Download - Results of water industry survey
Results of water industry survey
Assessing the potential for improvement in asset management and procurement in the UK water industry
Cap Gemini Ernst & Young
September 2003
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Contents
Asset management and procurement best practice 3
Water industry survey findings 8
So what are the implications?14
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Asset Management and Procurement Best Practice
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Our opening hypothesis . . .
In an industry where stewardship of assets and sustainability are so important . . .
. . . and as the water sector increasingly embraces new organisational models . . .
. . . so it becomes more important to integrate procurement across an ever more complex supply chain:
delivering the right balance of cost / risk / performance in asset management.
Understanding the gap between current performance and best practice will help deliver improvements across the supply chain:
we believe there are early start and long term opportunities here.
AssetOwnerAssetOwner
AssetManager
AssetManager
ServiceProviderServiceProvider
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We tested this hypothesis through a series of focus interviews with ten water companies awg
Dwr Cymru
Essex and Suffolk Water (Northumbrian)
Scottish Water
Severn Trent Water
South East Water
Southern Water
South West Water
Thames Water
Yorkshire Water
Scottish Water
South East Water
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The focus interviews evaluate performance across a number of asset management and procurement dimensions
Asset ManagementAsset Management
Organisation strategy
Business management and control
Investment planning and risk management
Investment delivery
Enabling technology and information management
Organisation strategy
Business management and control
Investment planning and risk management
Investment delivery
Enabling technology and information management
ProcurementProcurement
Strategy
People
Sourcing
Supplier management
Processes
Performance
Information Technology
Strategy
People
Sourcing
Supplier management
Processes
Performance
Information Technology
Over the years we have developed a view of best practice across each of these dimensions
Over the years we have developed a view of best practice across each of these dimensions
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The five core dimensions within the asset management continuum
Business ManagementBusiness Management& Control& Control
Business ManagementBusiness Management& Control& Control
Are reporting and control structures in place, which help drive high performance through
the business?
Are reporting and control structures in place, which help drive high performance through
the business?
Enabling Technology & Enabling Technology & Information ManagementInformation ManagementEnabling Technology & Enabling Technology &
Information ManagementInformation Management
Does our technology infrastructure and data
management approach enable best practice asset
management?
Does our technology infrastructure and data
management approach enable best practice asset
management?
Organisation StrategyOrganisation StrategyOrganisation StrategyOrganisation Strategy
Are the strategic asset management objectives clearly defined and articulated in terms
of business values?
Are the strategic asset management objectives clearly defined and articulated in terms
of business values?
Investment PlanningInvestment Planning& Risk Management& Risk ManagementInvestment PlanningInvestment Planning& Risk Management& Risk Management
Are capital and operating expenditure plans based on risk
analysis to create optimal decisions?
Are capital and operating expenditure plans based on risk
analysis to create optimal decisions?
Investment DeliveryInvestment DeliveryInvestment DeliveryInvestment Delivery
Is investment effectively allocated to and managed with
both internal and external service providers?
Is investment effectively allocated to and managed with
both internal and external service providers?
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Best PracticeBest PracticeImmatureImmature MaturingMaturingAsset Management Asset Management SummarySummary
Asset Management Asset Management SummarySummary
Organisation Organisation StrategyStrategyOrganisation Organisation StrategyStrategy
Business Business Management & Management & ControlControl
Business Business Management & Management & ControlControl
Investment Investment Planning & Risk Planning & Risk ManagementManagement
Investment Investment Planning & Risk Planning & Risk ManagementManagement
Investment DeliveryInvestment DeliveryInvestment DeliveryInvestment Delivery
Enabling Enabling Technology & Technology & Information Information ManagementManagement
Enabling Enabling Technology & Technology & Information Information ManagementManagement
In total there are 49 specific capabilities across these 5 dimensions which combine to give a “benchmark”
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We use a similar “benchmarking” approach across the seven procurement dimensions
PerformancePerformance
ProcessesProcesses
Strategy Strategy
Supplier RelationshipManagement
Supplier RelationshipManagement
SourcingSourcing
InformationTechnologyInformationTechnology PeoplePeople
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Survey Findings
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Our findings showed that the UK water industry, collectively, is in the upper quartile of asset managers - but there is a wide spread between “best” and “worst”
0
10
20
30
40
50
60
70
80
90
100
Organisational Strategy
InformationTechnology
Business Management and
Control
InvestmentReview
Investment
Delivery
BestWorst
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We asked about the asset management opportunity areas . . .
Drive out duplication of
effort and processes
Drive out duplication of
effort and processes
Could we have more transparency of the order
book between Asset Managers and Service
Providers
Could we have more transparency of the order
book between Asset Managers and Service
Providers
If we collaborated more between asset mangers
and service providers we could generate new ideas
for going forward
If we collaborated more between asset mangers
and service providers we could generate new ideas
for going forward
I wish I knew what great partnering
looked like
I wish I knew what great partnering
looked like
Getting the balance right
between Capex and Opex
Getting the balance right
between Capex and Opex
Whole life cycle costing ? on asset
that have a life cycle of 100 years +
Whole life cycle costing ? on asset
that have a life cycle of 100 years +
Better recording of costs and
maintenance
Better recording of costs and
maintenance
Lots of risk analysis on Capex - what about
Opex?
Lots of risk analysis on Capex - what about
Opex?
