Anglian Water is geographically the largest water and wastewater company in England and Wales - serving about six million customers in the east of England - and has about 4,200 employees.
The supply of water and wastewater services involves significant costs both in the installation of the infrastructure and over the life of its operation. Previously, Anglian Water’s procurement was focused on a narrow definition of outputs and costs, and did not give due consideration to the outcome of better safety and environmental standards. The incentive payment structure for the suppliers was to deliver to a set timeframe and budget, but the long-term evolution of the costs, safety and environmental risk profile was not considered.
With the support of its new shareholders, IFM Investors, CPPIB, Colonial First State and 3iGroup, the team at Anglian Water initiated a collaborative, long-term approach to its procurement of key infrastructure projects across its network. This involved a redesign of the way its supply chain operates, including: developing a collaborative delivery mechanism which links the performance and incentives of each supplier to the performance of all suppliers as a group; improved performance metrics; and a focus on lowering Anglian Water’s carbon footprint. The new performance metrics for suppliers focus on customer outcomes, and measurement over extended time periods that match regulatory cycles.
Investors’ influence on setting targets and KPIs has played a part in instilling the cultural change required for improving procurement practices. A focus on reducing greenhouse gas emissions has spurred suppliers to develop innovative solutions, resulting in products that have both a lower carbon footprint, but also a significant reduction in costs. The new procurement model has achieved:
- annual savings of 2-3% in capital expenditure (around US$45 million), while increasing quality of service delivery to its customers over the last 10 years;
- reduced embodied carbon by 54% from 2010-2015, against a 50% target;
- reduced operational carbon by 41%, against a 20% target; and
- reduced the accident frequency rate from approximately one in every 300,000 hours worked to one in every million hours worked.
Managing ESG risk in the supply chains of private companies and assets
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Case study: creating cost savings in the supply chain