Virtuous Circle: Mafia Offer for a Locomotive
These events happened between 1999 and 2001. The name of the companies are not disclosed for obvious privacy concerns. All figures, facts and events are actual. I participated to these events.
You can read the previous article describing how we dealt with the modernization of the first locomotives. It brings us to the starting point of this article.
I am the general manager of at the Romanian subsidiary of a large industrial group manufacturing railway equipment. The subsidiary is focusing on the modernization of railway equipment and specially of diesel locomotives. At the moment this article starts, the subsidiary is finishing the modernization of four diesel locomotives.
The Issue of One Is the Opportunity of the Other
This is the end of the respite. We will be delivering our fourth locomotive to the railway network in a few months and our client has no budget available for an extension of the contract with some additional locomotives. We have to find a solution to bring in orders, as the mother company will soon begin to question again the viability of the subsidiary.
Usually all our orders are coming from railway networks, but this time, we will have a new kind of opportunity.
I am at a dinner at a friend’s, who is managing the subsidiary of an international cement maker. During the discussion, as he knows that I am working with locomotives, he asks:
“You know, I was surprised when I visited our quarry for the first time to discover that we have our own locomotives.”
This comment sparks my interest. “What kind of locomotives do you have?”“These are diesel-hydraulic locomotives of about 1,000 horse power, made in the past by a local manufacturer.”
I know these locomotives well. These are exactly the model we are modernizing for the railway network.
He goes on: “We face several issues with these locomotives. They are old and not reliable. It is becoming extremely difficult to find spare parts, and we mainly work with repaired parts. All repaired spare parts are not of equal quality. We have too many failures in operation, and it costs us money to have the train rescued on the line. At each failure on the line, we need to pay for the service of someone to bring the train home.”
He continues: “They are not powerful enough, so we had to shorten the train from the quarry to allow the locomotive to haul it. This is increasing our costs dramatically. We need more hours of work, more fuel for multiple trips, and more probability of failure during the trips.
I have some proposal from local workshops to repair them, but nothing really outstanding. As you modernized the same kind of locomotives for the railway network, could you improve our own locomotives?”
I feel that this could be the base of a collaboration where I could bring more work in the workshop of the subsidiary. In the same time, I am sure that the modernization of the locomotive could solve many of the issues of the cement maker with the quarry deliveries. But the way of thinking and of placing orders is different between a railway network and an industrial, so I ask some more questions to be sure that I understand his pains. I need to find the right approach and the right angle to make an offer.
Once I feel I have enough information, and we already had the desert, I propose to have a meeting in a few days. At that meeting we shall discuss further the issue.
This proposal arrives at the right time, as when I look at my wife, I guess that if we had discussed locomotives any longer, our wives could have killed us.
A Current Reality Flows Into…
At that time, I was reading further books written by Dr. Eli Goldratt and I just finished “It’s not luck.” I didn’t read the books in the publication order. I read “Critical Chain” before to read “It’s not luck.” This seems the right moment to use what I learned in these books to build a good offer to the cement plant.
The first step is convincing the company I work for that we can work for an industrial client. They are used to working exclusively for railway networks. They had never worked for industrial clients so far, so they are skeptical that I could manage to get an order with the cement maker. But my direct manager is keen on letting me give a try, and I receive his green light to proceed.
From the tools described in the book “It’s not luck,” my guess is that the Current Reality Tree (CRT) is the right tool to use at that stage. So, here I go to prepare a current reality tree, hoping that this will help me fully understand what could be the main drivers that would make the cement plant decide to place an order.
I try to go as per the book, and I start with writing down the Undesirable Effects (UDE) that I noted during the dinner. After writing them down, I rephrase them to look really like UDE, not mere complaints.
I then try to link two of them. The first UDEs to go are “The operation of the two locomotive is expensive” and “The client has to ask for paid help of extra locomotives.” Up to then, all seems OK! I spend nearly half a day but manage to get a big logic tree in front of me. I am quite proud of that first result.
