Indian Railway’s Turnaround for Production and Operation Management

Summary

In December 2006, as many as 137 undergraduate students from the universities of Harvard and Wharton gathered to listen Indian Railways minister, Lalu Prasad Yadav at Rail Bhavan. These foreign universities had expressed to know how Lalu converted the loss making Indian Railway into Rs. 20 billion profit making organization within 2 years, without increasing fares.

Mr. Lalu Prasad Yadav explained students in Hindi and his speech was translated in English by his aids. However the students of various countries questioned the sustainability of his model, they asked Lalu why he could not turnaround Bihar in the 15 years rule of Rashtriya Janta Dal (RJD) in that state, while he changed railways within 30 months. Lalu said, ‘Bihar needed an outside push. It had too many problems, while the railways had a lot of potential. It is like an empire’.

Jeffrey Immelt, the chairman of General Electric, who visited Rail Bhavan recently, was surprised that the Rail Bhavan is now talking about unit cost, volume increment and competition. The IR has just become the second most profitable public enterprise after ONGC. Indian Railways is the world’s largest employer, providing 1. 6 million jobs, one of the largest and busiest rail networks in the world, carrying 18 million passengers daily. Yet it has, so far, stayed ahead of global recession.

Thanks to Mr. Lalu Prasad Yadav for a job well done. He has surprised many by emerging as one of the top performing ministers in Prime Minister Manmohan Singh’s cabinet. He is being credited for the impossible—the turnaround of the monolithic Indian railways. When he took over as Railway Minister in 2004, the 156-year old Indian Railways was dismissed as a hopeless, loss-making organization, with too little revenue, too many problems and too many employees. IR was spending 91% of its income just on salaries and maintaining an aging organization.

In 2001 the Rakesh Mohan Committee headed by former Reserve Bank of India deputy governor Rakesh Mohan, termed India Railways a “white elephant’, with a debt of Rs 61,000 crore ($12. 3 billion) and even predicted fatal bankruptcy by 2015. Now many are surprised by the successive landmarks set by the Indian Railways. In last four years, IR has turned in a cumulative cash surplus before dividend of Rs 68,778 crore ($13. 9 billion). Out of this Rs 15,898 crore has been paid as dividend, Rs 39,215 crore has been invested in rail infrastructure and Rs 13,665 crore has been added to fund balances to reach Rs 20,483 cr.

One of Rakesh Mohan Committee members, IIM’s Professor G. Raghuram, now has all praises for Lalu. IIM Ahmadabad, recognized Lalu’s turnaround of Indian railways, and made it a case study for its students. What did the minister do to turnaround Indian railways? In a nutshell, * Refused to hike fares. Shored up earnings by carrying more passengers and freight. * Increased the load carried by a goods wagon from 81 tonnes to 90 tonnes. This gave an additional earning of Rs 7,200 crore. * Upgraded tickets if seats were going vacant in the upper class.

So, waitlisted passengers could be allotted seats. * Maintained passenger profile so that bogies could be taken off or added to trains according to seasonal demand. Lalu’s Success Secrets The explanation for his success lies in his down-to-earth attitude and rustic wisdom. Lalu puts it in his inimitable style: “My mother always told me not to handle a buffalo by its tail, but always take it by its horns. And I have used that lesson in everything in my life, including the railway ministry. ” Lalu says “I approached the ministry like a common man with no technical expertise.

I was clear about one thing—I would not increase passenger or freight fares. It did not require rocket science to understand that the railways could increase its earnings by carrying more passengers and freight. The solution lay in increasing volumes and not the cost,” he says. We can learn the following management tips from Lalu’s success. Lalu’s Management Tips Choose the right people! Lalu quickly realized that he needs points man (A man who operates railway switches) in the ministry and choose a Bihar-cadre IAS officer, Sudhir Kumar, as his officer on special duty (OSD) and gave him a free hand to xecute his ideas.

A Delhi School of Economics alumnus, Kumar also holds a degree in business management. He has given a professional and workable shape to Lalu’s earthy ideas. But he credits all of it to his boss’s genius. He says Lalu, not only thinks out of the box but also takes bold decisions. Don’t Micro Manage, Delegate your work, take calculated risks! According to his officers, “Lalu has not taken any step that was not known in the railways. Other ministers dithered over various policy changes which could have brought additional revenue.

