Routes to Profitable Growth for North American Rail Companies

accenture

Routes to Profitable Growth for North American Rail Companies

Routes to Profitable Growth for North

American Rail Companies

Integrated Linear Asset Management Increases

Operational Transparency


Companies in all industries

strive to improve the

efficiency of how

various functions and

departments work, and

freight rail companies

are no exception. Most

railroad companies made,

and continue making,

significant investments,

capturing enormous

productivity over the

last few decades by, for

example, streamlining

crew size, increasing

locomotive horsepower and

tractive effort, employing

distributed power, and

improving freight car

capacity. These efforts

clearly reduced operating

costs, in part due to

strategic investments in

technology that automated

tasks in specific

functions, such as

maintenance of way

and equipment. Yet, it is

also true that railways

frequently struggle with

service performance,

2

particularly transit time

variability which has been

a difficult operational

problem to solve. Although

this issue has been

mitigated by the fallen

volume related to the

current recession, once the

volume rebounds it will

become a challenge again.

Current Accenture research

on the North American

rail industry 1 shows that

previous operational gains

were not enough to earn

an adequate return on

invested capital (ROIC)

for many railroads or the

industry as a whole. This

will become progressively

more challenging as

economic recovery takes

hold and the rail business

begins to grow in response

to increased demand.


What path will put more railway

companies on track to improve their

business performance to meet the

long-term demand for capacity?

Accenture’s ongoing research into

high-performance business and our

direct client experience hold some

clues, as they have yielded important

insights into how high performers

distinguish themselves. Among our

findings in studying more than

6,000 companies across a variety

of industries: high-performance

businesses act decisively at all times;

they identify and seize opportunities

in all business cycles, enabling them

to outperform their peers in revenue

growth, profitability, cash flow and

total return to shareholders. Moreover,

these businesses sustain and increase

that superiority over time. We call

the attributes of excellence that

can transcend and unite otherwise

Figure 1. End-to-end linear asset management

Linear Asset Management

disparate organizations "competitive

essence," which, in turn, is comprised

of the three "building blocks" of high

performance: market focus and

position, distinctive capabilities and

performance anatomy.

In the freight and logistics industry,

we have found that market focus and

position is characterized by

relentlessly re-evaluating strategy

to ensure that it aligns with clearly

defined target markets, products and

customers. In addition, we have found

four distinctive capabilities underpin

leading companies’ ability to create

value: standardized processes,

integrated information technology

(IT), integration and collaboration, and

innovation. Overall, this focus and

these capabilities position leaders for

long-term success.

Integrated Asset Information & Technology Enablement

(Location, Condition, Activity, Financial)

Strategic & Operational

Planning

Capital Planning

Operational Planning &

Alignment

Maintenance Planning

Right-Time

Dashboarding &

Reporting

Decision Support

Linear Asset

Physical Plant

Maintenance

Track Assets

Signals &

Communications

Condition Monitoring

& Event Capture

Inspections

Notifications &

Maintenance

Financial, Human and

Material Asset

Management

Linear Asset Accounting

Time & Material Capture

Finance Integration

Material Planning

Joint Facilities &

Recoverables

1 Source: Accenture proprietary research from April 2009 analyzing published data from third

party sources including Railway company financial reports, Commodity Systems Inc, the

Association of American Railroads (AAR), Thompson Reuters, US DOT, Cambridge Systematics

Accenture’s perspective and

experience show that a more holistic

approach to managing rail assets and

support systems will allow continued

and accelerated operational and

overall performance improvements

while delivering the efficient and safe

rail service expected. Accenture’s

multi-faceted end-to-end approach

to linear asset management (see

Figure 1) is based upon our client

experience in the rail industry and

our proprietary research 1 .

3


Lagging Performance Requires a New

Linear Asset Management Approach

The productivity gains of the last

couple of decades were real, and a

testament to the industry’s ability to

focus on performance indicators when

necessary, whether to comply with

regulatory requirements (for example,

the Staggers Act) or respond to

competitive pressures. However,

research shows that the pace of

productivity gains began slowing and

then largely leveled off in the latter

part of the past decade (see Figure 2).

