Counting the cost of regulation on water sector supply chain
Posted: Wednesday 4th April 2007
Quantifiable evidence of the detrimental impact of the UK water sector's regulatory cycle on the supply chain is emerging for the first time.
Initial findings from UKWIR's collaborative initiative involving British Water, the Society of British Water and Wastewater Industries (SBWWI) and industry regulator Ofwat, support a growing consensus that an inefficient, boom and bust, culture has been evolving unchecked within the supply chain since privatisation in 1989.
Conclusive findings from a small cross-section of sector suppliers have prompted UKWIR to repeat the exercise right across the industry with a revised questionnaire to generate an even more representative response and extend the evidence base further.
While the preliminary results demonstrate that some businesses experience minimal adverse impacts over the course of the five-year cycle, for others the impacts are shown to be devastating. It is also clear that the pressure on small suppliers at the 'sharp end' of the supply chain is greatest with the potential to significantly undermine the supply chain as a whole.
In what is being regarded as the best opportunity yet to instigate far-reaching policy change to the five-year Periodic Review cycle, senior industry voices are urging the sector to respond to UKWIR's study, The Regulatory Cycle and its Impact on the Efficiency of the Supply Chain.
According to UKWIR Director Mike Farrimond the impacts of the regulatory cycle on suppliers have always been anecdotal with the focus on damaging peaks and troughs leading to inefficiencies; lost opportunities; lack of innovation; low morale; skills shortages; and loss of talent to other sectors.
"Ofwat, the water companies and other key industry bodies are now working together and tackling this important issue. For the first time there's a real sense that something can come of it. Crucially, what we need now is more evidence to support the project and that means more companies responding to the second phase survey," he said.
"There's been a lot of talk in the past, but this is the first real opportunity for the water industry supply chain to influence the policy makers and make a difference. It's a case of speak up now and help instigate change or miss out altogether."
Kay Webb, Senior Analyst/Engineer at Ofwat's Network Regulation Division welcomed the UKWIR initiative as the best way to influence policy change in the future. She urged all sector stakeholders to respond to the questionnaire and make their issues and recommendations known.
"Since privatisation we've seen a roller-coaster expenditure profile which has been cited as a significant cause of inefficiency in the industry's supply chain. To date there has only been an emotional argument to support this and the cost to the supply chain has not been systematically measured. We're committed to supporting a project like this because we need to ensure the industry is equipped to deliver the capital programme now and in the future," she explained.
"Ofwat's Early Start Programme was introduced to try and even out the roller- coaster effect of the cycle, but this project provides evidence to move the arguments on. I think it's the first time that anyone has really tried to quantify it.
"Until you start to ask these questions to see what the actual costs and losses are and the difficulties, it's hard to see why there should be any change. That's why people need to respond to the survey," she added.
The timing of the study was also welcomed. The intention is to include recommendations from the final UKWIR report within Ofwat's methodologies paper for PR09 due to be published in the autumn.
Copies of the questionnaire can be downloaded from UKWIR's website at http://www.ukwir.org/site/web/content/news
