Mechanical Reliability & Productivity Barry Kanuch, Chief Mechanical Officer

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1 Mechanical Reliability & Productivity Barry Kanuch, Chief Mechanical Officer

2 Mechanical Overview Service, Maintain, Repair and Rebuild Roseville Hinkle Salt Lake City Los Angeles Basin (3) Denver North Platte Ft. Worth Kansas City Mechanical Workforce 9,000 +/- Locomotives 8,700+ Freight Car Inventory 300,000+ Operating Budget $1.6 Billion Fuel (Gallons) 1.3 Billion Chicago De Soto Palestine No. Little Rock As of 12/31/07 Locomotive Shops Car Rebuild Shops Houston 2

3 Mechanical Strategy Conference Topics People Safety Reliability Asset Utilization Leverage Technology 3

4 Improvement Hierarchy $ Improvement Iron in the Ground Technology Organizational Effectiveness Process Improvement Impact 4

5 Our Culture Drives Our Business Safety Union Pacific Mechanical Employees Management Driven Behavior Based Safety Process Employee Engagement Cultural Change Commitment / Ownership FRA Frequecy Rate Teamwork Shared Goals Empowerment 1990s Today 5

6 Our People are a Competitive Advantage Strategic Leadership Capability General Management Capability Broad Business Acumen Day-To-Day Supervisory and Leadership Abilities Tactical Problem Solving Skills Strong Technical Know-How Hire the Best Community Colleges Technical Exams College Hires Strong Technical Skills Super Technicians New Training Program Develop Strong Leaders Supervisor Degree Program I & II 6

7 Locomotive Reliability Road Failures per Locomotive Year (FLY) $60 MM Savings YTD Good 1.00 Future Modify Overhauls Retire Life Cycle Cost Design Reliability Centered Maintenance (RCM) Maintain Build Operate 7

8 Locomotive Reliability Maintain for Reliability Reliability Centered Maintenance (RCM) Weibull Based Failure Analysis Lifecycle Analysis Reactive to Predictive Predictability of Failure Locomotive Engine Life Extension Future Predictive Maintenance Events Locomotive Age Prior Overhaul Point Life Extension 7 10 New Overhaul Point 2 Overhauls to 1 8

9 Locomotive Shop Value Stream Map Locomotive Needing Serviced Manual entry Planner Daily Power Plan Manual entry to place into RW Reliable, FRA Compliant Loco Daily Shop Plan From Yard SFM/MCS input N10/11 LTA Download OB Supervisor Daily Power plan From Planner SFM, MCS, RYM, TCS Build Consist Verbal Job Briefing 2 F&O s Excel, MCS, SFM, RYM, LMS3, TCS Outbound Verbal Job Briefing 1MA, 1EL, 1F&O Waste Dwell SV IB Dwell SV 10/11 Dwell Consist Dwell Outbound Dwell Trans Dwell Value Servicing 9414/MM/LU 1MA,1EL, 1 F&O US S13,14 15, 16 I Material I Repairs I RT/LT I Audit I Shop Supervisor Daily Shop Plan From Planner MCS, SFM, TCS, Intranet Inbound Vitals 1MA, 1EL PM S 12 I Material TCS, IMS, 1MA, 1 Clerk Material I Drop table, HW LMI s, work order 2MA, 1EL Repairs I RT/LT MCS 1MA, 1EL RT/LT I Audit/Release MCS 1 Supervisor Audit I Step 1 Wash Rack From Pit Crew MCS work not done To Supervisor LEGEND = Process Flow = Information Flow Inbound Vitals 1MA, 1EL Material TCS, IMS, 1MA, 1 Clerk Complete Inspection, work order 2MA, 1EL RT/LT MCS 1MA, 1EL Audit/Release MCS 1 Supervisor Chemicals LTA laptop Cycle Time 1 NR & 1 US 3 Shifts = Material Flow = Pertinent Data 9

10 Asset Utilization Locomotives Generated from Improved Repair Cycle Time $150 Million Capital Savings YTD 10

11 Asset Productivity Refrigerated Box Cars Improving Fuel Efficiency 362 $230 $ YTD Refrigeration Fuel Gallons / Load Revenue ($Millions) 183 Remote Monitoring Remote Start/Stop Improved Customer Service Reduced Mechanical Inspections 11

12 Network Wayside Detection Bearing Temp Impact 1332 Bearing & Traction Motor Temperature 13 Wheel Impact/Hunting/Imbalance/Overload 187 Wheel Temperature/ 2 Braking Performance 7 Low Air Hose 2 Wheel Profile + Vision (Coupler/Shoe/Wedge) 7 Acoustic Bearing 1 Ultrasonic Wheel Crack Installation (North Platte) Acoustic 12

13 Freight Car Productivity & Reliability Training and Technology $25 Mechanical Caused Main Line Derailments $ Cost ($Millions) Count Wayside Detection Employee Training In Train Repairs 13

14 Strategic Sourcing Project OR Total Cost of Ownership (TCO) External Factors Rising Commodity Prices Increased Demand / Smaller Supplier Base Internal factors Total Cost of Ownership (TCO) Predictive Maintenance vs. Reactive Supplier Quality and Development Engine Lube Oil ($Millions) $58 Est pre- TCO -12% $51 Est post- TCO 14

15 Capital Efficiency Locomotive Service Pits Wichita Oklahoma City New Locomotive Pit Major Shop Kansas City Muskogee Incremental Capital Investment Reduces Locomotive Out of Service Days Additional Fuel Savings 18% Return on Investment from Completed Locations 15

16 Locomotive Technology Reducing Emissions Emission Overview 21 Hybrid and 163 Gen Set Locomotives* 830 EPA Tier 2 Locomotives* UP Gen Set Locomotive 59% of Fleet EPA Certified* Future Regulations UP Green Goat Hybrid Locomotive *As of 12/31/07 16

17 Freight Car Technology Electronically Controlled Pneumatic Brakes (ECP) Intermodal Pilot Fall Sunset Corridor 10 Locomotives and 2 sets of 125 intermodal cars Items to Evaluate Fuel and Emission Impact Maintenance Expenses Train Handling/Braking Run Times Train Inspection Train Line Distributed Power 17

18 Summary Safety Employee Engagement Workforce Strategy Sourcing/Development Reliability/Utilization Emissions Leverage Technology Create Value 18