By Jim Baehr
There’s no doubt that articulating the vision and mission of your water utility is necessary. They communicate your core purpose – your brand – the utility’s fundamental reason for being. Building a brand on ‘purpose’ is becoming more and more important. It’s how your utility is perceived, and perceptions are powerful.
These are, as the sector knows all too well, very challenging times. Infrastructure, rates and quality are affecting the water brand. Like it or not, for water the entire sector shares the brand. Some might go so far as to say the brand is failing.
To counter perceptions, water executives have invested time and effort into preparing vision and mission statements and placing these statements upfront on the utility’s website. Safe, reliable, sustainable, superior quality, focused on customer service, environmentally conscious and continuous improvement are words and terms that appear in many water mission statements. These are, at the core, the promise that utilities make to their communities to deliver a product and a service with certain levels of quality and expected results.
It’s all about operational excellence and communicating that the utility’s culture, leadership and people support the mission. Operational excellence – quality, delivery and service – are all clearly discernable by the end user, which in turn affects perceptions, positively or negatively.
But, there are other words in the mission statements – words like cost effective, affordable, value and fiscally responsible. These words are not as tangible for the end user like quality, delivery and service. The user’s perception is affected by their monthly statements or whether their pipes are being replaced now or 20 years from now. Engineering, operations and finance are all expected to play a fundamental role in delivering value and affordability.
For investor owned utilities (IOUs) there’s an expectation that supply management, specifically procurement, is also responsible for delivering in these areas. Yet, in too many public water utilities, procurement is sequestered behind a firewall of tradition and code and thinking that saving money is a bad thing. The savings thinking is conditioned by two factors. The first is recent calamities where flawed decisions were driven by the need to cut costs. The second is the concern that somehow saving will distort budgeting and funding efforts.
Little Room for Innovation
Water sends its professionals from finance, engineering and operations into the community to be spokespersons for the defining concepts of the mission statement. Can the same be said for the procurement professionals? It should be noted that procurement plays an essential role in addressing local and minority suppliers for the purposes of engagement and inclusion. However, procurement is seldom sent out to communicate how goods and services are acquired cost effectively and with a sense of continuous improvement.
In the private sector, procurement plays an integral role in enabling a business to compete. Supply management professionals are responsible for ensuring needed materials and services are acquired thoughtfully, and in ways to preserve or enhance margins. This is done by collaborating with other departments, as well as suppliers. IOU’s declare they’re sourcing strategically to yield increased value for shareholders and stakeholders.
In the private sector, procurement plays an integral role in enabling a business to compete.
In a public water utility, engineering, procurement and operations function as siloes. Engineers specify, procurement bids under rules to lowest price and operations executes to outcomes.
There’s not much opportunity for innovation – introducing new methods, equipment or materials.
This is frustrating to suppliers who have experience across sectors – public and private – and would like to show utilities improved and cost-effective ways to meet project requirements. Unfortunately, this practice is something that’s being increasingly scrutinized by politicians, legislators and most importantly, the community. At a time when water procurement departments should be enabled to pursue increasingly complex and challenging goals, they’re not.
Taking care of the daily details of running a water utility of any size is demanding. Add the fact that customers increasingly expect their utility to do more, makes all this a lot for water leadership to balance. There’s limited awareness and interest in what well executed supply management can achieve. This lack of understanding is compounded by the frustrations of supply managers as they try to communicate what they can do better and the enhance the value they can provide. They are relegated to a role of “just get me stuff when it’s needed.” The disconnect is costly.
What Can Procurement Do?
So, just what can procurement do to improve affordability and value as called for in the mission statement? Let’s say that procurement has the skill and opportunity to lead a cross-functional sourcing initiative directed to water main replacement. For this basic illustration, each mile of water main replacement is estimated to cost $1 million. The five-year improvement plan calls for replacing 50 miles of water main at 10 miles per year. The budget is $10 million per year. Through the collaborative sourcing initiative, the cost-per-mile is reduced by 10 percent. This achievement would result in a per mile cost of $800,000. The result is a cost reduction of $1 million per year.
There are two ways to look at this – as savings returning $1 million per year to the available funds – cumbersome, but doable (ossibly made available for maintenance or operations). Or, as an opportunity to do more with the monies in hand – an additional 1.0 mile of water main replacement per year. On a simple straight-line basis, the project could be completed in four and a half years versus five.
Wouldn’t it be great to add your procurement professionals to the group that goes out into community to tell your water users how they helped do more with the monies in hand? Supply management – if positioned appropriately and executed correctly – can make the difference between mediocre and outstanding utility performance. This can improve perceptions, your brand and the water brand.
Jim Baehr is the founder of the Sourcing Strategies Group, which supports the supply management needs of clients in both the public and private sectors. He has also served as an independent advisor leading transformation initiatives and supply management projects for chemicals, energy, retail and water clients.
