Severn Trent Services Ltd

This internship research project concerns Severn Trent Services Ltd (STS) and is aiming to assist the company to identify new suppliers effectively, through a new process according to their needs and requirements. Within Severn Trent Services, the contract management team is currently responsible for procurement function and particularly finding and select suppliers.

Objectives: To understand Severn Trent Services current operations through interviews with key stakeholders, focusing on sourcing.

To generate a set of options for the contract management team through existing academic literature, interviews with procurement professionals and online resources.

To develop case studies for each option which will produce the business cases that in turn provide alternative solutions for Severn Trent Services.

To assess the business cases through comparative analysis.

To provide recommendations to Severn Trent Services’ contract management team.

Project Plan

The following research design have been applied to provide solutions for Severn Trent Service in a structured way:

A. Development of analytical framework: Understanding the Business

Understand the business through interviews with Severn Trent Services key stakeholders, examine the goals of the company and the objectives of this project researching the company’s website and reports as well as water industry reports.

B. Data Collection & Analysis: Generate Options

The objective in this section is to generate options for identifying suppliers utilizing the expertise of procurement professionals, reviewing academic literature, conducting market research, and examining the current sourcing process of Severn Trent Services.

C. Generate Business Case Analysis

Analyse the business cases that are formed from the available options using tables to present advantages, limitations and cost estimation considering also indirect savings from qualitative aspects.

D. Comparative Analysis

Conduct a comparative analysis with tables, and metrics gathering the case study information from the previous section.

E. Recommendations

Provide recommendations after evaluating the available options or combinations that could optimise the sourcing process.

Severn Trent Group Overview

Severn Trent group is part of the water and waste water industry and based in the United Kingdom. The group is consisted of Severn Trent Water (STW), that is the main part of the company that is public domain and Severn Trent Business Services (STS) that is the unregulated part of the business in which the procurement function is not subject to ‘The Public Contracts Regulations 2015’. Severn Trent Plc (Group) achieved £1,694.1m turnover having profits before interest and tax at £528.4m with a vast infrastructure including a 49,000km of pipework in the United Kingdom. Severn Trent Services turnover on 2018 was £138.7m having an operating profit of £34.2m (Severn Trent Plc annual report, 2018).

Operations and Supplier Identification process

According to the contract management team, that is consisted of four employees, and responsible for identifying and selecting suppliers, the level of annual spending for purchases is approximately £15 million. The current process to award contracts to suppliers is presented below in the diagram:

Figure 1 – Main steps of Severn Trent Services from identification to supplier selection

The company is currently identifying suppliers using the following tools:

Market research with google to acquire their contact information and their performance.

Getting personal recommendations from Severn Trent Services’ employees from other departments.

Search in supplier directories: http://www.wateractive.co.uk/directory/

Visit web-sites like https://www.esi.info/ which provides a list of suppliers for particular categories.

Attend trade shows and exhibitions.

Using suppliers from the existing supplier list

Request assistance from Severn Trent Water to receive a list of suppliers from the Achilles platform that they are licenced to use.

It is important for Severn Trent Services to find new options and formulate effective processes to identify suppliers, as this can lead to minimise the supplier risk, having more suppliers available to acquire products or services on time and in the quantities that are needed. Moreover, there can developed better supplier relations, with better products and services in terms of quality with the prospect of innovation. Furthermore, having a stronger negotiation position, the company can purchase in lower prices.

How to identify suppliers - Available tools for procurement professionals

Through interviewing procurement professionals and with market research, the major available tools for sourcing, tailoring different needs, are the following:

E – Platforms: SAP Ariba, Achilles

Sourcing Agents: LFF Group, HPF Energy Services, Pelican Procurement Services, Procura, The Purchasing Agency, purchasing.com, Costain.

Data Libraries: D & B Hoovers, UK Datahouse, dun & bradstreet

Web Sites and directories: http://www.wateractive.co.uk/directory/, https://www.esi.info/, which are free accessed suppliers from directories, or lists of suppliers that collaborate with particular Sourcing Agents.

