Learning lessons in logistics

The retail sector has pioneered increased transport efficiency. And water utilities are beginning to slash operating costs and reduce their carbon footprints by applying the same principles to their supply chains, writes Dean Stiles.

Logistics and the supply chain is the new focus for utility companies seeking to eliminate waste and cut operating costs.

The supply chain is an untapped opportunity for utilities to drive down cost and improve service performance mirroring success in other sectors, like manufacturing and retailing, according to Paul Goddard, commercial manager at Severn Trent Water (STW).

Goddard says: "STW are committed to working with our supply chain to improve supply chain management... It's a professional approach to logistics, which has not been considered before by STW."

Utilities have yet to adopt supply chain management practices proven in other sectors, such as retail, that can deliver significant cost and service benefits. There are opportunities for utilities to drive the next level of efficiencies through supply chain management, says Goddard.

STW is working with DHL, one the UK's largest transport and logistics providers, with a £37B turnover, to explore the potential savings. "Real benefits are available," says Severn Trent's Larry Beard. "STW and DHL are putting supply chain management on the agenda," says Beard, who has extensive experience of purchasing, material planning, and logistics roles gained in the automotive sector.

A typical automotive or retail operation has a supply chain cost of 5% with key characteristics of cost transparency, end-to-end supply chain, early supplier involvement, optimised processes, and integrated solutions, he says. This contrasts with the utility supply chain where supply chain costs are 30% and where costs are invisible. Utilities typically have silo supply chains, duplication, fragmented processes and inefficiency, says Beard.

Long haul
DHL has been involved with the utility sector for more than 15 years but this venture with STW represents a real opportunity to explore new areas of supply chain management, according to John Humphreys, general manager, development, at DHL Exel Supply Chain. "It is a long haul from our perspective and it will require a cultural change for many organisations," he says.

"Working with a number of other utility companies, and not just water, what we see in this sector is generally reflective of organisations waking up to this as an area of potential saving. Utilities are service driven and have not previously paid attention to inventory costs or other supply chain costs," Humphreys says. "Lack of visibility of their supply chain costs prevents them from making inroads in this area which is where we can help," he adds. "The key to this, and it's what we're doing with Severn Trent, is to start unpicking some of this stuff, finding out where the costs are bundled up," he says.

July floods
Co-operation between STW and DHL during the July floods illustrates the extent and benefit of such an approach. When floodwater incapacitated the Mythe water treatment works in Gloucestershire, STW deployed more than 1,300 water bowsers supported by more than 100 water tankers to maintain drinking water supplies. But overcoming this successful logistics challenge, with DHL support, is a small example of what can be achieved with better supply chain management.

STW's own case studies undertaken with its contractors have identified savings of 9.7%, amounting to £19.4M over the AMP period with a single contractor, says Beard. Achieving these levels of supply chain management are "probably the biggest prize", with the supply chain a "source of opportunity", Beard says.

STW has instigated a review, expected take a year, of its supply chain management in order to identify improvements. Undertaken in collaboration with DHL, it involves working with a number of STW contractors to assess supply chain improvements. "It's all about the elimination of waste from the supply chain - time and cost," says Goddard, and, "DHL have the expertise in logistics and were willing to provide some of their consultancy resources to assist in the review."

There is no contractual relationship at this stage between DHL and STW, and the consultancy service is being provided free of charge to pilot ideas, says Goddard. Any major opportunities will be subject to advertisement and selection, he says. "Some of the opportunities will be developed and taken forward to improve supply chain performance and reduce costs," he adds. "DHL have contributed to efficiency in other utility sectors and the benefits will be shared by Severn Trent and its contractors and suppliers," Goddard says "Whilst innovative to water, many ideas are in use elsewhere: we are open to new ideas for all areas of our business from operations to straightforward deliveries," he says.

STW's work with DHL is part of a wider initiative led by Severn Trent's purchasing and supply chain management team. This initiative also includes one of the first document management solutions in supply chain management in the utility sector, undertaken by Severn Trent working with Nottingham Trent University. The objective is to "define the future best practice in the supply chain", says Goddard.

The growth of information technology has driven the changes in this area as well as in logistics. Old-style transport operations traditionally operate with inherent waste and low productivity unacceptable in today's competitive market where there is no slack in the system to accommodate inefficient working.

In the UK, the retail sector pioneered improvements in transport efficiency and, while retail and utilities may seem poles apart as business sectors, utilities can apply the same principals and achieve similar benefits, believes Beard. It is a view echoed by service providers to the retail sector, like vehicle tracking specialist, Isotrak. "We can bring similar benefits," says Craig Sears-Black, marketing director of Isotrak, a company that provides tailored software for transport management and works with customers such as Tesco and Marks & Spencer. Marks & Spencer reduced mileage by 14% after one year of working with Isotrak to integrate sites, fleets, deliveries and collections, Sears-Black says.

He believes that the opportunity is open to all transport operations to follow the supermarkets' lead and start using high-tech transport management to improve efficiency, boost customer service and reduce carbon footprint. Other benefits of moving to a technology-driven transport management system include "faster and more pro-active decision-making thanks to the provision of real-time information" and "measuring and benchmarking ongoing service levels to achieve continuous service improvement", he says.

"It doesn't require too much of a stretch in imagination to see how the same benefits now accruing to Britain's supermarkets could also benefit the multifaceted logistics requirements of utilities companies," he adds.

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