Trinity Industries Scrutinizes its Operations to Leverage Each Piece in its Value Chain
Tanks, a lot. Trinity focuses on providing railcar products and services through an integrated platform of businesses.
The goal for many manufacturers is to become vertically integrated, but Trinity Industries is taking the opposite approach. By unraveling its vertically integrated production plants, the company will transition to an extended supply chain operation in an effort to stabilize overhead costs.
Since becoming an independent company in 2018, Trinity Industries now focuses solely on providing railcar products and services through an integrated platform of market-leading businesses. “Now primarily a railcar-focused company, we are focused on an integrated supply chain that ties together all the different business units,” Vice President of Supply Chain Management and Procurement Mike Hegedus says.
Using the trade name TrinityRail, the businesses of Trinity’s Rail Group include leading manufacturers of tank and freight railcars in North America. The group offers railcar products and services ranging from railcar design, manufacturing and parts and components to railcar maintenance, management and modifications. TrinityRail’s stated objective is to deliver a premier customer experience through high-quality, innovative railcar designs and products and service that enhance and optimize its customers’ businesses.
Hegedus oversees the supply chain team, which has embarked on a pilot program focused on the repair parts supply chain for its lease fleet of railcars. It requires integrated processes across leasing, procurement, parts distribution, and internal and external repair shops. It is a multi-phase project that is expected to take two years to fully implement. The goal is to deliver a comprehensive platform of integrated railcar products and services.
A key element of this project is an integrated planning process. In preparation, Trinity implemented Kinaxis’ RapidResponse planning platform several years ago. The platform will allow the company to get to the next level of production and material planning, Hegedus explains. Without this step, it’s current initiatives would not be possible.
Trinity oversees a leasing fleet of 120,000 railcars. Maintenance on each car is planned in advance, which includes a bill of materials. The average cycle time is about 70 days out-of-service for maintenance, at which time the company is not getting the lease revenue on the railcar.
“There are two things driving the 70-day cycle,” Hegedus explains. “The first is that maintenance shops generally build an inventory of cars, but there is variability and uncertainty of the actual date it will enter the shop. It can be weeks off despite maintenance events being scheduled. They intentionally keep 30 days of inventory of cars waiting to be worked on.”
The second driver is that the maintenance shop does not order parts until the railcar is in the yard. “We are going to a new model where we will plan the maintenance and achieve greater precision around the cars getting into the plants, and parts ordered according to the planned maintenance, so [parts] are available when the car hits the maintenance shop,” Hegedus says.
Trinity’s supply planning and procurement will be performed by Hegedus’ team to secure better pricing. The maintenance shops will order all their parts from Trinity’s production business, which will integrate the entire process. Its centralized purchasing group is already buying the same parts for Trinity’s production plants, so it will be a marginal work and cost increase to add parts for maintenance.
Although the concept is in the early stages of implementation, Trinity began piloting the program in 2019. “The process will be much better planned and executed by leveraging our corporate procurement strategy,” Hegedus predicts. “This is one of the best examples of how we can leverage all the parts of the value chain as an integrated rail platform.”
Transitioning to Final Assembly
The railcar manufacturing business is very cyclical and its practice had been to be vertically integrated. However, Trinity is looking to take a different approach. “If we make all our own subassemblies and all components, we have to hire more people when we scale up and let people go when we scale down,” Hegedus explains. “The overhead rates and absorption change dramatically.”
The nature of an extended supply chain is to focus only on final assembly only, get out of vertical integration and instead have large subassemblies provided by suppliers located as close to its facilities as possible — if not on its campus. “We started that journey a couple years ago when we had our largest supplier put a major subassembly facility in one of our plants in Mexico,” Hegedus says. “They are now supporting both facilities in Mexico where a majority of our production is. We are now talking about them doing something similar in the United States.”
Trinity anticipates converting to this model in three phases before achieving its end-goal of being focused on final assembly. Because the company is in the planning phase, Hegedus speculates this will be a major cultural change.
“There is a lot of discipline with outsourcing things that we are going to have to increase,” he says. “For example, drawings that are not as accurate or complete as they need to be because we made the parts all these years. When we go to outsource it, we will find there’s something we do that’s not part of the drawings, which we would know because we have been doing it for 15 years.”
Inventory accuracy and precision will need to improve. “When you are vertically integrated you can be sloppy with shop inventory information,” Hegedus says. “If we scrap some parts it’s fine because we tell the shop to make a few more, but if we order from a third-party those problems come to the surface.”
The third area of focus during this transition will be on developing suppliers, especially in Mexico. “The people we are working with have done some fabricated parts and components, but now we are talking about major subassemblies and there is some development work that will have to be done and supplier quality will be critical,” Hegedus notes.
Moving forward, Trinity will continue to focus on major initiatives that support its integrated and extended supply chain projects. “We are going through a tremendous amount of change right now,” Hegedus concludes.