27 January 2000 | David Arminas
Utility company Anglian Water has embarked on a strategic sourcing initiative as part of a programme to revamp its procurement.
There are "significant opportunities" for savings in the annual procurement spend of £500 million a year, according to Nirmal Kotecha, Anglian's first head of supply chain management.
"Spending on capital projects will be radically different," he said. "We are moving from 250 contractors to single figures, maybe a dozen."
The company is switching from a devolved style of procurement and a purchasing department of fewer than 10 members of staff, to a function that will incorporate logistics and comprise 62 people, Kotecha explained.
"It's a chance to develop a new procurement structure and induce commercial acumen," he said.
Part of the revamp includes risk-sharing arrangements with construction contractors, where the financial pains of missed deadlines and financial gains of ahead-of-schedule completions are divided.
Anglian is offering contracts where the liability for extra costs will be shared. Similarly, for projects that are completed below cost, the rewards would be shared between the contractor and Anglian.
In April, Anglian will appoint three new fixed-term maintenance contractors for the £450 million upgrade of its clean water system.
The initiative is part a five-year plan, said Kotecha, who added that "all water companies are under pressure" to improve customer service from the regulator Ofwat.
Last November, Ofwat announced that all of the UK's water companies must reduce revenues by about 12 to 15 per cent in the first year after the start of open competition on 1 April. Anglian has been told that it must cut revenues by 10 per cent.
The water companies have earmarked combined job cuts of several thousand in an effort to claw back anticipated profit losses, which they estimate will be 30 per cent this year.
They are keen to align themselves for the start of competition now, said Chris Lewis, chairman of CIPS's energy committee and a member of the Utility Buyers' Forum, which represents the UK's major electricity, gas and water purchasers.
Anglian is proving to be one of the UK's more progressive utilities.
"The company is eager to move into the competition age," said Lewis. "Anglian may be targeting up to 50 customers - probably large energy users - outside its present area."
Lewis believes it remains to be seen what discounts the leaner water companies may offer large energy buyers that won't necessarily be affected by the revenue reductions. Purchasers should be watching for February's revised tariffs from water companies, he said.
Ofwat has made no specific proposals for large water buyers.