From Supply Chain Management Encyclopedia
Sustainability at Deutsche Bahn: A twofold Supply Chain Perspective
PART I: Introduction
Facts & Figures
Deutsche Bahn is a leading international provider of mobility and logistics services. The company provides a specter of sustainable transport solutions worldwide operating in 130 countries with more than 2000 locations. Core businesses include passenger transport, freight transport and logistics and infrastructure and services. Transportation networks include rail, land, ocean and air freight, whereas the main focus is on transportation by train (http://www.bahn.de).
Sustainability in the supply chain is to be found on the top priority lists of many companies recently, due to awareness of such phenomena as excessive climate change and global warming. Therefore, many firms are trying to change the old ways of organizing their SC activities in such a manner that profit as a sole aim is additionally supplemented with people and planet aspect (P3) (Shukla et al. 2010). When it comes to the sustainability management system of DB it is well developed, something that is supported by annual publications of sustainability reports that present the achievements of the company. DB takes active part in climate protection, having reduced the level of CO2 emissions by 33% (1994-2010). Another aspect of the sustainable supply chain management includes responsibility for the employees, business partners and society as a whole. The company is the largest buyer, purchasing for 23 billion euro annually. Its 276 thousand of employees benefit from fair and secure employment conditions making DB Germany’s largest employer and provider of vocational training. Company’s commitment to a socially responsible society issue includes close cooperation with a variety of social organization concerned with positive contribution to lives of young people (e.g. Reading foundation), people with disabilities (e.g. Paralympic program) and orphan offers (Railway Orphans Relief Services). Not only DB invests in such activities, it also offers professional advice and transportation services.
Sustainability in three pillars:
The logic of sustainability at Deutsche Bahn is built around three pillars: An economic, an environmental and a social pillar. “For a company to be able to act responsibly, it must first be profitable.” Hence, in the following parts we try to stress the economic pillar of the sustainability at DB before tackling the environmental and social issues encountered at Deutsche Bahn’s core activities and Supply Chain Management. As a logistics provider, Deutsche Bahn is at the intersection of two supply chains: DB has an integrated supply chain to serve its business, which is partly the supply chain of their customers. This is the structure this entry will follow: First we gave a brief overview of Deutsche Bahn as a company. Next, we will discuss the elements of sustainability in the upstream supply chain. We finish with the sustainability issues in their twofold downstream activities: Passenger transport and Freight transport; the latter being a part of the supply chain of their customers.
PART II: Sustainability in Upstream Activities
Considering economic contribution to the economy, DB Group is one of the biggest contracting entities in Germany and in 2008 itself the value of the goods and services purchased were worth around €23 billion. Worldwide, the Group has business relationships with 35,000 suppliers and the commissioned freight and forwarding services in 2008 were worth approximately €10 billion. Through DB Schenker, the Group manages 72 million shipments in European land transport, around 1.2 million tons of airfreight and around 1.5 million containers in worldwide ocean freight per year. Out of this, approximately 5,500 subcontractors and preferred carriers in 60 countries are commissioned to cooperate (excluding sub-contractors for the pre-carriage and onward carriage). Rail-related contracts had a contract volume of €4.2 billion, while construction and engineering services were worth €4.0 billion. More than half of the orders were awarded to SMEs, making DB one of the largest investors in Germany. Economic viability and innovativeness potential are amongst the main criterions when the supplier is chosen. DB tries to stimulate competitiveness and innovation in ideas, services, prices and environmental awareness amongst its suppliers awarding every two years “DB Supplier’s Award” for the best solutions (e.g. EvoBus bus manufacturer).
