technology (IT) systems at AGL were
buckling under the pressure to meet staff and customer expectations. The IT
systems have grown in a haphazard way as the company acquired new
companies and their customers.
 Demand forecast is affected by weather and time The demand forecast bias
would be larger when affected by another forecast (weather forecast). In
addition to medium and long term demand forecasts, AGL also has short term
forecasts such as daily or half an hour. This makes data analysis complicated
and costly
If you were in Owen’s position, how would you go about delivering the tools
needed to manage a network of supply and demand?

Building a data analytics capability is the one point of focus that AGL is
trying to build. That’s why I think Owen should focus on developing “Big
Data” infrastructure because it always has some advantages to be the first
mover.

AGL should Enhance mid- and long-term forecasts to create a well-balanced

match between supply and demand at all times for the company to make the
best decision

The forecasting energy demand based on weather and other historical data
more often will reduce pressure on the analysis skills within the business
units.

The company should invest into not only appropriate governance controls to
ensure data integrity but also data analytics capabilities and corresponding IT
systems.