Amtrak Trains System Fuel Consumption

¶ … Amtrak Trains System Fuel

Consumption

Problem of Amtrak Trains System Fuel Consumption

Amtrak operates and manages for-profit intercity rail passenger transportation in the United States. The company manages the network of high-speed rail service, which connects communities in the United States. For four decades, the company has served and connected the country with high-speed rail operations and intercity rail service. Amtrak connects 46 states in the United States and three provinces in Canada.

Despite the transportation services that the company provides to the community, Amtrak Company faces challenges of constant fuel increase making the company to record the increase in the operation costs consequently making the company to record an annual net loss. Majority of the trains that the company operates use diesel fuel. Since 2008, the price of oil has skyrocketed making the non-electronic locomotives to pose significant risks to the company's financial growth. (Amtrak). It is essential to realize that Amtrak relies on the federal government funding assistance to remain in operations. Thus, the increase in the price of fuel has made the company to depend on the annual Federal Government funding to survive. Unlike other private companies that do not rely on federal government funding to operates, if Amtrak does not receive sufficient annual funding from the federal government, the company business operations many be in jeopardy. The constant dependent on federal government funding is due to the constant rising in the price of fuel, which is vulnerable to the company business operations.

Between 2009 and 2010, the company expenses on fuel increased from $272.8 Million in 2009 to $299.7 Million in 2010 leading to the 21.1% increase in the fuel expenses. Moreover, the company fuel expenses increased from $299.7 Million in 2010 to $337.8 million in 2011. The company records annual increase in fuel expenses because the average cost price of diesel fuel increased from $2.24 per gallon in 2010 to $2.77 per gallon in 2011 leading to the 83.5% increase in the overall company expenses. The overall problem has made Amtrak Company to record a net loss for several years because the overall company expenses were higher than the total revenue. Although, Amtrak is federally established and for-profit organization that needs to record net profits at the end of the fiscal year, however, the company recorded a net loss of $1.31 billion at the end of the 2010 fiscal year and $1.34 billion at the end of 2011 fiscal year. The company is operating against the economic theory that states that firms' major objective is to make profits. Typically, Amtrak's management runs the company similar to non-profit organization because the company has not recorded annual profits for several years.

The company records yearly net loss because the company does not have a comprehensive strategic planning that could make the company to cut costs, which is consequently affecting the organizational performances. Additionally, Amtrak does not have an articulated and valid mission statement that could guide the company on what it aims to accomplish. In the absence of the comprehensive valid mission statements, Amtrak will be unable to develop a comprehensive strategic plan that could assist the company to achieve measurable goals.

While the increase in the fuel costs has been the primary major problem facing the company, however, the core problem facing the organization is that the company lacks effective procurement management strategy to source alternative for fuel that could assists the company to cut costs and increase the profitability at the end of the fiscal year. For example, Amtrak's management has a poor knowledge of information systems that that could assist the company to source for alternatives in order to cut costs. Typically, effective procurement management is a critical method that could assist the company to identify opportunities, improve performances as well as leverage buying.

It is essential to realize that there are other railroads in the United States who have faced similar increase in the costs of fuels; however, these companies have been able to cut costs to realize net profits at end of the fiscal year. The Union Pacific is an example of a private rail road company in the United States, and the company recorded the net income of $1.89 billion at end of the 2009 fiscal year, $2.78 billion at the end of 2010 fiscal year and $3.3 billion in the net income at the end of 2011 fiscal year. CSX Corp is another rail company in the United States recording the net income of $1.1 billion in 2009, $1.6 billion in 2010 and $1.8 billion at the end of 2011 fiscal year. All these companies are faced with the problem of constant increase in the fuel costs; however, they have devised a strategy to cut costs to record profitability at the end of the fiscal year. These companies have been able to record net profits despite that they do not have access to federal government funding. Fundamental problem facing Amtrak is that the company lacks effective management strategy to contain costs making annual operating loss to increase by approximately $1 billion annually and the loss is projected to increase by 40% in the next 4 years. In the face of the constant problem facing the Amtrak Company, the paper provides the planning that could assist the company to cut costs and address its problem. (House of Representatives 24).

Selection of planning horizon: time period

The company will need to develop a comprehensive strategic planning that will be linked to the organizational objectives and goals and the company should establish quarterly performances goals to measure the company performance against the target objectives. The company should also develop data systems and process to monitor both internal and external progress of the company every 4 months.

The company needs to design a benchmarking to compare itself to other private rail companies in the United States. The company needs to emulate the other private rail road companies that record yearly profitability. The company needs to develop comprehensive mission statements that clients, employees and other stakeholders understand. Typically, leading organizations always implement performances goals linking it to the overall corporate goals. Thus, the company should employ improve permanence-based data that could be used to evaluate, and monitor the performances of all departments.

Moreover, the company needs to implement the corporate costs containment plan which needs to monitor the yearly operating budget. The company needs to develop costs and asset performance metrics that could assist the company to cut costs which would also assist the company to enhance efficient use of the resources. Amtrak needs to use cost asset performance statistics to be more efficient. More importantly, the company needs to outsource some of its services to the third party companies to cut costs. The company could outsource some of its operations such as maintenance of equipment, commissary operations and other non-core functions to outside companies. The company could measure its performances by using benchmarking, and compare its performances with other companies in the industry.

Selection of Geographical focus: Location

The company should focus on the strategic planning improvement on the 46 states in the Unites States and three provinces in Canada where the company operates. The company will need to evaluate the market performances of each state and compare the sales of each state and identify the states that are generating more sales. Thus, the company needs to focus on the states that are generating more sales than the states that are generating lesser sales. More importantly, the costs of operations of each geographical location will need to be compared with their sales to identify the states that generate more profits for the company. Using this strategy, the company will be able to cut costs by reducing its service on the states or geographical location that are not generating sales and focus on the geographical locations that are generating more sales.