Market Research: Google

Generated business cases

With the available tools and options which have a varying cost, the following business cases were generated:

1. SAP Ariba, that is a sourcing platform for buyers in which a vast number of suppliers are registered. According to procurement professionals, it is the best tool to make tenders, it reduces time to identify suppliers and can provide the option of reverse auctioning. However, it is a very costly solution, especially for low spending teams. Furthermore, training is needed for the employees and the set up and configuration cost is also high.

2. Achilles, is also a popular sourcing platform with registered suppliers. This tool is easy to use and require even less time to identify suppliers. It is a costly solution but can offer more functions and benefits, particularly in the pre-selection process, having a scoring system for suppliers.

3. Sourcing Agents. Using sourcing agents, a company can reduce the work complexity, outsourcing the procurement functions completely or for some categories. They are responsible for the supplier performance having the advantage to buy in large bulks and with more negotiation power. LFF Group and the HPF Energy Services, are examples of sourcing agents.

4. Data Libraries, which are not platforms, but can provide contact information for many companies that are categorised by industry. It might be a low-cost solution, but also time wasting in searching, without providing any pre-selection functions which can lead to further waste of resources.

5. Developing Software, that could be a search engine, algorithmic, similar to google, but with more focused results that can save time in supplier identification. However, the risk of developing a costly project like this is high, with also unknown results in terms of effectiveness.

6. Creating a manual list of suppliers matching each product (MS Excel): It can make the supplier searching very fast, however it will require a long period of time to develop the list indoors and with the need of continuous updates.

7. Continue business as usual, will require no investment from the company, the contract management team knowing well the processes, however, it will not solve the problems that they are currently facing.

Comparative Analysis

In the following table are summarised the business cases, providing an initial evaluation of the available solutions.

Table 1 – Comparative Analysis

Recommendations

1. After the comparative analysis, my first recommendation is Achilles, as the cost of acquiring the licence is not as high as the direct and indirect benefits from using this tool. Apart from saving time from identifying suppliers can solve the problem to present a large number of potential suppliers which can lead to savings from negotiating better prices from sourcing products or services.

2. An alternative solution is a combination of available tools and particularly using Sourcing Agents, developing manually a list of suppliers on MS Excel and using free tools, as currently the contract management team does, like Google, web sites and directories. In order to effectively implement this process, it should follow the method below:

Firstly, divide the categories using Pareto analysis on annual spending per product or service and utilise the Sourcing Agents for big purchases on products that they can create leverage with their negotiation power.

Develop a small MS Excel file for other critical suppliers, especially for products or services that need a fast response from the supplier. In a smaller list, the contract management team can provide feedback evaluating those suppliers.

Finally, use the free available tools for low risk and low spending purchases.

1. Introduction

1.1 History of the company

Severn Trent Business Services Ltd is part of the Severn Trent Plc group which is able to serve 4.3 million homes and businesses in the United Kingdom and Ireland. Severn Trent plc is a company in the water and waste water industry that was founded on 1989 when the ten water authorities passed into private ownership. To go further back in history, water supply and waste water treatment was shared between the local government and private companies during the 18th

century. Then, many city councils started to purchase the local water companies to have more control over its distribution and quality. In 1973, the Water Act brought together 160 water supply companies in England and Wales into ten water authorities, that were liable for the water supply, the sewage treatment and the river protection in their respective areas. At this point, the government and the local authorities still had power on these ten authorities, as their boards were led by their representatives (Severn Trent Plc web-site, 13 August 2018). Today, the headquarters of the company is located in Coventry that is in the area of West Midlands in the United Kingdom.

1.2 Company’s overview and performance

Severn Trent Business Services Ltd provides mainly contract services to municipal and industrial clients and the UK Ministry of Defence, tailored to their specific needs, and is recently involved in renewable energy including anaerobic digestion, wind turbines, solar panels and hydro as well as the food waste market. The parent company, that is Severn Trent Plc is one of the largest of the 10 regulated water and sewerage companies in England and Wales and is traded on London Stock Exchange and part of the FTSE 100 index in the United Kingdom with operating profits exceeding the level of £500 million (Severn Trent Plc annual report, 2018).

