Worthing-based Southern Water has introduced a ground-breaking system of stock management which has delivered savings of £500,000 in its first year. It has proved so successful that it is set to be copied by companies not just in the UK but across Europe.

The success of Southern Water stems from a routine visit to a supermarket by a senior manager while on holiday in America. His visit has led to the company revolutionising the way it manages the stocking of chemicals at water treatment plants. During the visit he noticed that the rack displaying a large selection of Coca Cola products was being restocked by an employee of that company and not by supermarket staff.

Following a brief chat with the store manager it was discovered that in the US retail trade it is common practice for the big supermarket chains not only to charge suppliers for the floor-space needed to sell their brands but also make them responsible for the costs associated with delivery, stock management and retrospective billing.  This prompted the question: Could this commercial model benefit Southern Water's supply chain?
 
Chemicals used in water treatment processes are a critical part of Southern Water's supply chain. They are also expensive. Southern Water spends £6.5m per annum on chemicals. With the exception of power, chemicals are the greatest direct spend for a water company . . . and Southern Water was using 19 different suppliers!

Today, the complexity and risk associated with the chemical supply chain has been handed over to just five suppliers. Existing stocks were transferred from Southern Water to these suppliers who now, for the first time, are working collaboratively for the same customer. Their responsibilities range from controlling stock levels on Southern Water sites to maintaining chemical dosing equipment.

"This has reduced stock holding costs by 80% and cut the number of purchase orders by 20%," said Malcolm Butchers, Commercial Manager at Southern Water's head office in Worthing, West Sussex. "But the benefits don't end there. We have adopted the same concept with other suppliers - such as protective clothing, spares for industrial dryers, electric pumps and motors.

"The company has already benefited from an immediate reduction of 70% in the working capital value associated with these items and will continue to realise the benefits on an ongoing basis."

But it is in the management of chemicals where Southern Water's innovative system is set to storm through Europe. Said Paul Key, European Sales Director of Kemira Water which supplies chemicals to all UK water and sewerage companies bar one: "This project is unique in the water industry. We have more than 3,000 European customers, but only operate in this way with Southern Water. But that's about to change . . .
 
"Southern Water's success has generated a great deal of interest from other customers both inside and outside the water industry. With Southern Water's support, we will be implementing similar initiatives across Europe throughout 2009.;

"We have been greatly encouraged by the refreshing, intellectual and commercially mature approach taken by Southern Water in negotiating this innovative framework agreement." 

Apart from financial benefits, this new way of working also reduces Southern Water's carbon footprint.  Better management of chemicals has led to significantly lower volumes of sewerage sludge being produced with a consequent reduction in the number of road tanker movements required to transport the waste off-site.  This has a huge environmental impact in terms of less fuel and less pollution.