Value beyond cost: Yorkshire Water’s sustainable procurement transformation
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.
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.
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
You have to keep encouraging people to think about the other considerations outside of cost. It is important that our colleagues think differently, and this will be essential to get to net zero and meet the targets that the business has set itself.”
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.
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 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.
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