Energy & Utilities

Yorkshire Water is a major UK water supply and treatment utility company. Servicing more than five million households and 140,000 businesses is a challenge enough as is – but, as with many industries, deteriorating weather conditions have been threatening to hit the water services industry hard. 

The very visible effects of climate change have highlighted how resilience is key to allowing Yorkshire Water to continue to provide, remove, and recycle water to a growing population at an affordable price. Committed to taking a holistic, rather than purely financial approach to “value”, Yorkshire Water has adopted the “six capitals” approach, which covers financial, manufactured, intellectual, human, social, and natural capital. This approach has become the foundation of Yorkshire Water’s sustainability strategy. According to Yorkshire Water's CFO, Chris Johns: “These six lenses ensure businesses look beyond the financial ROI and do not dismiss a scheme when it does not pay back financially if it contributes to the long-term environmental improvement of an area. That concept goes to the heart of ESG.” 

At Yorkshire Water, the commercial team has been central to delivering the business’s sustainability strategy. The team has been driving the sustainable procurement transformation by introducing a vision of “total value” with a clear ESG lens on top of the pre-existing commercial and operational focuses. 

Aims 

Top-level sustainability policies existed in the wider business, but a more detailed structure was required to outline how the sourcing process would take sustainability into account. The goal of Yorkshire Water’s sustainable procurement transformation was to: 

• Set targets in line with the wider business’s strategy and ensure their delivery 
• Create a clear methodology for incorporating sustainability considerations into sourcing activities 
• Make Yorkshire Water a leader in sustainable supply chain practices 

These aims were created with the intention of building sustainability considerations into BAU activities and demonstrating how non-financial value can be delivered alongside cost reduction.

Results 

With help from Efficio, Yorkshire Water transformed all aspects of their procurement processes – from supplier selection to KPI development – giving tangible and actionable shape to its sustainability strategy. The work done so far means that Yorkshire Water expects to save 1,500 tonnes of CO2 each year, with potential for further future growth. Among the range of plans developed to improve sustainability, Efficio has supported on: 

• Solar Energy framework, which has led to significant CO2 emission reduction and an increased energy output of more than 5.5 GWh per year 
• Chemicals initiatives designed to optimize chemical usage and comply with WINEP regulation, ultimately reducing usage volumes by up to 60% 
• Fleet improvement plan, focused around telematics data loggers, which has led to 800 diesel to electric van replacements plus a 10% cost saving 

Approach     

At the beginning of the sustainable procurement transformation process, numerous aspects of sustainability – from modern slavery to biodiversity – were taken into consideration. Three sustainability themes were ultimately selected as key focus areas for the commercial team: carbon & GHG emissions, local economic impacts, and environmental health & pollution. These themes were then crystalized into five tangible improvement methods: 

Governance & Accountability 

Sustainable procurement policies were documented to make sure both suppliers and the sourcing team were aware of expectations. Internally, the RASCI (Responsible, Accountable, Supportive, Consulted, Informed) matrix was updated to clarify roles and responsibilities in sustainability-related activities. In addition to the commercial team, the sustainability team were also engaged at key stages in the sourcing process to secure appropriate technical scrutiny. 

KPIs & Measures 

Yorkshire Water created internal KPIs to monitor its supply base performance in key target areas such as spend with SMEs and local businesses or spend with suppliers committed to net zero. Crucial to this process was gathering data from the incumbent supply base and to define the baseline level of sustainability and setting up data capture methods that would enable the sourcing team to demonstrate the impacts of their initiatives. 

Supplier Relationship Management (SRM) 

Meetings with incumbent suppliers were restructured to have a greater focus on sustainability reporting and joint undertakings to improve performance. 

Tendering 

A minimum 10% sustainability weighting was defined for all tenders above the UCR financial threshold, with flexibility for this weighting to be shifted between the three core sustainability focuses – Carbon & GHG emissions, Local Economic Impacts, and Environmental Health & Pollution – to reflect the varying priorities of different categories. Yorkshire Water updated its question sets for both invitations to tender (ITTs) and supplier selection to include the new sustainability agenda. 

Training 

Training was delivered to the strategic sourcing team to embed the newly adopted sustainability considerations into category strategies and measuring non-financial successes. 

