Rede Ferroviária Nacional: Corporate Strategy and Supply Chain Management

In the mid-1990s, like many European railway agencies, Rede Ferroviária Nacional, EP (REFER) was facing significant internal and external challenges. Recently spun off from its former government-owned and controlled parent company and under pressure to improve financial performance, operating efficiencies and customer service, rapid changes were needed. The company looked to Accenture to put them on the right track.

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Although the separation of REFER from Caminhos de Ferro Portugueses, EP (known as CP) had been conducted following European Community (EC) guidelines and-from a legal sense-was completed in March 1997, there were still many practical matters stemming from the division yet to be resolved.

Beyond issues that resulted from the breakup of the former CP, there were the additional EC and internal pressures to create a more cost-effective, efficient and service-oriented operation. This was a requirement, not only for the future success of REFER in Portugal, but in order for it to compete with other railway companies in greater Europe. Loans, development support, cooperation—all were dependent upon REFER's ability to streamline its operations and demonstrate real improvement in its financial situation.

REFER turned to Accenture for assistance through this transition. The immediate need was to assess the company's organizational structure, internal and external processes, and information system infrastructure, all in the context of its financial situation and short- to long-term goals. Several factors, or issues, became immediately clear:

• REFER was dependent on outdated technology for its information systems. Much of the hardware and infrastructure was rapidly growing obsolete, and the software was aging in a similar fashion. Much of the data processing was done using inflexible batch systems that had changed little since the 1970s.
  
  
• These outdated systems led to inefficient processes. For example, purchasing costs (both the cost of procuring supplies and the cost of the supplies themselves) were quite high due to redundant efforts and lack of vendor contracts.
  
  
• There was very little useful data, beyond standard financial information, available for senior leadership and managers to use in decision-making. It was quite difficult to determine appropriate costs to be charged to service operators or to maintain tight controls on project costs (both real and estimated).
  
  
• In response to the information system problems (and prior to the split into two companies), the former CP decided to implement SAP R/3. REFER needed to determine whether to remain on the old system, undertake the implementation of SAP R/3, or identify another enterprise resource planning (ERP) system during the already difficult transition to its new, independent status.
  
  
• In order to successfully develop as a company, REFER would need to make a change in its corporate mindset — from a traditional, somewhat bureaucratic organization, to a leaner, more flexible, proactive player in the European railway market. This change in behavior would be critical, as the recommendations of the EC could open the door to future competition by private entities. REFER needed to be prepared for this new, more aggressive environment.

Following its review of REFER's current situation and future goals, the Accenture team realized that in order to make rapid progress, it was important to determine and prioritize key milestones. Based on these milestones, they could then identify groups of deliverables that would take REFER through a logical progression of focused projects—to its desired state.

Two high-level tasks were immediately identified, both of which were critical to the realization of REFER's business goals:

• Improved systems infrastructure, information management and workflow processes (established in three phases).
  
  
• Development of an appropriate, effective organizational structure (including job/position categorization, compensation and employee appraisals).

As for the first task, there was a clear need for an updated enterprise resource planning system, and upgraded hardware to support it, in order to manage REFER's ongoing operations. REFER's leadership decided to implement SAP R/3, as had been the original goal of its former parent company. This implementation formed the first phase of Accenture's work with REFER.

The implementation began in September 1997 under an accelerated timetable. By January 1998, the major modules of the SAP R/3 Financials system—Financial Accounting, Controlling, Materials Management, Asset Management and Treasury—had been implemented and the conversions were complete.

Based on the success of this initial phase, REFER decided to move rapidly forward with the second phase of the information systems project: the implementation of the Project System and Investment Management modules.

This phase of the project began in July 1998 and was completed by the end of December 1998. A huge undertaking, it required both Accenture and REFER resources to install, test and ultimately implement the technology solution. This effort would result in the realization of two key benefits: Project managers and key leaders could more effectively manage their resources and investments in real time, and the new data collected would assist them in developing baseline measures and controls as they planned future projects.

Concurrent with this second phase of the systems implementation, a third, related effort was underway. Three members of the Accenture team were each assigned to one of three groups of subject matter experts from REFER. These three sets of collaborators were then given the task of analyzing and redesigning key processes in each of three areas:

• Budget control and allocation.
• Materials management and procurement.
• Infrastructure development and project management.

Despite the challenges facing the newly created company—or perhaps because of them—the implementation of SAP and the redefined processes have been quite successful. According to Dr. Manuel Frasquilho, "REFER was attempting to reach some very aggressive goals, very quickly. We feel that we have not only achieved these goals, but we have now placed ourselves in a position to maximize our resources and lay a path for future accomplishments."

REFER is especially pleased with the new processes that have been developed. In conjunction with the information that is now available online through SAP and the company intranet, managers are seeing increased operating efficiencies and using these savings in more constructive areas. In many cases, these improved processes are a blend of former and current best practices, which have helped ease the transition to the new systems.

Some major benefits that have resulted from the implementation of SAP R/3, the redesigned processes and the new compensation structure, include:

• A number of processes that were paper-based—such as capital budgeting, project planning and contract management—are now systems-based, using a unique, company-wide, dynamic tool.
  
  
• Automatic budget availability controls are now in place. For example, a warning will occur if a budget reaches the 90 percent-committed level.
  
  
• A manageable number of investment categories have been created.
  
  
• For complex investment projects, accurate and consistent breakdowns are now available, and are directly connected to the assets being created.
  
  
• Real-time, operational data is now available regarding ongoing projects.
  
  
• Automated interfaces have been developed between SAP R/3 and subcontractor systems to track information such as work plans, resource prices and quantities, etc.
  
  
• Project-related invoices now serve as confirmations only; all contractor and vendor charges are immediately registered when quotes are received.
  
  
• Office supply purchases have been decentralized, resulting in faster deliveries and returns, consistent pricing, fewer actual requisitions and reduced warehouse stock.

REFER has come a great distance in a very short period of time. From a department within a government-controlled bureaucracy to an independent, forward-thinking company, REFER is meeting the challenges of its history and its future.

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