Business Modeling to Improve Customer Service

Operations research (OR) initiatives are normally associated with increasing efficiency, decreasing costs, and streamlining operations.  OR modelers are normally concerned with optimizing production functions or supply chains to save money for the corporation.  But using quantitative methods to optimize softer business goals is rarely a goal for these mathematical modelers.  However, as our economy becomes more service oriented, goals like customer service and customer satisfaction have become important business drivers.  These types of business goals are not as tangible or easily measured as traditional business drivers like cost, efficiency, revenue, etc.  In an innovative and ambitious optimization modeling project, a freight rail company in Canada decided to make customer service the optimization goal.

The freight rail transportation industry is rarely associated with words like “innovative.”  At least not for the past century.  For over 100 years, freight rail transportation networks have been operated on a tonnage-based model.  Trains ran when they reached the minimum tonnage required to be profitable.  While this method seems to have worked well enough for generations, 21st Century customers are increasingly demanding more individualized services or finding other options for transporting goods.

Recognizing the change in business climate, Robert Ritchie, President and CEO of Canadian Pacific Railway (CPR), envisioned a new transportation model where customer service drives the operation of the freight train network.  This revolutionary approach required not only a change in business philosophy, but also a massive overhaul of the operations system used to guide the freight network. 

Ritchie decided to leverage operations research techniques to model his new vision.  Trying to quantify and optimize “customer service” would have been difficult to achieve.  But the business deliverables that affect customer satisfaction, like flexible scheduling, could be optimized.  CPR contracted with MultiModal Applied Systems to tackle the enormous process modeling and re-engineering project.

By using a schedule-based business model, CPR found that not only were customer satisfaction goals being met, but operational goals were also improving.  By making departure schedules more regular, CPR could more efficiently assign crew shifts and allocate equipment.  Labor productivity increased as a result.  The data collected for making scheduling more efficient was also applied to making the transportation system more efficient.  Travel times on standard routes decreased significantly, fuel consumption decreased and locomotives were utilized more productively.

As a result of this massive enterprise-wide modeling initiative, CPR decreased its cost base by 300 million Canadian dollars.  Profits increased by 19 percent.  CPR’s operations are now considered the best practice in railway freight delivery. 

There are many lessons to take away from this case study.  The most obvious is that applying operations research techniques to transportation networks can yield enormous results in operational efficiency.  An equally important lesson is that business drivers that are usually considered “soft” drivers contribute heavily to a businesses bottom line.  And these intangible business drivers like customer service can be creatively modeled and optimized effectively.  When analyzing your business processes, don’t forget how important these intangible drivers are to business effectiveness and don’t be afraid to try innovative techniques for quantifying intangible business processes.

Matt Stanczak specializes in decision analysis, business modeling, and operations research at The Hill Group, Inc.  He can be reached at 412.343.9393 or via email at mstanczak@hillgroupinc.com.

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The Canadian Pacific Railway case study used for this article was referenced from the article below:

Horner, Peter. “On the Right Track.” OR/MS Today June 2003: pp. 29 – 33.

These materials have been prepared for educational and information purposes only. They are not consulting advice or opinions on any specific matters. Transmission of the information is not intended to create, and receipt does not constitute, a consultant-client relationship between The Hill Group, Inc. and any recipient of this material. Readers should not act upon this information without seeking professional advice.