1.3 Competitions in the water industry

The competition in the water industry is quite intense with nine major competitors that will be briefly presented in this section. Each one of the competitors are having advantages over specific geographical locations.

Scottish Water, is a corporation which is statutory; provide sewerage services and supply water facility approximately all over Scotland. Government of Scotland made Scottish Water responsible to the consumers (Scottishwater.co.uk, 2018)

NWG

(Northumbrian Water Group plc) is one of the top ten companies in Wales and England. It supplies water and provide wastewater and sewerage services to all over UK. It also supplies water in the north-east of England (Nwg.co.uk, 2018). Northumbrian Services Limited is their subsidiary holding company operating that provides wastewater, water, sewerage and also other associated services (Nwg.co.uk, 2018).

Dwr Cymru Welsh Water United Utilities (DCWW) provide most of parts of western England and Wales drinking water and waste water supply through DCWW known as. The Water Industry Act 1991 regulated DCWW (Dwrcymru.com, 2018).

Anglian Water is engaged in supplying water related services to the areas of Buckinghamshire, Bedfordshire, Essex, North East Lincolnshire, North Lincolnshire, Lincolnshire, Northamptonshire, Suffolk, Nottinghamshire, Cambridgeshire, and Norfolk (Anglianwater.co.uk, 2018)..

Thames Water Utilities Ltd is the water supplying company which privatized and accountable for the supply of water and sewerage water collection and treatment in wide areas of Luton, Great London, The Thames Valley, Gloucestershire, Surrey, Kent, Wiltshire and also some other parts of UK. Thames water supplied water to the 27% population of the UK which is approximately 15 million consumers (Thameswater.co.uk, 2018).

Southern Water is accountable for the waste water treatment collection and distribution in Hampshire, Kent, East Sussex, West Sussex, and the Isle of Wight. (Southernwater.co.uk, 2018). The private, unregulated part of the business which is the direct competitor is the subsidiary Southern Water Services (Finance) Limited (Southernwater.co.uk, 2018).

Wessex Water services Limited provides services to the south West England, covering about 10,000 sq. km including most of Dorset, Bristol, Wiltshire and Somerset and part of Hampshire and Gloucestershire. (Wessexwater.co.uk, 2018). Wessex Water Services Finance Plc is the unregulated subsidiary.

South Staffordshire Water plc is serving water related solutions to the parts of Derbyshire, Staffordshire, and West Midlands (South-staffs-water.co.uk, 2018).

Yorkshire Water is engaged in water related services in South Yorkshire, West Yorkshire, part of North Lincolnshire, East riding of Yorkshire, most of North Yorkshire and also Derbyshire (Yorkshirewater.com, 2018).

1.4 What Severn Trent Business Services offer

One of the focal points of the company is to add value to their business clients having responsive services according to their requirements. The company has a proven track record of 1500 sites in the United Kingdom that provides first class water and waste-water services. The goal of Severn Trent Business Services is to provide leverage to their customers that could lead to cost savings, reduce consumption through water efficiency, manage risk and enhance their sustainability as well as protecting the environment. About customer service, there is contact access on a 24-hour customer response centre for seven days per week, having an expert supplier in all locations in the country to cover any need. Summarising the core values of Severn Trent, is to put their customers first, being passionate about what they do, acting with integrity, protecting the environment, create an awesome company with great customer service and committed against human slavery or human trafficking (Severn Trent Business Services web-site).

1.5 Procurement function

The contract management team which is responsible for the procurement function within Severn Trent Business Services, is consisted of a team of four employees. Coventry university and the contract management team provided a series of seminars during the academic year 2017/18 and offered an internship consultancy project to find solutions and receive recommendation on how Severn Trent Services can identify suppliers easier and then select them, as they currently facing the problem of not having enough suppliers. This supplier shortage is increasing the supplier risk of serving all areas nationwide without also having a strong negotiation position, that leads to higher prices on purchases for products and services. Moreover, not having many available alternatives it is harder to maximise the received value from the suppliers in terms of quality and innovation. The main customer is the UK Ministry of Defence, and the team have approximately 15 million spending annually to cover with their purchases the company’s needs. As we will further analyse, we will see that the low annual spending creates some limitations to the available procurement tools that bigger spending teams have in the industry.

