Railroaders' Nostalgia > Mad Dog Chronicle # 177

Mad Dog Chronicle # 177 The Western Division Project. Cont.


If you read the last Chronicle, you got to sample the summary and the recommendations of the study team. Look first at MDC # 176 if you have not just read it.
http://www.trainorders.com/discussion/read.php?11,1223718.
You might also want to review the other MDCs shown as links in MDC# 176.

I had made a commitment to the VPO, Alan DeMoss that I could replicate the McKinsey Houston Study on the Western Division when I was appointed Superintendent. I asked for and received authority for a four person team to be fully devoted to the study, not to include existing staff. After some consultation I was assigned four persons with budget authority increased to cover wages and fringes.

The project team came from the Marketing Department, the Oakland District Sales Office, and The Western Division staff. In many ways, everyone on the Division Staff and the District Sales Staff were involved. However four individuals made up the project team.

Kerstin Magary was the team leader. In 1980 she had been made the second woman Assistant Trainmaster on the Western Division. She actually came out of the Marketing Department. She, along with Edith Foothorap , still in Marketing, had been on the McKinsey Houston Project implementation team.. Bob Abreau and Andy Anderson were assigned full time from the Oakland District Sales Office. According to my 1980 calendar, I received weekly progress reports, usually on Friday afternoons. Sometimes the briefings were over a long lunch.

I was also briefing the General Office on progress just as I had when I was managing the implementation of the McKinsey Houston Project. Those briefings were held once a month. These sessions were attended by the head of the BTR (cost and economics for you non SP types) most of the Marketing Department senior managers, my General Manager, frequently Krebs and R L King, now VP traffic, and by my project team.

I believe that John West, who was a senior manager in Marketing at SP at the time (and a frequent poster here on TO) is the one who described McKinsey and Co. as the classic consultants who use your own watch to tell you the time. In 1980 we were replicating the McKinsey study from Houston, using all of our own people. Rather than wait to complete the study before implementation, we were fixing problems as the study progressed. Best of all, we were accomplishing all of this for a tenth of the cost of the original McKinsey project, and we had buy in right from the start.

Since the project team was working mostly for me and under my supervision, I could also head off goofy ideas before we wasted a lot of time on them, too. And, of course, we got lots of advice from the “Glass House.” Aka the General Office.

More from the Western Division Project Report: On page two, note the number of branches which are under water from a profitability stand point. On the other hand look at the Avon Branch. Petrochemicals!
on page three, the detail for the Spreckels Branch, we were making money on the outbound sugar, but loosing our shirt on the inbound sugar beets.

I fixed the pages posted sidewise, i think. (nope they would not repost. pages two and three now appear at: http://www.trainorders.com/discussion/read.php?11,1228326 )


8/25
mdo

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And for Topper

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Wow, 660 carloads from the San Bruno branch. Where was the traffic originating from?

I'd love to go back and see these branches operate just once.

garrett

Details of the San Bruno Branch: mostly inbound to two chemical plants, the Emporium, a bakery and Zellerbach Paper

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Very interesting stuff. Mr. West isn't the one who coined the phrase regarding consultants and watches, is he?

I do have a couple of questions, if you're able to answer.

1. Any rough idea of the total manhours used for this project?

2. You may have mentioned this, but was this just a branchline study, or did it include mainline industry activity as well?

3. Was the focus mainly on customers/location, or was there a review of profitability by job as well?

4. I confess I'm baffled by the terms of "Rev/LRVC" and the two "contribution" values. What are these?

5. I seem to remember (circa early 1990s) SP having a pretty nifty costing model, which was per car based, was this in place then?

Thanks,

SLM

Waybiller Wrote:
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> Very interesting stuff. Mr. West isn't the one
> who coined the phrase regarding consultants and
> watches, is he?

No, but he tought me the phrase.


>
> I do have a couple of questions, if you're able to
> answer.
>
> 1. Any rough idea of the total manhours used for
> this project?

I do have that somewhere for just the project team, but it will take another search thru my rather dis-organized files.


>
> 2. You may have mentioned this, but was this just
> a branchline study, or did it include mainline
> industry activity as well?

Included the entire Division, main lines, branch lines and yards and industrial zones in yards.


>
> 3. Was the focus mainly on customers/location, or
> was there a review of profitability by job as
> well?

