Engineering suppliers are forced to take on more risk

15 February 2001
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15 February 2001 | Cathy Hayward

Buyers of low-volume, bespoke goods in the engineering sector are forcing suppliers to take on more responsibility and risk for projects, according to preliminary findings of research at the University of Newcastle.

"Suppliers are no longer involved simply in manufacture and delivery. New contracts often require them to operate the equipment, maintain it over an extended period and even dispose of it at the end of the contract," said Neil Alderman, principal research associate at Newcastle's Centre for Urban and Regional Development Studies.

The research, which is to be published in the summer, found that contractors and their suppliers are having to become involved in new areas of technical, regulatory, business and financial knowledge.

This trend will increase, said Warren Taylor, sourcing director at Alstom Transport, which supplies tilting trains to Virgin Trains' west coast main line. "The Virgin contract is our firstto contain service provision but we are in discussion with other firms. I can see us making trains for ourselves and leasing them to train operating companies. We could even provide drivers."

Although such relationships mean more work, Alstom can capture a bigger market, Taylor said. "Half of our turnover on a contract can come from service provision. The duration of this type of deal increases the risks which, as with the rewards, we must share with our suppliers.

"We want our suppliers to extend product life, increase reliability of parts and reduce costs in exchange for long-term contracts. This is a new approach for many of our suppliers and reaction has been mixed."

Steve McConan, project transition manager at maintenance firm West Coast Train Care, formerly part of Virgin Trains, agreed. "More firms that are not rail experts are involved in the industry, and because Railtrack imposes strict operating requirements and penalties, customers outsource maintenance to push risk on to someone else, such as experienced engineering firms."

The Newcastle research follows Railtrack's review of its outsourcing of railway maintenance. The rethink was prompted by the fatal Hatfield crash, in which a GNER express train was derailed.

SMfeb2001

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