Challenges and solutions 

With no existing policy guidance, the commercial team struggled to balance different stakeholders’ priorities. To resolve this, stakeholders from both the sustainability and procurement teams, plus the wider commercial services functions, were engaged to understand the key considerations for each part of the business. The findings of this exercise were crystallized into an internal- and external-facing policy that balanced these varying priorities. Discussing procurement’s move towards obtaining more sustainability-focused results, CFO Chris Johns says: “There has been a fundamental mindset shift. It is important for the procurement function to really understand the pressures and challenges that the operational team faces for it to optimize both the commercial, operational, and sustainability outcomes”. 

Lastly, but perhaps most significantly, Yorkshire Water needs a way to ensure the newly introduced commitments are adhered to. At the time of writing, the joint Yorkshire Water-Efficio team is working to define standardized contractual mechanisms to allow for monitoring in periodic reviews, with a set methodology for data collection and presentation ironed out. This will ensure commitments set out by suppliers are tracked and fulfilled throughout the contract delivery phase. 

For Yorkshire Water, its sustainable procurement transformation has been far from a mere box-ticking exercise. The business’s commitment to truly giving sustainability a weighting in its understanding of “value” has meant it has unsurprisingly encountered some challenges – but, in partnership with Efficio, it has laid a strong and long-lasting foundation to continue providing affordable and reliable water supply and treatment services to its vast customer base.  

We’re here to help 

If you would like support for your sustainable procurement and supply chain program – from roadmap development, target setting, and putting in place actionable improvement plans – please visit our Sustainability Improvement service page.

Developing Local Content is a core focus for the Kingdom of Saudi Arabia (KSA) and, as one of the largest businesses in the country, our petrochemicals client had a critical role in driving the nation’s localization efforts.

Efficio was selected to help the business align its Local Content program with national standards, establish a Local Content baseline and develop 2030 targets, identify key Local Content growth areas in the supply chain, embed Local Content into procurement processes, and develop process frameworks to enable the attraction of foreign investment and development of existing local suppliers.

Background 

The Kingdom’s Vision 2030 program aims to reduce the country’s dependence on oil revenues and diversify the Saudi economy.

As part of Vision 2030, our client was tasked with developing Local Content as the “National Champion” in the Petrochemicals sector, which involved boosting its procurement spend with local manufacturers and service providers, increasing its Saudi workforce (“Saudization”), and growing the capacity and capability of the local workforce and suppliers.

To succeed, the company needed to lay a strong foundation for its Local Content program.

Results

With Efficio’s support, the business has built a world-class, integrated platform to achieve its Local Content goals:

• A Local Content baseline across the business and detailed annual targets until 2030
• Detailed profiles of localization opportunities across the end-to-end value chain of key spend categories
• A clearly defined Local Content operating model in which Local Content is embedded into the company’s entire procurement lifecycle
• An interactive, digital and automated Local Content measurement and reporting system to track progress against targets
• Process frameworks for investor identification and outreach, and evaluation of the localization and socio-economic benefits of various investment opportunities
• A comprehensive supplier development program to help address identified capability gaps in the current supply chain, with a special focus on small- and medium-sized enterprises
• A world-class Strategic Partnership program, establishing long-term alliances with international OEMs to drive Local Content growth in critical supply areas

An implementation program has subsequently been rolled out to support the embedding and implementation of the Local Content program, with extensive training provided through the Efficio Academy, and multi-year collaboration to drive Local Content growth through implementation of the initiatives. 

This Local Content growth enabled the business to create procurement value that extended beyond cost, through reduced lead times, decreased working capital, and improved environmental sustainability through the use of local supply chains, and it increased social value through local job creation. 

Approach 

The first step of the process was to analyze the spend data to establish a detailed Local Content baseline.

The next step was to identify opportunities to increase Local Content. Efficio consultants analyzed spend categories to identify “localization value pools”. This included reviewing current and future demand and identifying core supply market characteristics, including potential local and international suppliers.

Using the baseline and identified opportunities, annual localization targets were set up to 2030.

We then developed detailed procedures, where Local Content was embedded into each step of the company’s procurement process – from tendering through bid evaluation to contract management – as well as the wider supplier development and investor enablement frameworks. Training was developed to help buyers and other stakeholders understand and implement the new processes. With Local Content processes established, we then developed an interactive, digital online Local Content Reporting System to measure progress against targets.

