Thames Water: Outsourcing

Thames Water came up with an idea with the potential to revolutionise its business: outsourcing its entire supply chain, including warehouse operations. To implement the idea, Accenture collaborated with the United Kingdom utility on creating a new outsourcing model. Six years later, Thames Water has saved $150 million in operating costs and has now become a multinational utility powerhouse with a presence in 44 countries.

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As the largest water utility in the United Kingdom in 1995, Thames Water supplied 12 million customers across the 5,000-square-mile London and Thames Valley region. To keep the water and wastewater management systems up and running for all these customers, Thames Water needed to have pipes, valves, pumps and tanks—more than 5,000 different items—readily available.

As a private company doing business in a highly regulated industry, Thames Water also needed to control costs. So Thames Water's management was faced with a conundrum—needing to cut its costs, yet wanting to grow its non-regulated business interests.
Thames Water came up with an idea that had the potential to revolutionise its business. Its management decided to outsource its entire supply chain, including its warehouse operations.

Accenture has long been known for its willingness to embrace new ideas, no matter how "out there" the ideas may originally seem. Excited at the thought of putting itself on the line and managing a total supply chain, even a warehouse operation, Accenture entered into an outsourcing arrangement with Thames Water in 1995. In a radical departure from the norm, the two companies would create a new, collaborative outsourcing model through a joint enterprise to be known as Connect 2020.

Since 1989, Accenture had been teaming with Thames Water and providing its expertise on a range of strategic issues, from customer service to logistics. Accenture guided the strategic thinking in a number of business areas—designing Thames Water's main warehouse, analysing its distribution processes and establishing purchasing policies for the utility. By joining forces with Accenture, Thames Water was able to reduce inventory costs and deliver more efficient and reliable customer service.

Before long, Thames Water recognised that outsourcing its procurement and logistics to Accenture could be a tool to achieve even higher service levels and greater efficiency. Handing over these processes entirely would allow Thames Water's management to focus on its growth goals and set a strategic course for becoming a global player. Besides, Thames Water recognised that its services and staff would benefit greatly from the can-do attitude and business culture so integral to Accenture's identity.

So, in September 1995, Thames Water passed responsibility for its logistics and procurement functions to Connect 2020, an organisation to be staffed by Accenture personnel. As part of the arrangement, 300 Thames Water employees—including lorry drivers and warehouse staff—joined Accenture. It was an unprecedented move for a utility company to outsource operations that were, in some ways, core to the business. Thames Water, in collaboration with Accenture, was taking a very bold leap in an industry that traditionally shied away from risk.

Accenture immediately turned its attention to improving key business processes and management systems within Thames Water. Accenture revamped purchasing processes and streamlined Thames Water's acquisition of commodity items like electricity, office supplies, chemicals and even temporary labour. By tightening the circle of approved suppliers and negotiating new framework agreements with those suppliers, Accenture secured lower prices and reduced transactional costs for Thames Water.

Accenture also assumed responsibility for logistics and distribution, focusing on the efficient physical movement and storage of materials. Accenture eliminated all duplicative infrastructures, consolidating Thames Water's far-flung network of warehouses into a single Logistics Centre and marshalling yard. With a centralised warehouse, Thames Water's distribution operations could run at maximum efficiency.

Thames Water's pioneering vision has paid off tremendously, resulting in savings of $150 million. Actual cost of service and materials has fallen by 35 percent and continues to fall every year. Spending on a wide range of items, from stationery to industrial gases, has significantly decreased. Inventory has been reduced by more than 50 percent. Most importantly, the cost cutting has been accompanied by vast improvements in customer service. Material availability—a key metric—has exceeded 99 percent, which means that the pipes, valves, tanks and other materials essential to Thames Water's operations are available when needed. Thames Water has been able to meet customer demands better and faster than ever.

"The benefits we were seeking were a cost reduction of our bought-in services, as well as an improvement of the productivity of both the people and the process," says John Sexton, managing director at Thames Water Utilities Ltd. "Those benefits have been delivered."

Always eager to find new ways of helping clients succeed, Accenture has been responsive to Thames Water's needs, even in areas outside of outsourcing. For example, when Thames Water needed to increase the productivity of its field force, Accenture came through.

Accenture designed and built a sturdy, hand-held wireless device that was powerful enough to channel the service management centre even from remote locations. The device requires no dialling in and provides constant two-way communication, allowing field workers to receive instructions immediately. Since deployment of the new system, productive time has risen to 50 percent and costs of field force operations are down 7 percent. In addition to increased productivity and efficiency in the field, Thames Water has been able to provide speedier service, meeting its target goal of satisfying the majority of first-time requests from customers.

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