Network Rail's supplier consolidation makes sense amid £2bn cost cutting

I recently blogged about Network Rail consolidating its IT service provider roster. TCS, Cognizant, Accenture and CSC all sent press alerts out about being awarded a framework contract.

Network rail’s CIO Susan Cooklin had talked about her plans to reduce the number of suppliers late last year.

The rail regulator has told Network Rail to save £2bn over the next five years and improve service levels. It has also said that safety levels must not be impacted.

So IT is a good place to make some of the savings. IT outsourcing contracts usually have a lot of potential for cost cutting and by creating a framework with fewer suppliers Network rail can build relationships with the suppliers that will result in a trade-off between price and commitment. By ensuring these suppliers are in with a shot at lucrative contracts Network rail will be able to get good terms.

Jean Louis Bravard, director at sourcing consultancy Burnt-Oak Partners said but there is no question that reducing the number of suppliers helps manage total costs, accelerates the timing of cost reduction programmes. 

He added that working with large suppliers can help customers with financial engineering. 

“The other aspect is that you need to pay attention to what the measure is.  If it is the amount reported as ‘expenses’ in any given year a very large supplier is able to negotiate how value is delivered versus how it is invoiced.  This way and for the same cost over say a 7 year period a supplier could deliver savings in year 1 to 3 but receive the value in later years.  The financial engineering has its own accounting and funding constraints but it is a key area of negotiation and can honestly only be entertained with the larger players.”

Read more about getting more out of your IT service providers,