With the infrastructure for localization established, Efficio then supported the company in the implementation of Local Content across key contracts, the delivery of a local supplier development program, the identification and attraction of international investors, and the delivery of a Strategic Supplier Alliance program targeting localization, cost reduction, manufacturing excellence, and knowledge transfer opportunities with key global OEMs.

Challenges

• Establishing a baseline for Local Content and defining realistic growth targets 
• Identifying the localization focus areas with the highest impact
• Implementing the automated tracking and reporting on the localization progress
• Identifying the right local suppliers with the quality and capacity to meet requirements
• Overcoming resistance from the business to new processes and new suppliers
• Growing Local Content while protecting bottom line costs and service and quality levels

Efficio’s Local Content expertise

Efficio has a holistic Local Content & ESG development service offering, covering the baselining of Local content and identification of opportunities and targets, development and execution of world-class Local Content operating models and localization procedures. This is supported by our digital systems and Efficio Academy offering to manage Local Content performance and sustain benefits. Our projects are delivered through Local Content & ESG subject matter experts and enabled through our dedicated Local Content & ESG Center of Excellence. Efficio has extensive experience working with both private and public sector organizations on Local Content and ESG development and execution. Localization of supply chains is also one of our key levers to improve our clients’ environmental footprint as part of their sustainability development efforts. 

We’re here to help

If you would like to explore ways we can help you to achieve your Local Content and In Country Value program goals, please contact us by filling out the form on our Local Content and ICV service page.
 

The generator business initially approached Efficio to better understand why the relocation of its UK manufacturing facility to South Eastern Europe didn’t yield the expected savings. However, a more fundamental review discovered other aspects of its procurement program that needed a remodel.

A thorough assessment of the client’s existing procurement and supply chain operations – including manufacturing strategy, demand planning and internal roles and responsibilities – resulted in a redesign of the procurement program, with a greater emphasis on long-term relationships with strategic suppliers. Efficio introduced new suppliers from a proven and well-established supply base in China and worked with the client to design and implement a multi-phased sourcing program.
 

Background

The company builds generators for the global power market. It provides a range of active and passive power solutions from small-scale equipment, such as generators for night-time motorway maintenance, to large-scale hospital or data center backup supply.

The client manufactures its products from facilities in the UK, South Eastern Europe, India, and China. In 2018, it moved a significant part of its UK manufacturing operations to the European location, driven by the prospect of operating out of a more modern manufacturing facility with lower operational costs. While the move did reduce costs in some areas, the savings were not as substantial as had been expected. The company’s CEO was aware that a continued reliance on the legacy UK supply chain – which had been initially required to ensure a seamless transition – was a detriment to a more cost-effective sourcing strategy.

The company turned to Efficio for guidance to optimize costs for the new European operation, and it soon became apparent that reviewing the entire supply chain established across all the company’s operations would deliver significant results. There were a number of issues to initially resolve before proceeding with the project.

Data consolidation from multiple ERP systems in various countries was required, but the different manufacturing operations were not accustomed to working in concert to achieve economies of scale. Many existing supplier relationships were both long-standing and uncompetitive because the client did not routinely run competitive tenders in the sourcing process.

In addition, the client was carrying a large amount of unrequired inventory – worth up to $30 million in the European location alone – due to the lack of an effective material forecasting system.

Approach

Efficio developed a two-phased approach to deliver bottom-line cost savings for the 2020 calendar year.

The first phase established a focused sourcing program to target key direct material spend categories, with the intention of securing cost reductions. This was followed by a second phase to target longer-term opportunities that could deliver additional efficiencies through implementing more effective supplier relationships.

The multi-phased sourcing program sought to introduce new suppliers from a proven and well-established supply base in China, which led to immediate and significant savings. Concurrently, Efficio conducted a full review of the organization’s supply chain and procurement processes, including manufacturing strategy, demand planning, and internal roles and responsibilities. This led to a fundamental redesign of the procurement program, particularly the development of a strategy to foster long-term strategic relationships with the new Chinese supply base.

