Old world: make, sell, break, fix, make, sell.
New world: make, partner, predict, improve.
In an increasingly volatile world, certainty can seem like a bridge too far, but in May 2016 Australian mining company Rio Tinto and GE signed a five-year customer service agreement (CSA) to build mutual assurance around the miner’s rail operation.
The CSA covers the servicing of Rio Tinto’s 196 locomotives—a pure GE fleet—which ply 1,600km of private railway between 15 mines in the famously harsh, hot, red-dirt region of the Pilbara, north Western Australia.
The overarching aim was to make Rio Tinto’s rail system more efficient, by increasing reliability and reducing maintenance downtime for the locomotive fleet. The traditional transactional, reactive way of running the rail operations—which saw GE, the original equipment manufacturer (OEM) of the locomotives, operating at arm’s length—was shelved.
Instead, Rio Tinto and GE crafted a true partnership that puts GE in charge of the supply chain to maintain those locomotives, and embeds four technical advisors (TAs) in Rio Tinto’s two maintenance workshops in Karratha and Cape Lambert, as well as a dedicated materials analyst and a service manager.
Says Karen Richardson, Rail Specialist for Rolling Stock Maintenance for Rio Tinto: “It helps GE get closer to their customer and understand our needs specifically, because we are in the Pilbara, and it’s very different to what GE deals with in North America.”
The miner has brokered similar agreements with other heavy-equipment manufacturers, but the CSA with GE is the first of its kind for the rail operation. “Previously we would deal with the agents; this brings us closer together with the OEM as strategic partners, and that’s an advantage,” adds Richardson.
The five-year CSA means fault analysis, maintenance advice, inventory management and material availability—which effectively have a five-year warranty—is provided by GE for a fixed monthly fee. This adds up to simplification, speed and certainty. No more chasing purchase orders and trying to identify a locomotive problem via back-and-forth communication at a distance.
Rio Tinto and GE have been doing business together for many decades, but concede that this deal took some twists and turns in the two years it took to finalise.
Things gathered momentum, explains Fraser Borden, GE Transportation’s account leader for Rio Tinto, when the two parties focussed on customer outcomes and creating one point of accountability for material supply and locomotive performance.
Rio Tinto wanted, says Borden, “performance and parts there when they need them, and not to have to manage the supply chain, because that’s clunky and expensive, and involves lots of people … requisition a PO, issue a PO, receive a PO, then what’s the delivery time?”
GE proposed taking on the supply chain and sitting on the inside with Rio to manage it. “We take ownership and accountability of the supply chain to make sure we have parts there when the customer needs them,” explains Borden, “And we’re confident we can do that, because they’re our locomotives. We can use the knowledge from the complete EVO installed base globally to help understand when unscheduled material will be required. The customer has challenged us to take the risk of having that material available and we have partnered with them to meet that challenge. It’s pretty exciting.”
Karen Richardson says that as well as certainty, the CSA helps both GE and Rio Tinto “take our relationship to the next level … and allows us to have the conversations that two mature companies need to have. Rio Tinto can understand the challenges that GE may have in terms of getting parts to site. Equally, GE can understand our locomotive and supply-chain issues. It really helps understand each other’s perspective … it’s not just a transactional agreement.”
From a commercial perspective, at a time when commodities prices are under pressure, the CSA frees up bandwidth for Richardson and her colleagues to focus on other big ideas for their company.
“It allows us to tap into the technologies that GE are looking at to help us have a more efficient railway,” says Richardson. “And it goes beyond locos. GE provides other technologies—within the rail category and outside it—so it gives us that time to focus on some really important strategic initiatives. We didn’t have the time to do that before, when we were managing the nitty gritty of the supply chain.”
GE is deploying some of its proprietary data-analysis systems, such as GE Transportation eServices, to increase the predictability of inventory supply for Rio’s two maintenance workshops, where the locomotives span generations. The latest AC Evolution locomotives, aka AC Evos, were delivered in January 2016, while four Dash 8s have given service for 30 years and these days are assigned to relatively light duties for their master.
“We’ll collect and analyse comprehensive data on every maintenance event on the locomotives, so that our TAs have line of sight to help advise Rio’s team,” says Borden. “We use that data to predict things like ‘We’re going to need a traction motor next week here’ or ‘We’re going to need an alternator there.’ ”
The long-time-coming CSA heralds the dawn of a new era of the Rio-GE business relationship, and Borden is confident it will grow: “It cements a partnership and we’ve got five years to show a lot of value for the customer.”