Maximizing your payback from technology can be like hitting a target you can’t see clearly. Fortunately, you can still score well if you don’t hit dead center.
Assuming they follow basic laws of economics, businesses invest when there is a return or at least a perceived return. But affixing a certain return on investment, or ROI, on a system or technology can be very difficult. Calculating ROI is probably more of an art than a science and requires skills in accounting, strategic planning and even intuition.
Greg Gorvin uses a cost-benefit analysis to evaluate a technology. Gorvin, president of Shakopee, Minn.-based Q Carriers Inc., looks first at the “hard” cost savings – for example, will it reduce fuel, wages or other operating expenses? Then he considers the cash flow implications – will it speed up the billing process? That’s all fairly straightforward. The final and most difficult step is nailing down all the “soft” cost benefits of better information, such as reducing empty miles.
“Associating a value to [soft costs] is difficult, but you have to go through it,” says Gorvin, whose company operates 160 trucks. Even when the costs are totaled, Gorvin says his managers’ intuition is the final deciding factor of whether or not to move forward with a purchase.
Today, many vendors are eager to demonstrate an ROI of their products with numbers, but only you can really determine if their products will pay dividends for your business. Maximizing the return on investment from information technology takes more than number crunching. It takes planning, a commitment to continually improve your business processes and integration with your other business systems.
Develop a business plan first
You can’t truly know whether an investment offers a return unless you know what you are trying to accomplish. Properly done, an investment of any resources should follow a strategic business plan.
Before the beginning of each year, Gorvin and his managers at Q Carriers conduct a S.W.O.T. analysis, which assesses a company’s strengths, weaknesses, opportunities and threats. In this analysis, Gorvin does not specify the capital expenditures the company will make on technology. Rather, he identifies areas in the business where technology might be needed.
“Business is like a football team – you must start with a game plan, pick your battles and identify your tools,” Gorvin says. “Every piece of technology must be an integral tool.”
A look at one of the nation’s largest trucking companies, Schneider National, shows how strategic planning leads to big paybacks from its technology. Schneider was at the forefront of technologies that have since become widespread in the industry, such as electronic data interchange and satellite tracking.
Schneider has an eight-member Joint Technology Steering Committee that provides governance and funding decisions for all its technology investments, says Steve Matheys, chief information officer of the Green Bay, Wis.-based carrier. Of the eight business leaders on this committee, only one is an IT specialist. The group’s main focus is not technology, per se, but rather business improvement.
“This is a forward-looking group,” Matheys says. “We look at the one- to three-year horizon to get this group to focus on large, strategic initiatives. This is a group that is looking for transformational capabilities, not break-fix type of things.”
The JTSC doesn’t advocate technology as the answer for everything, however. “We understand that we are going to get better and become more productive,” Matheys says. “If not through technology, fine. Maybe technology is not the answer, but then what is it?”
Schneider’s scope and resources may dwarf those of your operation, but the carrier’s solution-oriented attitude toward technology investment can be adopted regardless of fleet size.
Make real use of time savings
One of the strongest selling points of an information technology is its potential for labor savings. To qualify as a “hard” cost saver, a system must help you either reduce paid time or
Technology is an integral part of business planning. successful fleets plan purchases at least one year in advance.
eliminate positions. But many managers don’t use the attrition philosophy as their basis for calculating a return on investment. Instead, they invest in technology with the objective that time savings can be put to use doing more productive tasks.
For Ron Have, the primary cost justification for a mobile communication system is the time savings. Have, president of Eagan, Minn.-based Freightmasters Inc., says his decision to install PeopleNet Communication’s mobile communication system in his tractors was based on the time savings of communicating with drivers.
“It’s fairly easy to justify cost based on that,” says Have, whose company operates 200 trucks. “We estimated that an average check call would take a driver 20 minutes. If we could eliminate that twice a day, the savings alone made the difference in cost.” Have had other reasons for buying the system besides giving drivers more driving time. But other benefits, such as giving customers real-time data, are more difficult to quantify, he says.
“Putting a dollar amount on that is almost impossible. It’s become a minimum expectation,” Have says. The value of knowing exactly where the trucks are at all times is also difficult to associate a dollar amount to. But Have says there was no reason to carry out the ROI calculation to that extreme. “Some people can really carry ROI to an unreasonable limit.”
Mobile communications systems can do more than report position and relay messages, of course. In addition to two-way messaging, Cheeseman Trucking, a Fort Recovery, Ohio-based truckload and LTL carrier operating 165 trucks, uses Aether’s MobileMax system to automate fuel-tax reports.
“The Aether system tracks actual miles per state without a driver interface,” says Samuel Hoops, director of human resources for Cheeseman Trucking. Prior to having the Aether system, drivers had to keep track of state line crossing by hand, and clerks in the office had to enter data manually into software.
Cheeseman Trucking just received a strong reminder of how much it truly relies on this automation. Last month, the company had a hardware failure on its AS/400 mainframe computer and was forced to return to a manual system for a short period of time, Hoops says. His estimates of time savings, therefore, are quite fresh.
