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OM in the News: Union Pacific R.R. in a High-Tech Economy

November 9, 2012

“Can a 150-year-old company be part of the modern economy,” asks Fortune (Oct.29, 2012). Apparently so. Union Pacific, America’s largest railroad, touches all parts of the economy, even globally — 30% to 40% of its shipments originate or terminate outside the U.S. In its intermodal business, where it takes containers off trucks and put them on the railroad, it had a record year– a bellwether measure for what’s happening in the economy.

Union Pacific has also started moving shale oil by rail– 2 or 3 times faster than a pipeline (and able to come out wherever companies want it). In 2010 it moved 4,400 carloads of crude oil. In 2011 it was 25,000, and 2012 will be 140,000. CEO Jack Koraleski’s take is: “If the United States can convince manufacturers that low energy prices are here to stay, then all of a sudden the U.S. starts to look a lot more attractive as a place to build that next plant. We’ve already seen manufacturers announce that they’re bringing some manufacturing back to the U.S.”

With 8,000 locomotives pulling hundreds of thousands of cars over 32,000 miles of track, Union Pacific is also an infotech company. Technology controls the movement and safety of the trains. There are 4,000 pieces of detection equipment throughout the network. As trains go over, they’re measuring the temperature of the bearings, the impact of the car as it rides on the rail and whether there’s a bump to it, the sound of the wheels on the rail for anomalies and patterns–all part of predictive maintenance on when to pull that car out and have it inspected.

Union Pacific has also tried to move up in its customer supply chain. With Shipment Vision,  Chrysler assigns a car a VIN on a manufacturing line, then Union Pacific tracks and controls that vehicle all the way to the showroom. The railroad takes technology it uses to control trains and gives it to customers to help them control their supply chain more effectively.

Discussion questions:

1. Why are railroads critical to the OM function in many firms?

2. Why has Union Pacific moved into the infotech sector?

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