Water and Effluent Treatment Magazine
Issue link: https://fhpublishing.uberflip.com/i/503268
Can the supply chain deliver the totex dream? • The advent of totex investment decisions was intended to deliver a culture shift in procurement, as capital and operational investment. But will more innovative technologies receive more airtime, asks Keith Hayward. I n a growing culture of total expenditure procurement, better known as totex, the most progressive, efficient and innovative water companies ought to be those that capture the best technologies from the supply chain and combine them with effective through-life service and maintenance. The outcome should be better value for consumers. But what are the chances of this vision actually becoming a reality? Ofwat's new outcomes-based incentives and costing structures will eventually shi• investment to a totex model. It has to, if the regulator is to reap from those core objectives of 'cost to the consumer' and sustainability. To achieve the dream, procurement and innovation must be viewed as two sides of the same coin. However, our industry is still viewed as being well behind the curve in both So, it is high time we began to better exploit the symbiotic relationships between all stakeholders. This includes the contractors, manufacturers, the service and maintenance suppliers, as well as the water companies themselves. Supply chain The start of a new AMP period has traditionally been the 'tum- bleweed' time of the business cycle for the water industry sup- ply chain. There has been some exemplary best practice emerg- ing to counter the problem, with groundbreaking alliances and partnerships between water companies and main contrac- tors, such as Thames Water's eight2O alliance. Such initiatives, together with the work of the Cyclicality Working Group, promised an estimated £440M brought forward into AMP5 from AMP6. However, in the context of a typical £40bn-plus spend per AMP, even if the money was spent, it really is small change. Further down the supply chain, the equipment suppliers I meet are saying that if work is being brought forward, it has not trickled down to them. I hear of many projects being pushed back rather than pulled forward. Barriers to innovation The advent of totex investment decisions was intended to deliver a culture-shi• in procurement, as capital and operational investment was examined in the round. As a result more innovative technologies should also receive more 'airtime'. In reality, this is difficult to achieve within cur- rent structures and practices. Many suppliers I talk to have similar experiences; no less the water utility procurement teams we work with who are o•en equally frustrated by struc- tures and practices that are no longer fit for purpose. For example, one senior procurement executive in a UK utility was very supportive of including the Hydro Zickert Rotating Sludge Scraper onto a framework for sludge scrapers on circular settlement tanks. The problem was that the pre- qualification questionnaire for the framework called for half-bridge scrapers. Despite the fact that the product's advantages were well-received, as it was not a half-bridge we were knocked out of the process at pre-qualification. The absurdity of this unintentional block is that the product's main advantage is that it is bridgeless. By being bridgeless it achieves operating efficiencies that are better than bridge technologies. The procurement department advised me to go back to the technical team to discuss the rotating scraper with them. Descending into a supply chain rewrite of Catch 22, the message here was: "We can only look at it if it's already on a framework". Of course, it is not because it is a new product. An important part of the supply-chain challenge is how to introduce project evaluation, costing and contracting models that can deliver totex benefits. Even News+ The start of a new AMP has traditionally been the 'tumbleweed' time of the business cycle for the water industry supply chain MAY 2015 weT News 7 when the intention from a water company is to achieve through- life value, in reality contractors working to a water company budget usually have little choice than to award a project with the lowest capital cost. Consideration If an asset has higher upfront investment, but delivers better operating value over the whole of its life, it ticks the totex box. At the moment, such a product could still stand a high chance of being rejected. Capital invest- ment considerations should be able to take full account of the impact innovative equipment could have in terms of operating efficiency, energy usage, and lifetime service – and not just in terms of that piece of equipment itself – but of its impact on the whole works. A more efficient and effective procurement practice should also save the consumer money "It would be a tragedy for the whole industry if innovative suppliers saw a disincentive to invest in research and development in the water industry, especially where the aim is to deliver enhanced through-life performance" Keith Hayward by streamlining contractor and supplier overheads. Like many suppliers, our contract teams can be asked to repeat pre-qualification submissions several times to win a framework place – only to have to do more rounds with each contractor before winning an order. Even a•er the order is won, there can still be further amendments and re-pricing requests. Ultimate benefit It would be a tragedy for the whole industry if innovative suppliers saw a disincentive to invest in research and develop- ment in the water industry, especially where the aim is to deliver enhanced through-life performance. There is no question of that happening in Hydro at the moment, but it does take time and persuasion for companies like us to get new ideas and solutions accepted, as we redou- ble our efforts to find ways to overcome some of the barriers. The arguments about 'boom and bust' and cyclicality focused on visibility of upcoming work through the supply chain. Now that argument is won, we should be working together on true integration – all to the ultimate benefit of the consumer. Is it time for a cross-industry working review of procurement and innovation with an objective to save costs for the industry (and its consumers) and support the drive towards a lower carbon water industry? Ultimately, it would also encourage better technologies, save jobs and keep key skills within the industry. n Keith Hayward is sales and marketing manager, European Wastewater Division at Hydro International.