Nothing about profitability by individual job assignment. However it was pretty easy to derive it. Particularly for the branches.


>
> 4. I confess I'm baffled by the terms of
> "Rev/LRVC" and the two "contribution" values.
> What are these?

Rev/LRVC = the ratio of revenue to Long Range Variable Cost.
Cash Contribution is what the railroad actually received for handling each car, after paying interline divisions, ie. settled revenue
Target Contribution: ( i will need to think about that one. Perhaps Mr West can help with this)


>
> 5. I seem to remember (circa early 1990s) SP
> having a pretty nifty costing model, which was per
> car based, was this in place then?

Yes, this was the foundation of the whole study.

Well Mike, you should have lost your shirt on those beets.. just a per car charge AND loaded way over limit ( all in favor of the sugar companies). Many of those beets came from way down the San Joaquin Valley near Bakersfield in the summer.

With all that in mind, it explains why in 1981, the car fleet was turned over to the sugar companies to maintain. Amstar (Speckles) choose not too after six months, but Union held on their fleet to the end in 1993 minus cars that simply fell apart.

Meanwhile in the Traffic Dept as your study recommended, analysts were going through all the rates to see if SP was making money on every car moved. Quite a flood of cancelled rates came forth afterwards. Note the recommendations to contracts... the early days of Staggers.

mdo Wrote:
-------------------------------------------------------
> Rev/LRVC = the ratio of revenue to Long Range
> Variable Cost.
> Cash Contribution is what the railroad actually
> received for handling each car, after paying
> interline divisions, ie. settled revenue
> Target Contribution: ( i will need to think about
> that one. Perhaps Mr West can help with this)

Sorry to keep pestering, but I think this stuff is interesting.

Is the cash contribution the systemwide receipt, or just for the division? I'd assume systemwide, but I ask because I dimly remember being told that the costing/revenue system worked on a division basis. This was in the context of after the DRGW takeover, though.

Was there a reason for tracking IB/OB traffic separately? Or just because the data was easier to come by that way?

Finally, was all this information, such as you've shown, resident on the SP computer? (I can never remember where the costing part was TOPS, etc.) Or were those typed pages it?

Thanks again,

SLM

Now that I have thought about it:

Target Contribution assumes a Rev to LRVC ratio (1.25 I think), looks at the actual cash contribution and calculates the difference.

Now looking at the numbers again, perhaps the ratio was 1.0

mdo

Waybiller Wrote:
-------------------------------------------------------


>
> Is the cash contribution the systemwide receipt,
> or just for the division? I'd assume systemwide,

Yes, SP system revenue for all cars either originating or terminating.


> but I ask because I dimly remember being told that
> the costing/revenue system worked on a division
> basis. This was in the context of after the DRGW
> takeover, though.

Not in 1980,


> Was there a reason for tracking IB/OB traffic
> separately? Or just because the data was easier
> to come by that way?

It gave us information to derive division costs and by implication costs of serving the customer.


>
> Finally, was all this information, such as you've
> shown, resident on the SP computer? (I can never
> remember where the costing part was TOPS, etc.)
> Or were those typed pages it?

Laboriously typed by the team. They had boxes of computer data, in addition. This document was just a summary and an analyses. In 1980 it took lots of work on a calculator. Later at least some of this was automated

JB West's definition of a consultant borrowing your watch to tell you what time it is had another version in my organization. You can always tell a consultant because he has to wear a hat to know which end to sit on.
C.

Carol Voss
Bakersfield, CA

I would laugh at that analogy, Carol, except as you already know, I now do a fair amount of consulting, myself.

mdo

Interesting stuff MDO, interesting stuff.

In defense of consultants I have another cliche (also stolen): you get out of a consultant what you put in. In other words, the consultant shouldn't work in a vacumn. In later years McKinsey did some good work for me. But you took that one step further, and did it yourself.

I left the SP in August 1980 so I missed all of this.

Here are a few recollections relative to some of the questions. The computerized cost system was PMS (Profit Measurement System). Cash contribtion should have been the difference between revenue and shortrun out of pocket costs (usually looked at per car, or perhaps per customer). Target contribution probably was long run variable costs plus some standardized level of average profitability that you hoped to achieve. Hope I got that right....been a long time.

I was around for the start of the Houston study, but was not aware of your "do it yourself" efforts on the Western except for what you have told me. Good stuff.