I decide to test the tree on one of my colleagues. We have two cups of coffee, and I begin my explanation. After some minutes, when I see his blank look, I guessed that I have lost him. I apologize and get back to my desk and work again the Current Reality Tree. This time I trim it and make it simpler. I make it for communication purpose. Its aim is now to communicate and share a vision of the issue. This second try is much better, my colleague really get into the use of the CRT, and he seems convinced by the logic.
Now it is time to present this first tree to the client. Few days later, we meet at the office of general manager of the cement maker. He invited the technical manager of the company and the logistic manager of the plant using the locomotives.
I have with me the Current Reality Tree that I prepared. They look at first surprised by the format of the document. It may seem complicated and intimidating at first look. But I go step by step through it to see if they have further ideas or UDE to add to the tree. That would give me an indication of additional drivers I would need to address to gain their agreement on the project.
To my surprise, they immediately agree on the graph and on its conclusions and do not add any other UDE.
The general manager adds: “We have to decide between externalizing the transport of the lime from the quarry completely, or to keep our locomotives, but in any case, we cannot go on as we are now. We usually externalize, but I have not found a reliable supplier to take over our transportation from the quarry as this is a critical activity for us. If the lime doesn’t arrive from the quarry, we have to shut down the cement plant.”
I take a blank sheet of paper and draw a graph, an evaporating cloud. I remember from the book how to use it. Then I show them.
I tell: “you have a conflict. You want to develop a profitable operation of your factory.”
I stop to let them the time to agree with this statement.
“To succeed, you need to keep the costs as low as possible.”
Once again, I stop to let them agree.
I go on: “In the same time, you need to protect the supply of lime from the quarry as without lime, you cannot produce cement.”
Once more, they agree with me.
“You see the externalization of non-core business activities, including the transport from the quarry, as a necessary condition to keep costs as low as possible.”
They agree again.
“But to protect the supply of lime, you need to keep the transportation from the quarry under your control as you have not found any reliable supplier for this service yet.”
They agree and the general manager adds that this is their dilemma.
A solution begins to form in my mind, but I need to verify its feasibility before I describe it to them. I propose that we have a new meeting in three days, when I will present a solution to their dilemma.
While accompanying me to the exit, the general manager asks me where I learned this way of presenting problems. I give him the reference of “the goal” and “it’s not luck.”
… A Plan, Which Flows Into…
When I arrive at my office, I call a meeting with my technical and production teams.
I explain my ideas: “Can we modernize a locomotive by using the same parts the cement plant is using in their quarry machines? We know that they use the same diesel engine we already used in the previous locomotives, but can we use the same gearbox? It has never been used in a locomotive before. As for now, the client is forced to decrease the size of their train from 1200 tons to 1000 tons. Can we haul a train of 1500 tons on a slope of 15 per thousand with such a modernized locomotive?”
My teams immediately split in two. On one side, people who are strongly against and argue: “This has never been made. We don’t even know if the locomotive will work at all, so increasing the performance will be extremely reckless.” The other group is much more positive. But I don’t want to force a decision now. I ask them to contact the manufacturer of the engine and gearbox immediately as they are in the USA and still open, to make some calculations tomorrow. We shall meet again tomorrow at the end of the afternoon.
The following day, in the morning, I call the technical department of the mother company, and present the issue to get some advice. If I believe them, all shall go wrong: We never used such gearbox; this gearbox is not a good choice for a locomotive; we should use a standard gearbox; and, anyway a locomotive with 4 axles will never start hauling a train of 1500 tons on a slope of 15 per thousand.
Later this day, during the meeting with my local technical team, the first reaction looks like the one I got from the mother company: “We cannot do it.”
But after some minutes, and a significative pressure from me, one of the engineers says: “If we add the necessary anti-sliding electronics, we may well be able to start hauling a 1500 tons train on the slope.”
