Here’s a procurement challenge: what do you buy for a company that, as Britain’s second-biggest waste collector, gets most of its raw materials for free?
The task is made harder still as Suez UK, part of France’s Suez Environment and its parent company, water and waste group Engie, doesn’t see itself as being in the waste management business anymore. Instead, it wants to be seen as a producer of energy and fuel. Even the dustmen are now called ‘materials-harvesting’ operatives.
The UK operation is a sizable business. Serving 40,000 business customers and 68 public sector contracts, it handles 9.7 million tonnes of waste a year, from which it recycles and recovers 6.1 million tonnes of materials and generates 930,000 megawatt hours of electricity. Its goal, however, is to concern itself with energy as much as materials, using technology to turn waste into electricity and fuel.
Man for the job
That’s why a man whose title is technical development director plays a leading role in the company’s procurement operations. The role is the ninth in Stuart Hayward-Higham’s 18 years at the company, having worked for ten years in environmental consultancy. He played a key part in developing Blueprint, the strategy devised in 2009 that has driven Suez’s transformation, and has been closely involved with the creation of Blueprint Mk 2, which will take the firm through to 2025.
A member of Suez’s UK board since 2009, he works closely with the head of procurement, John Brooks, and his six-person team to ensure that the activity is strategically led, with the future needs of the business in mind. “I tend to do what we haven’t done before or take what we do well at a niche level and make it mainstream,” he says.
“Procurement is an interesting operation as, when we do these blueprints, we have to look at the changing nature of the business, the different staffing levels we need, the different types of machinery required by different operational contracts and new markets. We’re building a gasification plant at the moment. We’ve never built one anywhere in the world. There isn’t a procedure to follow, so I’m working with John’s team on what that procedure should look like, what the equipment looks like and how we’re going to run it.”
Suez UK was established in 1989 above a shoe shop in Egham, Surrey, as the British arm of SITA, which was founded as Société Industrielle Transport Automobiles 70 years earlier to mechanise rubbish collections in central Paris. Charged with capitalising on the introduction of compulsory competitive tendering for refuse collection and street cleansing, it now has revenues of some €947m (£665m) and employs 5,000 UK workers, with the firm headquartered in Maidenhead, Berkshire.
The recent growth is almost entirely due to the escalator system for landfill tax introduced by the British government in 2008. At the time, about 80% of Suez’s profits came from its 30 landfill sites. However, as the levy rose from £8/tonne to the current £82.60/tonne, the company saw its highest-margin business disappearing and decided to invest heavily in recycling. It now plans to close all but about four of its remaining 20 landfill sites.
Suez runs 33 materials recycling plants, 102 household waste recycling centres, 57 transfer stations, five refuse-derived fuel factories and two solid-recovered-fuel plants, as well as wood and composting processing facilities and a mechanical biological treatment unit. At the port of Tilbury, the company is building Europe’s biggest solid recovered fuel production plant. Suez is also building its first anaerobic digestion plant for Surrey County Council and other new plants in Bristol and Cornwall. And the company sees a need for many more, with Britain still sending approximately 45% of its waste to landfill.
In addition to traditional procurement, Suez is developing self-procurement strategies, using the latest technologies at more than 40 company sites where energy is produced, ranging from landfill gas operations to large energy-from-waste plants to provide its own energy and power.
“We’ve had a process over the past six years of changing the way that we purchase power as a business,” says Hayward-Higham. “We started by buying power in a consolidated manner, using a consultancy to bring all our metering arrangements under one banner. Then we married that with our generation capacity and two years ago we went into a position of power supply self-sufficiency."
“We now have a relationship with suppliers whereby we buy back our own power across the network on a meter-to-meter basis,” he explains.
“That was quite a complex technical buy because we had people who knew the generation side, people who knew the consumption side, procurement people and licensed suppliers all having to come up with an innovative product.”
Having proven this methodology in its own operations, Suez is now offering to make its customers wholly or partially self-sufficient in electricity in the same way.
Waste not, want not
The company is also building a factory in Bristol to convert end-of-life plastics into diesel and kerosene and Hayward-Higham sees Suez becoming self-sufficient to some degree in these fuels too. “We’re a big purchaser of fuel,” he says. “Our intention is to show that there’s a market for this and that we can put these fuels back into trucks.
“That will allow us to become slightly self-sufficient and will allow us to offer that service to customers. It’s in optimisation mode at the moment. “It’s part of our strategy to cover risk where we buy high-cost items, such as fuel, that are out of our control in terms of price in as much as we don’t control the oil price. We’re seeing whether there are ways of better-managing that risk.”
Elsewhere, Suez buys capital-intensive equipment including large industrial machines, turbines, processing equipment and refuse collection vehicles.
It has spent more than £2bn on new capital assets over the past ten years and tries, wherever possible, to buy in a standardised manner so that it can keep spare parts that fit more than one machine.
“There’s a trend in our purchasing of big plant and equipment of trying to reduce the number of variations that we have so that we have less capital-intensive items in stock,” says Hayward-Higham. “When I first arrived at Suez, the things that we bought were mainly [based on] construction and building landfill sites, doing centralised deals to buy en masse equipment and materials, such as plastic liners. We had a national contract for that.
“It tended to be trucks and landfill-based investment, but over the years it has become more about machinery. We still buy trucks, but we now build very complex energy generation plants so we’re buying turbines.”
In keeping with this trend, Suez is moving to a total cost of ownership procurement model, where investment is costed by considering its lifetime requirements, including maintenance and spares, rather than on a straightforward capital basis.
“We’ve had to enhance our procurement team with more expertise in order to do this,” says Hayward-Higham. “Our procurement team provides a central point of discipline, procedure and process. They also come up with innovative things themselves, looking at the dataflow through the business and seeing whether there are opportunities that will allow us to standardise.”
Reporting into CFO Christoph Chapron and to Suez’s corporate office in Paris to work on co-ordination and new ideas, the procurement team has changed the service requirement levels for refuse trucks so they are each able to collect a number of different materials.
Suez, which typically operates a fleet of 1,600 to 1,800 refuse collection vehicles, has been buying weighing devices to install on trucks used for commercial collections, so that collected weights can be monitored.
It is now working on ‘dynamic collection’, whereby communication devices on bins tell the company how full the bins are two or three times a day, so the bins can be collected when they are full rather than on a scheduled basis.
“That’s where we’re headed as a business,” says Hayward-Higham, adding that this will require the company to have multi-bodied trucks with dynamic GPS, on-board weighing and a whole new level of complexity.
“It will make us more efficient, which means we can reduce the cost to the customer. I translate that into a need to start thinking about future procurement, finding future supplies, thinking about how it will work and how it can be integrated. All those things will become a lot more complex. We’re a lot more than binmen now.”