Results of water industry survey

Results of water industry survey

Assessing the potential for improvement in asset management and procurement in the UK water industry

Cap Gemini Ernst & Young

September 2003

© 2003 Cap Gemini Ernst & Young - All right reserved

Contents

Asset management and procurement best practice 3

Water industry survey findings 8

So what are the implications?14


Asset Management and Procurement Best Practice


Our opening hypothesis . . .

In an industry where stewardship of assets and sustainability are so important . . .

. . . and as the water sector increasingly embraces new organisational models . . .

. . . so it becomes more important to integrate procurement across an ever more complex supply chain:

delivering the right balance of cost / risk / performance in asset management.

Understanding the gap between current performance and best practice will help deliver improvements across the supply chain:

we believe there are early start and long term opportunities here.

AssetOwnerAssetOwner

AssetManager

AssetManager

ServiceProviderServiceProvider


We tested this hypothesis through a series of focus interviews with ten water companies awg

Dwr Cymru

Essex and Suffolk Water (Northumbrian)

Scottish Water

Severn Trent Water

South East Water

Southern Water

South West Water

Thames Water

Yorkshire Water

Scottish Water

South East Water


The focus interviews evaluate performance across a number of asset management and procurement dimensions

Asset ManagementAsset Management

Organisation strategy

Business management and control

Investment planning and risk management

Investment delivery

Enabling technology and information management

Organisation strategy

Business management and control

Investment planning and risk management

Investment delivery

Enabling technology and information management

ProcurementProcurement

Strategy

People

Sourcing

Supplier management

Processes

Performance

Information Technology

Strategy

People

Sourcing

Supplier management

Processes

Performance


Over the years we have developed a view of best practice across each of these dimensions

Over the years we have developed a view of best practice across each of these dimensions


The five core dimensions within the asset management continuum

Business ManagementBusiness Management& Control& Control

Business ManagementBusiness Management& Control& Control

Are reporting and control structures in place, which help drive high performance through

the business?

Are reporting and control structures in place, which help drive high performance through

the business?

Enabling Technology & Enabling Technology & Information ManagementInformation ManagementEnabling Technology & Enabling Technology &

Information ManagementInformation Management

Does our technology infrastructure and data

management approach enable best practice asset

management?

Does our technology infrastructure and data

management approach enable best practice asset

management?

Organisation StrategyOrganisation StrategyOrganisation StrategyOrganisation Strategy

Are the strategic asset management objectives clearly defined and articulated in terms

of business values?

Are the strategic asset management objectives clearly defined and articulated in terms

of business values?

Investment PlanningInvestment Planning& Risk Management& Risk ManagementInvestment PlanningInvestment Planning& Risk Management& Risk Management

Are capital and operating expenditure plans based on risk

analysis to create optimal decisions?

Are capital and operating expenditure plans based on risk

analysis to create optimal decisions?

Investment DeliveryInvestment DeliveryInvestment DeliveryInvestment Delivery

Is investment effectively allocated to and managed with

both internal and external service providers?

Is investment effectively allocated to and managed with

both internal and external service providers?


Best PracticeBest PracticeImmatureImmature MaturingMaturingAsset Management Asset Management SummarySummary

Asset Management Asset Management SummarySummary

Organisation Organisation StrategyStrategyOrganisation Organisation StrategyStrategy

Business Business Management & Management & ControlControl

Business Business Management & Management & ControlControl

Investment Investment Planning & Risk Planning & Risk ManagementManagement

Investment Investment Planning & Risk Planning & Risk ManagementManagement

Investment DeliveryInvestment DeliveryInvestment DeliveryInvestment Delivery

Enabling Enabling Technology & Technology & Information Information ManagementManagement

Enabling Enabling Technology & Technology & Information Information ManagementManagement

In total there are 49 specific capabilities across these 5 dimensions which combine to give a “benchmark”


We use a similar “benchmarking” approach across the seven procurement dimensions

PerformancePerformance

ProcessesProcesses

Strategy Strategy

Supplier RelationshipManagement

Supplier RelationshipManagement

SourcingSourcing

InformationTechnologyInformationTechnology PeoplePeople


Survey Findings


Our findings showed that the UK water industry, collectively, is in the upper quartile of asset managers - but there is a wide spread between “best” and “worst”

0

10

20

30

40

50

60

70

80

90

100

Organisational Strategy

InformationTechnology

Business Management and

Control

InvestmentReview

Investment

Delivery

BestWorst


We asked about the asset management opportunity areas . . .

Drive out duplication of

effort and processes

Drive out duplication of

effort and processes

Could we have more transparency of the order

book between Asset Managers and Service

Providers

Could we have more transparency of the order

book between Asset Managers and Service

Providers

If we collaborated more between asset mangers

and service providers we could generate new ideas

for going forward

If we collaborated more between asset mangers

and service providers we could generate new ideas

for going forward

I wish I knew what great partnering

looked like

I wish I knew what great partnering

looked like

Getting the balance right

between Capex and Opex

Getting the balance right

between Capex and Opex

Whole life cycle costing ? on asset

that have a life cycle of 100 years +

Whole life cycle costing ? on asset

that have a life cycle of 100 years +

Better recording of costs and

maintenance

Better recording of costs and

maintenance

Lots of risk analysis on Capex - what about

Opex?

Lots of risk analysis on Capex - what about

Opex?