Efficio also recommended fully outsourcing manufacturing requirements for a lower-end market segment so that the client could better compete with competitors, while remaining profitable in that segment.

Results

Working together with the client, Efficio was able to identify and successfully implement 5% savings in addressable third-party spend, doubling EBITDA and exceeding client expectations.

Additionally, the client’s new commercial arrangements became contractually protected, with over 80% of its external spend underpinned by multi-year agreements with suppliers, providing certainty around its core spend categories. Following the wider review of the firm’s supply chain and procurement arrangements, the process of implementing a new strategic procurement function is now underway.

In time, this will enable the global supply base to be managed on behalf of all manufacturing operations as a central function, creating further opportunities to leverage the company’s buying power.

The new procurement function is now in a much stronger internal position and is recognized as a true business partner. The value derived by procurement is tracked and reported on by finance, demonstrating the tangible benefit it makes to the bottom line in a way that can be scrutinized and verified by the wider business.

Richard Stonehewer, Senior Manager at Efficio, leads the procurement team at Essar’s Stanlow Oil Refinery. He talks to Howard Sloane, Chief People Officer at Essar Oil (UK), about the major procurement transformation project currently underway and procurement’s role in helping to make Stanlow fit for the future.

Catch a flight from Manchester Airport, a train from Liverpool Lime Street station, fill up your car in the Lake District or anywhere else in north-west England, and it’s likely the fuel will have come from Essar’s Stanlow Refinery.

To the south of the Mersey Estuary near Liverpool, the former Shell refinery – one of the largest in the UK – produces 16% of the UK’s road transport fuels, including 3 billion liters of petrol, 4.4 billion liters of diesel and 2 billion liters of jet fuel every year. It has also rapidly developed its own retail estate, with 45 outlets in the UK already and plans to open 400 more over the next five years.

Shell sold the refinery to Essar Oil (UK) in August 2011, just before the 2012 and 2013 downturn in the global oil and gas market. Since then, Essar Group has invested significant capital to increase refining capability and boost output.

Transition

At the point of purchase, Stanlow was judged by Solomon Associates (which benchmarks energy companies around the world) to be among the least efficient plants in the world. Despite the significant sums invested by the new owners, management had yet to embed the deep changes to culture, motivation and core processes required to enhance operational performance and generate an acceptable return on investment. As Howard Sloane, Chief People Officer at Essar Oil (UK), says: “By 2017, it was clear that a more fundamental change program was necessary to deliver the required returns and justify further investment.”

Against this background, and with the arrival in March 2017 of new CEO and Director S. Thangapandian, Stanlow 2.0 emerged – an organizational-wide transformation program to make the plant more competitive, efficient and fit for purpose. Sloane was initially recruited to shape the change program and to then lead the significant HR aspects as Chief People Officer from 2017. “We weren’t efficient – it took us too long to do what we needed to do and labor, third-party contractor and overhead costs were too high, creating unsustainable pressure on our cost base,” he says.

“In my experience, procurement can be an effective catalyst for change,” continues Sloane. “It was clear that we could specify and shape our requirements better to drive greater value from our supply base. We also needed to get better control over the execution of our major contracts. Overall, we had to change the way our procurement processes worked and how the function worked with key business users across the site. Major changes were required to realize the potential benefits and, having previously worked with Efficio to transform procurement at Peel Ports, it was clear that they were the right partners to help define and implement the changes required.”

 Challenges

“The procurement process had become a bottleneck to change and a cause of frustration to both the procurement and operations teams across the business,” says Sloane. Procurement was taking too long and not spending enough time working with users to shape the business requirement in a proactive way. “The focus was largely on the buying process, rather than ensuring the specifications and strategy were fit for purpose.”

There were two main issues driving this disconnect: firstly, a reluctance by operators to accept change and innovation – “it’s always worked in the past, so we’ll carry on doing it this way” – and secondly, procurement drowning under volumes of low-value tactical procurement initiatives, preventing them from focusing on deeper strategic sourcing.

Sloane says: “The procurement team was very busy and working incredibly hard, with over 5,000 tenders executed a year.” However, this tactical tendering approach to procurement was inefficient and actually fragmented demand, driving a higher-than-necessary workload across the business and the supply base as a result of constantly competing for tenders. “Evidence shows we were beginning to alienate our suppliers and create delays to critical operational activities,” he says. “There was too much focus on price, without understanding total cost and little emphasis on real value.”

