Issue link: https://fhpublishing.uberflip.com/i/976659
THE DISRUPTION: INNOVATION What's the deal? Innova on, innova on, innova on. Everywhere you look in the u li es sector, market par cipants old and new are professing their enthusiasm for innova on, for embracing the impact of global technology trends and their interac on with environmental and social shi s like climate change, popula on growth and devolu on of power to regions. Supply chain partners have a cri cal role to play in delivering the increasing levels of innova on u li es need to discover. But is innova on from the supply chain being encouraged and exploited to the full by mainstream u li es providers? Anecdotal evidence, backed up by U lity Week Live's industry research, suggests not. Just a fi h (20.3 per cent) of supply chain respondents to U lity Week Live's disrup on survey said the supply chain arrangements of their major u lity clients allow them to bring forward ground breaking new ideas. And this compares poorly to the innova on partnerships the same companies strike with owners of private u lity infrastructure. 67.6 per cent of supply chain respondents said they have more produc ve innova on rela onships with such networks. Why it ma ers: U li es of all stripes desperately need to sustain or increase their levels of innova on. Primarily this need is driven by efficiency and the ongoing requirement to deliver more for less, par cularly as regulators seek to cut costs for customers. But mul ple other drivers for innova on also exist, including existen al challenges like climate change, the changing nature of customer expecta ons, back office processes, technology delivery and asset maintenance func ons. Regulators have aligned behind these drivers, bringing forward new mechanisms and funds to try and accelerate innova on in their sectors. Their aim is to ensure innova on benefits for companies are shared with consumers. And recently regulators have given direct considera on to the ways in which they might incen vise be er innova on partnerships between third par es and u li es. Indeed, Ofgem is even considering ways to make network innova on funds directly accessible to supply chain partners with big ideas – arguably bigger ideas than their regulated counterparts dare to have. Disrup on: the results and why they ma er by 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 effec ve risk management is the ever increasing need for efficiency seen through progressively challenging price determina ons, driven by real affordability issues for customers. Most organisa ons deliver a significant propor on of their work through third party spend and as a result this efficiency challenge falls to a great degree on supply chain managers. The levels of efficiency 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 fit 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 find lower overhead delivery routes becomes more pressing. KEY FINDINGS l The majority of u lity companies see technology changing procurement and that alliances can be effec ve. l 57.8 per cent feel technology is changing their businesses' approach to procurement. l 52 per cent feel alliances are the most effec ve and efficient approach to the delivery of major capital programmes. l 45.4 per cent expect supply chain partners to have a much more ac ve role in infrastructure management and opera on in five years' me, while water/ network operators focus on data management. l 43.8 per cent said their businesses' supply chain arrangements allow it to be open to disrup ve innova on. P R E S E N T S NETWORK / 32 / MAY 2018