Managing Information, Not Trains
By David Dieck and Roy Blanchard
"Every business is an information business." – Blown to Bits
Domestic intercity freight is a $540 billion market and the trucks have most if it, leaving the railroads mere crumbs at $35 billion. A quarter of what the rails get is coal, which is pretty much captive. Back that out and it’s a $531 billion market, of which the rails get $26 billion. Five percent. The trucks are clearly winning share, and they’re winning because they’re using information to manage their businesses. As a result, they perform the supply chain function demanded by shippers better than the railroads do. It doesn’t have to be that way, but it will be unless there is a change in the way railroads cope with reality.
We’ve all heard about improvements in STB "performance measures" - train speed between yards, yard dwell time, cars on line, etc. But they don’t tell they whole story as they are strictly rail-centric and don't help the logistics manager when it comes to knowing when his cars will show up. Performance measures specifically exclude yard and local train service and as such give no clues as to dock-to-dock service reliability.
Yet vendor reliability is central to the best practices in supply chain management. Proper supply chain management helps manufacturers reduce inventories, increase inventory turns, compress the intervals between shipments of goods to customers, and stretch out payment of raw materials. Customers won't pay for goods not received, and if transit times are forever, the aging receivables eat into working capital (current assets minus current liabilities).
Selling on rail freight services on price doesn’t work anymore. Any price advantage evaporates as the railroad’s higher transaction costs eat up savings in price. It still takes two weeks to get a rate in some corridors, car supply and transit time have a long history of being erratic. What’s more, procuring, installing, and disposing of the added dunnage to protect goods in transit is expensive. No wonder transportation buyers prefer to go online to a trucker's website, place the order, and get the goods delivered when and where they are wanted.
And when you get right down to it, the customer’s focus is more on goods movement information than it is on goods. They want to be able to tell carriers how many loads are available on what dates and where to have the appropriate vehicles in place at the appointed time. And they want to know when the goods will arrive at destination. Tracing is an anachronism; reliable arrival times win.
The name of the game is Leveraging Information Technology. Over the last twenty years, most shippers have undergone massive process transformations to stay competitive. They pass on to the carriers performance expectations that mirror their own drive for quality and consistency. Yet the basic transaction processing tools the railroads use to meet these expectations are in too many instances decades old and out of synch with customer IT systems.
Granted, the railroads were among the first industries to computerize, building systems to support complex order fulfillment, traffic classification, and train control processes .The systems were adequate to enable transactions, but using them to drive the business was never a consideration. Now it must be as the need for IT systems able to aggregate customer requirements to shape operating activity has become painfully evident.
Take a look at UP/SP and the Conrail transactions. Carriers assured the shipping community they had anticipated and planned to avoid massive problems, but systems cracked under the strain of adapting to wholesale network and process changes. They did not Leverage Information Technology to stay ahead of customers but chose instead to fine tune the way they Ran Trains. It didn’t work, and shippers with other options took ‘em.
With two service brownouts in the decade, shippers' service expectations diminished still further, forcing railroads to compete even more on the basis of price. That put further pressure on profitability and available capital to improve business tools. The railroads responded by trimming direct costs and maximizing GTM per crew-hour, further diminishing service frequency, and getting farther away from the consistent, reliable service demanded by the supply chain management community. The focus reverted to what rail managers knew - Running Trains - while the IT tools were left wanting.
Meanwhile, every other industry has taken quantum leaps in the speed and portability of information processing and use. Massive datasets are routinely downloaded off the Internet and manipulated by customers to meet their needs. In the process sophisticated have developed tools that actually provide better information on carrier performance than the carriers do themselves. And that’s because rail analytical resources mirror operating lines of management accountability, not end-to-end shipment characteristics.
Leveraging information to improve service schedules and reliability ought to be pretty direct. The concept of the scheduled railroad is finally getting some respect but it hasn't been easy. Historically, railroads have been limited in this effort by the complexity and size of their operations and the massive amount of data used to describe those operations. This condition was exacerbated by mergers that made the railroads only larger and more complex. By the time railroads massaged their traffic samples, ran their network models, in order to tweak their classification tables and train schedules, the picture was out of step with changing business conditions.
And thus railroad service design devolved into a game of perpetual catch-up, adjusting today’s schedules by analyzing yesterday’s traffic and operating performance. It’s having the best possible plan for tomorrow that gives the most grief. Solving that one would be a lot easier if railroad managers would only tap into the same large data base management techniques that shippers use. Then they could pinpoint advance customer requirements, generate traffic forecasts, associate traffic flows and resource costs, generate alternative schedule options, and adjust schedules to meet traffic and resource requirements.
The rail industry also took and again lost the lead in automated data collection with the first generation of equipment bar-coding in the seventies. That capability has been effectively restored and enhanced with AEI. However, most core business processes are still supported by manual input activities (customer service centers, dispatching offices). By collecting data as close to the business activity itself, ideally as a byproduct of the work activity (e.g. AEI), railroads can improve data accuracy and objectivity, and reduce data gathering cost. Improved wireless and GIS technologies can update databases instantly with pinpoint geospatial precision, further closing the information gaps with competitors such as UPS, Federal Express, and many other logistics service providers.
And so the case for the customer information-based railroad is a case for survival, and the tools are at hand. Railroads have long looked at the system through operating eyes because that's what they did best. But now, with the advances in communications, information technology, supply chain management, railroad asset allocation, that’s not good enough. Stakeholders are not going to stand still for a company that is not up to scratch. This is proven time and time again with every percentage drop in market share.
There is no longer any excuse for not knowing everything there is to know about customers, and customer relationship management (CRM) vendors like Oracle and Siebel make it fast, accurate, and fluid. And available. Marketing departments can use CRM information to assess customer preferences and profitability, to tailor service offerings and build long-term customer relationships. Train operating departments can use the CRM tools and the customer order cycle to plan - schedule - everything from trains to MOW programs as the IC did five years ago is now coming back into vogue.
With improved, timely, flexible information, tactical management -- resource planning, plan adjustment, local crew deployment -- gets more effective and efficient. Feedback as events take place provides process measurement and control in terms of train performance, connection performance, shipment cycle time, performance reliability and/or variability, asset utilization. And all of it pulled together provides the information stream customers require.
As noted above, supply chain managers now place more value on information about the things they manage than they do on the things themselves. Data Warehouses, the Internet, cell phones, and pagers sustain a ready stream of information about where things are, have been, and are headed. It’s the quality of the information stream that gives one firm competitive advantage over another in the market place.
And if better information drives competitive advantage, and competitive advantage drives profitability, then information providers – participants in the supply chain – had best be on the cutting edge, leading, not trailing, their customers. The railroads have the hardware, the software, and the intellectual resources not to be satisfied with only five percent of the intercity goods movement market. All it takes is a shift in focus from Running Trains to Managing Information.
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