Quite unlike them, Lalu went ahead and took those risks, but in an extremely calculated manner. He also placed complete trust in his officers, and did not at all hesitate in delegating responsibility and powers”. If you do not milk the cow fully, it falls sick! One of Lalu’s most controversial decisions was to increase the load carried by a goods wagon from 81 metric tonnes (MT) to 90 MT. His logic: “If you do not milk the cow fully, it falls sick. ” He reasoned that wagons were being overloaded anyway—and hence subjected to risk of accidents—and the money being pocketed by corrupt officials.

So why not load it officially? This one decision earned the railways an additional Rs 7,200 crore. Think out of the box Lalu’s decision to upgrade passenger tickets subject to availability of seats in the upper class was opposed by the board’s finance commissioner. The minister and the OSD both explained to the finance commissioner that “An empty wasn’t earning any money. If lower class tickets were upgraded, then more waitlisted passengers could be accommodated, earning additional revenue”. This system was successfully implemented after trying it out on the Delhi-Mumbai Rajdhani”.

Do what makes sense Another decision which met some resistance from the board members was the doing away with the detailed examination of a train at its final destination even after a short run. It was decided that a passenger train would only be examined after every 3,500 km, and a freight train after every 4,500 km. A railway official explains “Laluji saw no logic in the earlier practice. A train from Jammu to Kanyakumari was examined after 3,000 km, on completion of its journey and another train from Jammu to Amritsar, for example, had to be examined after 250 km.

Each train examination takes 16 hours. Lalu’s idea was to save time and have the wagons free to run for a longer time”. Information is wealth if used properly Lalu and his officers have introduced simple but effective techniques. For example, they introduced the passenger profiling system, enabling the railways to increase or decrease the number of coaches in a train according to demand. So a service to Jaipur may need fewer coaches during summers when traffic is low. However, these coaches can be added to a Dehradun-bound train where there is a rush in these months.

Says Lalu: “This was a simple decision to take but nobody was really doing it since it required some changes in the railways computerized reservation system. All the data was available, it only had to be generated and used properly. ” Lalu’s ambition Mr. Lalu Prasad Yadav many times expressed a strong ambition to become the country’s Prime Minister. In his recent interview to NDTV, when asked by newsmen whether he will again become the Railway Minister after the forthcoming elections, Yadav said, “what will happen, where will I go, what God has destined and what is written on the forehead, anything can happen. “But, one day I will become the Prime Minister of the country. I have no ‘maara-maari’ present or future. ”   Lets us hope Lalu will become Prime Minister of India in the near future and turns around every sector to make India a super power.

Question 1

Despite all the recent publicity commanded by Lalu Prasad Yadav and Indian railways about it turn around, railway platforms and train remains overcrowded and filthy, the waiting of passengers awaiting berth confirmation remains long in most instances, and punctuality of train remains as elusive as ever. Can the capacity of Indian railway ever match the travelling population of the Indian masses?

Solution: As per this case Indian railway had turnaround like a miracle. All credit goes to Mr Lalu Prasad yadav. He was the man behind the success story of Indian railway which was a loss making public sector and now is the second profitable public sector after ONGC. Talking about the IR, capacity utilization was the biggest issue which was pushing back IR. As IR is a service sector, maximum and efficient capacity utilization is very important for surviving in this inflationary era.

No doubt, after making many changes still there is a long waiting list of passengers; this situation will soon be handled by IR. For achieving 100% service level IR has to travel a long journey with many constraints and hurdles. As discussed earlier there are 2 avenues through which IR generates it revenues. They are Freight and passenger. Now coming back to question, it is a debatable topic whether IR would be able to match the capacities of travelling population. As per this case it very difficult to justify. The key to this answer is applying more advanced version of rake network which are applied by European countries.

IR should apply some simulation techniques to predict the flow of trains considering speed and turnaround time as a limiting factor. In year 2001 the average number of wagons attached to train were 15 (appx) but now they are planning to increase the capacity to 23-24 wagons per train. Second major point could be reduction in turnaround time as applied by Lalu Prasad Yadav. By reducing the turnaround time frequency of trains can be increased and thus reduction in waiting list of passengers. As mentioned in this case zero base time tables can also be formulated to increase the efficiency in managing the network of rakes.