What’s more problematic, is that

continued investment in performance

improvement depends upon positive

and multiplicative returns on previous

investments. Our analysis, however,

indicates that many companies are not

able to earn back their cost of capital,

despite the productivity improvements

of the last 20 years, leading to the

conclusion that not all the drivers of

Figure 2. Flattening operational productivity (1980–2009)

high performance have been addressed

or exploited. Through Accenture’s

research into the rail industry, we

confirmed that sustainable

performance relies upon improving

three dimensions simultaneously:

(see Figure 3) efficiency, revenue

/profitability, and productivity/cost.

Employing Accenture’s linear asset

management methodology is a

constructive step rail companies can

take to meet the challenges they face.

These include national government

goals for rail transport as there remain

concerns that even after deregulation

under the Staggers Act, rate

competition and capacity in the

United States remain uneven and at

times, unpredictable. The challenges

also include the more focused and

immediate expectations of industry

stakeholders, including transport

Revenue Ton Mile per Dollar of Inflation Adi Operating Expense Index (1980-2009)

300

250

200

150

1980 - 1996

6.1% CAGR

100

Source: US Freight Rail Road Producivity, Feb 2009, Association of American Railroads

Revenue Ton Mile (millions) per Employee (1980-2009)

18

15

12

9

6

3

0

1980 - 1996

8.5% CAGR

1996 - 2004

1.1% CAGR

1996 - 2004

4.5% CAGR

company stockholders, passengers,

business partners and communities.

In the recent past, the emphasis was

clearly on the third dimension—

productivity and cost levers. Many rail

companies adopted technology

solutions that made back-office

operations more efficient, and the

industry as a whole benefited from

the standardization of physical assets,

from track gauge to knuckle couplers;

air brakes to multiple unit (MU)

connections, adding efficiency in an

interdependent network. Accenture

analysis indicates that the gap

between ROIC and cost of capital will

continue. This will not only undermine

railroads’ ability to grow profitably,

but will also limit funding for the

infrastructure improvements badly

needed to effect growth.

Post 2004

2.3% CAGR

Post 2004

1.2% CAGR

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Source: Rail Road Facts: 2009 Edition, Association of American Railroads

4


Figure 3. Linear asset management levers

Rail

ROIC

Improved Capital

Turns (Revenue/

Invested Capital)

Improved

Operating Ratio

Asset Efficiency Levers

• Increased asset availability (horsepower, network capacity)

• Better visibility of asset location, condition and maintenance

activities

• More informed capital planning decisions

• Improved operations—improved velocity, terminal dwell times,

cars online

• Faster equipment turns

Revenue and Profitability Levers

• Improved visibility to asset lifecycle costs—as input to pricing

and contracting decisions

• Faster responsiveness to changing market demand (evaluating

asset investments/ divestments)

Productivity and Cost Levers

• Improved planning of maintenance activities and

coordination with rail operations

• Improved tracking of unit costs

• Improved safety and regulatory compliance

5


Accenture’s Comprehensive Approach to

Linear Asset Management

Putting railroads on the path to high

performance will require refined

organizational and operational skills.

Skills that reduce route congestion

and optimize line and car

capacity, efficiently maintain and

upgrade fixed and mobile assets,

ensure the safety of passengers

and communities, understand and

respond to customers’ different

service requirements, and address

related environmental concerns.

Accenture believes that by adopting

the holistic approach to linear asset

management outlined here—one that

reflects both broad strategic needs

and discrete operational capabilities—

railroad companies can achieve

these objectives, continue to grow

profitably and position the entire

sector to compete more effectively

in the future.

Achieving positive returns and

creating economic value are possible

in the rail industry, but require more

innovative and disciplined approaches

to asset management that address

enterprise-wide performance and not

parts of an enterprise. An enterprisewide

approach will include developing

a number of strategic and operational

capabilities, such as:

• Aligning asset strategy with

business and customer priorities.

• Committing to asset investment

planning, prioritization and

optimization.

• Focusing on increasing revenue and

profit in addition to managing costs.

• Managing the entire lifecycle of

assets—from inception to retirement.

• Understanding and creating value

for multiple stakeholders.

• Ensuring data and informationdriven

decision making.

• Driving and influencing regulatory

requirements and processes.

6

• Emphasizing and increasing

the scope and breadth of

operational transparency.

