How water utilities can innovate to create a more collaborative, more transparent and more intelligent supply chain.
Delays, shortages and businesses going bust: Welcome to supply during the 2020 pandemic.
COVID-19 has exposed some gaping holes in industry supply chains, including reliance on global manufacturing, logistics and transport.
In this article, we explore the state of the water supply chain globally. We also speculate on how the industry can innovate to create a more resilient supply chain.
The State of Global Supply
Supply chains are deeply complex and disruption can be catastrophic for suppliers and customers alike.
A recent article in Supply Chain Digital claimed that “94% of Fortune 1000 companies have been affected by supply chain disruption” because of COVID-19.
The Pandemic has exposed inefficiencies in procurement processes such as a lack of digital technology, insufficient automation and poor data reliability. For many companies, fax machines and paper are still the norm, logistics is still heavily labour-intensive with 80% of warehouses not being automated at all and freight commonly passing through multiple information systems, transport and regulation systems.
Considering many countries rely on singular sources for their supply, utilities are suddenly faced with the reality that any disruption to the delicate procurement process can have a massive ripple effect on the provision of safe, clean water to customers at the end of that supply chain.
Experts weigh in on the water industry’s supply chain vulnerability
In the water industry, products commonly sourced offshore include water treatment chemicals, mechanical equipment and personal protective equipment (PPE) right through to digital products.
AquaLAB spoke to Southeast Queensland (Australia) utility Unitywater’s Strategic Procurement Business Partner Jacob Wu, GHD’s Senior North American Advisors Simon Kaye and Meha Bola and technology specialist Katrina Donaghy from Water Ledger to look behind the curtain at how COVID-19 is affecting utility supply chains.
Delays, planes and the looming ripple effect
According to Wu, delays have had the biggest impact on water utilities so far and the ripple effect has been system-wide economic pressure. So far, utilities have borne the additional cost, but the impact of this is that there’s a risk costs could be passed on to ratepayers in the future. Wu thinks this is unlikely in the short term, though.
With difficulty sourcing critical parts, utilities are also at risk of not having the equipment they need to ensure safe, reliable, clean drinking water and water treatment, so addressing any shortages in supply is a high priority.
Utilities have shifted from a reliance on sea freight to air freight but it comes at a cost. Airfreight is a lot more expensive, particularly for larger components. And despite the shift to air, there are still delays because of manufacturing shutdowns in countries utilities rely on for supply.
“Generally, the lead time for critical parts supply or other equipment has been easily doubled. Usually, it will be 4 to 8 weeks, now it’s at least 8 to 12 weeks,” says Wu.
Kaye thinks that the industry has yet to fully realise the impacts on utilities, especially in North America.
“I think the challenge as we move through the different phases of COVID out of the response phase into the recovery phase and then into resiliency, is that there will be a bit of a lag, and therefore supply chain challenges are only now becoming more apparent,” Kaye says.
Bola has worked with water utilities for over 20 years in North America and says that many utilities are well stocked and prepared for shortages but others are struggling to source custom items due to transport corridors being cut off. “I don’t think there’s one story. I think there are a lot of different stories, but certainly some recurring themes,” she says.
Some of the recurring themes Bola alludes to include revenue shortfalls, supply delays and infrastructure project postponement in a bid to cut costs.
What utilities are doing now to manage the risks
While many utilities, particularly in the US, are focused on cost-cutting, Wu believes that investing now in longer-term savings strategies is the way to go forward.
Wu’s team are looking at cutting edge technologies to make operations more efficient, as well as e-procurement and sourcing longer-lasting infrastructure components.
“We are looking at implementing water loss detection technology. We’re looking at new pumping technology. We are looking at communications networks for monitoring meters.” Wu says.
Bola says many utilities in the US are relying on their stores to weather the COVID-19 storm, but the risk is, what happens when those component supplies run low and new parts are difficult to source?
How water utilities can build resilience
Bola believes that a longer-term and more holistic approach is needed to deal with the ripple effect of COVID-19 with its ongoing delays, social distancing, workplace safety issues and geopolitical tensions.
There were 3 key themes that emerged from each expert we spoke to: collaboration, transparency and innovation.
Collaboration with other utilities
Each expert agrees the answer to creating resiliency lies in a renewed focus on people, relationships and collaboration rather than technology and infrastructure development alone.
Bola says many of the North American utilities were quite isolated in the past and were only just starting to explore collaboration with the industry ecosystem when the crisis hit.
Kaye sees the crisis as an opportunity for the North American industry.
“I think there’s definitely an opportunity in North America where there are many, many water utilities, some of them are clearly very small and therefore, they don’t have the ability to truly drive efficiencies through buying power or volume,” he says.
“I think that creates an opportunity for consortiums of water utilities to be formed to come together that then, therefore, can leverage a far greater buying power and be able to drive far better price efficiency into the marketplace,” he says.
These consortiums already exist informally in Australia.
“We regularly share knowledge and we have business partnerships. And I think there’s a trend here in Australia’s utility businesses in that we tend to invest in some of the technology or some of the supply chain ourselves through joint ventures and the like,” Wu said.
“We actually share some of our critical stock, for example, if we have plenty of stock level, but our counterparts down the coast or in the metro areas are running a bit low, we would shift it to them. And then when they get their dispatch from the supplier, they reimburse us. So that’s the way we deal with it,” says Wu.
Collaboration with suppliers
Bola and Kaye believe that focusing on keeping supplier prices down is not the answer.