Our service providers are

using our model to work with their

other clients

Our service providers are

using our model to work with their

other clients

I wish I understood what the balance of cost / risk /

performance was

I wish I understood what the balance of cost / risk /

performance was


The performance in procurement was not so good, and there was a wider disparity between “best” and “worst”

BestWorst

0

10

20

30

40

50

60

70

80

90

100

Strategy

People

Sourcing

Supplier Management Processes

Performance



Similarly, we asked about the procurement opportunity areas . . .

New legislative requirements coming

from the EC

New legislative requirements coming

from the EC

New Environmental requirements coming

into play

New Environmental requirements coming

into play

Improving the demand profiles by more timely

and accurate information

Improving the demand profiles by more timely

and accurate information

The supplier base is shrinking and giving

less competition

The supplier base is shrinking and giving

less competition

Trying to break out of our Parochial/ geographical

boundaries for suppliers

Trying to break out of our Parochial/ geographical

boundaries for suppliers

Can I get away from purchase cards

Can I get away from purchase cards

Technology won’t fix broken processes

Technology won’t fix broken processes

Glad we moved to a fully integrated system

Glad we moved to a fully integrated system

Increasing demand in development of new

technologies to realise service/ quality

Increasing demand in development of new

technologies to realise service/ quality

Can I get more information from

suppliers drilling down into the service

providers

Can I get more information from

suppliers drilling down into the service

providers

Expertise in people is more important than economies of scale

Expertise in people is more important than economies of scale

Service delivery were yesterday’s customer,

they’re tomorrow’s supplier

Service delivery were yesterday’s customer,

they’re tomorrow’s supplier

Supply chain is high on executive agenda, giving certainty around cost and

income

Supply chain is high on executive agenda, giving certainty around cost and

income

“Offshore” transforming the supply

chain

“Offshore” transforming the supply

chain

Correlation between how a company treats its employees and its

suppliers

Correlation between how a company treats its employees and its

suppliers


Looking beyond the water sector, we find that industries can learn from each other in procurement

Examples of best practiceExamples of best practice

People and organisational capability:

Retailers and automotive invest heavily in developing the capability of their teams

Technology to enable efficient processes:

High tech companies view their supply chains as critical enables of customer services, value creation and competitive advantage

Life sciences deploying eSourcing tools in major way

Balanced set of procurement performance measures:

Life sciences deploy balanced score card approach to integrated measurement

Supplier relationship management:

High tech fosters strong relationships with suppliers recognising mutual dependency

People and organisational capability:

Retailers and automotive invest heavily in developing the capability of their teams

Technology to enable efficient processes:

High tech companies view their supply chains as critical enables of customer services, value creation and competitive advantage

Life sciences deploying eSourcing tools in major way

Balanced set of procurement performance measures:

Life sciences deploy balanced score card approach to integrated measurement

Supplier relationship management:

High tech fosters strong relationships with suppliers recognising mutual dependency

Common pitfallsCommon pitfalls

Technology:

Expectation that will fix all problems quickly

Lack of consideration of the people dimension when introducing new tools and techniques

Inability to enforce procurement processes:

Weak governance will not be resolved by eProcurement - management still need to take tough decisions on the demand side.

Performance measures driving wrong behaviours:

Wrong / too many KPIs and no integration across business

Inadequate management information to educate what’s going on and measure improvement

Poor supplier relationships

Emphasis on beating up suppliers – price focus

Not driving for win win outcomes

Macho behaviours encouraged & propagated

Technology:

Expectation that will fix all problems quickly

Lack of consideration of the people dimension when introducing new tools and techniques

Inability to enforce procurement processes:

Weak governance will not be resolved by eProcurement - management still need to take tough decisions on the demand side.

Performance measures driving wrong behaviours:

Wrong / too many KPIs and no integration across business

Inadequate management information to educate what’s going on and measure improvement

Poor supplier relationships

Emphasis on beating up suppliers – price focus

Not driving for win win outcomes

Macho behaviours encouraged & propagated


So what are the implications?


Implications for asset management and procurement

The data suggests the need for a more integrated approach to procurement across the asset management supply chain:

presenting both “early start” and longer term opportunities

While the water industry is upper quartile in asset management, there is still scope for improvement

In procurement, there is considerable discrepancy across the organisations surveyed, with considerable scope for improvement

Any improvement programme starts with an assessment of current performance against “best practice”:

understand current baselines and the “art of the possible”


There are a number of key improvement opportunities in procurement

0

10

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80

90

100

Strategy

People

Sourcing

Supplier Management Processes

Performance


Average

Align corporate, competitive and

operational strategies

Align corporate, competitive and

operational strategies

Capture data and convert to

information

Capture data and convert to

information

Balanced score card, with KPIs

encouraging the right behaviours

Balanced score card, with KPIs

encouraging the right behaviours

Integrated procurement processes across the

asset management value chain

Integrated procurement processes across the

asset management value chain

Match value add/criticality to partnership style

Match value add/criticality to partnership style

Invest in technical,

behavioural and “sectorial”

training

Invest in technical,

behavioural and “sectorial”

training

Simplify supplier networks – more value from fewer

suppliers

Simplify supplier networks – more value from fewer

suppliers


We’ll address “implications” in more detail in the break outs, but we’d like to leave you with one key message

If highly competitive global industries, such as automotive, can work together on the procurement agenda, then surely so can the UK water industry?

If highly competitive global industries, such as automotive, can work together on the procurement agenda, then surely so can the UK water industry?

Competition Collaboration

Decide where to collaborate, and where to compete.

Results of water industry survey

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Transcript of Results of water industry survey