“The understanding of total cost is crucial in a high-value process asset like a refinery,” explains Sloane. “Any downtime caused by interruption of supply of goods or services can cost millions in lost output margin. The focus needed to shift from, ‘How do we shave a penny?’ to ‘How do we get the best total outcome, as quickly as possible, to optimize up-time?’.”

It also became clear that once contracts had been let, there were weaknesses in the ongoing contract management of the contractor on site. “We had become overly reliant on some long-term contractors and lacked some of the basic controls and process disciplines necessary to assure they delivered quality of work and continued value.

“The way some of these contracts had been set up meant they really needed close management, as all the risks and liabilities sat with Essar. The contractors were contractually obliged to finish on time, but the incentive was ineffective compared to the additional profit to be gained from spinning the job out for a few extra weeks.” Sloane says: “We were leaking so much value during the life of the contract because nobody was owning, measuring and feeding that back to the business, learning from it and holding people to account.”

Benchmarking showed there was a ‘Stanlow premium’, whereby contractors had become used to charging higher rates to the former Shell operation and the same long-term relationships had transferred unchallenged to Essar. Sloane continues: “We value the great service and business knowledge that can come from long-term relationships, but sometimes complacency can creep in. We needed to shake things up a bit and introduce some new thinking and healthy competitive tension.”

Solutions

“We brought Efficio in to help us quantify all the opportunities, identify what needed fixing, and create a powerful case for change, with a detailed transformation plan and business case,” he explains. The first step was to gather and analyze all third-party expenditure, then systematically assess the commercial strategy in the major spend categories, understand the business priorities, and critique the existing process, policy and approach.

The resulting business case provided a significant return on investment and, importantly, would act as a facilitator for change across the wider operations, forcing Essar to re-evaluate its business requirements, standards, contractual models and contract management approaches.

“We partnered with Efficio to deliver the transformation, and, six months on, considerable progress has been made – not just in terms of savings delivery, but in respect of the more fundamental changes to how we operate, how procurement works with users to shape business requirements, and the sourcing strategies we deploy,” says Sloane.

“Our guiding philosophy at Essar is: ‘One team, one goal’ – and this applies not just to how we work with our internal customers, but how we work as one team with Efficio.

“Efficio has provided experienced functional leadership. All employees share a single office space and operate in integrated teams, with senior Efficio consultants acting as mentors and helping to get the most out of Essar staff’s strong technical knowledge.

“Efficio has developed a comprehensive training and development program to help build the long-term capability of the procurement team. In addition, we have deployed their eFlow platform to help us manage our procurement transformation more effectively by tracking projects and savings delivery and bringing complete transparency to all expenditure.

“We are leveraging the opportunities available from applying new technologies, raising our game in both our procurement and operations functions, and modernizing what we do,” says Sloane. “We now have complete spend visibility across the business – it is amazing the change in behavior that can be gained by visibility and accountability.

“Most impressive are perhaps the results that have been achieved when processes have been re-engineered, and procurement and operations have come together as one team to solve the problem and define the solution – “changing what and how we do it” – rather than just focusing on the buying process. In one major plant refurbishment, the teams shaved days off the up-time to go live, which for us means millions of dollars saved.

Behaviors

“This approach plays a fundamental role in wider organizational change at Stanlow,” continues Sloane. “Refining engineering and technology isn’t going to change majorly, so our behaviors and our approach to how we run our support processes, how we embrace innovation and how we work together as teams is key to driving efficiency. Changing the organizational DNA is what Stanlow 2.0 is about,” Sloane says.

“For me, this is largely about behavior. You can teach all the technical stuff, but if you haven’t got the right behaviors or approach, then it’s always going to be difficult. We’ve had to make several changes to the leadership across the business, as change always starts and ends with the top. I believe we now have a clear vision, a strong change program, inspiring leadership, and the full engagement of a motivated workforce.”

Stanlow 2.0 is already driving greater efficiencies, and the procurement partnership with Efficio is transforming the company’s approach to procurement and helping the existing Essar team perform. “Sometimes the informal anecdotes are the best bellwether of change. The partner of one of the Stanlow procurement team leaders recently told the HR team that this particular employee has never come to work as excited, energized or enthused as they do now. That’s great feedback on the approach taken and the new clarity of procurement vision.”

