Deutsche Bahn AG is a German railway company. Headquartered in Berlin, it is a private joint-stock company (AG), with the Federal Republic of Germany being its single shareholder. Deutsche Bahn describes itself as the second-largest transport company in the world, after the German postal and logistics company Deutsche Post / DHL, and is the largest railway operator and infrastructure owner in Europe. Deutsche Bahn was the largest railway company in the world by revenue in 2015. It carries about two billion passengers each year.
1. Why was it important for DB to focus on procurement as part of the DB2020+ strategy?
DB procurement has following mission: “We guarantee that the business units worldwide are supplied with materials, capital goods and services – economically, on time and with the right quality. In doing so, we ensure DB’s innovative capability and sustainable market success.”
Our DB2020+ strategy is characterized by a greater focus on quality. Quality is the fundamental element in dealing with our end-customer and as such the key to DB’s economic success.
Procurement has of course a very important role to play in improving the quality of the services offered by DB. Our focus lies on a greater implementation of purchasing processes and a better alignment with the requirements of our business units (who are our clients).
2. What are you hoping to accomplish by achieving a World Class level of procurement?
As our contribution to the Group strategy DB2020+, Procurement developed a strategic vision for 2020 called “World Class Procurement”.
Twice already DB Procurement has been evaluated by an external consultancy company (h&z) to determine how far we currently are from a World Class Procurement organization in comparison with other companies and what the steps are that we need to take to reach this status. This benchmark has placed us in the “Professional Procurement” category, which means in the top 25% of all audited companies. This is a very good result but this is still not enough.
Using the findings of the evaluation we have established a roadmap to guide us in developing ourselves from a classic central purchasing organization to a globally active World Class Procurement one.
The four main targets of this roadmap are:
– Greater value contribution of Procurement in the Group
– Comprehensive Business Partner Management for our business units
– Effective Supplier Management
– Efficient (digital) procurement processes
– Procure2Pay as part of the “Finance4DB” project including Procurement, Accounting&Tax, Controlling and Treasury
3. What made DB choose to incorporate an optional “Supplier Development” program for suppliers who do not initially meet supplier standards?
As Procurement it is essential for us to ensure good competition in any tender that we carry out. We have high quality standards and want to make sure that we select the best and most reliable partners, which is why we have a set of qualification requirements that suppliers need to fulfill before taking part to the competition. Suppliers that do not meet these requirements aren’t able to participate to our tenders.
For these suppliers we can arrange individual development measures independently from a contract award. Through this our goal is to expand potential and minimize risk by ensuring greater participation in the competition.
The development measures are especially useful in the Rolling Stock and Parts area for international suppliers who are not familiar with the German market and our homologation rules and processes. This is the case for Asian suppliers who are able to provide high quality products but need to learn how to get these certified and approved in Germany.
4. What are you hoping to accomplish by awarding Supplier Innovation Awards?
Innovation is one of the central aspects in the debate on companies’ future viability– and innovative suppliers are one of the key factors for them to successfully ensure their own competitiveness.
In 2018 DB will once again grant the Supplier Innovation Award to its most innovative supplier. With this award we reward our suppliers for their most outstanding innovation achievements and we signalize to the market the importance of this topic for DB and for our Procurement organization.
5. Why is sustainability an important part of DB’s supply chain standards?
The DB2020+ strategy follows the 3 following main goals: we want to be a profitable quality leader, top employer and eco-pioneer by 2020. Sustainability and Corporate Social Responsibility are essential to all three of these dimensions. Sustainable business success and social acceptance are absolutely essential for progress and for a future of operational excellence, customer focus and innovative solutions. This is why DB is firmly establishing sustainability in the company’s strategy and organization, step by step. Of course this includes Procurement.
