We work with fuel and nonfuel suppliers to drive continuous improvement and efficiencies within the supply chain while improving environmental and safety performance. We ask suppliers about their sustainability strategy and activities through our procurement process, and we advise them of opportunities to help them reduce or mitigate their impacts on natural resources.
AEP’s Supply Chain, Procurement, and Fleet Operations underwent a significant transformation in 2013. Through continuous improvement initiatives, the group has significantly reduced costs, streamlined sourcing practices and established a Center of Excellence to provide benchmarks and analytics, establish best practices, and measure our progress in achieving cost and efficiency improvements.
One example of rooting out waste and improving efficiency included a review of a process called “clean sheeting,” where we broke down the material, labor and appropriate overhead costs to build a new high-voltage transformer. This allowed AEP to negotiate from a more informed position that resulted in significant savings. We also developed a long-term business plan for procurement called the “Transformational Placemat,” with the goal of being an industry leader in performance and cost by 2018. The Placemat serves as a priority list that includes goals, initiatives to help us reach those goals, and metrics to measure the results.
The Economic and Business Development (E&BD) group is also focusing on AEP suppliers as part of its relocation efforts. Through their comprehensive location advisory services, they can help our suppliers increase profitability, lower operating costs and maximize supply chain efficiencies.
AEP also works directly with its fuel suppliers and surveys its coal suppliers on their environmental, safety and health performance. We have conducted four surveys of our coal suppliers, a commitment we made to stakeholders to better understand the lifecycle of coal, its impacts on the environment and how our suppliers are addressing those impacts, and to share leading practices.
The AEP Sustainability Survey of Coal Suppliers is the only known survey of the coal industry. It reflects an assessment of approximately one-half of the coal mined in the United States and nearly every coal basin in the country. The 2013 report marked AEP’s fourth year conducting the survey. Results are based on 2011 and 2012 data.
The 2013 report also marks a major milestone for AEP and the coal industry as we now have collected five years of data, giving us important industry insights. Key findings include a consistently high level of safety, health and environmental performance, with our suppliers performing better than the national average. We also have seen an increased commitment to sustainability reporting, with 45 percent of our respondents now publishing social responsibility reports compared with 14 percent in 2009.
This survey gives us important insights into the environmental, safety and health performance of the coal industry – validating that we share common values and strive for excellence in managing our impacts to the environment and keeping employees safe. We have learned much about our suppliers, and they have learned about their own industry through this process. For example, a majority of respondents have programs that include training, job safety analysis programs, risk assessments and wellness programs.
We plan to continue this effort because our suppliers have indicated that it provides great value, especially regarding environmental performance, and because it’s the only such benchmark of the industry. Some suppliers also said they use the data in their own sustainability reports and to help drive continuous improvement within their companies. As we diversify our resource mix, we will consider how to engage with other fuel suppliers, particularly within the natural gas industry.
We responded to Carbon Disclosure Project's (CDP) 2013 Supply Chain Survey and have done so for the past three years. This survey aims to drive action on climate change among both purchasing companies and their suppliers. The survey provides us with a different platform to be transparent about our sustainable supply chain efforts and collects business-related climate change information from our suppliers.