Asset Management Period 8 or AMP8 commences on 1 April 2025 affecting all English and Welsh Water companies. The purpose of AMP periods, set by the industry regulator Ofwat, is to increase efficiency and service levels within the sector. It is anticipated that the main aim of AMP8 will be to transform the water industry’s commitments towards climate change and customer expectations on service, society and the environment.
The backdrop to AMP8 of course is that the sector has been besieged by worldwide and sector level pressures and problems. With the industry still reeling from the impact of Covid and the implications brought on by Brexit during this period, the war in Ukraine has only added to this period of uncertainty. All of this has of course put inflationary pressures on the economy overall, driving costs up across the board.
Critically, for the water industry, are serious concerns regarding the sector’s current supply chain resilience and specifically on whether the supply chain is capable of supporting water companies to really deliver on the mandates outlined in AMP8. At the heart of this concern is that the water industry has now become a less attractive sector for suppliers, viewing it as a higher risk industry than other infrastructure-based industries. The highly regulated nature of the sector will also be a challenge, a real factor in decisions for some suppliers. Couple this with the real concerns over the profit margins within this sector and the pipeline of long-term work, the water sector is simply a less attractive proposition to the supply chain. The obvious fragility of the supply chain is further compounded by the fact that as supply chain capacity diminishes, water companies may be unprepared and then forced to source new, specialist support that will enable them to reach the targets set within AMP8.
So what should water companies do to try to mitigate against this challenge? Organisations within the sector must become a client of choice to secure the most effective and capable supply chain. To do this there are number of areas to focus upon:
Creation of a Commercial Model Reflective of the Market
Creating an environment that ensures both collaboration and outperformance from all stakeholders will be key to the success of AMP8. It will partly be driven by a commercial model that fosters joint accountability and a sharing of performance metrics that align to those of the water companies. When considering what their optimum delivery model will look like, water companies will have much to consider. The need to consider the unprecedented pressures coupled with changes in the supply chain, the environment and those from the Regulator. Now, more than ever it is important to create a supply chain that is sustainable and attractive to the market, offering a clearly defined delivery model. It has to be one that allows for both capability as well as scalability, and at the pace required. Finally it must be underpinned by a commercial model that will incentivise all parties, whilst delivering their commitments more efficiently in relation to both cost and time.
Strategic KPIs and Metrics
An organisation offering a realistic, metric based approach to its KPIs will always appeal to suppliers. Furthermore, by melding KPIs with desired outcomes (linked to AMP8), all parties can understand the purpose behind their action. This is a key factor and will help keep them well placed to meet milestones and enable them to maintain focus on the end goal. The ongoing ability to monitor and take appropriate action when required will keep costs, resources and budgets focused, demonstrating a responsible approach that will appeal to the supply chain.
Effective Risk Management
Historically, the water industry has always placed innovation and development risk within their supply chain, placing the strain on those organisations. With current challenges and obvious rising inflationary pressures, many suppliers will be adverse to shouldering this burden alone (or possibly at all). Water companies must build greater capability to understand risks, adopting a much more collaborative approach to risk management They must also find new ways of working and ensure it is with the budget to fully support a shared risk approach to meet the challenges of AMP8.
Collaborative Supply Chain Partnerships
A supply chain partnership to safeguard delivering sustainably is crucial. Those that can work closely with their full supply chain will appeal to Tier 1 suppliers, recognising the commitment to a collaborative approach that drives innovation and efficiencies. As AMP8 is expected to focus on climate change resilience, gaining a robust understanding of the full supply chain will also be crucial to anticipated reporting and in reduction of scope 3 emissions for the water company itself.
Profit Margins
Lower profit margins within the industry have been cited as a major turn-off for suppliers. It is therefore crucial that water companies consider how they can best incentivise and share profits more equitably within their whole supply chain. Those that do so will naturally be a more attractive prospect.
Pipeline of Work
Organisations that can commit to longer-term plans would undoubtedly make them a more attractive client to suppliers looking to establish a partnership far into the future. Of course, this may not always be possible, but it would certainly strengthen the water company’s appeal within the supply chain.
Integrity
To fulfil AMP8 requirements, the entire organisation will need to understand the challenges faced, and be empowered to work together on delivering the vision. Water companies should ensure that all areas within the business are well-informed and understand their part in the successful delivery of AMP8. In doing so this will provide reassurance to suppliers who are also integral to the delivery of AMP8 outcomes.
Communication
Effective communication with the supply chain is critical to success. Those organisations that build a solid communication strategy as part of their AMP8 procurement activity will ensure that the correct audiences are communicated to, at the right time and with the correct messaging. Failure will lead to confusion and distrust amongst the supply chain.
Talent
Retaining talented procurement staff who understand the procurement requirements to support AMP8 is crucial. This is critical if the framework scopes are to be clear, aligned and achievable, also driving value and efficiencies at the same time. The credibility of any organisation is dependent on the people within it, and those organisations who retain and recruit procurement professionals with strong supplier relationship credentials and a long-term vision will appeal to suppliers who recognise the value in a strategic procurement approach to AMP8.
It is widely believed that AMP8 represents one of (if not the) most significant challenges for the water industry to date. Water companies will require specialist support, particularly when considering innovative approaches to support net zero objectives. It is already evidenced that the sector itself is losing appeal to the supply chain, therefore it is now imperative that water companies act to ensure that their organisation is a client of choice. This is the best possible position to secure a supply chain that will support the delivery of AMP8.
With all of the above it is clear that there are some areas where innovation and technology could be the best tool to meet the delivery of AMP8 and with this in mind a few areas of best fit are
Asset Management
A reliable and low cost way to do this is using IoT and a system such as AssetBook to monitor and record everything from business performance, engineering data, risk management to automation of alerts etc. Bring a new level of operational transparency whilst also driving down costs by creating new efficiencies and removal of manual tasks.
Communication
Our unified system allows for much better information flow and supporting data. Easily push information to anyone within the chain, even doing so with set levels of authority helping to do so effectively but without fear. Really create collaboration and garner unity across all teams, internal or external.
Cut Costs/Increase Profits
By closer management of all aspects of the process it is possible to reduce costs (often dramatically) and in turn grow profitability. Knowledge really is power and simple to create dashboards turn your standard data into valuable insights.
KPI/Metrics and Shared Profitability
All suppliers want to work with those that are focused, efficient and who understand their business. This can be the cornerstone of gaining Tier 1 suppliers who are engaged, excited to work with you and in it for the long haul. Net Zero, ESG and Scope 3 are more accurate and supported by infinitely better data.
So AMP8 is an obvious challenge and one that can use new Technology and Innovation to meet and exceed goals. Using unified systems to better understand their operational efficiencies also ensures water companies can partner with the best supply chain and one that is fully invested in a successful outcome on AMP8.
Book a demo today and find out how our unified system can streamline everything in your organisation.
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