Service Logistics: a key enabler of performance improvement in Utilities

Following the final Ofwat regulatory determination for AMP7 (Asset Management Plan) for water companies and the impending delivery of the equivalent in the gas and electricity sectors (RIIO-2), UK utilities are under intense and unprecedented pressure to deliver against demanding new performance criteria and service outcomes.

With the regulators’ ultimate objective to deliver cheaper utility bills to end-customers and simultaneously improve environmental impacts, driving operational efficiency and effectiveness is an imperative to be able to thrive, or even survive, within the new market conditions.

More importantly, past perceptions of regulatory penalties being ‘just another occupational hazard’ and something that you might pay from time to time are no longer valid. The regulators mean business – for example, in 2019 OFWAT imposed a £126m sanction on one of the UK’s top WASCs (Water and Sewerage Companies), signalling the industry will need to go much further to align with both environmental and operational performance expectations.

Recognising this fundamental shift by the regulators, the utilities sector will have to realign its internal practices and capabilities, its business focus and the way it captures and reports performance. Here we have created a ‘balanced scorecard’ as a graphic summary of the new AMP7 requirements, where we see a fundamental shift away from Asset Life Cycle to Asset Performance and Reliability, balanced with a focus on the Consumer Impact.

OFWAT: Protecting consumers by securing long-term resilience of water supply and wastewater systems

One critical obstacle for Utility businesses to overcome is achieving greater effectiveness and efficiency in the delivery of planned and reactive maintenance, not only to reduce cost but to improve asset reliability and network resilience – the service logistics challenge.

Remarkably, the area of service logistics and spare parts management has been neglected across Utilities. Still today, most operations are predominantly ‘reactive’ in their execution of service logistics; responding to each failure as it arises, supported by a culture and organisational structure built around this way of working. This approach is further compounded by the poor quality of asset-level data – equipment service parts, bills of material, parts consumption history and even visibility of available assets held in the network etc. – that fundamentally inhibits operations from taking a proactive approach to maintenance.

Despite attempts to improve maintenance operations, these two factors combine to prevent the effective deployment of resources and management of network assets, let alone mitigating performance or pollution concerns. They are at the heart of why the asset base continues to underperform and cost remains stubbornly high. 

When compared to service logistics operations in other sectors (e.g. high-technology, reprographics, consumer goods servicing etc.) the sector does not benchmark well!

The challenge therefore is to inject pace, gain early momentum by focusing on pragmatic operational changes that can be managed within the constraints of current operations, whilst essential IT projects still have many years to run.

The Role of Service Logistics

A detailed and structured approach to improving service logistics is vital to improve maintenance performance. Engineers are skilled and expensive resources whose ‘time-on-tools’ needs to be maximised in order to make best use of them.

Service logistics addresses both the people and physical resources deployed across the network operations, including the essential planning, scheduling, procurement and deployment processes that must occur.

How well businesses plan, organise and execute crucially determines the quality of operations and will in future be a key determinant of their ability to meet regulatory targets of resilience, asset reliability and lower cost operations … the ‘holy grail’ of extending asset life (Mean Time Between Failure, MTBF), with the least service parts and maintenance activity, through a productive team of maintenance engineers.

• How well does your business manage the following?
• The planning, scheduling and deployment of human resources
• The intelligent procurement and processing of critical spares
• The design and availability of service kits to drive first-time completion of planned maintenance
• The spend, visibility and availability of spare parts and consumables
• The service infrastructure to support service operations, such as stores and workshops
• The relationship with third parties (skills, parts and equipment availability) to ensure cost-effective business continuity
• The sourcing of parts and related buying process.

Typically, these are all areas that have been overlooked given a prevailing focus on CAPEX. However, these constitute major OPEX in Utilities and are key levers to delivering operating cost improvements to meet future regulatory demands. The table below indicates the substantial benefits that can be accessed across operations, by taking a fresh look at service logistics activities:

Delivering Measurable improvement through Service Logistics & Maintenance Management. Typical benefits clients are able to generate:

Unleash the Maintenance Potential

Prior to gearing-up for the full capability of service logistics operations, there are some prerequisites that must be in place.

Firstly, effective planning is only as good as the data that feeds it. It is surprising how big a gap this proves to be and should be an industry priority if powerful analytics and planning is to be achieved. A full, accurate history of network assets (equipment) and spare parts inventory, including key information about the asset (its history and failure modes / spares consumption), are critical enablers to delivering far higher First Time Fix (FTF) rates than we typically see today.

Secondly, planned maintenance (PM) tasks, as part of the wider Asset Operation and Maintenance (AOM) plan, need review; determined as part of a strategy that best supports each asset, be that run-to-fail, preventative based on time or usage, condition-based, reliability-centred or even financially optimised. A crucial step in the overall Asset Lifecycle Management approach depicted below.

Asset Lifecycle & Work Management

These two elements combine to construct a more effective, targeted and balanced PM programme, properly resourced with complete service kits, to ensure a single comprehensive intervention. The result is a reduction in the overall PM activities. The reactivity we see today is often a by-product of being overwhelmed by too much PM, much of which is abandoned or superseded. With the easiest or least effective maintenance protocols being undertaken, we do not reduce asset failure (MTBF), rather increasing reactive maintenance, a vicious cycle that leads to the self-fulfilling prophecy of more reactive work!

Thirdly, establishing tighter control and accountability over planning, scheduling, deployment, and management of work will quickly drive performance improvements. For example, there is significant capacity lost due to the lack of coordination of planned tasks alongside reactive work, but this requires joined up thinking and systems. Also, planning and preparing for reactive jobs, in the knowledge asset failures are inevitable, operations are better geared to minimise Mean Time to Repair (MTTR), thereby improving asset availability (uptime).

To conclude

Increasing ‘Asset Uptime’ is key to reducing operational spend in line with regulatory expectations. Service Logistics and improved spare parts management are two key areas for the Utilities sector to focus on to deliver this requirement. Whilst significant improvements in systems capabilities must be made over the long term, there are many short term, pragmatic interventions that can help businesses secure early improvements whilst boosting their maintenance capabilities.

Achieving this through improved analytics (based on key data capture), a maintenance plan that is structured and focuses on critical asset uptime, with ownership and accountability, will be critical to delivering the next regulatory cycle for all businesses across the Utilities sector.