WAF noted the money loosing sugar beet business. Beets were a drop in the bucket compared to woodchips up north....same theory, loose money on the inbound raw material, make money on the outbound product.
Same result, loose lots of money on the inbound raw material, and most of the outbound paper and sugar moved by truck. From my years as ATM at Salinas, I have little recollection of much outbound from Spreckles, at least relative to the inbound beets we handled, but as WAF has found my memory can get hazy. I remember Pete Vajta and Marketing trying to make a move to "fix" the woodchip problem but the uproar from Scholibo's office cowed the folks on the 8th floor.

Not easy to fix problems where the customers have expectations built on years and years of experience.

JBW

Pete Vajta... now there's a name I remember from the SP traffic department. You read my mind John, about the chips. Very true theory among rate people.. "we'll make it up on the outbound.." Not a perfect world out there when you deal in transportation service. More times than not, you'll lose on one end of the stick. Box cars and airslide hoppers of sugar, it kinda looks the same as any other business in your yard, John, BUT a train load of sugar beets or perishables.. Now, you remember. Your mind isn't any hazer than mind.

The traditional SP traffic department was revenue driven because without computers it was tough to keep track of costs at the level where rates were made. This led to a lot of sub-optimal policies, like trying to haul lumber from Oregon to the Midwest via El Paso, trainload business like beets and chips, perishables (seems to me the loss and damage on perishables darn near exceeded the revenue), multiple car rates on canned goods, and so on. By 1980 Pete Vajta and Bob King had got that pretty well changed, but with the business changing so fundamentally under their feet (auto plants closing, TOFC, etc.), shipper expectations based on years of bad habits, not to mention the aggressive and fleet footed competition from the trucks.....it was too little too late, at least for SP. How things have changed since 1996. Lots of interesting what ifs!

JBW

Both West and Fox are pointing to something which I distinctly remember about SP sales. They were focused on the number of carloads and the revenues derived there-from.
Profitability?..... For-get-about-it!

In some ways, I wish that I had not learned about the non-profitability of a lot of SP's business. It made me into the ultimate anti-railfan.

In a later life, I was responsible for the spin off of many of SP's branch lines (1992-1996)

mdo

WAF Wrote:
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> Pete Vajta... now there's a name I remember from
> the SP traffic department.

Mr Vajta was the VP of SP's new Marketing Department. He reported to th VP of Traffic.

mdo

Pete was a very interesting addition to SP's executive suite. Formerly with KcKinsey and then VP Marketing at I believe Crocker Bank (he taught me to challenge all the service charges on my bank statement). Those were interesting days, and a text book case of the challenges of trying to change a corporate culture....in short not easy. My guess is there is a guy in Omaha right now facing a similar challenge....but at least he is in charge.

JBW

jbwest Wrote:
-------------------------------------------------------
>
> WAF noted the money loosing sugar beet business.
> Beets were a drop in the bucket compared to
> woodchips up north....same theory, loose money on
> the inbound raw material, make money on the
> outbound product.
> Same result, loose lots of money on the inbound
> raw material, and most of the outbound paper and
> sugar moved by truck. From my years as ATM at
> Salinas, I have little recollection of much
> outbound from Spreckles, at least relative to the
> inbound beets we handled,

Perhabs either you or WAF could explain "transit rates" to our gentle readers who lack a railroad rate background from a historical, pre- deregulation perspective.

For goodness sake don't have me do it!

mdo

In 1972, I was a young pup assistant trainmaster for Santa Fe at Fullerton (1972-73) Pico Rivera 1974, and Los Angeles (Hobart) in 1975. I was very aware of the traffic department's emphasis on length of haul versus revenue. The traffic (or marketing) boys would solicit business that originated on the SP in Oregon such as pulpboard and try to get it routed via SP Stockton Santa Fe or at least Bakersfield. I researched the revenue divisions and found that Santa Fe only got 28
percent of the total revenue for Stockton to LA versus 23 percent (the minimum division for Pacific Coast traffic) for only hauling the car from LA to Fullerton or La Mirada. A good friend
used to refer to this a "short hauls for ease and profit".
It was very obvious to me that we could earn a lot more profit on the short haul, but the marketing boys always wanted to get the long haul on everything. Of course, nearly all this nonsense went away with deregulation, thank god!!!

TIOGA PASS