As shown in Figure1 and detailed

below, Accenture’s linear asset

management approach is designed

to develop these capabilities in

rail companies and provide the

information and performance

management tools that railroad

organizations need to make sure

they use and improve all the levers

of performance.

An effective linear asset

management approach is one that

helps companies execute and adhere

to their strategic and capital

investment plan. Accordingly,

Accenture’s approach provides tools

and methods to facilitate strategic

planning and decision making,

expedite and enable better asset

information and performance

management, and monitor and

document the condition of physical

assets—from facilities to individual

key components, such as signals,

bridge work and combinations of

interlocking components such as

interlocking plants. Accenture’s

approach to linear asset management

allows faster decision making and

better resource allocation to rail

companies by providing the next

generation of planning, information

and plant maintenance tools and

integrating them for optimal

efficiency. Leveraging Accenture’s

methodology, companies can spend

less time generating data and

consolidating the data into reports

reviewed a month or two after a

maintenance need is first identified.

Leveraging current technology as a

foundation, companies can achieve

greater operational transparency, and

can expect to see productivity improve

across the company, from engineering,

to IT and finance, to HR.


Key Components of Accenture’s Approach to

Linear Asset Management

A. Integrated Asset Information and

Technology Enablement:

Our linear asset management

approach positions up-to-date

technology as a key enabler of

business performance in several

critical areas. It includes a companyspecific

data model that allows

companies to optimize typical backoffice

functions such as financial

transactions and human resources

planning, as well as develop scenarios

for different physical asset

configurations and enhancements

to help plan for future investments.

Technical management of documents

relating to an engineering project and

construction phases is easier through

an SAP Document Management

System that integrates with AutoCAD

design tools and establishes

hierarchical workflows for internal

approval and revision processes.

Further, having access to data from

field events and track inspections

means that all information railroad

companies need to manage their

assets is in one consolidated tool.

B. Improved Strategic and

Operational Planning:

Because Accenture’s linear asset

management methodology

leverages an SAP backbone, it can

easily integrate enterprise business

intelligence tools that provide

management with productivity

metrics and reports, compliance updates,

and inventory and overtime analysis. The

SAP backbone allows

managers to quickly access and

evaluate actual performance against

budget/plan, variance analysis, and

forecasting, and to make

adjustments and trade-offs.

Specific dimensions include:

• Capital planning

• Operational planning and alignment

• Maintenance planning

• Right-time dashboard and reporting

• Decision support

C. Comprehensive Financial, Human

and Material Asset Management:

A tremendous amount of time and

employee effort is expended to

ensure that fixed and rolling assets,

as well as track, are in compliance.

Non-conforming assets translate

into downtime and cost, which

Accenture’s approach to linear asset

management is designed to minimize.

For example, Accenture has developed

a track inspection mobile application

in compliance with U.S. Federal Rail

Administration and Transport Canada

rules that captures condition data real

time, and facilitates quick,

compliant repair. This significantly

reduces downtime, improving

reliability and saving railroad

companies the time and money it

takes for multiple trips to an affected

location. Other capabilities include:

• Linear asset accounting

• Time and material capture

• Finance integration

• Material planning

• Joint facilities and recoverable

7


D. Optimal Linear Asset Physical

Plant Maintenance:

In addition to rolling and fixed assets,

every rail company has property, joint

facilities and maintenance locations

that need to be staffed efficiently and

with appropriate inventory and assets

that reflect traffic and typical

conditions, among others. Accenture’s

linear asset management methodology

delivers tools that make it easier to

assess whether physical plant

components are being utilized most

effectively, so that companies can

identify, prioritize and analyze

investments in physical asset

maintenance programs. Components

focus on five areas:

• Track assets

• Signals and communications

• Condition monitoring and

event capture

• Inspections

• Notifications and maintenance

Several railways, including Canadian

National and REFER Portugal, have

successfully implemented the

Accenture approach to linear asset

management using the SAP platform,

in whole or in part. These companies

are now leveraging standard SAP

objects for modeling the linear

network. They have an integrated SAP

solution for maintenance, financial

and project tracking, joint facilities—

both of which improve their business

performance, increase operational

transparency, and reduce their

operational costs.

