March 04, 2015

DB seeks efficiencies with smarter procurement

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With an annual purchasing volume of more than €10bn, German Rail is a key customer for thousands of rail industry suppliers. Chief procurement officer Uwe Günter tells Keith Barrow how DB's procurement strategy seeks to harness both innovation and standardisation to improve performance and reduce life-cycle costs.

AN effective procurement strategy is vital to the performance of any railway, so for Europe's largest railway company, refining this process can make an enormous contribution to improving the efficiency of the network.

German Rail (DB) manages and operates a 33,500km network. Procurement volume reflects the scale and high traffic density of the network - DB has annual purchasing volume of around €12bn and places around 300,000 individual orders with 35,000 suppliers each year.

In recent years Germany has become notorious for prolonged rolling stock authorisation, and this has become a significant risk for operators introducing new trains fleets, which is often a requirement of new regional contracts. As a major rolling stock buyer, DB is looking for ways to reduce its exposure to risk in new rolling stock and it has initiated its Procurement and Technology Strategy 2025 to manage this process more effectively.

The aim of the strategy is to improve cost effectiveness, quality, and availability of train fleets while ensuring new rolling stock meets the highest sustainability standards to minimise their impact on the environment.

Uwe-Günther"The procurement of rolling stock has become associated with significant delivery delays and high failure rates, which means additional cost and a negative impact on the company's image," explains DB's chief procurement officer Dr Uwe Günter (pictured). "We want to avoid this in future, so we are bringing technical quality, production, and procurement together to optimise this process. We also need to exert our exacting standards for quality and efficiency through the whole life-cycle of the trains we buy, and this needs a different tendering strategy."

The procurement strategy seeks to separate innovation and procurement projects with a focus on what DB describes as "configurable standard products," making use of suppliers' product platforms wherever possible. DB has developed guidelines for quality partnerships in the development of rail vehicles with the aim of creating a common understanding between the buyer and supplier on rolling stock requirements. "There's a need to transform procurement from a project-related activity to a product-related one," says Günter. "Previously we bought 'our' trains, now we want to buy standard trains."

Günter says that standardisation of rolling stock will bring substantial benefits to suppliers, operators, and ultimately the railway's customers. "Our objective is to harmonise requirements with other operators," he says. "More standardisation means that more products will meet our requirements. Over time, demand for innovative standardised vehicles rises, so the strongest suppliers will make the biggest impact."

DB employs a system of Key Performance Indicators (KPIs) to track progress with equipment once it has been delivered and is using tools such as a uniform rail vehicle maturity model to monitor quality on a life-cycle basis.

Suppliers are partners in the procurement strategy and DB adopted a three-stage supplier management process in 2010. This comprises:

• Qualification - suppliers are selected according to minimum standards defined by DB, which sets principles for the future development of chosen suppliers at this stage. DB argues that qualification of suppliers accelerates the award process at later stages.

• Appraisal - supplier appraisal is carried out according to standard criteria. All appraisal results are documented with reference to the specific transaction and provide information about the qualification of a supplier as a DB partner. The appraisal is intended to ensure the supplier can meet cost, quality, and delivery requirements.

 Development - DB seeks to enhance the quality of approved suppliers and improve the chances of success for new suppliers in the development phase.

"This system gives us a stronger relationship with the supplier through all three phases," says Günter. "We have a ratings system and if the supplier is classified as restricted or poor we initiate supplier development to help address any problems they might be having. We've had good feedback from our suppliers and they are satisfied with the management system. We make around 5000 appraisals a year and as part of this process we try to prepare our suppliers for the competition."

DB has initiated an annual supplier award programme to recognise excellence in procurement in five categories. DB also presents a "Supplier of the Year" award to the company that most effectively reflects the company's values in ecology, economy, and social affairs.

Günter says that both suppliers and buyers will need to make changes if rail is to remain an attractive option for freight and passenger users. "Other modes have seen strong technical development recently and in rail there is a need for substantially shorter product cycles," he says. "We must pursue faster innovation on a massive scale if we want to remain competitive."

DB will present details of its procurement strategy at the 3rd Railway Forum in Berlin on March 16 and 17. For more details visit www.ipm-scm.com

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