Why rail companies may be ignoring the benefits of SMEs

Source: RTM Jun/Jul 15

Suzanne O’Keane, rail and transport community manager at Achilles, examines why rail companies may be reluctant to increase the number of small and medium sized suppliers they work with.

The rail industry is in the midst of one of the largest infrastructure expansions in recent years, with about £38bn of investment planned over this five-year spending control period.

It’s created a pressing need to strengthen supply chains – with firms of all sizes required to ‘step up to the plate’ in terms of helping to deliver the workload.

Small and medium rail businesses have long been recognised for providing a high level of value and innovation to the industry, but recent research suggests some larger rail companies are not taking advantage of their skills.

A recent market survey of 106 large companies, commissioned by Achilles, found 79% of UK businesses – including those serving the rail sector – have no plans to increase the number of small and medium enterprises (SMEs) in their supply chain.

Of those, almost one in ten (7%) actually plan to reduce the number of SME suppliers they work with.

Last year’s market survey found 88% of UK businesses had no plans to use more SMEs. While this does suggest the rail sector is working on the issue, there is still room for improvement.

In our experience, SMEs add considerable value to the supply chain, including greater flexibility, knowledge of the local area and willingness and ability to innovate.

The FutureRailway report ‘SMEs and the rail industry: Creating a chain reaction’ found that while the SME profile should be ideal for the industry, many perceptions related to smaller businesses were generally negative. The report went on to say that in order to be a successful part of the industry SMEs needed more reliable information about the necessary and relevant standards, compliance and approvals.

Recently the EU introduced regulations designed to help create a level playing field for SMEs in competing for regulated work – some of which applies to the rail sector.Buying organisations will be required to explain why a contract was not split into smaller lots and only being able to specify suppliers have a minimum turnover of up to two times the contract value.

So, with a concerted push on increasing the number of SMEs, why are rail companies still reluctant to use more smaller suppliers to help complete projects?

We often see some companies put off using smaller suppliers due to the administrative burden of pre-qualifying and validating a large number of companies. The complicated regulations and high quality requirements add an extra layer to the pre-qualification and verification process which can often be prohibitive if a company chooses to work with a large number of SMEs on a project.

Overcoming those barriers is going to become increasingly important considering the current push both from within the industry and from government for more SMEs to be involved in the industry.

In our experience, the most efficient way for rail companies to reduce the administrative burden involved in pre-qualifying and verifying a large number of suppliers is through working together.

By adopting a collaborative approach the burden can be reduced by creating common industry standards required of all suppliers in order to be considered for work.

Further, a single pre-qualification and verification system allows SMEs to focus their resources on the project at hand, rather than repeatedly collating paperwork to apply for upcoming work.

A centralised and up-to-date database allows rail companies to experience all the benefits of working with local SME suppliers while at the same time ensuring they can carry out the necessary due diligence in order to protect themselves.

If the rail industry is serious about using more SME suppliers, rail companies need to take steps to ensure their procurement processes are efficient and effective. This not only reduces the time burden for rail firms, but also allows SMEs to concentrate on the task at hand rather than providing the same documents to multiple buyers.

Only when companies have streamlined and proficient procurement processes in play, will rail firms be able to experience the full advantages of working with multiple SMEs.


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