They've Been Working On The Railroad

For decades, railroad companies led the way in applying the latest form of what is now called information technology. Having to coordinate so much activity scattered across the continent, railroads were quick to pick up on the telegraph, telephone, and typewriter. They also were early and big users of Herman Hollerith's punch-card tabulators, which eventually formed the core business of a company called IBM.

Today, of course, in an age of Information Superhighways, railroads hardly look like high-tech success stories. Indeed, during the 1980s economic boom, the U.S. rail industry's freight revenues remained nearly flat, at about $29 billion, even as intercity trucking revenues grew--from $95 billion in 1981 to $167 billion in 1991. Railroads maintained their 37.5% share of freight volume during that time but had to cut prices to do so. That losing experience is spurring big changes. Several pending mergers of major railroads, including Norfolk Southern Corp.'s recent proposal to join forces with Conrail Inc., will help create larger, more unified systems.

But equally important, the railroad industry is reengineering itself around improved information systems. The idea is not simply to boost productivity--deregulation forced that more than a decade ago (chart). The goal now is to improve customer service radically. Traditionally, notes one railroad executive, the industry's view of customer service was "Neanderthalic." So rail carriers are scrambling to make pickup and delivery schedules more precise and give customers up-to-the-minute information on their shipments. In short, railroads are out to make their services mesh with the logistics systems of their customers as smoothly as truckers do.

"The railroads are learning that they don't just manage trains," says Robert O. Wagner, formerly chief information officer at Consolidated Rail Corp. and now a management consultant in Melville, N.Y. "They have to manage their customers' shipments from door to door. Eventually, they'll be managing customers' inventories." Indeed, Chrysler Corp. now has rail companies tracking its autos all the way from factory to dealer. The goal is to have the autos sit for no longer than four days anywhere along the route. "Railroads have improved dramatically," says Thomas Stahlkamp, vice-president for purchasing at the carmaker.

PAST AND PRESENT. There are more improvements on the way. A big change is in the approach to information. Most railroads have mainframe-based information systems that were designed to report on past events, not to monitor present activities or predict future trends. And while individual railroads have employed a variety of techniques to monitor freight cars electronically on their own tracks, there hasn't been a way to tell a customer what's happening to a car when it passes from one railroad to another. Not only does that make it difficult for a customer to track shipments, it also makes it impossible for a railroad to live up to promises of on-time delivery.

That's where the new information networks could have the biggest payoff. Recognizing that their fragmented information networks are a competitive disadvantage, railroads are backing an industrywide effort to create information standards that will pave the way for what's called "seamless service." That means giving customers one-stop shopping for freight-shipping needs. The Association of American Railroads (AAR), a trade group in Washington, D.C., has just endorsed a plan to equip all freight cars with radio-activated identification tags--a technology that's expected to perform better than a previous bar-coding scheme, which could be derailed by a bit of mud. By late next year, more than 1,000 trackside readers are scheduled to be in place throughout the country, allowing railroads to constantly monitor the cars on their rails.

Managers at companies such as Union Pacific, Santa Fe Pacific, and Conrail expect that the tag data, organized and processed properly, can help in many ways: Railroads can alert customers to delays--caused by weather, perhaps, or equipment malfunctions--as soon as they're detected. They can also plan the makeup of future trains more efficiently. And they can fine-tune their schedules.

Still, tag readers solve only half the customer-service problem. An important advantage for truckers has been their ability to move goods long distances using a single vehicle. For them, it's a simple matter to track and reroute shipments. By contrast, more than half the tonnage shipped by rail involves two or more railroads, and each handoff between lines increases the probability of delay and missing a promised delivery time. Only by knowing where each car is and when it's there, says Michael P. Gelhausen, managing partner of Andersen Consulting's transportation and travel services practice, can railroads achieve their No.1 goal: becoming "an integrated part of the customer's logistics pipeline."

TRUCK HITCH. The rail industry's answer: a scheme called interline service management, which calls for the dozen largest railroads to share their tag data through a system run by the AAR. The railroads already exchange the bulk of their invoices and other business forms with customers electronically, using a so-called electronic data interchange (EDI) network. But to share car-location data, they're developing a common set of definitions for the different types of data they plan to collect and exchange. Once that's finished, "the customer has only to deal with a single, prime carrier," says Joyce M. Wrenn, who last year was hired away from American Airlines Inc. to become chief information officer at Union Pacific Railroad Co. The nerve center of Wrenn's operation is the company's underground dispatch center in Omaha.

In the name of customer service, the railroads are doing something truly radical with their information systems--using them to coordinate with trucking companies. Many trucking companies, it turns out, have trouble keeping qualified long-haul drivers because of the grueling hours. So they are handing over many long-haul shipments to railroads. J.B. Hunt Transport Services Inc., the giant Arkansas-based trucking company, has been working closely with Santa Fe for several years. Now, with computer links between rail and truck carriers, it should become far easier for customers to order up such "intermodal" shipments with a single call. At this rate, railroads could once again be on track with information technology.

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