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UTILITY WEEK | 2ND - 8TH JUNE 2017 | 19 Operations & Assets Market view Procurement and alliances Alliances often comprise companies who are otherwise fierce competitors, so procurement needs to be thought through properly, says Ian Bolger. A s the alliance delivery model becomes more prevalent across the utility and wider infrastructure sector, some alliances are clearly struggling to make the required upgrade in procurement orientation from tactical (buying for individual projects) to strategic (optimising the supply base for the entire programme). This is not surpris- ing. Merging three or four companies that were – and still are – intense competitors to deliver a large and demanding infrastruc- ture programme inevitably raises significant challenges. Alliance challenges It is crucial that the alliance has a clear sup- ply chain strategy aligned to the overall alli- ance and client goals. It also needs to select a set of best practice supply chain processes, supported by effective systems and strate- gic sourcing tools – oen easier said than done. Most alliances end up blending parts of processes used by partner companies and rely on systems that produce little meaning- ful data. Many construction companies and, by default, alliances, have significant resource gaps in strategic sourcing and category management, largely due to lack of strategic alignment and ineffective processes, tools and systems. These issues are not exclusive to construction companies, but the impact is greater among alliances where teams from different companies fuse together rapidly to source large programmes of work under pressure from project delivery teams. High-performing teams Here are some of the key factors to con- sider when assessing procurement function effectiveness: • Are there clear strategic sourcing and cat- egory management processes in place? • Is the technology configured to produce high-quality data that focuses on demand forecasting? • How aligned is procurement with the rest of the organisation? • How much resource and activity is focused on strategic sourcing versus satisfy- ing short-term project needs? • Is supply scale and risk effectively man- aged across the entire programme portfolio? • Does the procurement team have the right organisational structure, skill sets and resources to identify and deliver sus- tained improvements? Skills capability can be addressed by best practice training programmes to support staff development, together with investment in new toolkits and the support of external procurement experts, where required, to address weaknesses in both hard and so procurement skills. The crucial role of forecasting Effective strategic sourcing and category management requires the alliance to adopt a standardised and disciplined approach to cost planning and estimating. The first step is to define a standardised work breakdown structure, whereby future projects and pro- grammes are classified by defined categories. The next step is to research and profile the relevant supply market to identify whether there is sufficient capability, capacity and interest from the right quality of suppliers to deliver the build programme. Scale can be leveraged across the programme portfolio where supply is plentiful, while risks can be mitigated through proactive supplier engage- ment and development strategies. Using this information, robust category strategies can be created to inform market activity and plan supplier interactions. Ian Bolger, vice president, Efficio PR19: Why you need unit cost visibility among your delivery partners. Understanding the cost of individual activities on a project is crucial if utility companies are to be able to compare mar- ket rates and get the best value for money from their delivery alliance partners. Limited unit cost visibility reduces the capacity to identify trends in project costs and obscures potential inefficiencies or overcharging. Full transparency through a detailed understanding of how suppli- ers are delivering individual activities and the associated cost drivers can increase productivity and drive innovation. Ofwat has made it clear water companies will face stronger incentives in PR19, as it seeks to improve cost efficiencies and increase innovation and better outcomes for customers. It is therefore more important than ever companies and partners work collaboratively. The first step is preparing a detailed bill of quantities. It is essential that com- panies itemise materials, parts, labour and their costs, along with the terms and conditions of the construction or repair contract, to induce alliance partners and sub-contractors to provide a detailed breakdown of the scope of work and related cost estimates. Once costs have been agreed the initial classification, visualisation and ongoing refresh of spend data should be closely managed to provide a single "golden" source of data that allows pro- jects to be tracked and managed. Consistent data capture enables more sophisticated data analysis, modelling and insights, driving efficiencies through- out the supply chain. The process of capturing actual costs for all key supply chain partners and mapping it to budgets should preferably be automated to occur in real-time – rather than as a snapshot at the end of the project. This supports data accuracy and allows discrepan- cies to be dealt with earlier than might normally be the case. Having gained an insight, it is crucial to run this into action. A cost manage- ment application that provides a central hub within a supply chain to operate, manage and analyse the commercial per- formance of contracts is invaluable. Not only does it enable delivery teams to pro- actively reduce outturn costs, but it also increases productivity and innovation by encouraging dialogue between compa- nies and partners. In short, it provides an effective way of sharing best practice. Key points Have a clear strategy. Use best practice training to address skills gaps. Accurate demand forecasting has a crucial role to play.