Following are key points to achieve 100% service level:

1. Not to hike fares. Shore up earnings by carrying more passengers and freight.
2. Increase the load carried by a goods wagon.
3. Upgraded tickets if seats were going vacant in the upper class. So, waitlisted passengers could be allotted seats.
4. Maintaining passenger profile so that bogies could be taken off or added to trains according to seasonal demand.
5. Reducing turnaround time of trains.
6. Augmenting the rakes from shortest possible distances.
7. Increasing speed of trains so that travelling time reduced.

Though the journey is difficult not impossible, by applying all the points mentioned above IR can definitely reduce the waiting list of passengers and by applying advanced technique to manage traffic it can easily bring punctuality in train timings.

Question 2

Do you think IR is more likely to compromise on passenger comforts in its current drive for better capacity utilization?

Solution: Capacity utilization was the major factor for turning around IR history. By efficient capacity utilization huge amount of revenue was generated by Lalu and his team.

There is a debatable answer for this question too. As capacity utilization turnaround IR, passenger comfort is being compromised. Size of compartments has reduced and lesser space is available in some of the trains. But this is not for all of the case. There are varieties of trains running daily with ot many passengers who are very comfortably travelling to their destinations. Many of them are job people who travel in train. Ladies compartments are made available in trains for safety purpose. There are many factors which can be adjusted so that it benefits both passenger as well as IR.

Trains like garib rath have introduced for middle class people to make their journey cost effective and comfortable. In any case it is not been justified that comfort is compromised by giving importance to capacity utilization. Sometimes mind set of people also matters. Though IR might be providing lot many benefits like senior citizen, ladies compartments and all, passenger always demand more and more benefits. In a nutshell, it is concluded that compromise in terms of capacity utilization is not justified and IR provides comfort facilities for their passengers.

Question 3

The Garib Rath experiment by Indian Railways is for long-distance trains. The low-cost airlines are targeting traditional railway customer primarily on the long routes. In your view, what would be the likely outcome of this Garib Rath experiment?

Solution: Garib Rath name itself says it is cheaper or low cost train. Yes, it is low cost train but it provide all the luxurious facility like air-conditioner, comfortable seat, blanket, pillow etc in 25% less fare as compare to normal air-conditioner train.

For instance, an AC three-tier ticket on the Surat-Delhi Garib Rath costs Rs 800, compared with Rs 1500 on other trains. Before Garib Rath come the low budget airlines like Air Deccan and Jet Airlines taken away railways three-tier travelers. Because it charge almost same as railway charge for three-tier. so it is obvious also every passenger likes to travel in airlines. But after Garib Rath came scenario was totally changed, now every traveler likes to travel in Garib Rath because it charge 25 per cent less as compared normal three-tier AC train and it provide all the comfort also.

Even the cheapest air ticket on budget airlines is linked to the AC three-tier non Garib Rath train. The fundamental principle of Garib Rath was to increase volume and reduce costs. And Indian Railway gets success in it. For destination that can be reached by an overnight journey, trains are usually the first choice as compare to airline.

Question 4

What kind of competition can be posed by the air freight industry in the near future to IR’s freight business, which is its biggest revenue earner?

Solution: As we know rail freight and air freight is very important part of transportation. Air freight is growing sector where as rail freight is already grown up. We can say that Rail freight is biggest revenue earner for Indian Railway. Air freight is growing at very fast rate. In this case we saw that in the past five decades market share of railway has fallen from 90 per cent to 25 per cent in case of freight. Air line industry looking at grabbing the creamy layer of Indian Railway’s freight and passenger.

Following benefits are provided by air freight industry so it can give competition to Indian Railway’s freight business. Due to rail freight only government can earn revenue but due to air freight not only government but private company can also get revenue.  Foreign earnings can increase due to air freight where as only domestic income can increase by rail freight.  Air freight is useful for overseas transactions where as rail freight is only limited to domestic transactions.  Air freight services are characterized by tighter control over its cargo due to short transportation time.

Short transportation time and tight control reduce the cargo exposure to theft and damage. Freight, packaging and labor costs can be saved dramatically with air freight service due to faster delivery and better security.  Insurance premium rate generally is lower for air freight than rail freight.  High performance standards and the flexibility to meet your changing needs is offered by air freight solution. * Air transportation is the best medium for perishable goods.  Access to any destination in the world. Speed of delivery. Transporting bulky and heavy shipment.