Peer review: Andy Lynch
Managing Director, RVEL
As might be expected, Jeremy uses his comprehensive knowledge of the supply chain to produce an insightful review of the challenges faced by members of the rail supply chain, when trying to do business with both the Government and Network Rail.
As RVEL employs just over 100 people and has a turnover of circa £12 million, we approach these particular challenges from the perspective of an SME in the rolling stock after-market (albeit one whose US parent, Loram, is very much a global player in the provision of specialist infrastructure services).
Our experiences over the eight years since RVEL was formed suggest there are some specific issues faced by SMEs in our marketplace. First and foremost, it is not easy to work across more than one industry discipline - rail market requirements are both onerous and specific.
To excel in any field a UK rail business needs dedicated facilities, specifically trained staff and industry-specific qualifications, as well as extensive safety and competency management systems. While necessary, all these add significant layers of cost to rail businesses, costs that are not borne by players in other sectors (for example, the automotive after-market).
Despite protestations to the contrary, the drive to reduce costs encourages organisations such as Network Rail to accept bids with the lowest tendered cost, even when this will demonstrably not offer best value over the life of the contract. It is perhaps no surprise therefore that costs during the life of a contract frequently end up ‘busting the budget’. To address this, technical competence should at least be given greater weighting in bid evaluation, or (in an ideal world) equal weighting to that given to cost.
Of course, this demands a more trusting relationship between customer and supplier. Many suppliers would like to further deepen their relationships with NR by supporting the company’s strategic decision-making process, particularly as these suppliers are selected because they have the very skills that NR does not have in-house. Utilising the supplier’s hard-won knowledge and expertise can help deliver alignment of supplier and customer objectives, and more importantly achieve long-term cost reductions.
On a more positive note, collaborative working is beginning to emerge within the rolling stock after-market, and there are signs that if this trend continues it will offer major improvements in how we all work towards a common goal.
However, some words of caution: while successful businesses in the supply chain increase their knowledge and skills over time, there is a growing concern across the industry that Network Rail is experiencing the reverse of this trend. With skilled engineers and operators retiring or seeking opportunities overseas, the infrastructure operator is facing an accelerated dearth of hard-won knowledge and experience. Again this points to the criticality of NR partnering with suppliers to get sustainable long-term value out of the company’s assets.
With the loss of these in-house skills there is the very real danger that NR reverts to rigorous interpretation of contracts, as opposed to taking a rounded view based on what is the best long-term or (where appropriate) pragmatic solution. With many contracts now containing highly onerous penalty clauses there is a reduced incentive to outperform, because the risks of doing so are too great. This needs addressing if we as an industry are serious about genuine collaboration. Meanwhile, old hands mutter darkly about NR shifting back towards the less than glorious days of Railtrack.
The Railway Industry Association’s innovation conferences and events can play their part in showing the way ahead. They already demonstrate what can be done when clients work not just with their suppliers but also universities to drive innovation across the railway. That said, unlocking funding for R & D remains a long and tortuous process. Sometimes it seems that the only beneficiaries are the intermediaries that exist to facilitate access to this funding.
As a final observation, it is worth pointing out that an often-unremarked cause of cost creep in our industry is the prevalence of apparent closed shops in certain markets. Our experience suggests that unless you are an existing supplier to organisations such as London Underground, then tendering for contacts can be both an expensive and pointless task.
If major organisations are serious about growing and encouraging a vigorous supply chain, then considered risks need to be taken by awarding work to new or growing suppliers. Consolidation within the aftermarket may appear to be a blessing but can lead to unintended consequences, not least the massive price increases witnessed over the past 20 years in certain consumables (wheelsets and brake blocks, to name just two).
A healthy market is a competitive market. Sir Peter Hendy has the opportunity to set a new direction at Network Rail - first and foremost he should trust his suppliers to help deliver his company from its current problems.
