IGLS04/1 Dr Tom McGovern and Dr Chris Hicks Specifications and Supplier Development in the UK Electrical Transmission and Distribution Equipment Industry Tom McGovern and Chris Hicks University of Newcastle upon Tyne

IGLS04/2 Dr Tom McGovern and Dr Chris Hicks Definition of a Specification “ a written description of a product that is generated beforehand to guide the development of the product” (Smith and Reinertsen, 1991, p81). “forum for dialogue” (Nellore and Söderquist).

IGLS04/3 Dr Tom McGovern and Dr Chris Hicks Purpose of a Specification To state the requirements concerning the performance and technical attributes of a product. To give guidance on the process of making and using a product. Source: BS7373, 1998

IGLS04/4 Dr Tom McGovern and Dr Chris Hicks Performance or Functional Specification “specifies requirements in terms of features, characteristics, process conditions, limits and exclusions defining the performance of the product” Source: BS7373, 1998, p1

IGLS04/5 Dr Tom McGovern and Dr Chris Hicks Product or Technical Specification “ document that prescribes the requirements that the product needs to fulfil in order to conform to the performance specification”. Source: BS7373, 1998, p1.

IGLS04/6 Dr Tom McGovern and Dr Chris Hicks Specification of Processes Broad and general. Dependent on internal and external standards (BS, NGTS, IEC, ISO).

IGLS04/7 Dr Tom McGovern and Dr Chris Hicks Previous Research High volume automotive industry Black box engineering. Models of the specification process. Little research conducted in to the low volume, capital goods sector.

IGLS04/8 Dr Tom McGovern and Dr Chris Hicks Purpose of this Paper Application of specifications in the UK electrical transmission and distribution equipment industry. Case studies of National Grid Company and one of its strategic suppliers.

IGLS04/9 Dr Tom McGovern and Dr Chris Hicks Electricity Industry In 2001, the electricity industry accounted for 13% of all industrial investment in the UK and contributed 1.2 % to GDP (DTI, 2003). Highly capital intensive, with total assets of £135 billion, or 4% of the total capital stock of UK industry (DTI, 2000).

IGLS04/10 Dr Tom McGovern and Dr Chris Hicks Research Methodology In-depth case studies. Explore the type of specifications issued by NGC. NGC’s supplier development initiative. SSADM to explore internal processes at SupplierCo and its external communications with customers and suppliers.

IGLS04/11 Dr Tom McGovern and Dr Chris Hicks Understand the processes and issues related to specifications. Investigate how the business processes interacted in response to invitations to tender. Identify how SupplierCo put together tenders. Research Methodology (cont.)

IGLS04/12 Dr Tom McGovern and Dr Chris Hicks Privatisation of Electricity Supply Industry 1989 Electricity Act provided the framework for the privatisation of the electricity industry (CEGB) in the UK Fossil fuel power stations transferred to four generating companies: PowerGen and National Power in England and Wales, and Scottish Power and Hydro-electric in Scotland

IGLS04/13 Dr Tom McGovern and Dr Chris Hicks Nuclear stations transferred to Nuclear Electric. NGC took responsibility for operating high voltage transmission grid in England and Wales (400,000 and 275,000 volts). Twelve Regional Electricity Companies took responsibility for supply and distribution. Privatisation (cont.)

IGLS04/14 Dr Tom McGovern and Dr Chris Hicks National Grid Company (NGC) Operates and maintains the 4,500-mile transmission grid. Operates the electricity connectors between England and Scotland. Operates the cross-Channel transmission link to France. Responsible for maintaining the physical assets and ensuring the long-term reliability of the grid.

IGLS04/15 Dr Tom McGovern and Dr Chris Hicks Monopoly position as a system operator. Regulated by OFGEM. Under the New Electricity Trading Arrangements (NETA), NGC is to guarantee the quality and reliability of electricity across the network and to balance aggregate supply and demand. NGC (cont.)

IGLS04/16 Dr Tom McGovern and Dr Chris Hicks National Grid Technical Specifications (NGTS) NGC is cost driven. Substantial technical expertise. Substantial body of explicit and implicit knowledge. High age profile of engineers at NGC and its suppliers. Detailed technical specifications for critical new components.

IGLS04/17 Dr Tom McGovern and Dr Chris Hicks NGTS documents are available on the web to approved suppliers. Specifications are orientated towards a single integrated grid to give stability of supply. Specification defines the product requirements to meet performance standard specified by the Regulator (99.4% availability of supply). NGTS (cont.)

IGLS04/18 Dr Tom McGovern and Dr Chris Hicks Type Registration system for plant and equipment to ensure compliance with NGC technical standards and specifications. All equipment has to be pre-approved by NGC. NGC controls design solutions. NGC seeks well-proven solutions and very high reliability NOT innovation. NGTS (cont.)

IGLS04/19 Dr Tom McGovern and Dr Chris Hicks Tender documents are framed in terms of functional or ‘application’ specifications. These are underpinned by the NGTS framework. NGTS (cont.)

IGLS04/20 Dr Tom McGovern and Dr Chris Hicks Supplier Development First tier suppliers of transmission and distribution equipment are assessed as part of the tender evaluation process. Suppliers are assessed on tender price, tender compliance, capability and performance.