Sloane concludes: “So far, savings are significant and on track, and some core processes have been improved, but there is still work to be done. Procurement should be seen as a smart, challenging process with teams working together to get the best outcome for the business – not as a necessary control measure or barrier to business success. To achieve this, we need a procurement function that is agile in thought and behavior, approaching things in a proactive manner, challenging the business in a positive way and helping us hold the supply base accountable for delivering quality work, on-time, every time.”

Making the shift to digitalizing procurement processes is a worthwhile transition, but one that requires significant thought and strategic planning.

We interviewed four procurement leaders for our recent study, “Procurement 2025: Is digital transformation driving more effective procurement?”, conducted in collaboration with Cranfield University. Here, they talk about their experiences of using technology to enhance their procurement processes and the challenges they encountered.

Colum Colbert, head of procurement services, Paddy Power Betfair

• Spend analytics: we now have analysis of spend not just for Europe but also for our global operations in Australia and the US
• Market intelligence
• Category management

Craig Hill, head of procurement, HSBC, UK

It is the technology advancements outside of procurement that are really driving us to think differently about how we deliver our core services. Our internal business partners want engagement with procurement to be simpler and more efficient. This is driven by many factors, but mainly by how they use technology outside of work and their everyday life. For example, at home they can purchase something in one or two clicks, but when they come to work they don’t get the same seamless experience and that can lead to frustration.

For procurement there are some innovative tools that we’ve seen and some we are trialing, but generally it feels like procurement technology options are lagging when compared to the advancements we see elsewhere.

It would be good to see some of the new procurement technology options challenging the status quo – for technology to question some of our historical procurement processes rather than simply digitalizing what we do now.

Our department has invested in systems to reduce manual, paper processes and improve audit and accountability trails for purchase orders and invoicing. It has also streamlined due diligence and risk controls on suppliers to create a single platform that is adopted globally.

Another consideration when looking at your technology strategy is to ensure that whatever solutions you choose, you understand how you can connect them and get the best out of the data. It’s a mistake to buy a solution and expect it to do everything; you also need to invest in software and people that can pull the data across disparate systems and report it in a way that helps drive faster business decisions.

The ability to extract and present this data in a timely, relevant way helps procurement get to its end state of being a strategic business partner.

Jason Busch, founder of Azul Partners and co-founder of Spend Matters

In the year 2000, sourcing technology did not exactly work ‘as sold’. Since then, procurement technology, especially strategic procurement technology such as spend/procurement analytics capability, has come a long way. But there are huge differences between providers and what makes them suited to you or not.

Let’s first consider the ‘demand’ side of the equation. There are also different groupings of buyers for strategic procurement technology today. The first – and best kind – is someone who has put together a business case and determined they need x, y, z. Unfortunately, they are in the minority. Most people buy sourcing technology to solve a particular problem. For example, they say: “I don’t have visibility over my spend and I need basic insights to develop a category strategy.” But not having even basic visibility is probably a symptom of something else. Spend analysis can do a lot, but if you can’t get to the root cause, you won’t get the whole picture and fix it for the future.

Another aspect that can lead to disappointment is ignoring implementation costs, such as those associated with change management. You may have the right tool but the wrong implementation model.

There’s also often a disconnect between buyers and suppliers: people selling the technology are not necessarily trained in figuring out the best solution for you, procurement professionals are not technologists.

Overall, this is a really big and complex sector. Even what we call best practice organizations are generally early in their digital procurement journey. While they might have some great tools at their disposal, they haven’t yet mapped all of those original needs to the capabilities of the current supply market and aligned their requirements and buying personas with an optimal set of providers.

Now, more than ever, consulting is important to help unpack those issues before jumping to technology. If you back up and ask all the right business questions you can pinpoint the best opportunities. It’s almost like doing a category analysis from a sourcing perspective – you need to identify all the nuances of that category to identify where best to focus your efforts and identify

the best-fit suppliers for your needs.

But there’s good news. It is the golden age to buy technology if you’re an informed buyer. Even if you spend a few hours getting smart on the supply markets that comprise procurement technology from different sources, you’ll have a good sense of where to get started and how to accelerate your journey.

