Procurement must be properly thought through by water company alliances

Alliances often comprise companies who are otherwise fierce competitors, so procurement needs to be thought through properly, says Ian Bolger.

As the alliance delivery model becomes more prevalent across the utility and wider infrastructure sector, some alliances are clearly struggling to make the required upgrade in procurement orientation from tactical (buying for individual projects) to strategic (optimising the supply base for the entire programme). This is not surprising. Merging three or four companies that were – and still are – intense competitors to deliver a large and demanding infrastructure programme inevitably raises significant challenges.

Alliance challenges

It is crucial that the alliance has a clear supply chain strategy aligned to the overall alliance and client goals. It also needs to select a set of best practice supply chain processes, supported by effective systems and strategic sourcing tools – often easier said than done. Most alliances end up blending parts of processes used by partner companies and
rely on systems that produce little meaningful data.

Many construction companies and, by default, alliances, have significant resource gaps in strategic sourcing and category management, largely due to lack of strategic alignment and ineffective processes, tools and systems. These issues are not exclusive to construction companies, but the impact is greater among alliances where teams from different companies fuse together rapidly to source large programmes of work under pressure from project delivery teams.

High-performing teams

Here are some of the key factors to consider when assessing procurement function effectiveness:

•    Are there clear strategic sourcing and category management processes in place?

•    Is the technology configured to produce high-quality data that focuses on demand forecasting?

•    How aligned is procurement with the rest of the organisation?

•    How much resource and activity is focused on strategic sourcing versus satisfying short-term project needs?

•    Is supply scale and risk effectively managed across the entire programme portfolio?

•    Does the procurement team have the right organisational structure, skill sets and resources to identify and deliver sustained improvements?

Skills capability can be addressed by best practice training programmes to support staff development, together with investment in new toolkits and the support of external procurement experts, where required, to address weaknesses in both hard and soft procurement skills.

The crucial role of forecasting

Effective strategic sourcing and category management requires the alliance to adopt a standardised and disciplined approach to cost planning and estimating. The first step is to define a standardised work breakdown structure, whereby future projects and programmes are classified by defined categories.

The next step is to research and profile the relevant supply market to identify whether there is sufficient capability, capacity and interest from the right quality of suppliers to deliver the build programme. Scale can be leveraged across the programme portfolio where supply is plentiful, while risks can be mitigated through proactive supplier engagement and development strategies. Using this information, robust category strategies can be created to inform market activity and plan supplier interactions.