It is also worth to note that Severn Trent Business Services do not share the same resources with the procurement teams that belong to the Severn Trent Water and the group. Severn Trent Business Services functions independently from the group, even though they work together in the same building in Coventry. The main procurement division, with high spending, is functioning within the group and it is public procurement, whereas the contract management team in Severn Trent Business Services is unregulated. Therefore, the popular procurement tool on identifying suppliers, ‘Achilles’, is only available for Severn Trent Water.

1.6 What Severn Trent Business Services need from this project

As already mentioned, the main concern of the contract management team is to be able to find more suppliers. The team made it clear that they don’t currently struggle with the supplier selection process, in which they have the required skills, but mostly on how they will find those suppliers in the market and especially the small and medium-sized enterprises (SMEs). This issue is critical for the company, as the area that they cover is large, especially for services like maintenance of the pipe network and there is a need for a very fast response time. For this reason, the team is not sourcing globally, and is focusing on local suppliers which in turn decreasing the number of potential suppliers.

The contract management team will find useful to discover other processes of sourcing and in this project are presented alternative options to identify suppliers. It is also considered the importance of working hours that are wasted in the current process, an issue that can be even more critical if an organization is making the section from a bigger list of suppliers, which is increasing indirectly the cost as well as other qualitative parameters. Furthermore, other expectations are connected with the time needed to apply the new process or if it will disrupt the current operations.

2. Project Plan

The project plan that is presented on figure 2 summarises the structure and the research design of this project.

Figure 2 - Research Framework

2.1 Research Approach

Deductive research approach is the one which is most suitable for the current study. According to Mugenda (1998) deductive means reasoning from the particular to the general such that if there is a causal relationship or link in a theory or case example, it might be true in many other cases. Given that the research involved collecting information from procurement experts at Severn Trent Business Services and then using this information to explore the options available to the firm, it is prudent to state that an inductive approach assisted in meeting the research objective. A deductive approach will assist the researcher to explain the causal relationships between the options available to Severn Trent Business Services and their ability to contribute towards efficiency and effectiveness of the firm.

A - Development of analytical framework

The first stage concentrated on understanding the business and the contract management team’s objectives which this project was intended for. It is impossible to come up with effective solutions for Severn Trent’s procurement department without first understanding the company’s goals and the aims of the procurement function. The team presented the current structure and sourcing processes and identified the issues they are facing. Also, the procurement team requested alternative solutions upon the completion of this project. This stage helped the researcher to structure data collection hence bringing the researcher closer to meeting the study objectives. Furthermore, the stage helped the researcher to have a profound understanding of the weaknesses of the current procurement strategies. This knowledge is of paramount importance since it will help in coming up with strategies that address the current shortcomings of the procurement department’s practices.

B - Data collection and analysis

The researcher collected qualitative and quantitative data to help in meeting the research objective. The qualitative and quantitative data was collected through market research, reviewing academic journals and interviews with experts in the field of procurement. Collecting information from various sources is helps one to reduce the chances of bias hence increasing the reliability and the accuracy of the findings. The qualitative information focused on aspects such as how the employees in the procurement department identify and select suppliers as well as the challenges they face with the current strategies. Quantitative information collected focused on the cost estimations of the alternative procurement approaches.

C - Business Case Analysis

The qualitative and quantitative data helped in developing case studies for each option and the case studies were then used to provide alternative solutions for Severn Trent’s procurement department. The business case analysis focused on the advantages, limitations and the cost estimations of the alternative solutions. It is also noteworthy that the business case analysis involved the evaluation of the identified options to Severn Trent’s business model. The options identified include SAP Ariba and Achilles. This step was vital in ensuring that the proposed procurement practices would address the drawbacks of the current strategies as well as help the firm to achieve cost efficiency.