Tim Coles, commercial and procurement director, Thames Water

Over the past 18 months we have been making significant investments in both technology and people as part of our digital transformation journey. On the technology side we’ve moved beyond tech-enabling our spend analytics and benefits tracking to more mature, sophisticated activities such as tracking and forecasting commodities and other indices to understand what is driving costs, and how. This will help us to decide more intelligently whether to potentially hedge or bulk-buy. We’ve also recently used technology to help us with a large multibillion-pound demand forecasting review, something we previously did using offline tools.

When it comes to our people, we have developed new skills and capabilities within the team to help turn the large amount of data that exists in the company into insight, then action. We are looking at things in new ways and trying to overlay different types of data. One of the biggest killers of innovation is lack of time, but by taking a step back, providing insight, examining if things could be done differently and opening doors to new areas, we are starting to overcome this.

The concept of digital is very exciting but relies on everyone in the supply chain operating in a certain way and supporting each other. Digitalization can’t just exist in one pocket of an organization. Our whole company is on one big digital journey. To really unlock benefit you need the entire business with you.

In a special report published by The Times, three experts from procurement consultancy Efficio, discuss the challenges and opportunities for procurement in a fast-changing world. 

Protectionism

Supply chains must be kept under constant review and CPOs must be more agile, ready to switch to new suppliers, or adapt their procedures to sudden developments in technology or changes in the political and economic situation.

Talent

Talent is often cited as one of the biggest barriers to success for CPOs. As procurement develops a more strategic role in the organization, the training and development of softer skills including stakeholder management, change management and driving innovative solutions to business problems will be key to success.

Technology and data

New technology and big data provide a huge opportunity for procurement teams to drive down costs and become more responsive to customer needs. Procurement teams need to develop the ability to use this technology if they are to go beyond simple transactional activities and look at some of the big strategic issues around uncertainty, risk and cost reduction. Teams need to have the ability to not only collect data but to also analyse and use it effectively to generate a competitive advantage.

Savings and efficiencies

Continuing to drive cost savings and efficiencies while maintaining flexibility over contractual arrangements and putting in place contingency plans at a time when protectionism and terrorism are key in this uncertain global environment.

As originally seen in 'Future-proofing Procurement' published by Raconteur Media on 25 July in The Times.
www.raconteur.net

Efficio helped Thames Water create a new operating model, a hybrid of classic consulting and outsourcing delivering outstanding ROI and enabling the client to significantly exceed its business targets.

The project delivered savings which were over four times the original internal Thames Water plan (worth additional $100m) and ROI of 6:1 comparing incremental costs versus benefits.

Background

Thames Water is the UK’s largest waste and water provider, delivering the sector’s largest capital infrastructure renewal program and serving over 13 million customers in London and across the Thames valley, pumping five billion liters daily, through a 140,000 kilometers underground network and over 2,000 plants.

As a regulated utility, the client’s revenue is set every five years by the regulator Ofwat – making cost efficiency mission-critical. A risk review of the five year business plan identified procurement as an area with significant risks:

• Increased demand for procurement resources, with increasingly complex work mix requiring higher skill level
• Function lacked flexibility to react to new business requirements
• Recruitment frustrated by budget pressure on resources and disappointing recruitment success
• Systemic retention risks in the existing team with high pressure to deliver, and limited career development in flat structures

Therefore, the COO and CFO sponsored a project to deliver an Accelerated Procurement Transformation with the following aims:

• De-risk and outperform procurement savings in the business plan
• Make an immediate step change of Procurement’s agility, capability and capacity
• Deliver excellent service to stakeholders – flexibility to meet their business needs
• Create a sustainable solution preserving business knowledge and stakeholder intimacy

Approach

Efficio proposed a commercial/delivery model, wrapping flexible consultancy resource around the core client team, with staff, line management and delivery risk transferred to Efficio in a five year contract. Key steps to achieve program success included:

