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If water is the ‘next oil’…your Water Co better shape up

July 15th, 2008 · by Justin Fogarty · 3 Comments · LCCS and trade, best practices, enviro/social sustainability, sourcing, supply management, supply risk

Commuting through the haze created from several hundred California fires, I drove past my local water reservoir, which is currently at 16% of capacity. There’s talk in the region about water rations and rate increases are on the horizon. And that’s just my local water scarcity problem, caused by a prolonged drought and ever-rising consumption.

California’s current water shortage is only one datapoint for a problem that’s gaining attention and speculative investment. In fact BusinessWeek’s recent cover story, There Will Be Water, outlines the growing problem; a future where 50% of the world’s population will live in areas of ’severe water stress’ by 2030 and a H2O tycoon, like T. Boone Pickens, can beat you down with a Sparklets bottle while “drinking your milkshake.”

The truth is, relative water scarcity due to drought and demand will make water prices rise. And as that happens, you can expect heavy pressure by everyone - from consumers and restaurants to factory farms and elected officials - to lean on local water companies to cut costs. Luckily there is room for increased efficiency in the industry, starting with a push towards spend management.

In a recent article for industry trade publication Water Online, senior category manager Pat Furey outlined 7 steps water companies can take to control spend. While the advice is directed towards public and private water companies, there are likely some take away lessons for buyers in other industries as well.

So, what does Pat prescribe?

  1. Shop the Globe - Unlike many industries, the water business has been slow to tap the rest of the globe as a supply base. So Pat urges them to move out of their comfort zone of dealing only with suppliers they already know in order to take advantage of LCC for supplies and labor.
  2. Create Competition - Relative to other industries, water companies have also been slow to adopt reverse auctions, supplier networks and competitive bidding. Ironing out a process that gathers bids from a diverse group of vendors has a long, well documented history of driving down costs in other industries. So, why not water?
  3. Consolidate Purchasing Power - Different business units should be pooling their purchasing power to receive bulk discounts.
  4. Curb Maverick Spending - After consolidating purchasing power, the next step is tightening the process to curb off-contract spending by employees. Whether they are purchasing from their personal preferred suppliers or simply unaware of better terms other buyers in the company have negotiated (often with the same vendor), reigning in maverick spend can lead to significant savings.
  5. Negotiate Contract Terms to Reflect the Times - If prices are high and it’s a seller’s market, keep the contract period short. Your hands will then be free to renegotiate longer term pricing when market conditions soften and your vendor is ready to bargain to keep your business.
  6. Diversify Your Supply Base - Leaving yourself some options for commodities lowers the risk your supply chain, which could be greatly disrupted if you sole provider was to fall on tough financial times or some other event stopped the flow of goods and services.
  7. Leverage Initial Contract Negotiations for Non-Monetary Benefits - Think beyond just price. Including things such compliance with chemical/environmental regulations in the contract can prevent safety, supply chain or PR problems.

Justin Fogarty is Managing Editor of Supply Excellence. Feedback or questions about the blog and its contributors can be directed to Justin at jfogarty[at]ariba.com.

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3 responses so far ↓

  • 1 Supply Excellence — Hold your Clydesdales: InBev & Anheuser-Busch “synergies” aren’t just layoffs // Jul 23, 2008 at 5:09 am

    [...] leverage their massive purchasing power. Brewers have been feeling the rise in wheat, barley, hops, water, aluminum and distribution costs. So consolidating their sourcing and procurement operations in [...]

  • 2 MarlaLee // Jul 26, 2008 at 3:34 am

    Secret water diverting. Annihilation of various residents in order to seize control. Felony altering/replacing of lines followed by unauthorized re-construction of private property. City left setting on top of clamped sewer/water lines as old records and plat/parcel maps are continuously replaced with illegally altered records. After Fresno’s Dept. of Public Works was caught conspiring with WGS, a former city employee in one of the most heinous and barbaric operations in history, Mayor Autry had them issue a R.O. against me - committing perjury to discredit the city’s own (unaltered) records and photographs, which verify EXACTLY what is taking place. Death threats followed if I continue to report this. Also keep in mind that during the 25 yrs I knew WGS (inc. employed on 2 occasions), I heard him boast of breaking laws and overriding city planning in order to secretly divert the water supply for future development, but until he and Public Works were caught in action, I did not believe it.
    BELIEVE IT!

    Click here for Autry’s Atrocities- massive cover-up

  • 3 David Zetland // Aug 1, 2008 at 6:07 am

    Unfortunately, higher prices (due to shortage) should NOT be countered by cost cutting. Higher prices are NECESSARY to reduce demand.

    Cutting costs (and lowering prices) will NOT accomplish that same goal.

    OTOH, more efficient water management can increase supply (to meet demand), but these increases may not outpace the demand growth.

    Keep prices high, lower costs, and rebate the “profits” on a per-capita basis.

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