KEY POINTS:
- Challenged by the unpredictability of demand
- Short-term solutions do not encourage collaboration
- Innovation not just in technology, but also process and business modelling
- Value of Technology and Innovation Conference
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To Sir Peter Hendy, Chairman of Network Rail:
We write to welcome you to your new task at Network Rail, and to share with you some of the railway supply industry’s thinking on how we may best work together to help achieve our shared objectives.
The supply industry is not small - at about 100,000 people, it is virtually half the rail industry as a whole. And the Railway Industry Association’s (RIA’s) 200 member companies are in daily touch with - and have to grapple with - many of the problems and consequent costs and inefficiencies that also face the industry’s principal client bodies.
From previous discussions, I know that it will come as no surprise to you to hear that the fundamental issues generating waste in the supply industry are largely to do with the unpredictability and volatility of demand and of specifications for members’ products and services. Manufacturers, contractors and consultancies all share this problem.
Five years ago, we advised the McNulty Review that unpredictable volatility was driving additional costs of some 20% to 30% into products and services involving both rolling stock and infrastructure. In a separate exercise, RIA members also put the cost of inadequately defined specifications at about 20% on average. We doubt whether much will have changed since then.
The historic volatility in demand for new trains is illustrated in Diagram A (see page 40), and driven largely by policy and franchising decisions that can be almost impossible to predict.
For example, it is not so long ago that industry was being asked to prepare for an order for 200 diesel multiple units to be financed by a Government-owned rolling stock company. Industry was gearing up, only for the prospective order to then disappear as a programme of network electrification was launched.
The announcement that the 200 DMUs would not be required was made by a short note in an electrification document. However, it is now becoming apparent that with the electrification ‘pauses’, some DMUs may after all have substantially longer service lives than previously envisaged.
A recent survey of rolling stock SMEs, carried out by RIA on behalf of the Rail Supply Group (RSG), has found evidence suggesting that companies are being obliged to adopt short-term solutions to problems, rather than the whole-life costing solutions generally promoted by client bodies and regulators.
Furthermore, such short-term solutions are coupled to reported attitudes that are far from the collaborative ideal - an ideal that is widely recognised in word but not necessarily in deed.
The importance of true collaboration as a means of securing sustainable reductions in cost can hardly be overstated. Too often it is misinterpreted simply as a means of driving down a supplier’s margins - an unsustainable approach when it is vital for the industry that suppliers invest in people and equipment for the long-term future of their businesses.
The RIA has devised its own collaboration methodology (the Value Improvement Programme, VIP), which transfers best practice from other sectors to adopt a truly shared approach to the maximisation of value throughout the supply chain.
Over the past ten years the VIP has undertaken more than 100 workshops - good progress, but modest relative to the need. The RSG is now actively considering further developments in this area.
The demand for fixed-asset installation can be as volatile as that for rolling stock, with similar or even more adverse consequences.
Diagram B shows the demand for electrification work since the 1950s, with minimal amounts installed between 1994 and 2012. Government policy was set against network electrification for most of that period - a policy that was reversed only in the DfT Electrification Policy Paper, although with little provision to help the industry cope with such a scheme and with such a sudden and dramatic change in direction.
Moreover, frequent promises of a ‘rolling programme’ of work - understood as one in which equipment and skilled staff are passed from one project to the next in an orderly, planned and realistic succession, all within a programme - seem to have been ignored.
At the same time, the use of five-year Control Periods, while clearly superior to annuality, seems to have led to another investment cycle - one characterised by heavy spend towards the end of one Control Period followed by reductions at the start of the next one.