D – Comparative Analysis

After identifying the two alternative solutions for Severn Trent, the researcher then conducted a comparative analysis to evaluate the relative strengths and weaknesses of the alternative options. Use of tables and metrics made the comparative analysis less daunting. The metrics used to compare SAP Ariba and Achilles included the extent of cost reduction, risks and suitability to Severn Trent’s model. This step helped the researcher to select the most effective, cost efficient and suitable procurement solution which then informed the recommendation section.

E – Recommendations & Contribution to Business

The recommendations section proposed the most suitable solution that would help Severn Trent to identify new suppliers effectively. Also, this section focused on business outcomes that stakeholders of the firm should expect after implementing the proposed solution.

2.2 Research Methods

This study used a mixed research design by combining elements of qualitative and quantitative study. The qualitative data focused on the opinions and the perceptions of employees regarding the current procurement methods while quantitative data was on cost estimations of the alternative solutions.

2.2.1 Secondary Data:

In his book, Research Methods: The Basics, Nicholas Walliam describes secondary data as information that has been collected by another person other than the user (Walliam, 2010). Although secondary data is likely to be biased, it provides a researcher with background information on the research topic and it guides one to select solutions that are considered as best practices in the industry. In the current study, the researcher conducted an in-depth market research from the service provider’s websites, books and journals. The market research culminated into qualitative and quantitative data on Severn Trent’s current procurement practices and the advantages and disadvantages of alternative solutions.

2.2.2 Primary Data

Primary data is research information which the researcher has a first-hand experience and which they collect with the study purpose in mind. The researcher collected primary data by conducting interview with the study participants. For instance, the researcher interviewed the person in charge of the contract management team to identify the strategies the department is currently using to identify suppliers and the issues inherent in those strategies. Also, the researcher interviewed a procurement expert who offered information on the best sourcing tools for the procurement department. Furthermore, interview with an employee of Severn Trent Water helped identify the supplier identification tools they are using. The employee also evaluated Achilles and highlighted the public procurement issues the business segment faces. Finally, an interview with a sole proprietor e-shop owner helped the researcher to understand how small businesses can use e-procurement solutions despite the shortage in financial and human resources.

2.3 Analysis

Data analysis involved developing business case analysis from the identified alternative solutions. The business case analysis involved examining the advantages, disadvantages and the cost estimations of the possible options. After developing the business case analysis, the researcher conducted a comparative analysis to establish the best alternative solution.

2.4 Limitations

This study had several limitations. One of the major limitations is that sourcing agents and service providers such as Achilles did not provide sufficient information on their websites. For instance, pricing information of Achilles was not available in the web or in any of the reviewed secondary sources. To make matters worse, the researcher was unable to contact the service providers and sourcing agents since he was only an intern at Severn Trent. Another limitation of this study lies in the fact that procurement practices are highly dynamic and as such, one would expect that books and journals would contain updated information about tools that can be used to identify suppliers. However, this was not the case and the scarcity of information on outsourcing tools might affect adversely affect the reliability of the study findings. As such, the recommendations might have been different if the researcher had found books and articles with updated information on procurement solutions. Finally, it is imperative to acknowledge that it is near impossible to achieve 100% accuracy while estimating the qualitative aspects in potential savings or indirect savings upon adopting an outsourcing solution. To illustrate, it is not clear the actual hours that will be saved by using Achilles. Therefore, the cost estimations should only be used as a guide since the conditions are likely to change between when the recommendations are suggested and the time they are implemented.

2.5 Ethics

Note for you: Please don’t do it. It is mine this section

2.4 Gantt Chart - Project Plan Timeline

Note for you: Please don’t do it. It is mine this section

Final Notes for you:

Word count should be 1200, without Ethics and Gantt Chart (that I will do)

Please don’t make front page or any summary or introduction. Only the part that I requested.

