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

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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

© 20
03
Cap Gemini Ernst & Young
-

All right reserved

Page
2

Contents


Asset management and procurement best practice

3



Water industry survey findings


8



So what are the implications?


14


© 20
03
Cap Gemini Ernst & Young
-

All right reserved

Page
3

Asset Management and
Procurement

Best Practice

© 20
03
Cap Gemini Ernst & Young
-

All right reserved

Page
4

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.

Asset

Owner

Asset

Manager

Service

Provider

© 20
03
Cap Gemini Ernst & Young
-

All right reserved

Page
5

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

© 20
03
Cap Gemini Ernst & Young
-

All right reserved

Page
6

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

Asset Management


Organisation strategy


Business management and control


Investment planning and risk
management


Investment delivery


Enabling technology and information
management

Procurement


Strategy


People


Sourcing


Supplier management


Processes


Performance


Information Technology

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

© 20
03
Cap Gemini Ernst & Young
-

All right reserved

Page
7

The five core dimensions within the asset management
continuum

Business Management

& Control

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

Enabling Technology &
Information Management

Does our technology
infrastructure and data
management approach enable
best practice asset
management?

Organisation Strategy

Are the strategic asset
management objectives clearly
defined and articulated in terms
of business values?

Investment Planning

& Risk Management

Are capital and operating
expenditure plans based on risk
analysis to create optimal
decisions?

Investment Delivery

Is investment effectively
allocated to and managed with
both internal and external
service providers?

© 20
03
Cap Gemini Ernst & Young
-

All right reserved

Page
8

Best Practice

Immature

Maturing

Asset Management
Summary

Organisation
Strategy

Business
Management &
Control

Investment
Planning & Risk
Management

Investment Delivery

Enabling
Technology &
Information
Management

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

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03
Cap Gemini Ernst & Young
-

All right reserved

Page
9

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

Performance

Processes

Strategy


Supplier

Relationship

Management

Sourcing

Information

Technology

People

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03
Cap Gemini Ernst & Young
-

All right reserved

Page
10

Survey Findings

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Cap Gemini Ernst & Young
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11

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

Information

Technology

Business
Management and
Control

Investment

Review

Investment


Delivery

Best

Worst

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03
Cap Gemini Ernst & Young
-

All right reserved

Page
12

We asked about the asset management opportunity
areas . . .

Drive out
duplication of
effort and
processes

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

I wish I knew what
great partnering
looked like

Getting the balance
right between
Capex and Opex

Whole life cycle
costing ? on asset
that have a life cycle
of 100 years +

Better recording of
costs and
maintenance

Lots of risk analysis on
Capex
-

what about
Opex?

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

© 20
03
Cap Gemini Ernst & Young
-

All right reserved

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13

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

Best

Worst

0

10

20

30

40

50

60

70

80

90

100

Strategy

People

Sourcing

Supplier

Management

Processes

Performance

Information


Technology

© 20
03
Cap Gemini Ernst & Young
-

All right reserved

Page
14

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

New legislative
requirements coming
from the EC

New Environmental
requirements coming
into play

Improving the demand
profiles by more timely
and accurate information

The supplier base is
shrinking and giving less
competition

Trying to break out of
our Parochial/
geographical boundaries
for suppliers

Can I get away from
purchase cards

Technology won’t fix
broken processes

Glad we moved to a fully
integrated system

Increasing demand in
development of new
technologies to realise service/
quality

Can I get more
information from
suppliers drilling down
into the service
providers

Expertise in people is
more important than
economies of scale

Service delivery were
yesterday’s customer,
they’re tomorrow’s
supplier

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

“Offshore” transforming
the supply chain

Correlation between how
a company treats its
employees and its
suppliers

© 20
03
Cap Gemini Ernst & Young
-

All right reserved

Page
15

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

Examples 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

Common 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

© 20
03
Cap Gemini Ernst & Young
-

All right reserved

Page
16

So what are the
implications?

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03
Cap Gemini Ernst & Young
-

All right reserved

Page
17

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”

© 20
03
Cap Gemini Ernst & Young
-

All right reserved

Page
18

There are a number of key improvement opportunities
in procurement

0

10

20

30

40

50

60

70

80

90

100

Strategy

People

Sourcing

Supplier

Management

Processes

Performance

Information


Technology

Average

Align corporate,
competitive and
operational
strategies

Capture data
and convert to
information

Balanced score
card, with KPIs
encouraging the
right behaviours

Integrated procurement
processes across the
asset management value
chain

Match value
add/criticality to
partnership style

Invest in
technical,
behavioural
and “sectorial”
training

Simplify supplier
networks


more
value from fewer
suppliers

© 20
03
Cap Gemini Ernst & Young
-

All right reserved

Page
19

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?

Competition

Collaboration

Decide where to collaborate, and where to compete.