How American Water Puts Resources Where They’re Needed Most
American Water and its crews serve 14 million customers in more than 1,600 communities in the United States.
It’s easy to take water for granted. Whether we’re showering in the morning, running the dishwasher in the evening or giving the dog a bath on the weekend, water reliability is not something most of us give much thought to in the United States.
Unless you are Michael Rich, director of corporate procurement and national categories for American Water. In his role with the nation’s largest investor-owned water and wastewater utility, Rich contributes to making sure the water flows when one of 14 million customers turns a tap or flushes a toilet in more than 1,600 communities in the United States.
To deliver better service and improve efficiencies, Camden, N.J.-based American Water has transitioned its procurement processes in recent years to a center-led model. “The main benefit is our ability to share procurement resources across state lines,” Rich explains. “When the procurement employees reported to individual states, they were constrained to only performing procurement activities for those states. Now, they are still embedded in the states but report directly into our service company organization, allowing us to shift the resources to more regional needs, and allowing us to provide better customer service and more easily share best practices across the organization.”
In a recent interview, Rich walked us through some of the ongoing changes at American Water since he joined the organization in 2017.
Supply Chain Best Practices: Please give us an overview of the procurement process at American Water and how it drives your organization’s success.
Michael Rich: The supply chain process at American Water is divided into four key functions:
• State procurement — focused on sourcing and negotiating contracts for all vital capital and operations services at the state level.
• Supply chain support operations — manages American Water’s technology systems, reporting and investment recovery.
• Supplier diversity team — responsible for managing and reporting on American Water’s supplier diversity strategies.
• Corporate and national categories — source and negotiate national contracts for all direct and indirect materials that go into the treatment, transmission and distribution of clean water to our customers.
Our organization has grown a little and we have become more center-led in our approach.
The largest change comes from how we engage our business stakeholders. We look to maximize value for our business stakeholders. Value is perceived in many ways, not just cost, and our ability to align our resources to the business’ needs builds trust and efficiencies in the process.
My goal has been to train our supply chain team on the importance of understanding the business’ needs, applying category management principles and providing solutions that reduce pain points in the procurement process — all while delivering defined value to fulfill [our] business needs.
SCBP: You came to American Water after eight years with Arizona Public Service (APS), an electric utility. Tell us about that transition.
MR: Once you understand the basics of the investor-owned utility model and the regulatory construct, moving from one utility to another is easy.
What I had to learn quickly at American Water is the aggressive and disciplined growth strategy. Unlike electric utilities that are largely consolidated by region, the water industry is extremely fragmented and we are consistently acquiring water and wastewater systems at a rapid rate. Our customer base and company footprint continue to grow.
In supply chain, we have to adapt our procurement strategies to meet that growth, integrate newly acquired assets quickly and keep our suppliers informed along the way. We are also technology-driven. We have an aggressive technology roadmap that is propelling our company forward and allowing us to be more agile in the way we serve our customers, as well as automating some of our core processes. In turn, we are able to free up resources to be more customer-focused.
From a supply chain standpoint, this is pushing our procurement process to be more agile and our resources to manage more complex sourcing and negotiation strategies.
SCBP: What best practices did you bring from APS that you apply at American Water?
MR: Category management and supplier relationship management are functions that are applicable to all industries. In our industry, it is especially important to know which categories are critical to your operations. Also, fostering solid relationships with primary and alternate suppliers.
We have aging assets and main breaks do occur. We need to be able to respond to any main break of any size at a moment’s notice and know that our suppliers are doing everything they can to help us restore water services as soon as possible.
SCBP: American Water serves customers in nearly all states — how does the procurement process help safeguard consistent water quality and reliability for them?
MR: When it comes to water quality, we are focused on making the procurement process as easy and user-friendly as possible. But at the same time, we apply controls in our process to prevent treatment plants from ordering the wrong chemicals, prevent cross-contamination at the point of delivery in our tanks and [support] continuity of chemical supplies where we need it.
To maintain reliability, we continue to work with our engineering department to find the best-quality pipe repair parts that can stand the test of time but also are easy to install, limiting the time our crews spend in the trench fixing breaks in harsh weather.