IGLS04/21 Dr Tom McGovern and Dr Chris Hicks The capabilities of suppliers are assessed on ten criteria: management systems; contract management; safety, health and environmental; scheme development; tenders; design management; programme management; supplier management; site management; commissioning and post- project support. Supplier Development (cont.)

IGLS04/22 Dr Tom McGovern and Dr Chris Hicks Suppliers are assessed on a scale of 1 to 10 in each of the ten categories: 1 is inadequate, 3 is poor, 7 is good and 10 is excellent. Suppliers are shown their individual performance on the basis of the assessment criteria plus a comparison with other suppliers. Supplier Development (cont.)

IGLS04/23 Dr Tom McGovern and Dr Chris Hicks NGC works with suppliers to develop a programme and action plan to improve their capabilities. Supplier performance during each contract is assessed on the basis of project delivery, site delivery and commercial criteria. NGC has a considerable amount of data for tender evaluation. Supplier Development (cont.)

IGLS04/24 Dr Tom McGovern and Dr Chris Hicks Supplier development strategy guarantees quality assurance and helps suppliers to improve their capabilities and performance Supplier Development (cont.)

IGLS04/25 Dr Tom McGovern and Dr Chris Hicks Supply Chain Management Collaborative as opposed to partnership relationships. Shift from a product development strategy to supply chain management. NGC is seeking integrated solutions that encompass product development, construction, tendering, project delivery, maintenance and demolition.

IGLS04/26 Dr Tom McGovern and Dr Chris Hicks

IGLS04/27 Dr Tom McGovern and Dr Chris Hicks From January 2004, NGC will not approve components. Lower-tier suppliers must link in with a first-tier solution provider. Principal contractor is responsible for ensuring that the product meets NGC standards. Creation of ‘super clusters’. Supply Chain Management

IGLS04/28 Dr Tom McGovern and Dr Chris Hicks SupplierCo Produces a wide range of equipment including air-insulated and gas-insulated switchgear. Restructured into SBUs: Projects, Protection, Automation and Control (A&C). Tenders come to A&C via Projects. Projects undertakes the risk management.

IGLS04/29 Dr Tom McGovern and Dr Chris Hicks Restructuring Shift from a functional to a customer- focused structure. Senior engineers operate across the main functions of the business. Senior engineers are responsible for planning and controlling the project. Senior engineer liaises directly with the customer.

IGLS04/30 Dr Tom McGovern and Dr Chris Hicks Tendering An issue of accuracy with site drawings provided by NGC. Each clause has to be checked to ensure compliance with NGTS, BS, ISO or IEC standards. Some specifications are onerous and sometimes over specified resulting in higher costs for the testing of products.

IGLS04/31 Dr Tom McGovern and Dr Chris Hicks NGC system stifles creativity and innovation and increase costs. Issuing of standard documents to trusted contractors would allow the supplier to indicate non-compliance in particular areas of the tender. Would prefer to offer alternative products (non- compliant) with improved technology. Tendering (cont.)

IGLS04/32 Dr Tom McGovern and Dr Chris Hicks SupplierCo always bids compliant. When seeking quotations or ordering equipment, the relevant sections of the specification are passed to the suppliers. Primary role of tendering is to develop tenders that achieve the correct price, quality and delivery date to meet customers’ requirements. Tendering (cont.)

IGLS04/33 Dr Tom McGovern and Dr Chris Hicks Takes 7 to 10 days to prepare a tender and involves two to three people working on it part-time. The work content is generally hours. 20% tendering success rate. Tendering (cont.)

IGLS04/34 Dr Tom McGovern and Dr Chris Hicks Benefits of NGC System NGC management of specifications and supplier development initiative give the Company control of product development and fulfilment processes throughout the supply chain. Supplier development strategy makes purchasing decisions transparent to suppliers and the Regulator.

IGLS04/35 Dr Tom McGovern and Dr Chris Hicks Engineering competence of NGC is recognised throughout its supply chain and also internationally. Ensures the adoption of appropriate quality standards throughout the supply chain. Specifications need to reflect the changing nature of the industry. Benefits of NGC System (cont)

IGLS04/36 Dr Tom McGovern and Dr Chris Hicks Specifications should take into account the type and amount of information given to or obtained from suppliers. Few first-tier suppliers and mutual dependence between NGC and its suppliers. NGC has a large investment in embedded knowledge. Benefits of NGC System (cont.)

IGLS04/37 Dr Tom McGovern and Dr Chris Hicks Design of distribution products is not driven by competition. Emphasis on reliability and cost reduction to satisfy the Regulator and satisfy shareholders. Specifications are static, therefore the focus is on supplier development. Benefits of NGC System (cont.)

IGLS04/38 Dr Tom McGovern and Dr Chris Hicks Conclusions Detailed technical specifications reduce the design choices available to suppliers, which may constrain innovation and increase costs. NGC is adopting functional specifications, but they will be embedded within a comprehensive framework of detailed technical specifications.

IGLS04/39 Dr Tom McGovern and Dr Chris Hicks Integration of knowledge is NGC’s core competence. NGC seeks to develop its technical expertise rather than capture it from suppliers. Supplier development programme controls costs and encourages suppliers to maintain and develop their capabilities. Conclusions (cont.)

IGLS04/40 Dr Tom McGovern and Dr Chris Hicks The programme promotes competition between suppliers. Specifications influence the power balance between customers and suppliers. Specifications have a large influence on performance, capital and operating costs. Specifications are a strategic issue. Conclusions (cont.)