Note: This file was downloaded from the Montgomery County (Maryland) Public Library electronic bulletin board and is presented as received. ----------------------------------------------------Business Index & ASAP------ AUTHOR(s): Feigenbaum, Armand V. TITLE(s): The making of a world class Class I railroad. (includes related article on achieving quality) illustration photograph Summary: Six characteristics of railroads that succeed in hard times are consistently good quarterly results, effective use of resources, setting and sticking to goals, innovation way ahead of competitors, strong selling of the company, and quick assessment of business improvement areas. Railway Age p20(3) Feb 1992 v193 n2 FILM NUMBER: 63X 2341 Some companies in the U.S., Europe and the Far East year in and year out produce world class products and services of increasingly high customer quality, maintain profitability despite any economic downturn and benefit from a human resource strength that just plain always gets the job done well. What is it that makes these companies world class? Interestingly, if you look at their individual characteristics, they are remarkably similar, because experience shows that business success does not depend upon any single set of markets or business conditions or geographic locations. The first characteristic of these companies is that they don't miss in producing the important business results, quarter after quarter, whatever the set of business conditions. There is a lot of debate, of course, about whether this quarter-to-quarter heat you live with when you're in the corporate kitchen is a good thing. But the facts of life are that the world leader companies seem to thrive on this heat. The second characteristic of these companies is that they establish stretch goals and then relentlessly stick to them. They push these business goals up to the level required for competitive leadership -- they never set them at the level of just doing better than last year. The third characteristic of these companies is their effective use of existing resources. World class companies don't add extra people and money to hit business targets -- nobody can afford to do so in today's competitive environment. If there is any single secret to the long-term success of world leader companies, this is probably it. They've structured their company's organization to the point where continuous improvement is a basic in-line part of the job of every man and woman in the organization. The fourth characteristic of these companies is that they blindside the competition. Innovative quality, cost and time management improvements result from programs that start way in advance of those of competitors, and which these competitors don't easily understand and correspondingly can't quickly duplicate. The fifth characteristic is that they sell their company as strongly as the product. World leaders concentrate on both being good and getting credit for it. And finally, the sixth characteristic of world class companies is that they measure right to manage right. Successful companies identify and prioritize important business improvement areas faster and better than their competitors. The railroad industry now increasingly recognizes both these six characteristics which define the competitive strength of world class companies, as well as the business importance of implementing the work processes needed to achieve the same high level of performance in customer satisfaction, financial performance and employee involvement. The time for this move has never been more critical. In today's globally competitive marketplace, the lifestyles of consumers and the work processes of companies now depend almost completely upon the reliable, predictable operation of products and services with little tolerance for the time and cost of any quality failures. To have both market share and profitability strength in the 1990s, companies must offer essentially perfect products and services which are nonetheless produced at much lower cost. Over the years, we have determined that there are basically 10 benchmarks that are the keys to achieving this result. (See Quality sidebar.) A basic principle behind these benchmarks is that quality can and must be measured consistently and continuously in order to be managed effectively. The experience throughout many industries is that when strong, competitive leadership quality work and teamwork processes have been implemented, the result has been an exceptional return on investment. This is reflected not only in higher quality levels and lower costs, but in improved cash flow, greater employee motivation, higher productivity, increased profitability and worldclass quality leadership. In the railroad industry, this means increased on-time performance and locomotive availability, decreased derailments and costs, improved billing accuracy and progressively higher service reliability. For railroads, like other businesses today, this kind of improvement doesn't merely mean a reduction in things gone wrong, even more important, it means an acceleration in things gone right for the customer. In our experience, the first step in implementing such a strong total quality program is to evaluate the existing quality work processes of the organization -- to take a physical, if you will, to assess the present quality process condition. The second step is to plan what has to be done to strengthen effectiveness. The third, to install the necessary improvements in quality work processes which will provide for achieving and maintaining consistent company-wide quality leadership. This is a multi-phased total quality approach -- analysis, planning, system design, development and implementation -- approached as a call for excellence and as a fundamental strategy of the business. Men and women respond to this call with enthusiasm -- as they will to almost nothing else -- so long as the program is serious in purpose, not merely a group of quality improvement islands without bridges, and is relentlessly and consistently pursued by top management as an organization's way of life. For example, when General Systems began working with Union Pacific Railroad (UPRR) in 1987, General Systems' total quality systems technology and installation expertise was coupled with Union Pacific's know-how in a hands-on Total Quality program following these three steps. UPRR's former Chairman and CEO, Mike Walsh, first established the strategic quality objectives for this total quality program and clearly provided effective leadership and continuous communication on what was needed to move toward becoming a world class transportation service supplier. Dick Davidson -- then vice president-operation -- personally led the Total Quality program, and now continues this practice of continuous quality improvement as President and CEO of UPRR. The program focus was -- and continues to be -- upon customer satisfaction, efficient resources utilization and manageability for growth and profitability. Together, Union Pacific and General Systems examined more than 250 quality work process elements at UPRR's business and assessed how Union Pacific was performing each element. Union Pacific wanted to identify the areas where such performance needed improvement as well as those areas where the company excelled. Union Pacific and General Systems determined the need for improved work processes in on-time performance, locomotive availability, derailments, billing accuracy and a number of other areas, and also identified many strengths of Union Pacific, certainly including committed, experienced and hard working employees at all levels, widespread understanding of the need for change and a willingness to try. This was vital. From this analysis, Union Pacific and General Systems identified and planned the details of the improvement in 10 key areas of the railroad's operations: 1. quality of service (on time performance, customer satisfaction); 2. market growth penetration; 3. financial results; 4. cost of quality; 5. centralized functions (customer service, dispatching); 6. safety and claims; 7. productivity and cost control; 8. supply effectiveness (buying the best materials at the lowest possible cost and getting them where they have to be when they have to be there); 9. asset utilization and management, including car cycle time (how long it takes to move a customer's load from origin to destination and back again) and locomotive utilization; 10. management effectiveness (how well the company's management systems - people, processes and technology are integrated and brought to bear on achieving targeted business results). Approximately 50 improved management work processes were then developed in cooperation with railroad executives and work teams, with widespread employee involvement throughout all facets of the organization. The objectives of these processes was to help the men and women of the railroad serve their customers better and correspondingly at lower cost. These quality processes range from customer service planning and transportation quality improvement to locomotive reliability and customer billing accuracy. Four years after beginning this Total Quality program, Union Pacific can clearly measure how far its program has come: * In early 1987, locomotives were available only 86% of the time. Today, they are available 93% of the time, a significant improvement, because for every 1% improvement, 25 more locomotives are available to move trains. This is also particularly impressive when it is recognized that some percentage of locomotive time must be allocated for planned maintenance. With new locomotives costing $1.5 million each, this quality improvement is worth more than $250 million in avoided costs. * Derailment costs have been reduced more than one-third. * Billing accuracy has increased 12% * Late material deliveries have been reduced 75% * Locomotive road failures are down 40%. * Employee injuries were reduced by more than 20%. In addition, 10 regional dispatching centers are being consolidated into a single state-of-the-art facility in Omaha called the Harriman Dispatching Center. Customer service, formerly located in 160 offices, has also been consolidated into a National Customer Service Center in St. Louis. Each day, the center now handles 20,000 customer calls on issues including placing orders and tracing cars. Lines of communication between organizational functions and departments are also clearer, resulting in better relationships between Union Pacific management and its vast unionized work force. The effect of all of this on the reduction of quality failures has been a quality cost saving of about $500 million in 1991--a direct and favorable impact on business results. Quality costs are defined as the costs of prevention, appraisal and internal and external failure. Savings come from elimination of failures. These savings are over and above cost avoidance savings, such as the $260 million due to improved locomotive availability. Quality leadership is now one of the strategic strengths through which the Union Pacific is bringing growth and strong forward business momentum to a mature business. At Union Pacific, it is a continuing process that is constantly worked on as the company strives to establish itself as one of the world class companies of today. In companies like Union Pacific, the approach is that quality is today's most powerful corporate leverage point for achieving both customer satisfaction and much lower costs. This recognizes that quality is a way of managing an organization that goes way beyond knowing all the right buzzwords. It means knowing how to lead company-wide programs which build on total quality management continuously to improve customer satisfaction, lower costs and improve human resource effectiveness. Quality 1. Quality is a company-wide process -- what differentiates the quality leaders from the quality followers is quality discipline and clear quality work processes that men and women throughout the organization understand, believe in and are part of; 2 Quality is what the customer says it is -- not what a marketer or general manager says it is; 3 Quality and cost are a sum, not a difference -- a five cents on the sales dollar competitive advantage -- sometimes as much as 10 cents -- characterizes many product and service quality leaders; 4 Quality requires both individual and teamwork zealotry -- quality is everybody's job but it will become nobody's job without a clear infrastructure that helps all the left hands work with all the right hands; 5 Quality is a way of managing good management means empowerment of quality knowledge, skills and attitudes of everyone in the organization to recognize that making quality right makes everything else in the company right; 6 Quality and innovation are mutually dependent -- the key to successful new product and service launches is to make quality the partner of product development from the beginning; 7 Quality is an ethic -- the pursuit of excellence is the strongest human emotional motivator in any organization and it's the basic driver in true quality leadership; 8 Quality requires continuous improvement -- there is no such thing as a permanent quality level; 9 Quality is the most cost-effective, least capital intensive route to productivity; 10 Quality is implemented with a total organization-wide system connected with customers and suppliers.