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Changing times for LU’s supply chain

Miles Ashley, programme director construction at London Underground, explains why the organisation is transitioning its supply chain relationships from transactional to strategic delivery models.

There is no doubt that the London of 1850 was a commuting hell with a central density far in excess of today. In many ways, London faced structural problems not dissimilar to our own. 

When Charles Pearson, the first in a succession of underground visionaries, suggested the possibility of railways running underground to connect the peripheral stations with the centre of London he was not merely greeted with scepticism: he was pilloried. 

This stoic man, solicitor to the City of London, was a serial campaigner – prison welfare and emancipation amongst his many passions. He already knew the gnawing pain of opposing established practices. 

Pearson did not live to see the first underground line open in 1863, let alone the vast and sophisticated cities that owe so much of their growth to the value of this one man’s simple idea. 

It’s worth reflecting, though, that Pearson didn’t actually invent anything, there was nothing new about either tunnels or trains, no new technology. As is so often the case, it is a matter of acceptance and configuration of available technology. Innovation is so often a cultural rather than a technology shift. Faced with the reality of our own challenges, and facing the unknown of a digital future, what might we learn from these historic tectonic shifts?  

Business remains trapped by perception and regulation 

Today, get on a plane, and you need not go anywhere near a paper ticket: for access all you need to do is wave a smartphone at a piece of glass. You can even do this on London Underground via phone payment or contactless. Despite this, business within our sector remains trapped by perception and regulation that predates the introduction of the iPhone. 

In creating our physical infrastructure, we know we are seeing early benefits of digital engineering, new materials and new processes which are readily available, but we’re becoming increasingly aware that our procurement approaches and the transactional relationships they create often prove a barrier to new ideas. 

Our supplier engagement is often very price driven, and yet  the data indicates significant change during these contracts, often 25-45% from bid to outturn across our broader industry; so whilst we are getting the low prices we crave initially, the levels of change thereafter provide for a difficult environment. 

Results of longer term strategic relationships are dramatic 

When we do develop longer term strategic relationships with our suppliers driven by outcomes, when we allow the supply chain to help solve our operational problems, indeed our customer’s problems, the results are often dramatic. 

Anglian Water stand as the most mature exemplar having driven their One Alliance over four regulatory periods with spectacular results. 

In the One Alliance, there is an emphasis on long-term collaboration encouraging teams to share ideas and innovation earlier on in the process, optimising benefits and saving costs. 

Birmingham New Street and Stafford Alliance also see Network Rail reaping the rewards of driving new models. At London Underground, we surprised ourselves when, in allowing the supply chain to change our approach on Bank, we achieved nearly 50% greater value. All of these examples signal clients taking more risk to build more sophisticated partnerships; additional risk and clear definition, rewarded by substantial value gain. 

If we are to access the benefits that emerging technology offers, and build our customers the new future that they already expect, the emerging evidence is that our relationships and governance will have to change to enable those benefits. 

At London Underground, we are now moving towards direct and long-term relationships with our supply chain partners. We are currently seeking ‘Tunnelling and Civils’ partners, and additionally the appointment of ‘Integrators’ who will help us to configure the inter-relationships. As with others, these move us to eight to 15-year outcome-driven arrangements that will help our key suppliers to shape our future, and allow their ideas, their technology (and our data) to breathe. 

We are not the pioneer in taking this new approach; it’s simply the result of seeing other operators benefit from courageous pilots and accepting that we should have low expectations of transactional arrangements to drive any value change. Making that transition from transactional to strategic delivery models, from price to value, feels uncomfortable not just for us, but also for our supply chain, as it has implications for their business models too. It will, however, finally provide us with a platform for cultural change, and a path to the innovation and value our customers demand. 

Charles Pearson faced the challenges of changing times by allowing ideas to flourish, and now, so must we.

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