Business and Marketing CBN: Supply Chain Problem
CBN
Review Case 6-1 outlined in Chapter 6. Address the following question: “Do you think that the decision to lease the locomotives was the best decision for CBN”?
CASE 6-1
CBN Railway Company
CEO John Spychalski is concerned about a problem that has existed at CBN 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 2006
and 2007, 155 new locomotives were purchased and one of CBN's repair shops was renovated.
The renovated shop has been very inefficient. Spychalski estimated that the shop would complete 300 overhauls on a yearly basis, but instead it has only managed to complete an average of 160 overhauls per year.
The company has also been doing a poor job servicing customers (that is, providing
equipment). CBN has averaged only 87 to 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. CBN'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, Spychalski feels, has contributed to CBN's poor service record.
CBN is considering a new approach to the equipment problem: Spychalski 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 CBN's fleet, but CBN's employees would do
the actual labor on the locomotives. The lease arrangements, known as “power-by-themile”
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 CBN 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 CBN's whole system, and delays to customers have
been known to last up to five days. Spychalski and Thomchick feel that the leasing arrangement will solve CBN's problems.
Text
Coyle, J., Novack, R.A., Gibson, B.J., & Barbi, E.J. (2011). Transportation: A Supply Chain Perspective (7th ed). Mason, OH: South-Western Cengage Learning. ISBN: 978-0-324-78919-5
Supply Chain Problem
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I am of the opinion that the resolution by Spychalskis to lease, was an absolutely wise move. The internal management systems of the organization had clearly indicated and proved to be quite ineffective. When looking at it clearly, twenty years is a fifth of a century. This is indeed enough time for the internal maintenance entities of CBN to have made substantive upgrades to its systems, which is if they were indeed focused and determined to do so. With the current increased economic growth and globalization, the transport industry, especially the rail industry, has experienced tremendous growth (Coyle et.al. 2011). This spelt one thing for CBN; it would lag behind its competitors in the industry due to the increased presence of its competitors in the market, compared to itself.
If the company would opt to reduce the rail cars available, it would prove de...