Rail Industry Focus

01.07.14

‘We’re not going to find those savings through squeezing suppliers’ margins’

Source: Rail Technology Magazine June/July 2014

Adam Hewitt reports from The Platform session at Infrarail on supply chain, procurement and collaboration.

BS 11000 has featured many times in the pages of RTM in the past two years. The collaborative working standard grew out of work by the Institute for Collaborative Working (ICW), whose operations director, David Hawkins, led a discussion at Infrarail 2014 in May about its role in procurement and supply chain management.

Hawkins has 40 years in the construction industry in procurement roles, and setting the context for the railways for CP5, he said: “There’s masses of money to spend, but some horrendous targets to try to achieve.”

The first speaker was Stephen Armstrong, head of category management at Network Rail, who leads a team of 25 and is responsible for business-wide commercial strategy, touching all categories of external supply chain spend (totalling about £5bn a year).

The only way to do it

He said: “Of the multi-billion pound volume of works to deliver in CP5, over three-quarters of that is now under contract. The benefit of entering into partnerships is, frankly, that it’s the only way we’re going to deliver in CP5, because of the savings we need to find.

“We’re not going to find those savings through squeezing suppliers’ margins. That money doesn’t exist. We’re not going to create the capacity we need to do things that we haven’t done in recent years, like major network electrification programmes, without working in partnership and giving suppliers some security to allow them to invest.

“By creating framework agreements and partnership agreements for the control period, we’re giving ourselves the ability to work with the supply base in planning and designing projects to improve constructability; we’re giving ourselves the ability to progress our safety agenda with the supply base, encouraging safe behaviours; and at project level, we’re better able to work together on opportunities to deliver in a more socially and environmentally sustainable way.

“But ‘partnership’ is no substitute for good commercial management; it’s not about paying over the odds, it’s about efficiency.”

Not a new idea

Richard Graham, development director for rail networks at engineering giant CH2M Hill, gave some of the backstory of the company – an American firm that’s made big inroads in the UK with its work on the Olympics and Crossrail, among other projects.

But the project that made its name, he said, was the ‘Rocky Flats Closure’ – a complex nuclear decommissioning programme near a population centre. Original estimates were that it could take 70 years and cost $36bn. Clearly a different approach was required, and CH2M Hill was part of the team that got it done in six years for $6bn.

Graham said: “We did that by focusing on outcomes, not processes. Secondly, on the team, not ‘what’s in it for me’. Thirdly, it was about incentivisation: setting targets to work to common goals. Fourth, it was engaging the supply chain – some of the tools in the box didn’t actually exist, so we needed innovation. Fifthly, it took good governance and programme controls. 

“This was in 1995, well before BS 11000. So CH2M Hill and similar companies would argue that we’ve been ‘doing’ collaboration a lot longer.”

He said client leadership was a vital element. “Network Rail coming on board and embracing this has been a key change,” he said.

Supply chain failure

Next up was Annette Gevaert, director of rail and transport at Achilles, and a frequent contributor to RTM on supply chain issues.

She discussed research commissioned by Achilles – featured in our April/May 2014 edition – into the costs of supply chain failure.

The main failures experienced by the companies interviewed were failure to deliver on time or to the required quality. The third most common was financial failure – when a supplier went bust. The most expensive failures, though less common, were reputational, at an average of £300,000 per case. “Though that’s quite difficult to measure, of course,” Gevaert acknowledged.

About 8% experienced difficulties when a supplier didn’t meet health and safety obligations.

Gevaert said: “This shows you how important the supply chain is: it can cost you quite a bit if it doesn’t work out, or if one of your suppliers doesn’t deliver in time, in quality, or doesn’t deliver at all if it isn’t around any more.

“What surprised me from the research is that half of the organisations didn’t even know who their tier 2, 3 or 4 suppliers were: they had never mapped out their supply chain below the top tier. Yet quite a lot of them experienced difficulties coming from those lower tiers.

“Getting that visibility will drive performance up. That’s where collaborative working comes in and will help us going forward.”

Hawkins noted that there is far more talk of supplier failure than customer failure, and then made the case for BS 11000, saying too many people saw risks where there were none. He said: “I had a discussion with a Network Rail lawyer who spent two hours telling me about the challenges, difficulties and risks of moving into a collaborative environment. So I had to ask: how successful have your existing, straightforward, non-collaborative contracts been in delivering projects on time, under budget, up to quality? Not very.”

A different mindset

Stephen Ashcroft, procurement coach at Brian Farrington Ltd, discussed this reluctance. He said that because procurement people usually report into financial officers usually perceived as cost-focused, they can feel judged primarily on one metric: saving money. “That makes it difficult to attract blue-sky thinking interested in transformational change,” he said. “It needs a different mindset.

“The biggest challenge I see is people’s willingness to embrace those changes at a senior level. Conceptually, BS11000 works fantastically: but are people in procurement willing to change?”

Tell us what you think – have your say below or email opinion@railtechnologymagazine.com


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