Utilities are increasingly coming under pressure to deliver more for less. Keeping costs down while continuing to deliver exceptional service is no mean feat, which is why seeking efficiencies within the supply chain has become a must.
At a recent roundtable organised by Utility Week in association with Unipart, representatives from some of the UK’s leading utility companies explored how different forms of partnership – including collaboration, alliance models, and direct procurement – can affect the performance of a business and drive efficiencies. And with new and smarter ways of working offering utilities the potential to realise efficiencies of 30 per cent or more, similar discussions are likely to be had across many a table throughout the sector.
Topics considered on the day included how the next round of regulatory cycles will put greater pressure on companies to deliver efficiencies, and the role that technology can play in changing supply chain relationships.
The group deliberated about the differences between collaborating and more formal alliances, including commercially aligned alliances, with some suggesting not all companies are ready for an alliance.
A key message from the afternoon was that it’s about finding the right fit for your business and assessing the specific need rather than taking a one-size-fits-all approach.
One attendee explained how their company had performed a benchmarking exercise to determine where it should sit on the partnership spectrum and concluded that collaboration worked best for them.
Others described how they had tested behaviours of potential alliancing partners and behaviours within their own organisation to ensure a cultural fit, with every partner working for the benefit of the alliance rather than for the benefit of individual companies.
A strong focus of the discussion centred on one of the biggest reforms looming on the horizon for the water sector – the introduction of direct procurement as part of the PR19 framework. It will see water companies put the delivery, financing and possibly the operation of major capital projects out to tender.
Participants said they have been working to establish what challenges and opportunities this could present for the sector. They suggested that Ofwat had taken inspiration from the energy sector but they thought that direct procurement for the water industry would be set up “very differently”.
The notion of utility companies becoming “intelligent” and “informed” clients by appropriately using the supply chain and making use of technological advances also made for an interesting discussion.
The group argued that while technology has created a wealth of data, it’s what you do with the data that is most important.
“The customer doesn’t care what the supply chain looks like. We should be sharing data as appropriately as possible to ensure the customer doesn’t suffer,” said one.
Towards the end of the day the water companies around the table discussed what direct procurement is likely to mean for them, agreeing that its impact would be profound
“It comes back to us having to take a cold, hard look at what we are actually here for. Are we an asset management company or are we a provider? What are we here for?” questioned one.
Views from the speakers:
Zac Coley, head of procurement and business services, Bristol Water
“One major water company said the reason they moved away from an alliance model to a more collaborative or intelligent client model was because ‘under the alliance we knew how much the weekly shop would cost us but we couldn’t tell you how much a tin of beans was’.”
Karen Thompson, head of direct procurement, Anglian Water
“There is a real desire to bring the supply chain closer so that we can stop the behaviour that happens when we flex our muscles.”
Andy Clark, head of procurement and contract management, Yorkshire Water
“If you don’t have joint commercial incentivisation you tend to get less sharing of services across the contracts… Alliances can be good for sharing it all together and for stripping out the layers.”
Chris Lane, head of strategic category management, United Utilities
“You should look at the most appropriate way of buying anything… You wouldn’t alliance for pencils, would you? It very much depends on the needs themselves.”
Karen Beardsley, managing director, supply chain solutions, Unipart Rail
“Do the alliancing models work within your organisation? Are they being driven by the operational teams feeling they do not have the skillsets to deliver that work internally within the business and you need experts externally, so a group is created for that? Or is it driven by the procurement teams, thinking it’s the right approach for managing the supply chain?”
Roger Waring, head of operational procurement, UK Power Networks
“At the moment, the partners tend to fulfil roles within the project they are assigned. We should be looking for the best organisation for the job across the full life cycle of the project.”
Claire Walters, chief commercial officer, Unipart Logistics
“If I analyse, over the years, who has got the most out of us as suppliers, it’s generally been where we’ve been able to build up trust, shared outcomes and shared ownerships.”
Key themes:
1. Regulatory cycles. The next regulatory cycles (RIIO2, AMP7) will put pressure on companies to deliver more efficiencies.
2. Direct procurement. This is one of the biggest reforms looming for the water sector as part of PR19.
3. Strategic partnerships. Utility companies should look at partnerships which work for them such as alliances or collaboration.
4. Innovation and technology. Technological advances have created a wealth of data, which should be used to make decisions.
5. Value for customers. The ultimate aim of the energy and water sectors is to deliver value for customers.