Our experience is that each of the

components to our linear asset

management approach is critical;

leveraged together they deliver

significant strategic and operational

benefits. For example, widespread

use of mobile technology can

provide near real-time visibility into

the status of fixed assets allowing

maintenance or repair crews to be

dispatched more efficiently, reducing

waste, asset downtime and impact on

operations. Similarly, standardizing

and integrating enterprise systems on

8

one platform allows rail companies to

more efficiently synchronize, manage

and monitor operations involving

multiple functions—something not

easily accomplished when different

departments have disparate software.

Whatever a company’s strategic

investment plan includes, the benefits

delivered by using the components of

Accenture’s linear asset management

approach together are substantial.

Our methodology allows a rail

company to tie strategies to budget

decisions and allocations and then

monitor progress to determine if plan

goals will be met. From a company

performance standpoint, strategic

planning, technology and physical

asset resources can be optimized to

improve and expedite decision making,

ensure the flow of accurate and timely

information, and keep physical assets

maintained and in compliance. The

mix of pre-configured and tailored

applications reduce a company’s

solution development time and cost.


A Case Study in Modern Linear Management

A leading North American railway

company operates thousands of track

miles spanning Canada and the US.

The challenge of maintaining tracks,

cars and other rail assets is daunting,

as is documenting inspections and

reporting to various railway authorities.

Railway inspections record no fewer

than 20,000 track defects each year,

and this railway company’s over

20,000 signal and communications

locations are subject to one million

regulatory tests annually. Without a

comprehensive asset inventory and

consolidated record of inspections,

it was difficult to quickly respond

to regulatory compliance requests

regarding track condition and

maintenance actions. Equally

challenging was responding to signals

and communications service bulletins.

The client called upon Accenture to

develop both mobile technology and

a state-of-the-art track inspection

solution that would make conducting

and capturing field inspections less

costly and time-consuming, and

enable more accurate, real-time

track condition information. First,

Accenture helped integrate the

railway's engineering and maintenance

processes on the SAP NetWeaver

platform to develop a single,

consistent, accurate repository of

engineering and maintenance records.

Next, field workers were equipped

with handheld devices which allowed

them to navigate through screens

of the inspection and condition

repair lifecycle processes required by

Canadian and US regulations.

The new mobile application eliminated

the need for workers to commute

between field and office locations to

file inspection reports, reducing costs

and improving work/life balance. A

consolidated dashboard provided

supervisors with territory overviews

showing defects, compliance and

work completion status. Automated

labor and material distribution

reduced the administrative burden

and improved the accuracy of asset

maintenance cost tracking. In

addition to higher productivity in

its personnel, the railway company’s

new linear asset track inspection

solution delivered clear, timely

visibility into asset conditions.

9


The Path to High Performance

Given the current and future capacity

and compliance demands on the rail

industry, the time is right for

companies to take a more in-depth

and holistic view of the asset

efficiency, revenue and operating

cost factors that can improve overall

performance. More effective and

efficient linear asset management as

detailed by Accenture’s methodology

can contribute to improving

performance. The benefits of adopting

a more comprehensive approach to

linear asset management, one that

includes common processes and

technology, are multiplicative because

they target all capabilities that impact

business performance—strategy,

systems, processes, and management

of physical and human assets. With

the right strategies and tools, rail

companies can once again make

impressive performance gains and

deliver on the industry’s promise of

being the critical link in the

transportation sector.

10

To learn more about Accenture’s

capabilities and solutions for

the rail industry visit

Accenture.com/freightrail or contact:

Brooks Bentz

Senior Executive, Transportation,

North America

brooks.a.bentz@accenture.com

+1 617 488 4808

Elias Scarvelis

Senior Executive, Transportation,

North America

elias.b.scarvelis@accenture.com

+1 514 848 1660


About Accenture

Accenture is a global management

consulting, technology services and

outsourcing company, with more than

190,000 people serving clients in

more than 120 countries. Combining

unparalleled experience, comprehensive

capabilities across all industries

and business functions, and extensive

research on the world’s most successful

companies, Accenture collaborates

with clients to help them become

high-performance businesses and

governments. The company generated

net revenues of US$21.58 billion for

the fiscal year ended Aug. 31, 2009. Its

home page is www.accenture.com.

Copyright © 2010 Accenture

All rights reserved.

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and High Performance Delivered are

trademarks of Accenture. This

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herein is not an assertion of

ownership of such trademarks by

Accenture and is not intended to

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