Asset Management Period 8 (AMP8) commences on 1 April 2025 affecting all English and Welsh Water companies. The purpose of AMP periods, set by industry regulator Ofwat, is to increase efficiency and service levels within the sector. It is anticipated that AMP8 will particularly aim 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 rocked by both worldwide and sector level pressures. With the industry still reeling from the impact of Covid and the implications of Brexit during this time, the war in Ukraine has further compounded this period of uncertainty. All of this has put inflationary pressures on the economy overall, driving costs up.
Critically, for the water industry, are serious concerns regarding the sector’s supply chain resilience and whether the supply chain is capable of supporting water companies to deliver on the mandates outlined in AMP8. At the heart of this concern is that the water industry has become a less attractive sector for suppliers who view it as a higher risk industry than other infrastructure-based industries. The highly regulated nature of the sector will also of course be an off-putting factor for some suppliers, but concerns over the profit margins within this sector and the pipeline of long-term work has meant that the water sector is simply a less attractive proposition to the supply chain. This fragility of the supply chain is compounded by the fact that as supply chain capacity diminishes, water companies will be scrambling to source specialist support that will enable them to reach the targets set within AMP8.
So what should water companies do to mitigate against this challenge? Organisations within the sector will need to become a client of choice to secure the most effective 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 and will partly be driven by a commercial model that instills joint accountability and sharing performance metrics that align to those of the water companies. When considering what their optimum delivery model will look like, water companies will need to consider unprecedented pressures coupled with changes in the supply chain, the environment as well as from the Regulator. There is a need now more than ever to create a supply chain that is sustainable and to be attractive to the market, offering a clearly defined delivery model that allows for capability as well as scalability at the pace required, underpinned by a commercial model that will incentivise all parties whilst delivering their commitments more efficiently in relation to both cost and time.
When an organisation can offer a realistic, metric based approach to its KPIs, this will always appeal to suppliers. Furthermore, by harmonizing KPIs with desired outcomes linked to AMP8, all parties understand the purpose behind their action (a significant motivating factor) and are well placed to create milestones that enable them to maintain focus on the end goal. The ability to monitor and take appropriate action when required, will keep resources and budget focused, demonstrating a responsible approach that will appeal to the supply chain.
Effective Risk Management
Historically the water industry has placed ‘innovation’ and ‘development’ risk within the supply chain, placing a strain on those organisations. With a volatile macro environment and rising inflationary pressures, many suppliers will be adverse to shouldering this burden alone. Water companies need to build greater capability to understand risk. Adopting a more collaborative approach to risk management, finding new ways of working, and the budget to support a shared risk approach, will undoubtedly support an organisation to meet the challenges of AMP8.
Collaborative Supply Chain Partnerships
A supply chain partnership to safeguard the sustainability of the supply chain is crucial. Companies that can work closely with their full supply chain will appeal to Tier 1 suppliers, who will recognise 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 reduction of scope 3 emissions for the water company itself.