Norfolk Southern has been having a bad day for the past month.
What can manufacturers take from their struggles?
Norfolk Southern Railway has had three, count them three train derailments in the past month. Most notable was the derailment in East Palestine, Ohio, then another two in rapid succession.
LNS Research Fellow Tom Comstock wrote about the Southwest Airlines debacle several weeks back.
I want to take a different track here on Norfolk Southern’s recent spate of derailments.
I wrote a while back about the Cost of Quality in the Digital Age. In that piece, I introduced the idea of reputational costs that dramatically impact the Cost of Quality. Norfolk Southern is a case of reputational cost.
Two of the three recent derailments have been equipment failure related. In the East Palestine derailment, three device warnings were ignored. The second derailment in Springfield, Ohio, was also equipment failure related. The most recent one in Alabama, on the day of Norfolk Southern CEO Alan Shaw’s testimony before Congress (Thursday, March 9th), is too early to tell if it is equipment failure related, but chances are...
For years, Norfolk Southern and the other rail carriers have been cutting costs through Precision Railroad Scheduling (PRS), which drives rigid scheduling of minimal resources (equipment and people). PRS is equated with Lean concepts, except that Lean in manufacturing is about increasing flexibility, and PRS has done the opposite in the rail industry.
I can’t speak to the motivation to ignore equipment failure in the Norfolk Southern cases, but I’m sure that Norfolk Southern CEO Alan Shaw, when he was with angry residents in East Palestine or up on Capitol Hill, did not think that the risk calculus within Norfolk Southern culture is properly calibrated.
Our upcoming Digital Performance Excellence (DPX) research will highlight the risk calculus approach to improving resilience, agility, and flexibility. (Figure 1)
Figure 1: How to create a risk calculus for agility, flexibility, and resilience
Norfolk Southern has suffered enormous reputational damage, the cost of which far exceeds the benefits of any contrary motivator to ignore equipment failure warnings for schedule or other considerations.
Manufacturers would be wise to heed the warnings of these recent examples from Norfolk Southern and Southwest Airlines and learn the lessons about risk-reward in their own businesses before a catastrophic, public trust damaging event occurs to them.
So, how should manufacturing leaders be thinking about the lessons from these public examples and internalizing them for their own businesses?
As I deploy technology, do my people know how to use it to protect our reputation?
The rail industry has been deploying technology to monitor the conditions of critical equipment on trains for about a decade now. This effort has been pointed at reducing train headcount. Many trains now operate with only one or maybe two people onboard at most. In the East Palestine derailment, three warnings were ignored. Was it willful or unintentional due to work overload? The positioning in the media is that it's a policy failure at Norfolk Southern. We may never know down to that detail, but it certainly is a question. This, unfortunately, seems to be similar to an unlearned lesson from the Deepwater Horizon accident several years ago, where sensors warned of unsafe conditions, but the alarms were silenced on the control room computer.
Is my risk calculus properly calibrated and inclusive of “Black Swan” events?
Manufacturers in certain industry sectors have an “it can’t happen here” approach and point out the dissimilarities between their own situation and these public events. This misses the point. Manufacturing leaders should take these public examples and ask, what are the Black Swan events that could happen to us, and are we accounting for that risk in our decision-making?
Figure 2: Alignment of technology with business and analytical
Are my short-term goals and long-term aspirations properly balanced?
In both Norfolk Southern and Southwest Airlines cases, it seems clear that maintenance and updating of systems have fallen behind the need. In Southwest Airlines’ case, we know that employees had been reporting concerns with aged systems for some time before the failure in January. We may never know if those same conversations were held inside the Norfolk Southern leadership or if these were a surprise to everyone. Manufacturing leaders should assess the risk of aged equipment and/or systems that might shut down operations if they fail and factor this risk into their decision-making about capital expenditures for upkeep and refreshing systems.
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