This ignites a heated discussion between the participants, but as a manager I have an advantage. I have the possibility to select what he wants to hear, and I can remain deaf to the arguments I don’t want to hear. After a while I go: “Well! I heard all your comment, and I understand that this performance is possible to be achieved. So finish your calculations and confirm this possibility.”
Some hours later, after making some quick preliminary calculations, the technical team confirms that they are reasonably confident. They can build a locomotive using the same parts as the quarry machine. This locomotive will have the necessary performances to start hauling a train of 1500 tons on a slope.
With that information, when I am back at my desk, I build a Future Reality Tree and add an injection in the evaporating cloud. The Future Reality Tree, with the injunction of the solution we built, allows to turn all the red light into green. All the UDE turned into Desirable Effects.
… A Future Reality.
In the next meeting with the cement plant, I present first the new evaporating cloud to the same participants we had during the first meeting.
I explain to them that the injection of the modernization breaks the cause to effect link stating that they need to externalize the transportation to keep the costs low. Modernization shall bring a lower-cost operation. They agree that if the modernization of locomotives would reduce the operational costs, this shall solve their dilemma.
I then present them the future reality tree I prepared and I explain how the modernization of the locomotive will solve their issues. As they already have seen the Current Reality Tree, the presentation is easier. They participate more proactively. Visibly, they buy-in the solution.
They agree that this solution only brings desirable outcomes. They seem ready to proceed and place an order. But their general manager calm them down and says:
“This seems perfect, and we may well proceed to place an order. Nevertheless, we need you to fulfill one more condition before to give the order. We cannot remain without the locomotives more than 12 months from now. It would be too costly to pay for a replacement for a longer term, as the new extra capacities of production of cement will be ready at that time. Can you modernize the two locomotives in such a short time?”
I ask for a time to analyze the schedule, and we decide to meet again after two days.
Time Is Of The Essence
When I am back at the office, I meet with the production and technical team again and explain what is the last request from the client. The reaction is what I am expecting. One part of them explodes: “This is impossible.” The other remains silent. The production manager tells: “The shorter estimate we have for such a project of two locomotives is between 16 and 18 months.”
We first contact the supplier of the engine and the gearbox as these are the longest term supplies. They can try and deliver from the USA by plane, and they agree to bear the extra cost. This makes us gain some weeks, but we are still far from what we need.
It takes us a few hours to see that trying to squeeze suppliers will not solve the issue. We need a new approach.
My feeling is that if the theory of constraints brought me here, it should be able to help me make the last mile! Maybe it is the right time to give a try to “critical chain.” One of my project managers and I have read the “critical chain” book some months ago, and we were waiting for the right moment to implement. And this may well be the right moment.
We remain at night at the office with the project manager, the production manager and the technical manager. We develop a new schedule with the critical chain approach. This is working well. We are taking out the padding from each task. This reduces the whole duration dramatically. To make the schedule safer, we also decide to create kits and pre-cabling sets to shorten the time of installation.
We determine what would be the critical chain and realize that this is a different set of tasks compared with the critical path of our classical schedule. Our critical chain of activity goes from the engine delivery to the test. We determine the duration of each task in our control without padding. We calculate a first duration for the feeding buffers (buffers of time to protect the critical chain from feeding branches activities delay) and for the project buffer (global time protection for the delivery date). A long debate took place about considering the two locomotives as one project and only putting one buffer at the end of the second one. But we decided to consider them as two separate projects, and we add one buffer on each locomotive. Due to space in the workshop, we start the assembly of the second locomotive after finishing the assembly of the first one.
The resulting schedule is of 12 months, exactly 4 months shorter than the initial estimate made by our production team for the two locomotives. We are now ready to present the official offer to the cement plant.
The Contract Is Signed …
When I confirm to the cement maker that we meet the required deadline, they agree on proceeding to sign the contract. The negotiation of price takes only a few minutes and I feel that as the price was in the expected range, this was not a major criterion for them.
Driving back to the office with the signed contract in my bag, I keep thinking at how we negotiated and signed this contract.
