April 07, 2015

Railways should rethink approach to procurement

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Speaking at the Railway Forum in Berlin last month, Dr Martin Platzer, senior vice-president with rail and turnout specialist Voestalpine, made a plea for European railways to start purchasing equipment and systems on the basis of the most economically-advantageous tender rather than simply the lowest price. David Briginshaw was in the audiance.

RAILWAYS are capital intensive, and structures and equipment often last for decades, so one would assume that considerable thought is given to life-cycle costs, product quality and longevity, and the technical ability and know-how of the supplier. While there is a trend in this direction, short-term financial pressures all too often force railways to select equipment based on the lowest price.

Public procurement accounts for around 20% of the European Union's GDP. The EU's public procurement framework was completed a year ago, although the new directive has yet to be converted into national law.

The directive requires contracts to be awarded on the basis of the most economically-advantageous tender (Meat) determined on the basis of the cost or price using a cost-effectiveness approach such as life-cycle costing.

"There is no option anymore, we must do it," Platzer told delegates. "Lots of organisations are already following these new principles, so we are not trying to perform a miracle in the railway industry."

Platzer pointed to examples of performance-related procurement. The United Nations is using the system and its procurement staff must consider factors such as costs and benefits, and risks and resources over the entirety of the life of the product or service to achieve the optimal outcome. The automotive industry similarly challenges first-tier suppliers to show unique research and development (R&D) and innovation in their offers.

There are some positive signs for railways with a growing number around the world applying performance criteria in procurement. Platzer says Union Pacific is a trendsetter among North American Class 1 railways, while heavy-haul operators Vale and MRS Logistics in Brazil and Rio Tinto in Australia have adopted the Meat procurement principle.

Martin-PlatzerHowever, Platzer does not see sufficient progress in Europe yet despite the new directive. "Unfortunately only a very few infrastructure managers have moved forward. The pioneers include Sweden and Austria, where a supplier's performance is carefully scrutinised according to factors such as evaluation of product quality, service efficiency and logistics compliance, the Netherlands where preference is given to suppliers which take an ecologically-responsible approach, and Switzerland where just-in-time capability, buffer stock, and innovative strength are considered.

"German Rail (DB) announced a shift to Meat at the 2014 Railway Forum to bring innovation 'on track'," Platzer reminded delegates. "I am also happy that Dr Heike Hanagarth, DB board member for technology and environment, and Mr Uwe Günther, DB's chief procurement officer, have both said at this year's Railway Forum that DB will adopt the new Meat system, and that Hanagarth said it will happen in 2016."

Platzer argues that if railways want high performance then they need high technology which means investment in R&D. "We go for innovative track solutions because they bring benefits to our customers. We want to achieve the best track performance at the lowest life-cycle cost. We produce our own steel, but we only sell processed products, which means a high level of R&D. The alloyed route is finished for us, so we use heat treatment to change the microstructure of the steel so it becomes very hard and very tough, which reduces rail wear and rolling contact fatigue."

Voestalpine already tests its products on railway test tracks owned by Transportation Technology Center Inc (TTCI) in Pueblo, Colorado, and the Railway Research Institute (VNIIZHT) at Shcherbinka near Moscow. It participated in InnoTrack, which Platzer described as the largest and most rewarding integrated track infrastructure project ever carried out in Europe, and will take part in Europe's ambitious Shift2Rail research and innovation initiative.

"To quote the US billionaire, Stan Kroenke, economics is about creating win-win situations, or in other words sustainable and successful business relations cannot be based only on simple purchase and supply agreements," Platzer concluded. "A system partnership delivers much more than contractual compliance."

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