The Case for Telematics Investment

Nov. 21, 2014

Reprinted with the permission of Equipment Manager magazine, the magazine of the Association of Equipment Management Professionals.

According to William Shakespeare, “Heavy hangs the head that bears the crown.”

No one can attest to that better than senior executives of heavy-equipment construction companies. They are the ones responsible for the financial stability, profitability, efficiency, short- and long-term growth, vision and other strategies that help maintain and enhance a well-managed organization.

This is why asset managers need to understand the view from Mount Olympus is not always a scenic one. Reaching the pinnacle can be rough going for some of these executives, especially if their purpose is to request a significant financial investment in technology such as telematics.

Idle As Business Case

In presenting the business case to top management, always talk dollars and cents and give specific examples from your own fleet equipment history.

As part of AEMP’s recent presentation on “Making the Business Case for Telematics,” Tim Morgan of Branch Highways pointed out that one hour of idle time costs $10: $4 for fuel and $6 in maintenance and repair.

Numbers represent the average gallon of fuel burned in one hour. Telematics, he says, tells you how much fuel was actually burned during idle.

For a small fleet of 200 units (2,000 hours), a 20-percent reduction in idle time would save $20,000 a year. Reducing idle time by 30 percent saves $400,000, and a 50-percent reduction equals $600,000.

Medium-size fleets (1,000 assets) that reduce idle time by 20 percent save $1.2 million; a 30-percent reduction saves $1.8 million a year, and a 50-percent idle reduction saves $3 million a year.

Such savings are particularly true with Tier 4 engines, Morgan says, because of a couple of things: At lower rpm that results from idling, you are not building the air boost from the turbo charger and after-cooler system so combustion isn’t complete. That causes more soot buildup. At low engine idle, diesel engines don’t make heat, causing them to run cool, which doesn’t help the combustion process.

“Another thing,” Morgan says, “Tier 4 engines have diesel particulate filters (DPF) for emission control. These engines don’t make enough heat to keep the DPF clean. Idling actually causes more soot and, being cold, the soot isn’t burned out during the combustion process.”

All fleets—small (less than 500 units), medium (501-2,500 units), large (2,501-10,000), and mega-fleets (more than 10,000 units)—are confronted with the same issues: equipment utilization, idle time, excessive idle, end-user collection of data, equipment location, and availability of jobs, says Tim Morgan, equipment foreman, Branch Highways. Morgan was one of the speakers on “Making a Business Case for Telematics,” one of the most popular presentations at the 32nd Management Conference and Annual Meeting in March 2014 (see sidebar).

“Equipment utilization is important to everybody,” Morgan says. “Equipment is expensive, and you have to keep it working to pay for itself.”

Idle time and excessive idle often are intertwined with a lot of things: fuel burn (which wastes fuel), time on the machines, service and hours, all of which are important because of warranty issues. If a machine idles 50 percent of the time, for instance, that’s 50 percent of warranty and 50 percent of service life wasted, he says.

“We all understand that limiting idling improves your efficiency, but it’s also good for your equipment’s engine,” Morgan says. “During idle, a modern diesel doesn’t combust fuel as efficiently, which over time can be detrimental to component life, especially Tier 4 emission components.” When you crunch the numbers, he says, one hour of idle time costs $10: $4 for fuel and $6 for maintenance and repairs.

The other challenges—end-user collection of data (now a reality), equipment location, and availability of jobs—should be addressed in making a business case for telematics.

Many fleets do not have the capability to electronically gather hours, fuel burn and equipment location or equipment health. In addition, other opportunities for improvement can be found leveraging telematics, according to Dan Samford, CEM, vice president, equipment assets for Herzog Contracting Corp.

“Pre-/post-trip inspections and annual inspection are DOT requirements,” he says. “Telematics by itself does not facilitate the inspection process, but radio frequency identification (RFID) technology and many wireless apps, combined with telematics, provide that platform,” Samford says. “As a nationwide contractor, telematics data allow us to marry vehicle location and inspections to the operation, and service and service facilities available for repairs required.”

Telematics improves preventive maintenance scheduling and keeps equipment downtime to a minimum since monitoring is done electronically.

The technology can provide fleet managers with a real-time view of equipment availability and location, says Morgan, and results—if managed—in using less fuel and less frequent PMs.

A strong case can be made for investment in telematics since it provides stakeholders with actual equipment hours versus manually gathered or guessed hours; fuel burn information can help determine the accuracy of the budget or help answer the question, “Did we have theft?”

As might be expected, any technology with that much rock-star status comes with a price, and the decision to pay that price rests entirely on upper-management’s shoulders.

Asset managers have to deliver that message to top management in a language business leaders understand, says Morgan.

“You can’t go in there and use tech speak,” he says. “You have to talk dollars and cents. And you have to talk behavioral changes, cultural changes, not say ‘I can get all this information with telematics.’”

Top executives don’t care about that, Morgan says. “They want to know how telematics is going to affect the bottom line, how it is going to change culturally what they do. Have dollar signs attached to it,” he says.

