Viewpoint

Phil Bulman, partner and cost-based management consultant at Vendigital explains how the rail sector can achieve valuable, long-lasting change and a more sustainable cost base

As a result of the pandemic, there’s an urgent need for the rail industry to reduce its cost base without negatively impacting levels of passenger service. To achieve this, a focus on stepping up productivity through the effective use of people, alongside technology and innovation, will be key.

According to recent figures, demand for rail services is recovering, with passenger numbers rising to about 70 per cent of pre-pandemic levels by November 2021. Nevertheless, in order to secure a sustainable future, the industry must achieve a step change in its efficiency and productivity.

According to data from the Office of Road and Rail (ORR), the industry is facing an £8 billion hole in its finances. As part of the effort to reduce costs, The Department for Transport (DfT) has tasked train operating companies (TOCs) to support them in cutting spending by ten per cent following the Autumn Budget.

The asset-heavy nature of the rail industry can make cost reduction particularly challenging, with a significant percentage of spend locked into rolling stock, track and other critical infrastructure. At a time when the industry needs to encourage passengers back, there’s also a risk that axing routes and services as part of a cost reduction drive could negatively impact their experience. Instead, the key to achieving efficiencies lies in boosting productivity levels across the industry.

The development and implementation of new technologies within the supply chain has an important role to play in boosting productivity. This will enable the sector to achieve performance benefits, while managing costs and improving working conditions for staff. However, considering the industry’s asset-heavy nature, it’s surprising that the workforce accounts for a significant proportion of its overall costs – around 35 per cent.

In August 2021, Network Rail launched a voluntary redundancy programme, with the aim of cutting between 7,000 and 9,000 jobs – the equivalent of between a third and a quarter of its employees. In particular, the scheme has focused on its head office management roles, which have grown significantly over the last decade. However, this approach has not addressed the need to drive productivity in the industry, which will require changes in working practices, including improved flexibility and some re-skilling of staff to support changes in technology.

In recent years, a number of technological innovations have changed the industry’s staffing requirements and many more such developments are on the horizon. For example, the rise of e-ticketing has altered levels of demand for customer service. On the other hand, increased automation across the sector is driving demand for digital skills. With around 45 per cent of the current workforce eligible for retirement in the next ten years, it’s vital that the industry finds a way to map its changing skills requirements and bring in new talent.

While it has historically been a sensitive area, inflexibility around roles in the rail sector introduces additional costs and can create single points of failure. In the event that staff are not available, due to becoming ill with Covid-19, for example, this can lead to disruption, such as services being cut. As such, the industry should aim to learn lessons from other areas of transportation, such as aviation, by introducing greater flexibility around workers’ roles.

For example, staff who perform the duties of a ticket inspector, can also support the delivery of other onboard services, such as serving refreshments.

To make this transition effectively, a strategic perspective is required, which considers the needs of rail operators, passengers and workers. If the industry is unable to strike the right balance and demonstrate a willingness to map out a new way of working that brings benefits for all, the sector is likely to continue its downward spiral of falling passenger numbers and poor financial performance.

To get this right, close collaboration between TOCs, Network Rail and other key employers with trade unions (TUs) will be essential. In the past, trade unions have played a vital role in facilitating member communications, understandably acting to maximise outcomes for their workers.

Sadly, this can bring challenges for rail organisations when trying to implement new technologies and drive productivity improvements. However, for the industry to deliver for passenger and the taxpayer, doing nothing is not an option. TUs can and should be instrumental in realising positive change for the industry and help bring about the sustainable future that is so urgently needed. The industry must find a way to engage TUs in a constructive way to ensure all employees understand the need for change and enable them to be part of the solution, providing a bright future for all.

To facilitate this, industry leaders must focus on understanding what workers really want and providing worthwhile career paths that offer them an opportunity for professional development, possibly including retraining in areas where skills are in short supply. With the potential for further industry disruption in the near future, change is inevitable and joined up working between TOCs and TUs will help to manage the challenges that lie ahead.

Rethinking workers’ roles in the rail sector is a sensitive area, so transformation is unlikely to happen overnight and there is bound to be some resistance along the way. However, with strong leadership and a commitment to real staff engagement and empowerment, along with a focus on stepping up productivity and positively embracing technology, it is possible for the sector to achieve valuable, long-lasting change and a more sustainable cost base.

About Vendigital An award-winning UK top-20 management consultancy, Vendigital delivers data-led accelerated cost transformation by combining multi-disciplinary consulting expertise and its proprietary digital platform to generate and embed client-specific operational insights.

It works across procurement and supply chain; operating strategy; cost and value engineering; and portfolio management to deliver tangible, quantifiable cost benefits for clients.

Vendigital’s highly-experienced consultants and data scientists serve businesses across a variety of sectors – aerospace and defence; automotive; consumer products; industrial manufacturing; private equity; technology, media and telecoms; and transportation and infrastructure.

Delivered in partnership with in-house teams, Vendigital’s services provide measurable and sustainable results: www.vendigital.com Phil Bulman is a partner and cost-based management consultant at Vendigital. He specialises in advising businesses in the transport sector.