First, we managed to identify with a Current Reality Tree, the major pains of the client. Based on those, we created a technical solution that was outside our comfort zone, but we reasonably believe that it will meet the performance requirements.
Second, we injected the solution into a Future Reality Tree and could demonstrate to our client that all their pains shall be solved, and even a few others that they didn’t verbalize during our first discussions.
Our technical offer and the way we presented it was a differentiator from our competition. Usually in this industry, each company proposes a proven solution based on what they are used to make. But this time we proposed a solution based on the pains of the client. We knew that our competitors cannot easily match this.
Third, we used the Critical Chain Project Management to create a schedule much shorter than usual. None of our competitor knows how to match this shorter schedule.
Fourth, we avoided the usual fight over price by giving to the client more important criteria to use for their decision.
I am not sure whether this offer qualifies as a “mafia offer,” but this is what we could do that looks as close to it as possible.
And Now We Execute… And Deliver.
Before receiving the down payment, we organize a launching meeting with all the people involved, from the office to the workshop. This is the first time for some people of the workshop that they find themselves in a formal meeting with me. The ambiance is tense.
I present to the team the challenges of the project. The technical team presents the design of the locomotive. It is only when I explain the schedule that for most of the participant the challenge is sinking into their mind. Now they see the cliff in front of us.
I know that they will adhere to a sports analogy, and that this may motivate them. I explain: “look at this as a relay race. Every time that the stick is with you, you must get rid of it as quickly as possible without losing time but taking care of doing a good quality job. The stick exonerates you from doing anything else. You only focus at processing your share of work and give the stick to the next one.”
I add: “But you must make sure that the next one is ready to receive the stick, so communicate with him and tell him that you are delivering him the stick soon.”
They like the analogy, and they begin to understand what we are expecting from them. I am already working with them for the last four years, and I have their trust. I tell them that we understand that they may not meet the deadline of every task as we took out the padding. The role of the project buffer penetration measurement and buffer zones (Green, Yellow and Red) is explained briefly. It takes sometime for them to understand the role of the project buffer fully. But they agree to try this new way of working.
When I look back, I will not say that the project happened without issues. We had some tensions when a task was delayed. The engine and gearbox supplier, by example, forgot one gearbox (a metal device of nearly 1,500 kg) on the tarmac of the airport and had to organize a second flight to bring it to us. The relay race was not fluid, but it worked and at the end we deliver the two locomotives within 11 months at the satisfaction of the client. The project buffer penetration never entered the red zone.
Conclusion
Using the Logic Thinking Process (LTP) of the theory of constraints allowed us to build an offer that made the main arguments of our competitors (the price) obsolete. We knew we had few chances to win on this field and managed to erase it from the equation of the client. The LTP allowed us to identify the major pains of the client and to build an offer around those pains to bring a solution turning all the undesirable effect seen by the client into desirable effects.
By applying Critical Chain Project Management (CCPM), we could bring the last brick to a “non-refusable offer” that none of our competitors could match.
Implementing CCPM is not always easy, and I believe that we managed to implement it successfully because at that time I had all the necessary authority over all the involved employees and I already had their trust. The implementation of CCPM could become much trickier when you have to share the authority with some peers. But this is true of any deep change in working habits.
This was our first experience with a “mafia offer” and with CCPM, and we shall soon discover that CCPM would also allow us to save a large project from failure. But this will be the object of another article.
We started a new market that our company never tried before. After this first experience, the mother company tested the market in other European places and seeing some opportunities made the acquisition of a German workshop acting in this field of modernization of locomotives for industries. It is now a segment of the market where the company is present.
This article has been published also on Linkedin
Didier Varlot
Senior consultant in Business Continuity and Theory of Constraints, Owner and CEO of SNTC.
Didier, based in Romania, has practiced the Theory of Constraints for the last 25 years in several industries from railway industry to healthcare services, from chemical industries to green energy supply.
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