“I would estimate that a driver would spend about one-half an hour per week determining state miles – that is, recording odometer readings at each state line and then summarizing the data at the end of the week,” Hoops says. “Internally, we would take the recorded data and manually enter it into the tax software which would take a minimum of eight hours, so that factors out to about 90 man hours a week, which may be conservative.”
Saving time can be an especially compelling benefit in applications like distribution that involve a large number of stops. With a routing and route sequencing software system, Alex Coulombe Pepsi, a 30-truck beverage distributor in Ste Foy, Quebec, Canada, saves an average of 10 to 12 percent savings of time per driver route, says Richard Coulombe, vice president of sales and marketing.
With the time saved between deliveries, Coulombe put another one or two stops on a truck route. Before, the carrier was using postal codes to determine routes. The company’s A.Maze software from Geocomtms has also freed up five to six hours of time the dispatcher used to spend on setting up the drivers’ delivery schedules. Coulombe says the dispatcher can now spend more time analyzing driver reports to make sure they respect the time constraints and to schedule more time for drivers to set up display racks in the stores, which will translate into more beverage sales. (For more on the benefits of such systems, see “Charting a path to savings,” CCJ, September 2001, and “Decisions, Decisions,” CCJ, May 2002.)
Integrate when possible
When RFK Transportation Inc. installed the GlobalWave satellite-based trailer tracking system from Vistar, the original ROI justification was based on the capital savings of reducing the number of trailers it needed, says Robert Kazimour, RFK Transportation’s president and CEO. As it turned out, the Cedar Rapids, Iowa-based carrier obtained a faster ROI than expected by discovering an additional use for the Vistar data terminals installed on his trailers.
“Our second largest cost in fleet management is tires,” Kazimour notes. “If the air pressure is plus or minus 5 pounds out of 100 psi, it can take away 20 to 40 percent of a tire’s life, not counting the extra cost of fuel.”
The 150-truck carrier already had a tire pressure monitoring and inflating system called Pressure Guard for each trailer. The Pressure Guard system would automatically begin inflating a tire when it detected a leak. When activated, a warning light located on the side
Leveraging existing technology investments is one way to maximize ROI.
of the trailer illuminates, which drivers may not notice, Kazimour says. Also, when trailers are dropped, the system does not receive compressed air from the tractor, and thus the trailers may have under-inflated tires until the air pressure is replenished.
An engineer from Vistar helped the company wire the Pressure Guard warning sensor into the Vistar trailer terminals. By integrating the Pressure Guard system with the Vistar data terminal, Kazimour says that when the Pressure Guard system is activated, dispatchers are notified immediately via an e-mail that includes the location.
“Yesterday afternoon, a new trailer ran over a railroad spike,” Kazimour said in an interview conducted in November. “We notified the driver [by cell phone] and he went right to a truck stop and had the tire repaired. Otherwise, he would have ruined the tire.”
When calculating the ROI of technology, flexibility and adaptability to your existing and future systems is an important consideration. But technical issues aside, if you’re unwilling or unable to identify your costs in order to evaluate the ROI of technology, “that speaks to some other type of challenge,” says Schneider’s Steve Matheys – namely, the challenge of knowing what it takes to deliver a service. And if you don’t know that, what are you doing in this business?
Participating from the start
Beta testing can minimize the risks of buying technology
One strategy to maximize the return on investment of a new technology is to become an early adopter, says Mike Hufnagel, vice president of information technology at Maverick Transportation, a 900-truck carrier based in Little Rock, Ark.
Being an early adopter can be risky, of course, and technology costs tend to decrease over time as new competitors enter the market. The best way to reduce the risk of buying a new technology, Hufnagel says, is to become involved in the beta testing.
“You don’t have to adopt it right away, but play with it enough so that you understand it and are ready for it,” Hufnagel says.
Maverick Transportation was one of the first customers, for example, to test Pegasus TransTech’s TransFlo Express system, a document scanning service at truck stops by trained cashiers. By working with Pegasus, Maverick also utilizes the Transflo Express system at its terminal locations, Hufnagel says.
Trip documents, whether scanned in at truck stops or at Maverick’s terminals, go to Maverick’s home office through the Internet and are available for immediate processing into invoices, Hufnagel says. In general, beta testing and early adoption of technology helps Maverick better position a technology as part of a business process, not something that “sits on top of our process,” Hufnagel says. “We understand technology because we get involved early on. If it doesn’t fit, we have the chance to mold it.”
Hufnagel says that beta testing is usually a win-win situation for both the technology vendor and the fleet who tests their product. The vendor gets to understand your business better, rather than just come in with a standard product they try to sell you. Beta testing is definitely not suitable for any business, however. Beta testing can take up a lot of time and resources. Even for large carriers like Maverick, the timing has to be right to not conflict with other IT projects underway.
Beta testing is a good way to stay six months ahead of the curve, says Joshua Feinberg, a technology expert and cofounder of SmallBizTechTalk.com. To be successful at beta testing, however, your company should at least have at least one person on staff – and preferably a small IT department – to dedicate enough time and resources, he says.