One way to change the culture of a company, he suggests, is labor.

“We are physically sending someone to that machine every day to put eyes on it to make sure of its condition, take meter readings, and check fluid levels, for instance,” he says. “Since that can be done now with technology, we have to change our approach to doing it.”            

Another way a company’s culture can change is by monitoring equipment to see how it is being used
every day from a level other than ground level. Using telematics allows you to see if that equipment is being used or abused.

After all, Morgan says, a company’s greatest physical asset is iron, and that is the biggest cultural change of all. Asset managers have to overcome the Big Brother concept. “The ability to closely monitor machines sometimes causes conflict with people,” he says.

To get around that rock in the road requires buy-in from all levels—not just equipment, but field operations as well.

Another piece of advice in making the business case for telematics is to be cautious, Morgan says.

“When presenting, don’t make promises that are not there,” he says. “You can’t make it sound better than it is. If you tell upper management that telematics can change what they are doing and save money, you had better be able to do it. The numbers have to prove themselves.”

Individual company operations, he says, will dictate how telematics is implemented.

“It depends on fleet size, type of work you are doing, and types of equipment you have in the fleet. Some companies are heavier in excavators, others in dozers or vans. It also depends on geographical area. All these things play a part in how you use telematics.”

Samford notes two of the biggest obstacles asset managers face in persuading top management to invest in telematics are “implementation costs and seeing ‘beyond the box.’”

To address these two challenges means doing your homework, he says. Acquire case studies and apply your fleet numbers into the formulas. Networking with your peers who are in the same position as you may not be the path that will lead you through the maze. “They are asking the same questions you are,” Samford says.

“Also research and network with industry associations that have seen the value in telematics and are promoting round-table discussions of the benefits of telematics, not just those who want to use telematics.”

Deliver the message in terms senior management understands. “It’s all about the money,” Samford says. “Whether it be change order documentation, idle time reduction, driver behavior exposure, theft reduction, or any one of a hundred other cases for return on investment.

 “It all comes back to how it affects the bottom line—and it should,” he says. “Use real examples of your past history and bring attention to areas where benefits in dollars would have occurred had telematics been available.”

An important move that is helping asset managers sell the idea to fleet owners is coming from equipment manufacturers, according to Morgan. These OEMs are starting to pull together ROI information that shows how it works and within what time frame, he says.

Up to this point OEMs have targeted their efforts on equipment people. “They have concentrated on selling equipment people, like me, on how great telematics is. We’re gadget people, and we love it,” Morgan says.

But that has to change. To actually sell telematics, OEMs need to concentrate on production people, he adds.

“They are the people who sign the checks. They are the people who want to see implementation rates higher than they are now,” Samford says. “Until we start showing the value of telematics in increasing production and how production people can use it to be more efficient at what they do, we are going to struggle with getting a higher implementation rate.

 “If I had one bit of advice to give all manufacturers, that would be to change your approach and sell more toward production people and less toward equipment-maintenance people.”

Samford gives this example of how fleets can leverage OEM and third-party telematics as a solution to the various issues they have to overcome.

For his organization, he says, end-user collection programs have been the game changer. “Without such a program, using the various OEM portals was a continous swapping of screens and passwords. Setting geofences and curfews just wasn’t doable on four or more different websites.”

Project utilization review was not an easy task. Reports required hours of assembling data, often in different formats.

“Just looking at your asset’s location was a challenge, depending on whose box was on the unit,” Samford says.

Also, in order to export the utilization data to the back office, accounting programs for job costs had to use unique software conversions for each manufacturer and third-party telematics provider.

“Each required its own maintenance as OEMs or third parties made updates to their output configuration or schedule,” Samford says. “Now with an end-user collector program (EUCP), we can take advantage of the telematics subscription periods that the iron provided from the OEM on purchase. Now some OEMs are telling us that our monthly subscription service will be free indefinitely.”

The savings from the free OEM subscription service is more than $25,000 per year, he says.

“With the implementation of EUCP, I can manage all my machines (telematics boxes) as a fleet, not as a brand. That’s the key to an end user’s adoption and seeing the ROI of the fragmented world of OEM telematics, regardless of how diverse a fleet makes up a contractor’s inventory.”

Samford cited this example of how telematics, overall, can achieve its desired results.

“Fault code monitoring by third-party viewing rights (OEM distributor) will allow repair before failure options and increased uptime. If my dealer can tell me what’s happening to my machine before my operator does, and gives me repair options or advises me of bad operator habits that lead to issues, it adds value to that machine and the brand name that it bears. That results in lower ownership and operating cost for me and more business for the OEM.”

Making a business case for telematics takes homework and preparation time. It takes researching your own fleet history to show how telematics can be useful to situations unique to your particular company. It takes learning to speak the language of the executive boardroom in terms of dollars and cents and the benefits of investing in the technology that can change the entire organization, not just the equipment department, in a positive way.

That will go a long way in easing the burden of
the crown.