Looking ahead to 2015, we predict that sustainability and environmental issues will become a priority for utilities companies, amid growing legislation, as well as consumer and governmental pressure.
There will be four key areas utilities companies will need to address. The first two are responsible procurement and improving scrutiny around the provenance of goods and services. Utilities will then also need to continue their efforts to reduce energy consumption and carbon emissions while fostering more in collaboration, across the sector and into its supply base.
Responsible procurement
With several high-profile, multi-billion pound opportunities on the table and mounting legislation there will be increased scrutiny of whether utilities companies are procuring responsibly.
The UK utilities sector is currently preparing for the introduction of new EU regulations which are aimed at encouraging the use of smaller businesses. For example, under the new rules, regulated utilities will only be able to request a maximum turnover of twice the contract value.
For example on several major projects, Thames Water uses principal contractors who are looking to source smaller suppliers using Achilles Utilities Vendor Database (UVDB) because they know smaller suppliers meet met the required qualifications and standards for the utility industry.
We anticipate that companies that pledge to use SMEs will be able to gain a competitive edge, as well as drive efficiency and innovation.
Greater scrutiny on the Provenance of goods and services
Based on our experience in other industries, we believe the next 12 months will be characterised by a much greater scrutiny on the origin of products and services; particularly those associated slavery and conflict minerals – elements sourced in areas that fund terrorism or war.
Human rights
The UK government has announced plans for a Modern Slavery Bill, which will require that large businesses will have to include in their annual reports details of how they are tackling slavery in their supply chains.
Accordingly, Achilles updated its audit programme to include a new corporate social responsibility (CSR) module, which evaluates and verifies suppliers’ credentials in relation to issues such as slavery and forced labour, complementing the focus on quality, health and safety and environmental issues found in UVDB.
Conflict minerals
In the New Year, the EU will also be introducing further legislation around the use of ‘conflict minerals’ – precious metals and elements such as tin, tantalum, tungsten and gold sourced in areas that fund terrorism or war – such as the Democratic Republic of Congo. These materials are often used in metal wires, electrodes, welding, alloys, plating and jointing.
From next year, firms that import ‘conflict minerals’ will be required to voluntarily self-certify that they have shown due diligence in addressing potential issues with their supplies of trade of tin, tantalum, tungsten and gold sourced in high risk areas.
We have already seen this affect the utilities sector. The topic has started to appear on the agenda for procurement professionals, and has been brought up at the last two quarterly steering group meetings with Achilles UVDB buyers.
We’ve already incorporated a new question within our CSR module to help establish the provenance of materials.
We also expect an increase in the number of businesses implementing a conflict minerals management process – getting a database of suppliers, risk assessing them all, carrying out audits, and benchmarking, tracking and reporting on suppliers’ compliance.
Simultaneously we are seeing growing interest in supply chain mapping – where companies use a tool to identify suppliers beyond tiers one and two. Once businesses know who is in their supply chain, they can scrutinise each supplier’s operations and evaluate whether companies are aligned to their own values in terms of people, planet and profit.
Suppliers are going to have to provide information on where they’re sourcing materials from, and those suppliers they’re sourcing from are also going to have to be registered within UVDB. We’ll end up having tier one through to tier four and five suppliers, all registered within UVDB.”
Reducing carbon and energy consumption
In the UK, the biggest development in terms of energy efficiency is the Energy Savings Opportunity Scheme (ESOS) – the UK’s response to an EU agreement to cut emissions by 20 per cent by 2020. Under ESOS, 10 times more businesses will be required to report on their energy use.
In parallel, we have seen many utilities companies – such as Anglian Water and National Grid – create framework agreements for specific projects – encouraging shortlisted suppliers to share responsibility for reducing emissions and use a registered carbon reduction scheme like CEMARS to track their own carbon footprint and their supply chain. At Anglian Water, 80% of the targeted supply chain has carbon measurement and certifications in place. For frameworks covering the next investment cycle (AMP6, 2015-2020), carbon formed part of the tender process.
Collaboration
At a time of huge economic uncertainty, there are still thousands of utilities companies around the world asking the same suppliers over and over again for the same information.
Achilles estimates that globally, it costs businesses $60 billion a year to manage information about their suppliers, half of which – $30 billion – is pure waste, which could be saved through collaborative working. It would also make life far easier for buyers and suppliers.
UK utilities firms have shown how to streamline the procurement process, by agreeing standardised criteria suppliers must meet in order to do business with them. With a single questionnaire, suppliers are then eligible to work with all the buyers in that group. We also enable utilities companies to comply with EU legislation. This community approach also allows buyers to work together to help raise standards and prevent duplication within the industry.
Many businesses in the sector, including companies such as National Grid, Thames Water and UK Power Networks, are already compiling information on suppliers through Achilles UVDB to ensure they only use businesses that have been fully vetted across a number of areas and encouraging suppliers to take steps to improve their credentials and performance.