Our service providers are
using our model to work with their
other clients
Our service providers are
using our model to work with their
other clients
I wish I understood what the balance of cost / risk /
performance was
I wish I understood what the balance of cost / risk /
performance was
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The performance in procurement was not so good, and there was a wider disparity between “best” and “worst”
BestWorst
0
10
20
30
40
50
60
70
80
90
100
Strategy
People
Sourcing
Supplier Management Processes
Performance
Information Technology
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Similarly, we asked about the procurement opportunity areas . . .
New legislative requirements coming
from the EC
New legislative requirements coming
from the EC
New Environmental requirements coming
into play
New Environmental requirements coming
into play
Improving the demand profiles by more timely
and accurate information
Improving the demand profiles by more timely
and accurate information
The supplier base is shrinking and giving
less competition
The supplier base is shrinking and giving
less competition
Trying to break out of our Parochial/ geographical
boundaries for suppliers
Trying to break out of our Parochial/ geographical
boundaries for suppliers
Can I get away from purchase cards
Can I get away from purchase cards
Technology won’t fix broken processes
Technology won’t fix broken processes
Glad we moved to a fully integrated system
Glad we moved to a fully integrated system
Increasing demand in development of new
technologies to realise service/ quality
Increasing demand in development of new
technologies to realise service/ quality
Can I get more information from
suppliers drilling down into the service
providers
Can I get more information from
suppliers drilling down into the service
providers
Expertise in people is more important than economies of scale
Expertise in people is more important than economies of scale
Service delivery were yesterday’s customer,
they’re tomorrow’s supplier
Service delivery were yesterday’s customer,
they’re tomorrow’s supplier
Supply chain is high on executive agenda, giving certainty around cost and
income
Supply chain is high on executive agenda, giving certainty around cost and
income
“Offshore” transforming the supply
chain
“Offshore” transforming the supply
chain
Correlation between how a company treats its employees and its
suppliers
Correlation between how a company treats its employees and its
suppliers
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Looking beyond the water sector, we find that industries can learn from each other in procurement
Examples of best practiceExamples of best practice
People and organisational capability:
Retailers and automotive invest heavily in developing the capability of their teams
Technology to enable efficient processes:
High tech companies view their supply chains as critical enables of customer services, value creation and competitive advantage
Life sciences deploying eSourcing tools in major way
Balanced set of procurement performance measures:
Life sciences deploy balanced score card approach to integrated measurement
Supplier relationship management:
High tech fosters strong relationships with suppliers recognising mutual dependency
People and organisational capability:
Retailers and automotive invest heavily in developing the capability of their teams
Technology to enable efficient processes:
High tech companies view their supply chains as critical enables of customer services, value creation and competitive advantage
Life sciences deploying eSourcing tools in major way
Balanced set of procurement performance measures:
Life sciences deploy balanced score card approach to integrated measurement
Supplier relationship management:
High tech fosters strong relationships with suppliers recognising mutual dependency
Common pitfallsCommon pitfalls
Technology:
Expectation that will fix all problems quickly
Lack of consideration of the people dimension when introducing new tools and techniques
Inability to enforce procurement processes:
Weak governance will not be resolved by eProcurement - management still need to take tough decisions on the demand side.
Performance measures driving wrong behaviours:
Wrong / too many KPIs and no integration across business
Inadequate management information to educate what’s going on and measure improvement
Poor supplier relationships
Emphasis on beating up suppliers – price focus
Not driving for win win outcomes
Macho behaviours encouraged & propagated
Technology:
Expectation that will fix all problems quickly
Lack of consideration of the people dimension when introducing new tools and techniques
Inability to enforce procurement processes:
Weak governance will not be resolved by eProcurement - management still need to take tough decisions on the demand side.
Performance measures driving wrong behaviours:
Wrong / too many KPIs and no integration across business
Inadequate management information to educate what’s going on and measure improvement
Poor supplier relationships
Emphasis on beating up suppliers – price focus
Not driving for win win outcomes
Macho behaviours encouraged & propagated
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So what are the implications?
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Implications for asset management and procurement
The data suggests the need for a more integrated approach to procurement across the asset management supply chain:
presenting both “early start” and longer term opportunities
While the water industry is upper quartile in asset management, there is still scope for improvement
In procurement, there is considerable discrepancy across the organisations surveyed, with considerable scope for improvement
Any improvement programme starts with an assessment of current performance against “best practice”:
understand current baselines and the “art of the possible”
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There are a number of key improvement opportunities in procurement
0
10
20
30
40
50
60
70
80
90
100
Strategy
People
Sourcing
Supplier Management Processes
Performance
Information Technology
Average
Align corporate, competitive and
operational strategies
Align corporate, competitive and
operational strategies
Capture data and convert to
information
Capture data and convert to
information
Balanced score card, with KPIs
encouraging the right behaviours
Balanced score card, with KPIs
encouraging the right behaviours
Integrated procurement processes across the
asset management value chain
Integrated procurement processes across the
asset management value chain
Match value add/criticality to partnership style
Match value add/criticality to partnership style
Invest in technical,
behavioural and “sectorial”
training
Invest in technical,
behavioural and “sectorial”
training
Simplify supplier networks – more value from fewer
suppliers
Simplify supplier networks – more value from fewer
suppliers
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We’ll address “implications” in more detail in the break outs, but we’d like to leave you with one key message
If highly competitive global industries, such as automotive, can work together on the procurement agenda, then surely so can the UK water industry?
If highly competitive global industries, such as automotive, can work together on the procurement agenda, then surely so can the UK water industry?
Competition Collaboration
Decide where to collaborate, and where to compete.