Lost water is a major challenge in our industry because of the aging infrastructure in the U.S. Some vintage assets are beginning to leak, which leads to the loss of clean, treated water. We are working with suppliers to develop new technologies that help us pinpoint these leaks and prioritize major sections of pipe for replacement across our service territory.
SCBP: What procurement best practices do you or your department apply at American Water?
MR: Understanding business needs, communication and feedback from our stakeholders are the pillars to our success. The more we listen and understand the business challenges, the better off we are when prioritizing our initiatives and activities to support their needs.
The more we communicate our initiatives and priorities, the more feedback we get. The more feedback we get, the more we understand the business needs. It’s a learning cycle that drives a self-critical mentality and a continuous improvement mindset, paving the way for trust and credibility with our stakeholders.
SCBP: I understand that several years ago the organization operated as a traditional purchasing group — how has that changed?
MR: When I joined the company, our procurement operations were decentralized, [and] most construction and operations procurement was done at the state level with little supply chain engagement. We had over 100 contract templates, a procurement system that was not user-friendly and internal stakeholders did not see the value in supply chain. We operated in an “us vs. them” environment.
Since joining American Water, we set our sights on improving four key areas of our supply chain operations:
• People — train our people to understand the water utility business and how the field crews operate so we can collaborate and be better consultants to the business.
• Process — redefine processes so they are simple to understand and make sure they support fact-based analytical decision-making. Most importantly, making sure they are applied in a common-sense manner that supports business needs.
• Technology — implement technology that supports our processes, which enables a self-service model to drive efficiencies.
• Collaboration — integrate our organization with the business, provide solutions that focus on total value and become customers of choice with our key suppliers.
These principles were well received by our stakeholders and ultimately led us to building better relationships across the company, and they have allowed us to showcase the value of our organization.
SCBP: Walk us through American Water’s adoption of Coupa software.
MR: Going live with Coupa was a multi-year process. Most companies approach buying this type of technology by defining functional requirements. For us it was important to clearly define the user experience. We wanted and selected a procurement tool partner that has a strong long-term innovative development roadmap that aligns with our overall technology strategy.
Our Coupa system went live in April of 2019 with a tremendously low number of minor defects — we joke that it went too well. We had a heavy focus on change management, engaging over 150 change agents across the business. We solicited many rounds of user feedback throughout the development and implementation process, resulting in an overwhelmingly positive adoption of the tool immediately post go-live.
What we like about the tool is its ability to provide a smooth user experience, all while driving compliance with our concurrently implemented new procurement policy. The integration was relatively simple given our overly customized SAP platform.
SCBP: How does American Water manage its supplier relationships?
MR: Now that we have several new procurement tools, we are going to start 2020 focused on renewing our supplier relationship processes. Some of the key things we are focused on in this space are becoming the customer of choice, engaging executive sponsors and integrating continuous improvement into our key supplier relationships.
We view our suppliers as more than partners. They live and work in the communities we serve; they are a key part of what make American Water successful. We could not do this without their tireless support of our mission and commitment to deliver clean, safe, reliable and affordable drinking water to the customers we service.
SCBP: What role does procurement play in supporting American Water’s values, such as safety and growth?
MR: Every year we define key metrics for our organization that directly tie back to these values. We measure our injury rate and safety compliance of our contractors. We target initiatives that drive operational cost savings and capital efficiency, which ultimately reduce costs for our customers and allow us to be competitive in our acquisitions process and long-term contracts, which drive our growth strategy.
SCBP: How has your experience as a U.S. Army reservist helped you in your role at American Water?
MR: I always joke that being a combat veteran gives me the edge in the office when stress is high and things need to get done. I have the ability to step back and remember that when times get tough, I am not wearing body armor, carrying a full combat load and sleeping on a five-ton truck.
The values I learned in the Army directly apply to American Water and the utility industry for that matter. Just like my job in the Army, at American Water I know I am a part of something bigger than me. Being proficient in my role ensures that the crews in the trenches and treatment plants can do their job, providing the families we serve with clean, safe drinking water to cook with and consume to sustain life.