Thursday, May 30, 2013

Boosting asset utilization: The hunt for percentage points

Written by  Shem Malus and Yioula Melchiors, Princeton Consultants
Lessons learned from TTX Co.

Increasing asset utilization by a single percentage point can make the difference between a typical year and a banner year. By blending operations insight with advanced technology and optimization techniques, the rail industry is achieving performance gains it previously thought were out of reach.

We believe there are many areas of opportunity throughout the rail industry for asset utilization gains of 1% - 5%, and even more in certain business environments. The focus here is on rolling stock, which can have long life spans (as much as 50 years), so effective utilization is critical. In practice, we encourage a broader view of “asset” as anything of value an organization controls such as railcars, chassis, containers, trucks, and facilities. We offer the following roadmap as you hunt in your own organization for improvement.

For a great example of what can be achieved, consider TTX Company. TTX manages more than 200,000 railcars, including flatcars, boxcars, and gondolas, which are distributed across multiple railroads and 140,000 miles of track throughout North America. Founded in 1955 as Trailer Train by the Pennsylvania Railroad, The Norfolk & Western, and Rail-Trailer Corporation, TTX provides the railroad industry in the U.S., Canada, and Mexico with a pool of owned and managed railcars.

In 2011, TTX achieved a 1.2% improvement in railcar utilization as a result of improved asset visibility and management. It is the equivalent of TTX’s having 2,000 additional railcars or annual savings of approximately $42 million.

The foundation: Improving business process management

Many organizations focus on their strengths and have clarity around their core processes. If you’re hunting for meaningful performance gains, we advise you to examine your weaknesses, which are often characterized by fuzziness, meaning limited visibility to the assets and a lack of measurement and rigorous process. These fuzzy areas typically rely on small groups of veteran specialists who perform “magic” that their colleagues cannot replicate or validate.

In your quest for clarity, precisely define the business process. Use the right metrics and make sure they are used consistently across your organization. With these in place, look for gaps in key processes and hand-offs between departments that may have different objectives, the sum of which may not be the ideal enterprise-wide objective. Move away from a siloed approach and work toward an integrated platform approach that facilitates integrated processes, common measurements, and cross-training of employees.

Design and reengineer your processes to continually take advantage of new data. Were your core processes defined before the tsunami of data began hitting your organization? If you rest on your laurels and continue to execute without effectively using the new data, you will risk losing competitive advantage. In an advanced business process, there is continuous leveraging of shared data and metrics between analysis and forecasting, strategic planning, and execution.

TTX sought to revolutionize the management of railcars by providing continuous, real-time visibility of railcar activity and location for both itself and the railroads. The company retained Princeton Consultants to build a custom IT platform, called Unified Fleet Distribution (UFD), through which TTX and its customers can visualize the entire network. The platform features real-time movement data cleansing; centralized process management via employee, railroad, and shipper portals; and unified design independent of railcar type. TTX required advanced user configurability because of the different requirements of the users and their organizations.

“TTX’s mission is to be an exemplary high-value asset manager, so the UFD project was both a critical and natural initiative,” says TTX CEO Thomas Wells. “We wanted to increase our network visibility and improve customer service and satisfaction. We also saw an opportunity to build an up-to-date, agile, and scalable IT platform that would solidify our position as an industry leading information provider and advisor for inter- and intra-rail services.”

Analysis and forecasting

BusinessProcessManagementWe advocate a rigorous, data-driven approach that includes the fundamentals, like determining how the asset is being used, and the factors that drive its utilization. Intuition often fails as the problem becomes more complex, and it is essential to supplement the human decision making process with non-biased analytics. TTX and other companies are adept at analyzing the utilization of their assets.

To properly analyze your organization’s history, it is imperative to capture the right data at the right granularity. For example, railcar velocity may vary by railcar type, lane, operating railroad, and season. Missing any of these data elements would result in a blind spot that could have significant impact on forecast accuracy.

Planning

A strategic plan communicates enterprise objectives and drives execution. Typically set annually or semi-annually, many plans are the result of weeks of deliberations and they are handed down to the business units for execution. Too often, the operational reality cannot execute to the plan, effectively making it, if not obsolete, certainly not optimal.

An effective strategic plan incorporates operational reality on an ongoing basis. The static, annual plan is obsolete, thanks to the effectiveness of optimization models and simulations that continually assess many what-if scenarios and make recommendations. These tools dramatically change the way strategic plans are developed and assessed, including the ability to forecast budgetary and operational compliance.

Execution Daily operational execution of a business process is typically governed by a tactical plan, which should be fulfilling the broader strategic plan. To ensure streamlined execution and compliance, the organization should be looking for opportunities to integrate systems and automate processes across business units and partners.

TTX’s UFD system represented a breakthrough in execution that benefits the entire rail industry. Today, 32 different fleets are managed in UFD. There are more than 1,000 users at nearly 100 business entities, including railroads and shippers. UFD stores nearly two billion movement events—only a handful of them touched by humans—that users can access in the database to run real-time, ad hoc queries.

Developing TTX’s UFD system entailed stakeholders at three TTX business lines—each with different, specialized management methodologies—as well as numerous participating railroads and shippers with distinct IT platforms and protocols. Princeton Consultants worked with each party from design through implementation and testing. To meet the challenge of “noisy,” external railroad data, customized technology was used for sophisticated real-time movement data cleaning.

“You can’t overstate how difficult it is to deal with rail data,” says TTX CIO Bruce Schinelli. “There are 1.4 million daily events for our UFD system. All the data going in are external, from a number of sources and in many formats. You have to reprocess to find out what happened, and really understand the message sequence. Now it all comes together. To have a system that actually builds a trip is quite an achievement.”

Noisy data was just one of many staggering complexities in building UFD. Beyond the number of cars (200,000) and miles of track (140,000), railcars were made up of more than 20 distinct types, each with its own operating characteristics, market dynamics, and distribution rules. Also, TTX’s customers—the railroads—have diverse requirements, operating rules, and legacy computer systems. Creating an accurate, unified, accessible dataset was daunting but ultimately transformative.

In the new Big Data environment, many organizations are striving to be more analytics-driven. With improved data quality and asset control, TTX was now in a position to make use of optimization, the harnessing of advanced mathematics, and special software that makes recommendations about assets. Together with Princeton Consultants, they developed an optimization model to improve railcar utilization across the North American rail network. Tactically, the model advises TTX and the railroads on daily redistribution of empty railcars. Strategically, the model can run complex “What-If” scenarios, to help them analyze the impact of changes to supply, demand, network, and even distribution methodologies.

A portfolio of opportunities

These suggestions may help you build a portfolio of opportunities at your organization that will drive performance gains that impact your bottom line. There is often room for improvement, even beyond what was previously thought possible, as seen in the case of TTX.

Shem Malus and Yioula Melchiors are Directors at Princeton Consultants, www.princeton.com, an IT and management consulting firm that helps organizations achieve transformative improvement.