“If there is a myopic drive towards the bottom-level prices, then you’re accepting risks that are not captured anywhere and you’re not paying for those risks as they’re being incurred. You’re going to pay for it potentially later when there is a major crisis and that supply chain is disrupted,” Bola says.
“I think this has opened our eyes to the fact that we need to look at pricing in a very different way, that pricing should help us pay fairly for the materials and services that we need and help keep suppliers in business as partners rather than adversaries,” says Bola.
Transparency to strengthen the triple bottom line
One of the unintended consequences of stay at home directives is that consumers have seen just how much impact their behaviour has on the environment and the bells tolling for climate action are even louder than before as a result.
So, in order to ensure resiliency, factoring in the triple bottom line (people, planet and profit) to meet UN Sustainable Development Goals for water, ethical production and climate change is well and truly on the public radar.
Katrina Donaghy is the CEO of Water Ledger, a tech company aimed at improving water utility and assets’ information systems through the use of blockchain technology.
With a background in water utilities, having been part of innovation teams at both Urban Utilities and Brisbane City Council, Katrina is intimately aware of just how complex supply chains are within the water industry.
Unsurprisingly, Donaghy sees blockchain as vital to creating transparency. Blockchain technology can trace and track the origin of goods, not only so we can ensure they are ethically sourced and produced but also in terms of understanding where source elements come from geographically. This data would help the industry mitigate the risks of supply shortages in the future.
Transparency to reduce governance complexity and costs
The other benefit is in creating transparency (and significant cost savings) around how public funds are spent. Donaghy says there are considerable savings to be made long-term through simplifying governance.
Donaghy sees the current crisis as a huge opportunity for water utilities to de-risk supply chains and produce cost savings down the line.
“The challenge with supply chains is that they’re very messy. And every time an item is touched, it becomes a lot more expensive because we need to have intermediaries in the transaction to move things from one place to the next,” she says.
“So what we’ve seen around the world through COVID is this massive disruption to supply chains. And we’ve also seen, very unexpectedly, about 10 years worth of regulation collapse to allow digital to become normal.
“So all of a sudden we have some significant problems. We need to solve them very fast. But the old way of solving those problems is no longer the first choice. We have to think differently,” Donaghy says.
“I think technology needs to be seen as an enabler and a tool to be used. But first and foremost, it must be about humans. It must be about society. It must be about how do we solve a problem for a customer or an old problem that we just have not been able to solve before. Technology cannot lead,” she says.
Innovation in the supply chain workforce
Bola thinks that the main barrier to and opportunity for supply chain innovation is around how companies nurture their people. A cultural shift around risk is needed if organisations are going to adapt their technology and processes and improve efficiencies at scale.
“In order to innovate, people need to be willing to take risks. Without risks, there is no innovation, and the only way people are going to feel comfortable taking risks is if they trust in their organisations and their willingness to let people fail,” she says.
Donaghy adds that diversifying recruitment will also enable water utilities to adopt new ways of approaching supply chain issues, particularly given how slow the procurement industry has been to digitize and automate across every touchpoint.
“We need to spend a lot more time thinking about how to find, retain and upskill the right people in the right roles to work with technology, to develop new technologies and to do interesting things with the data that comes out of using that technology,” she says.
Innovation in supply chain data
Donaghy acknowledges that utilities have been historically good at innovating when it comes to infrastructure development and public safety but feels it’s still early days when it comes to data innovation.
“Data is not being optimised because we need to redesign governance mechanisms on how to agree on what that actual data is, where it’s coming from, how it’s cleansed, what we use it for, who can see it and how we protect it. So that’s the next wave. Utilities need to understand that they actually are data organisations,” she says.
Data innovation benefits are being realised in every industry. Here’s how it might benefit the supply chain industry:
- For a start, reliable, real-time data helps to mitigate risks, speed up responsiveness and makes it easier to diversify supply chains.
- Cognitive data uses a combination of big data and artificial intelligence to better manage supply chain complexity.
- Procurement process digitisation can leverage artificial intelligence, chatbots and other communications technology to reduce expenditure caused by double-ups in orders and the like.
- Automating routine and repetitive tasks in the procurement process frees employees up to focus on strategy.
- Creating transparency through smart contracts and blockchain-driven decentralised data could increase confidence in the origin and sustainability of products in the supply chain and reduce auditing costs in this heavily regulated industry.
Funding supply chain innovation
Of course, in order to adopt new technology and innovate, funding is needed.
Donaghy worries that governments are too risk-averse to implement system-wide change in supply chain management. And yet, the greater risk may be to accept the status quo.
Wu agrees that funding and government buy-in is key to innovation uptake. “From our perspective, we want to invest [in technology] but unfortunately it’s quite expensive and some of the utilities just don’t have the money. On the other hand, because we are [in the] public sector, the decision-makers may be looking at the benefit to streamline or automate transactions as a cost-savings measure,” says Wu.
Bola says utilities can take small steps to kick start the conversation around innovation funding.
“It doesn’t all have to be the invention of a new technology that no one has ever seen before or a huge investment of money, but it does take time and it takes building psychological safety, a sense of trust in your organisation to enable people to do that,” she says.
It’s clear there are many challenges to building a more resilient water supply chain but if the pandemic has taught us anything, it’s that it pays to adapt quickly. Otherwise, the impact of not taking action on supply chain disruption could be dire for the communities that utilities serve.
Has your water utility experienced supply chain disruption? Tell us about your experience in the comments.
About the author
Caroline McCullough is AquaLAB’s Copywriter and Community Manager. She is a multi-award-winning content marketing strategist, author and startup founder with a keen interest in human-centered innovation.