WET News

THE DISRUPTION: PROCUREMENT TECHNOLOGIES What's the deal: New procurement technologies promise to open up new horizons for process effi ciency and rela onship management with supply chain partners – or so vendors claim. The key advances in recent years which diff eren ate new procurement systems from old, relate to automa on which can strip cost out of core procurement processes as well as removing human error. And in a new round of technological progress, these system improvements will be overlaid with increasingly adept ar fi cial intelligence (AI) that can help u li es make be er procurement choices and monitor supplier performance. In U lity Week Live's disrup on survey around 58 per cent of u lity respondents said new procurement technologies are changing the way they interact with their supply chain, with the highest levels of disrup on reported from water (59.4 per cent) and energy networks (55.4 per cent). Why it ma ers: U li es are under pressure to push the envelope on effi ciency and innova on. Retailers need to cut out waste to relieve a ght squeeze on margins while regulated u li es must answer increasing demands for evidence they are improving the value for money that consumers get from their monopoly providers. Procurement is a key opportunity area for businesses seeking to respond to these pressures. It includes a range of business processes ripe for automa on – such as invoicing and genera ng contracts – as well as opportuni es to apply AI to the selec on of supply chain partners. In other industries, AI is already being used in this way, scanning disparate informa on about the past performance of viable fi rms for signs of strength and weakness which are relevant to a new contract, and shortlis ng the best companies for considera on by human decision makers. The cost of implemen ng such clever procurement technology is rela vely low thanks to many solu ons being cloud-based. For suppliers, these developments in procurement opportunity may be welcome on the one hand but disturbing on the other. Greater effi ciency in invoice processing ought to reduce late payments, for example. On the other hand, it's unclear how using machine learning in supplier selec on might impact the compe ve landscape for suppliers. w w w . u t i l i t y w e e k l i v e . c o . u k P R E S E N T S 22 WET NEWS MAY 2018 | wwtonline.co.uk Disrup on and the supply chain: the results and why they ma er Andy Clark, head of procurement and contract management, Yorkshire Water " The challenges faced by and expecta ons placed on supply chain management have never been greater. There are an increasing number of risks that challenge compliance and reputa on of businesses through new legisla on such as the Modern Slavery Act and GDPR. These areas alter the dynamic for procurement leaders away from seeking to protect the business through contract clauses and into proac ve management of risk and much greater visibility of the opera on of the supply chain. Coupled with this increased need for eff ec ve risk management is the ever increasing need for effi ciency seen through progressively challenging price determina ons, driven by real aff ordability issues for customers. Most organisa ons deliver a signifi cant propor on of their work through third party spend and as a result this effi ciency challenge falls to a great degree on supply chain managers. The levels of effi ciency required mean that innova on both in terms of solu ons delivered and contract models are required. Many organisa ons are looking at tradi onal risk alloca ng contract models and the high overhead that is typically associated and re-evalua ng whether more inter-dependant risk sharing models would represent be er value. Alliances are generally considered to be some of the most mature risk sharing models and a good fi t for delivering complex and high risk infrastructure. Alongside this drive for more sophis cated models is a reversion to more straigh orward contracts for simple works. This move towards a "Tier 2 model" has been increasingly prevalent in the electricity and gas sectors and is now becoming more common in water as the need to fi nd lower overhead delivery routes becomes more pressing. The drive for innova on also requires supply chain managers to consider whether the contract models and arrangements which are established create innova on-ogenic environments or whether they s fl e innova on. To promote innova on, suppliers need early access to risk development and a more embedded working process to gain the insight, data and strategic understanding to drive change. Clients are likely to have to take or at least share delivery risk for suppliers to be truly freed up to innovate and this challenges some of the risk-averse prac ces of u lity clients. A further area of innova on is to look at the types of coverage which contracts encompass. Innova on is less likely when suppliers are handled transac onally and contracted for only a small part of an overall process. The drive for effi ciency also challenges Key fi ndings ● The majority of u lity companies see technology changing procurement and that alliances can be eff ec ve ● 57.8 per cent feel technology is changing their businesses' approach to procurement ● 52 per cent feel alliances are the most eff ec ve and effi cient approach to the delivery of major capital programmes ● 45.4 per cent expect supply chain partners to have a much more ac ve role in infrastructure management and opera on in fi ve years' me, while water/network operators focus on data management ● 43.8 per cent said their businesses' supply chain arrangements allow it to be open to disrup ve innova on commercial func ons to be agile and responsive to the needs of the business. New technologies are enabling effi ciency in the delivery of procurement exercises and the contract management process. A key feature of this is access to be er data, whether that is consump on history to aid procurement or contract usage to aid eff ec ve KPI management by contract managers. Used eff ec vely this gives the opportunity for me and cost savings for both the procurer and bidder."

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