Totex-based approach is reshaping the water sector
Totex based approach is reshaping the water sector
We are hearing a lot about ‘totex’ in the water industry, meaning total expenditure.
A totex approach considers expenditure in a holistic way: it looks at total expenditure rather than separate operational and capital expenditure allowances.
Water companies are now being assessed against long-term outcome measures, proposed by the individual companies and determined through customer consultation. This setup certainly supports a totexbased approach.
Water companies are being asked to reduce their original estimated costs for the service they provide, so driving down costs and optimising efficiencies are now more important than ever to minimise totex in the most effective way possible.
Predictability is therefore crucial, and nowhere more so than from the supply chain.
Water companies and their main contractors are looking for long-term supply chain partners that really understand all this and can offer excellent predictability for outcomes.
One way in which predictability can be optimised and significant efficiencies delivered is through closer integration and earlier engagement and collaboration with the supply chain.
In the context of pipeline procurement, one of the areas that provides the greatest opportunity for collaboration and for cost savings is the early involvement of a pipe supplier at the design stage of a project.
Having access to initial design information enables the optimisation of pipeline design and energy consumption, the reduction of CO2 emissions and a ‘right first time’ outcome.
In the context of pipework procurement, being able to predict total cost of ownership is also crucial for predicting longterm outcomes.
That is why it is proving invaluable for pipework suppliers to be able to help estimate the total cost of ownership and lifecycle assessment of a specific pipework, depending on the material chosen for its construction. Water companies and their contractor partners would be well advised to ask what initiatives such as specialist software their pipework suppliers have in place to help with that.
While the totexbased regulation of AMP6 is shaping the water industry landscape, it is clear that collaboration is fundamental to successful supply chain management.
We look forward to seeing how the industry continues to step up to the totex challenge.
This article can be found on the Construction News website.