Implementing socially responsible business practice, DB works closely with small and medium-sized businesses with approximately 70 percent of its order volume being contracted to these entities, securing this way more than 600.000 jobs in Germany. Itself, it is one of Germany’s largest employers and providers of training, employing nearly 200,000 people with 5% being junior staff. The company follows ethical principles: respects recognised human rights, rejects child and forced labour and discrimination and expects the same approach from its business partners. Fair, long-term and responsible orientation of the business relationships is guided through the “Corporate Principles Ethics” (Code of Conduct). Furthermore, it is of major importance that contractors strictly adhere to the laws in their respective country. Close cooperation and building long-term relationships is seen at DB as a way of achieving efficiency, bringing innovation to its business and meeting environmental standards. The specific characteristics of the industry itself impose long-term orientation – ‘rail vehicles and facilities usually have very long life cycles: rolling stock lasts 25-30 years, while infrastructure facilities such as train stations, bridges, tunnels and track facilities can even be in use for up to 100 years’. Maintenance as well as development of these assets and facilities requires close collaboration with various industrial players.
On the environmental side, DB focuses on environmental optimisation of its operations. At the same time, it sets high environmental requirements purchasing vehicles since ‘impact from operations depends upon it. Achieved through joint projects with suppliers, innovative and environmentally friendly ideas are seen as a source of competitive advantage. ‘A uniform purchasing practice ensures that this issue enjoys a high priority, despite the widely different product and service categories’. Building materials, which account for majority of the materials used at DB are mostly recycled (95 percent). The standards are set within the group and executed from the business partners. Amongst the practices introduced can be mentioned annual check of truck fleets of subcontractors of all DB Schenker Logistics partners according to a standard procedure (Euro 3 to 5 standards). Those who do not meet the criteria are not offered contract renewals. Furthermore, by 2014, ‘20,000 drivers are due to undergo training in energy-saving driving and at the same time their reductions in CO2 emissions estimated’. Considering airfreight and ocean freight, further efforts in cooperation with the selected preferred carriers are made to develop and implement opportunities for long-term CO2 reduction (e.g. ‘specific CO2 emissions are to be cut by 25 percent in airfreight and by 15 percent in ocean freight by 2020 compared to 2006 levels’). In practice it is executed through exchange of knowledge at meetings with respective managers, workshops, monitoring of emissions values and reconciliation of the calculation methods. Environmental footprint includes emissions from subcontractors and is calculated by the independent Ökoinstitut in Berlin according to ISO 14064 and double-checked by DeloitteCert. The results from 2008 were used to define specific targets encompassed in the Group’s Climate Protection Goal for 2020. These efforts have been recently recognised also by an industry expert – DB Schenker was a recipient of the 2011 Green Supply Chain Award organised by Supply & Demand Chain Executive (2011) beating 120 other candidates. DB Schenker environmental efforts were seen as ‘forging ahead with a range of sustainability initiatives having a direct impact on the supply chain and making sustainability a core part of the supply chain strategies’ (Supply & Demand Chain Executive, 2011). In particular, the company’s focus on CO2 emissions was seen as outstanding, since ‘the intermodal specialist developed strategies and solutions along the entire supply chain to reduce emissions during the transportation of goods—whether rail, land, ocean or air’ (Supply & Demand Chain Executive, 2011). Renewable energy accounted for nearly twenty percent of the traction current mix in 2010, which is above the German average. DB AG wants to achieve use of green electricity up to at least 35% by 2020 and lead rail transport in Germany towards entirely CO2-free operations by 2050. DB claims, that some ‘100 corporate customers already rely on DB for entirely CO2-free business travel by having green electricity purchased for their rail journeys’. The same program is being offered to rail freight transport customers with growing popularity.
Sustainable procurement (Suppliers & contractors)
The choice of a business partner at DB is always affected by a unity of commercial and environmental factors, as well as sustainability issues. This considers operating materials in general purchasing, the materials used in vehicles or purchasing construction services.
PART III: Sustainability in Core Activities
Passenger & Freight Transport
Deutsche Bahn offers products and services tailored both for the B2C as for the B2B market. For the sake of the structure we will use both concepts interlinked. Economically viable
- Growth: Retain and entry programs Deutsche Bahn serves over four million passengers services on one of their long-distance lines. By offering newly tailored solutions as well as continuing existing solutions, DB tries to reach a wide customer base. Also, new partners for promotional activities are attracted and entry-level customer cards are offered to lower the entry cost of new customers. Moreover, Deutsche Bahn offers a variety of products & services to even better fill up gaps in the market. (e.g. Rail & Fly, Destination Nature, DB Autozug)
- Growth Opportunities In order to keep growing in an otherwise saturated market, Deutsche Bahn is looking abroad. Sustainable growth is hense ensured by entering deals with partners through acquisitions or tenders. The entry of the UK-market through the acquisition of the British company Laing Rail and the joint ventures with Overground Rail Operations, the deal with ÖstgötaTrafiken to operate local trains in Sweden as well as the more recent acquisition of a stake in PTK Holding S.A. in Poland are the examples of the outward-focused strategy.