• Transferring 22 client staff into a single integrated team supported by 19 consultants, within a month of award. This enabled accelerated delivery of the business plan
• Completing a full Opportunity Assessment and redevelop the business plan to accommodate all client requirements and ensure savings commitment made in the bid were achieved
• Working in buddy teams with the transferred staff during the first six months to accelerate project delivery, challenge established thinking and ensure a sustained hands-on learning experience to augment the training plans
• Implementing a new organization structure and hiring permanent resources to boost the core team’s capability
• Implemented new stakeholder engagement processes to ensure Procurement get involved early in business strategy development, enabling client to proactively challenge and influence business thinking

Results

Efficio’s engagement helped deliver a number of significant benefits for the client, including:

• Full flexibility – resources doubled within five weeks with 19 consultants deployed, meeting all business demands for support
• Savings – running well above contractual targets, which were over four times the original TW plan (worth additional $100m), achieved by rescheduling projects, applying additional consultant resources, enhanced sourcing and analysis processes and tools
• ROI of 6:1 - comparing incremental costs versus benefits and 29% headcount reduction
• Quality – excellent client satisfaction averaging 4.2 of 5 (5 = outstanding) on the 230 completed project scorecards
• Sustainable solution – we have invested in hiring 14 new high-quality permanent staff. Morale in the transferred client staff is excellent, with individual training plans and full resource support and tools to deliver on targets
• Increased pull for procurement services and early involvement – with access to high quality consulting resources, Procurement's scope is increasing, pulled by stakeholder demand. Procurement is now engaged earlier in strategic projects and business planning, ensuring that commercial issues are considered early
• Stakeholder focus – freed from extensive line management responsibilities, the remaining TW Procurement leadership has increased time spent with internal stakeholders
• Investment in new technology, including spend analytics, sourcing, contract management and eLearning cloud-based solutions to increase efficiency within our team

The project created a new operating model, a hybrid of classic consulting and outsourcing. It provides the client with complete resource flexibility – with unlimited access to quality assured consulting resources all paid out of the results they deliver. By taking management control over the client staff, we are able to drive change faster and develop their skills for long-term sustainability. The new model has also been a positive experience for the transferred staff with an excellent training program utilizing Efficio’s extensive training suite.

Efficio helped National Grid to transform its Procurement operations while delivering $377m in cumulative savings to the business.

This permitted extensive investment in new procurement processes and technologies, as well as training and coaching to fundamentally lift the capabilities of the in-house team.

Background

National Grid is one of the world’s largest investor-owned energy companies and plays a vital role in delivering gas and electricity to millions of people across Great Britain and northeastern US. It has an annual turnover of $20bn.

National Grid embarked on a radical Procurement Transformation program to redefine the ways of working for over 200 procurement professionals in the UK and the US.

Efficio supported National Grid on its journey of Procurement Transformation. The programme began by developing a business case for a multi-wave Strategic Sourcing program combined with extensive organization, process, people and technology changes.

During a period of over three years, Efficio worked hand in hand with National Grid in the UK and the US, and played a central role in delivering a highly successful Procurement Transformation program.

The joint National Grid – Efficio team delivered annualized savings of $232m, based on an addressable spend of $2.6bn.

Approach

Using our deep Procurement Transformation capabilities, Efficio helped National Grid to successfully:

• Embed a strong Program Management Office (PMO) to develop plans, control finances and manage a large number of resources and stakeholders
• Create 18 sourcing teams across National Grid’s entire Opex and Capex spend; most of these teams working globally for the first time
• Manage a multi-year program based on delivering sourcing savings while simultaneously transforming the team. This was achieved through full involvement in the sourcing process, combined with formal training (20,000 training hours over the first nine months)
• Embed a rigorously followed “gated” global sourcing process, which was vital in securing buy-in from across the business
• Review and redesign the global Procurement organization, refocusing it on a category management-driven approach
• Embed a single National Grid Strategic Sourcing approach, which has been adopted globally. All new hires receive an initial three day formal training
• Select and implement fit for purpose procurement technologies
• Develop and implement a set of KPIs to measure procurement performance over time

Results

Efficio’s engagement helped deliver a number of significant benefits for National Grid, including:

• Delivered $232m in annualized savings, based on an average of over 10% savings per category, equating to cumulative savings of $377m
• Designed and implemented a new Procurement organization
• Implemented new global processes and enabling technologies
• Developed strong relationships within the lines of business
• Coached the existing Procurement team through a major training and development program