The Network Dashboard: Increasing the Operating Margin and Customer Satisfaction by Integral Management of Production Costs and Traffic Revenues
J Gemke, L Stellingwerff, Netherlands Railways, NL
NS has moved from an operational volume driven exploitation to a financially driven exploitation. This was possible by integral management of production costs and traffic revenues in order to match capacity with market demand as well as possible.
On one of the most densely operated networks in the world, Netherlands Railways (NS) exploits the Dutch trunk route system via a franchise that expires in 2015. As a railway company NS thus operates in a capital-intensive sector, characterized by small operating margins that have come under even greater pressure due to the recent recession.
It was during this recession, however, that a decision also had to be made on a long-term investment of EUR 4.5 billion by the Dutch government to prepare the rail infrastructure for the growing market demand. This involves the High-Frequency Rail Transport Programme whereby on the busiest routes of the country six Intercities and six all station trains (Sprinters) will run hourly.
The combination of an expiring franchise, a considerable long-term investment of EUR 4.5 billion in the infrastructure, on top of decreasing operating margins resulting from a recession, made it crucial that decisions be made on the future of Dutch rail transport in sound collaboration with the Dutch Ministry of Infrastructure and Environment, the infra-provider ProRail and the major market operator NS.
At a time when there is also broad consensus on the level of economic growth remaining at a lower level for the long term, it is even more important that decision making on long-term investments is well-considered. This article addresses a model that NS has implemented and advocates integral management of production costs and traffic revenues in order to match capacity with market demand as well as possible. Results show that the operating margin and customer satisfaction improve significantly.
From an organizational perspective it can be concluded that NS has moved from an operational volume and load factor-driven exploitation to a financially and break-even load factor-driven exploitation. Load factor is determined here on the basis of traffic and production, whereas the break-even load factor is based on production costs and traffic revenues. It is also clearly shown how Operations and Commercial can be more closely attuned to one another.
Finally, an additional elaboration is introduced in order to give the operational line management a tool to get a tangible grip on the twenty trunk routes of the NS network in the Netherlands, in turn affording a further local optimization of operating results and customer satisfaction.
Clear graphs, figures and tables make the model easily comprehensible and support practical application in most railway companies.
A subsequent article, to be published at the end of 2011, will also address how a - so far unbroached - market potential can significantly increase the operating margin further.
Association for European Transport