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SUPPLY CHAIN

In the compliance of its public service mission in the national energy sector, the REN Group is committed to the defence and promotion of the principles of sustainable development, seeking to create value on an ongoing basis for shareholders and stakeholders.

The Group has a centralized Purchasing Department which deals with the purchase of all needs for goods and services and construction work for the different companies in the REN Group.

The mission of the Purchasing Department is to ensure that goods, services and contract work are acquired under optimized conditions in terms of price, quality and service. As well as contributing to the generating of value for the Group, this approach also guarantees clarity and transparency in purchasing procedures based on the principles of ethics and sustainability. Work by this department is supported by specific I.T. systems to register suppliers, their qualification, the assessment of their performance and manage the purchasing process life cycle.

With a view to ensuring the suitability of suppliers in meeting REN's needs, REN has a single Supplier Qualification and Assessment System, which is common to all Group companies.

 

The main activities of the supply chain are as follows:

 

A. ANNUAL PLANNING OF PURCHASES

Consists of the identification and planning of REN Group company purchasing needs with the aims of defining acquisition strategies for every category of purchase, creating acquisition volume, identifying potential synergies and generating savings for the Group.

B. PURCHASE

    • Definition of Requirements: Consists of defining the functional and technical needs of the goods, service or contract work to be acquired in line with requirements and standard levels of service and market conditions which ensure compliance with regulations and environmental legislation and health and safety at work.
    • Market Consultation: This stage is the responsibility of the Purchasing Department where consultation documents are prepared based on functional and technical requirements. The type of procedure to be implemented is defined in line with the specificities of the purchase and legislation. Suppliers are selected to submit bids.
    • Analysis of Proposals: negotiation and award Proposals received from competitors are analysed from a technical and commercial viewpoint in line with the REN segregation and responsibilities model. Should proposals be considered techically valid, the Purchasing Department will deal with the process, notifying competitors which were not considered technically valid and negotiating, should the procedure so provide for, with the remaining competitors.
    • Award Proposal: Based on the results of the negotiation, technical and commercial analysis and previously defined ward criteria, the Purchasing Department will propose award to the entity competent for the purpose.

In 2016, the Purchasing Department had a total volume of purchases of 150 million euros, corresponding to 281 purchasing processes.

The procedures governing the purchasing process have remained stable in recent years, as a result of its maturity and the stability of public procurement legislation.

C. CONTRACT MANAGEMENT AND PAYMENT

After approval of the award proposal, the requesting area is responsible for the management of the contract under the terms and conditions agreed with the suppliers, and for the acceptance of the goods or services which will allow the suppliers to issue their respective invoices. These invoices will then be paid within the contractually agreed times by the REN department with payment responsibility.

D. SUPPLIER QUALIFICATION AND ASSESSMENT

REN operates a Supplier Management Model which deals with Supplier Qualification and the Performance Assessment.

The Qualification System allows candidates which qualify as REN Group Suppliers to be invited to submit bids to tender requests launched by REN. This in turn allows such suppliers to establish a relationship of cooperation and partnership with the Group which is governed by demanding professional and ethical standards as well as strict compliance with legislation and in line with exacting medium and long-term sustainability policies.

The principles of this model are the principles of competition, equal treatment and opportunities for all potential Group suppliers, based on clear and objectives rules and criteria with the aim of gauging the real capacity of every potential Group supplier.

The solidity behind REN's approach is based not only on its own conduct but also on the conduct of those with whom it works. For this reason, REN seeks to work with suppliers which share these values and principles.

As REN is a member of the United Nations Global Compact, it has drawn up a Code of Conduct for suppliers which sets out the 10 fundamental principles of the Compact which address human rights, labour practices, environmental protection and anti-corruption and are derived from universally accepted declarations.

The Qualification System consists of the following steps:

    • Submission of applications
    • Reception and analysis of applications
    • Clarifications between REN and candidates
    • Communication of the qualification decision 

 

REN mainly establishes contracts for energy sector related equipment and products and with the architects, contractors and service providers who work in the construction of overhead power cables and gas pipelines and who can meet the specific business needs of the REN Group and who are directly involved with the development of the concession infrastructure.

REN suppliers are grouped as follows:

  • Specific Goods and Services of the Business

Example: Bare Cables for MHV Lines and Sub-Stations; Control and Protection Systems (CPS); Construction Contracts, Remodelling and Maintenance of MHV Power Lines; Tubes, Conduits and Accessories; Contracts for the Construction of Saline Cavities for NG Storage; Contracts for the Construction of High-Pressure NG Infrastructure(HP); etc.

  • Corporate Goods and Services

Example: Environmental Impact Studies; Catering, Vending; Micro I.T.and I.T. Consumables; etc.

 

With the aim of ensuring the capacity and suitability of suppliers for needs, three levels of qualification have been created based on the complexity, criticality and representation of expenditure, in accordance with the following approach:

TYPE AND GEOGRAPHIC ORIGIN OF SUPPLIERS

Suppliers are broken down as follows based on type, size and geographical organization:

  LEVEL 1 LEVEL 2 LEVEL 3
Goods suppliers Small national companies supplying standardized, low-value goods Medium and large European companies supplying standardized goods or goods with customer specific requirements of medium or high value Large Iberian construction companies with multiple specialities of very high-value and complexity (turnkey)
Service providers Small national companies providing standardized, low-value services Small and medium-sized national companies providing specific, medium or high value services Medium and large European companies providing complex high value services
Contractors Small national building companies with a single speciality, low value

Medium and large national construction companies with multiple specialities, medium or high value

Large Iberian construction companies with multiple specialities of very high-value and complexity (turnkey)
SUPPLIER BREAKDOWN IN 2016
 GEOGRAPHY OF SUPPLIERS

% VOLUME

EXPENDITURE (280M€)

% NUMBER

(1.131)

Intra-Community 2 3
Intra-Community 9 10
Domestic 89 87

 

After the contracts have been concluded, the contract managers, based on objective criteria and through comparison with contractual arrangements, assess supplier performance, gauging their capacity for compliance with contracts signed with REN, thus contributing to more efficient management.  

SIGNIFICANT CHANGES IN THE ORGANIZATION OR SUPPLY CHAIN

In 2016, the annual process of supplier requalification started, in line with the rules set out in the REN Group supplier qualification system.

The number of qualified suppliers rose substantially, but without any significant changes in geographical origin.

Merger, acquisition and reloaction processes continue to occur without any impact on either the supplier portfolio or the level of competition and capacity of supply.

The overall perception of the economic-financial ratios of qualified suppliers improved in 2016.

 

PROPORTION OF EXPENDITURE AT LOCAL SUPPLIERS IN IMPORTANT OPERATIONAL UNITS 

Bearing in mind Community and national legislation requirements, the sector and REN's position as public service concession holder, the specificity and technical and technological complexity of REN purchases and the geographical location of main suppliers, no policy exists for working with preferential suppliers. Nevertheless, around 89% of all REN Group company suppliers are Portuguese as a result of the maturity of the domestic market and use of intensive labour in construction work. The remaining 11% relates mainly to European companies and some Asian countries.

In 2016, the weighting of national suppliers in the total of REN Group purchases rose slightly.