Reference no: EM132725873

ABC Railway Company

CEO John Scott is concerned about a problem that has existed at ABC railroad for almost 20 years now. The continuous problem has been that the locomotives used by the company are not very reliable. Even with prior decisions to resolve the problem, there still has not been a change in the reliability of these locomotives. Between 2015 and 2016, 155 new locomotives were purchased and one of ABC's repair shops was renovated. The renovated shop has been very inefficient. Scott estimated that the shop would complete 300 overhauls on a yearly basis, but instead it has only managed to have an average of 160 overhauls per year.

The company has also been doing a poor job servicing customers (that is, providing equipment). ABC has averaged only 87-88 percent equipment availability, compared to other railroads with availability figures greater than 90 percent. Increased business in the rail industry has been a reason for trying to reduce the time used for repairing the locomotives. ABC's mean time between failure rate is low-45 days-compared to other railroads whose mean time between failure rates is higher than 75 days. This factor, Scott feels, has contributed to ABC's poor service record.

ABC is considering a new approach to the equipment problem: Scott is examining the possibility of leasing 135 locomotives from several sources. The leases would run between 90 days to 5 years. In addition, the equipment sources would maintain the repairs on 469 locomotives currently in ABC's fleet, but ABC's employees would do the actual labor on the locomotives. The lease arrangements, known as "power-by-the-mile" arrangements, call for the manufacturers doing the repair work to charge only for maintenance on the actual number of miles that a particular unit operates. The company expects the agreements to last an average of 15 years. John Thomchick, the executive vice president, estimates that ABC would save about $5 million annually because the company will not have to pay for certain parts and materials. Problems with the locomotives exist throughout ABC's whole system, and delays to customers have been known to last up to five days. Scott and Thomchick feel that the leasing arrangement will solve ABC's problems.

Assignment Questions

1. What are potential advantages and disadvantages of entering into these "power-by-the-mile" arrangements?

2. What should be done if the problem with the locomotives continues even with the agreements?

3. Do you think that the decision to lease the locomotives was the best decision for ABC? Explain your answer.

4. Pick two Container Ports in Canada and discuss which railways services the ports, how freight is moved from the port to the customers and list two customer concerns expressed regarding delivery of the freight.