Our World Class Procurement ambition builds on the Group’s sustainability strategy. On the one hand we must answer to the growing expectations of our stakeholders and customers regarding Corporate Social Responsibility. On the other hand we also want to secure our business by minimizing the supply risks. We aim at integrating social standards in the supply chain, guaranteeing supplies, driving quality and innovation, ensuring the best value for money and securing efficient growth for the Group. We want to reduce our footprint while balancing ecology and economy. We manage our supply chain responsibly because it is critical to the business success. Sustainability and CSR concerns are part of our commodity strategies, but also important criteria in our supplier qualification, contract award and contractual performance evaluation.
Not only are we committed to sustainable Procurement at the DB level but also at the industry level. DB is a founding member of the industry initiative Railsponsible, which aims to continuously improve sustainability practices throughout the railway industry supply chain. I have the honor to have been elected Chairman of Railsponsible for the year 2017/2018. Through Railsponsible we want to improve environmental and social practices of companies of the railway sector and railway sector supply chain through best practice sharing and capability building. One of our core objectives is to drive harmonization in our industry’s approach to sustainability performance assessment worldwide.
6. Beyond transparency, how do you think increased digitalization will impact DB’s supply chain?
Digitalization is key to improving the quality and the value added of Procurement. It is not only a matter of digitizing of our existing systems to make them faster. It is an amazing opportunity to use new digital solutions to make our procurement processes evolve and our supply chain more secure and more efficient.
We use digitalization to simplify our Procurement processes from an internal but also from a client perspective and from a supplier perspective. Some of the digital solutions already in place are for example e-tendering, e-invoicing, electronic documentation archiving, or Building Information Modelling (BIM).
Digitalization is also a great opportunity to enhance collaboration with other departments. It is essential that we consider it as a common project. Procurement is currently involved in the Finance4DB project, which includes Procurement, Accounting&Tax, Controlling and Treasury (PACT). Within Finance4DB, Procurement is especially focused on “Procure2Pay”. By 2019 we want the entire process from initial order to invoice payment to run digitally. It involves procurement processes but also a number of interface partners.
7. How do you ensure global quality control throughout your supply chain?
We ensure quality throughout our entire Supplier Management cycle. Our system includes four phases: Supplier Qualification, Supplier Development, Supplier Appraisal and Supplier Adjustment.
As mentioned before, to be able to take part to a tender, suppliers have to fulfill a set of requirements. Once they prove that they are up to these standards, they may take part to the competition. Quality criteria have an important weight in the evaluation matrix of each tender. Most of the time price only weighs about 50%.
Once a supplier has won a contract, his performance will be appraised by us on a regular basis. We assess quality, costs and punctuality along the complete procurement process, from the offer, supply and service phase until the product in practice phase. The supplier appraisal results in a rating on the following levels: outstanding (above DB’s requirements), good (supplier met DB’s requirements), restricted (supplier was partly consistent with DB’s requirements) and poor (supplier did not meet DB’s requirements).
If the results of this appraisal put the supplier in the categories “poor” or “restricted” we may decide to either proceed with supplier development in order to help them reach the required quality level or to phase them out if no solution is found.
Only by working together with reliable supply partners can we convince the end-customer and ensure DB’s economic success.
8. As we draw closer 2020, are there any other major changes you’re anticipating in order to reach DB2020+ goals?
Another part of our World Class Procurement strategy is internationalization. On the one hand we want to enhance the common work within our worldwide DB Procurement Network and on the other hand to make the most of the global market.
Together with our subsidiaries DB Schenker and DB Arriva we have implemented Global Category Management, which means that we make use of synergies like bundling and best-practice sharing at a Group level.
On top of that, I expect from each and every one of my buyers that they not only take the German or European market into account, but also the global market. We have taken some great steps in this direction for example with the opening of our International Procurement Office in Shanghai, allowing us to get closer to the Asian market. But we need to develop Global Value Sourcing even more if we want to achieve our goals.
Only with the best and most reliable suppliers will Procurement ensure the sustainable success of Deutsche Bahn!