Value and Quality in Rail Freight Logistics (1)

Value Chains as Value Systems

According to Porter (1984), value depends on how the customer uses the product; value and cost incurred are dissimilar; costs include raw materials for example. Only when the product meets the customer/end consumer can the value of the logistical provision be understood. Key to understanding value drivers in the case of DB SR is a detailed appreciation of the requirements of the customers of DB SR’s customers. These will vary, but the SLAs and quality requirements will likely be covered in the golden trio: “on-time, in full”; “right first time”; and “error free”.

Each operational element within a value chain measures profitability and manages its own inputs, so passes unique definitions of value on to its suppliers. This compartmentalization creates a distortion in the definition of value along the system.

Better is a systems view of value, where the division, or indeed the whole group, identifies the order winning, value-driving aspects of the service and aligns or reconfigures the sub value chains to support the main profit-drivers, i.e. organises the system so that the activities that represent customer value – not value as defined by operational elements within the value chain or cost – are served maximally. If, for example, the customer service interface is identified as an order-winning feature of the service (customers select DB because DB customer services are superior to competitors’), then operations and allocations are restructured to support the business-winning centrality of that function. Resources can then be strategically reduced in areas of the business that are less critical to business winning and retention, provided such revisions do not erode operational performance, which must equal if not exceed that of competitors.

In this way, the business’s operations are back configured according to the main value-adding activities, which are boosted or leaned in proportion to their contribution to value as determined by the customer. An integrated value system, in which “value” is commonly defined, replaces value chains of individual but interdependent operations, to create aggregate system advantage based on the delivery of customer value.