3. Data Collection and Analysis

In this section the data collection is gathered from market research, a face to face interview with an experienced procurement manager as well as other secondary sources. The current processes of Severn Trent Business Services and Water were a result of interviews and questionnaires with employees in the contract management team and the procurement department of Severn Trent Water, as well as secondary data available on the internet. In the introduction section of the project it was covered the first part of the project plan that was understanding the business (figure 1). The data collection and analysis section will examine the major available options in the market. Afterwards, these options will generate the business cases which will be produced and analysed in order to make the final recommendations after evaluating the available quantitative and qualitative data.

3.1 Options in the market for identifying and selecting suppliers

This section will present the options and tools of procurement professionals to identify suppliers and then select them. These tools provide different advantages and are differing in basic specifications. For instance, some tools are only for identifying suppliers whereas other can provide supplier evaluation on the pre-selection stage or having only suppliers with certain quality criteria. Other major dimension is the cost as the resources and annual spending of the contract management team are limited to approximately 15 million. After interviewing an experienced procurement professional and market research I shortlisted the following major tools:

E – Platforms: SAP Ariba, Achilles

Sourcing Agents: LFF Group, HPF Energy Services

Data Libraries: D & B Hoovers, UK Datahouse

Directories and web-sites: http://www.wateractive.co.uk/directory/, https://www.esi.info/

Market Research: Google

3.1.1 E – Platforms

The e-platform solution will be examined it in more detail as it can provide more functions than the other solutions that are focusing only on the supplier identification. There is a distinction between e-platforms relative to integration level that they can offer. For example, SAP Ariba and Achilles are tools that were shortlisted on this research but they provide different functionalities and advantages. For this reason, I will separate in this analysis those competitors in different business cases.

Therefore, the major e-platforms that offers possible integration to the company’s systems are: SAP Ariba, Oracle Advanced Procurement, IBM Emptoris (datanyze.com, 16 August 2018) which will be briefly introduced in this section.

SAP Ariba

SAP Ariba, is a procure to pay software solution and can be integrated with the other functions of SAP, providing visibility to more departments and promote collaboration between employees and the cross functional teams. SAP Ariba is the leader in its market with 68.5% market share according to datanyze.com, the largest supplier base and a value of payments annually on the level of $50 billion. This solution offers additional functions like the reverse auctioning, can increase the supply chain visibility, collaborating with multiple tier of suppliers and promote strategic sourcing minimising the supplier risk (ariba.com, 16 August 2018).

Oracle Advanced Procurement

Oracle Advanced Procurement gives buyers the flexibility to choose On-Demand, On-Premises, or any combination of their choosing is a tool that specialises on controlling the spending of the employees that can provide a web-based shopping system in which orders can be created, managed and tracked, with the information integrated to the procurement department to control centrally the purchases with the Oracle iProcurement. It is a system that is easy to use in terms of creating sourcing event and negotiate electronically. However, this solution is lacking business intelligence, information about suppliers and the supplier identification process (oracle.com, 16 August 2018).

IBM Emptoris Sourcing

IBM Emptoris Sourcing is founded and in USA and acquired by IBM in order to make sourcing decisions. It is easy to use with an online tutorial to its customers. It can provide functions like Request for Information (RFI), Request for Quote (RFQ) and Request for Proposal (RFP) as well as auction functionality. IBM Emptoris also can offer suits for contract management, program management, spend analysis, strategic supply management and supplier lifecycle management (ibm.com, 16 August 2018). However, it is tailored mainly to the needs of IBM. Additionally, even though it easy to use for suppliers, it is a tool that buyers will find difficult to identify supplier and is still far from the SAP Ariba’s suppliers base. Integrating to Severn Trent Services system could also be a major issue, as the company is already using SAP.

The other major e-platform solutions that focuses more on the supplier identification are the following:

Achilles

Achilles, provides a solution that specialises on utilities in the United Kingdom with the UVDB database that could be the best tool for identifying suppliers for this industry. Apart from identification, the suppliers are also qualified, decreasing significantly the supplier risk and save time and effort from their customers. Achilles can offer prequalification questionnaires, data validation, audits, supply chain mapping, sustainability products and monitoring the supplier performance (achilles.com, 17 August 2018).

I