Utility Week

Utility Week 10 07 15

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20 | 10TH - 16TH JULY 2015 | UTILITY WEEK Operations & Assets Market view A MP6 sets a number of key challenges for the water sector. As well as the constant requirement for greater effi- ciency, there is an increased focus on "out- comes" – linking investment to customer service improvements. With it, there is a move to a greater consideration of whole- life costs – balancing upfront capital invest- ment costs with ongoing maintenance and operating expenditure. This totex approach mandates a greater understanding of con- struction costs, increased transparency, and improved collaboration across the extended supply chain. Experience shows that real efficiencies are achieved by working closely with a few high-calibre tier 1 delivery partners in a framework that includes earlier engagement in programme design and delivery based on overall outcomes. However, it is crucial that the client organisation achieves complete transpar- ency in the way target costs are constructed and that this visibility is maintained throughout the project delivery. As procure- ment specialists, we oen see that clients do not have sufficient understanding of the cost base and they enter into long-term strategic relationships without the processes and sys- tems established to really drive this transpar- ency of cost and effective management of the extended supply chain. There are three main questions every util- ity company needs to ask before it signs its next contract: 1. How can we achieve cost transparency and early warning of issues and adverse trends? 2. How can we get better visibility of risk and opportunity in the 2nd and 3rd tier supply chain? 3. How can we better leverage our combined spend through better demand planning and procurement? Typically, over 50 per cent of construction costs are spent in the extended supply chain, so it is crucial to project success and value for money that all organisations in that sup- ply chain work to achieve improved visibility of demand. Oen, a single client will be at the heart of a complex network of interlinking supply chains that overlap at multiple points. To succeed, everyone must work collaboratively to share information in a structured man- ner. Without creating a shared language and process around supply chain planning and procurement, the eventual procurement and delivery of goods and services is oen sub- optimal. Worse still, in cases of constrained supply this can lead to price inflation and resource conflicts. level demand plans. These can help identify opportunities for collaboration in the pro- curement of goods and services, and also help ensure the sustainable development of the extended supply base. One example of this – from the rail sec- tor although completely applicable to utili- ties – is OnTrack. This system collects rates, budget, forecast and actual cost data on a project basis from the tier 1 suppliers against a common work breakdown structure. Both the client (Network Rail in this case) and supply chain use the system collaboratively to proactively monitor all key project met- rics on a project and programme portfolio level, enabling early identification of adverse trends and much earlier intervention to iden- tify and fix issues. The major benefits of a system like this are that all parties can also get a picture of future demand, allowing the supply chain to identify risks and efficiency opportunities in the 2nd and 3rd tier supply market. Further- more, integration with existing supplier and client systems means existing IT architecture rework and data inconsistencies are avoided. In practice, a system of this nature can become the focal point of commercial man- agement – one source of the truth for the organisation and supply chain. This not only enables better management of cost and per- formance, it also promotes the transfer of best practice. Common project types can be compared using standardised cost structures to identify best practice, which in turn can be used to improve performance as required. In the end, though, no piece of tech- nology – however innovative – is the sole answer. The human factors of culture change and commitment to collaboration are just as essential in unlocking the vast savings possible from a transparent supply chain. AMP6 just provides the impetus to make it happen now. Let's face it, clean, transparent water has been synonymous with clear, well- structured operations for centuries. Why not extend the metaphor to the rest of the water supply chain too? James Jenkinson, vice president and Ian Bolger, principal, Efficio Consulting Collaborate to cut costs James Jenkinson and Ian Bolger unpick water sector construction cost management and say it's time for a better understanding of the cost base and supply chain, based on collaboration. "Without creating a shared language and process around supply chain planning and procure- ment, the eventual procurement and delivery of goods and services is often sub-optimal" To enable collaboration and achieve the degree of transparency required, utility com- panies need an effective set of common pro- cesses and systems to help them bridge the different operating processes and systems used by multiple delivery contractors. This better planning and visibility of forecast demand can then be quickly trans- lated through supply chain planning into strategic procurement that leverages scale, encourages investment and innovation, and provides improved sustainability and reduced risk in the extended supply chain. At Efficio we have implemented a pro- cess of demand planning and real col- laboration for several major infrastructure clients, where construction delivery part- ners work together in a supply chain hub – planning their strategic procurement of goods and materials in a standardised for- mat, and aggregating the individual project demand plan into long-term programme

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