- Interlinking regions From a financial perspective it might be attractive to leave the unattractive regional services to what they are. These sparsely populated areas are economically rather unprofitable in terms of passengers per km. However, DB provides regions with attractive public transport, hence giving them the necessary economic arteries. Through these arteries, regions are able to build an interconnected network, making it economically viable for SME’s and other employers to locate there. Hence, through the efforts of DB, regions are able to slow down or reverse the migration towards urban regions. The process of making sparsely populated regions profitable required a new business model from DB. DB RegioNetz works together with different SMEs in respective regions, and they are leasing infrastructure from DB – thus overcoming the heavy investment problem. This solution is elegant from a sustainability perspective: Not only does DB overcome the relative impoverishment of some regions through increasing connectivity; also it creates jobs at local small and medium-sized enterprises.
- High standards DB wants to at least maintain its market share of 70% in the national transportation market. On the long distance trajects DB is economically viable, but on the short distance, contracts are handed out by the public authorities. These public tenders are focused only on obtaining ‘the lowest price’; hardly any attention goes to quality. This has lead to a situation where the offers accepted are those proposed by the companies offering the lowest labour standards and wages. Deutsche Bahn, in a role of social educator, is actively involved in the creation of an industry agreement to insure the same high standards and level of wages they offer to their employees.
- Noise vs. society See the environment section below.
- CO2-Emissions The reduction of CO2 has been an issue at Deutsche Bahn since 1994 – ever since DB noted reducing CO2 emissions from its rail-related business units. Today, a comprehensive report on emissions is made on a group wide level including upstream activities. (e.g. An electric train as such would not produce any emissions, however the creation of energy induce emissions, hence they are included in the group footprint. Also in the ‘road-fleet’ attention is being paid to harming emissions. Both DB Motor Vehicle fleet and DB Schenker Logistics aspire that their fleet is in compliance with Euro-3-4-5 limits. Already they are best in class in terms of percentages of the respective fleets living up to set green standards. Through constant improvement of technical standards and an efficient use of energy, DB not only actively participates in climate protection, also it provides them with a strategic advantage.
- Noise reduction In order not to upset the delicate equilibrium of densely populated areas and ever increasing rail freight, DB is constantly working on reducing noise pollution. Hereby, Deutsche Bahn considers both the environmental as the social pillar. Rail transport produces a lot of noise, which can affect the quality of life of people living close to railways. The only way for society to accept more train transport is to continuously reduce noise output. DB is hence looking for ways to achieve its goal of noise reduction by half by 2020 as compared to 2000. Not only is DB looking to reduce noise coming from the trains themselves, also they consider noise produced when constructing or maintaining trainrails. In order to have a clearer view of sustainable noise reduction, DB implemented ‘noise reduction strategy management’. Experts from several business units cooperate to agree on goals, to advance R&D and to implement noise reduction measures faster.
- Initiatives: On all the possible ways of transport as well as in the handling and storage process, DB offers green solutions to its customers to reduce emissions. Several programs have been introduced for both B2C and B2B customers where emissions are either non-existing, either reduced. Some examples of programs on the different modes of transport are Eco Plus for rail freight, Eco OceanLine for ocean freight and Eco Charter for Air Freight, The umbrella initiative is called ECO2PHANT, showing customers where and to what extent they can cut emissions. ECO2PHANT is a measurement unit, equalling five tons of CO2 reduced. Also for passengers DB introduced initiatives to reduce CO2 emissions, such as DB Carsharing and Call-a-Bike.