Logistics Productivity and Telematics: The Perfect Match (Commentary by Frost & Sullivan)
London, 24th June 2002.. Parties involved in the management of the supply chain have targeted productivity for a long time. Savings achieved have been remarkable. The two main components of the supply chain cost are inventories and transportation. However, evolution of the two components has followed different paths. Particularly important reductions in inventory carrying costs have not really being matched with similar transportation cost savings. Inventory Carrying Costs Inventory carrying costs are related to storage of supplies and final products. Supplies on its way to manufacturing facilities are stored at different places and for different reasons. The first storage at the production/exploitation site is to wait for transportation to the final manufacturing facility. Storage purpose is twofold. First, to attain the appropriate size for transportation. Second, wait for the transportation vehicle for pick up. While on route there might be the need to transfer to another mode of transportation. In addition, there is the tie up cost associated with the length of time for the move. Once on site, inventories are required to provide a cushion for smooth flow of supplies into the production chain. By the late 1970s and before, manufacturers started looking for ways to reduce inventory costs. The introduction of concepts like just-in-time (JIT), electronic data interchange (EDI) reengineering of warehouse networks, inventories in transit, and similar concepts allowed for sizable reductions in costs. In fact, manufacturers still keep striving to obtain better performance out of inventories. Recent concepts like just-in-sequence (JIS), for manufacturers integrating modules in the production process, is the best proof of the continuos effort to reduce inventory cost. Success is mainly attested by the overall change in inventory carrying costs as a proportion of Gross Domestic Product (GDP). In the late 1970s, inventory costs were around 8 percent of the GDP, while currently the proportion is only about 4 percent. Financial reports of companies also reflect individual actions. In fact, inventory costs are one of the most common benchmark indicators. Transportation Costs On the transportation side, evolution has not been as dynamic as inventory costs. In fact, after deregulation of the trucking industry in the early 1980s, freight rates have been stable as a percentage of GDP. With deregulation, transportation costs decreased from about 7.5 percent of GDP to around 6 percent. However, during the 1990s, the percentage has remained quite stable. Profitability of trucking companies is one of the lowest in North America. Margins are very low because customers looking for savings in the overall supply chain push hard for low freight rates. Trucking companies' main response has been to improve operational practices and offer differentiated services. Reduction in transit times and guaranteed delivery times are just some of the main measures to improve service and maintain customers. With the availability of telematics products, the time might be coming for trucking companies to significantly improve profitability. Real time management of trucks and trailers is becoming possible with 2-way communication with vehicles and drivers. Fleet managers now have the possibility to located vehicles instantly. 2-way communication allows instructions to drivers for cargo pickups, maintenance work, and activation of mechanisms. New options are being introduced to the market every day. However, unawareness of fleet managers about capabilities of telematics products and the rate of investment that can be achieved with telematics purchases are the main obstacles for introducing the new products. Telematics for Commercial Vehicles Telematics services provide wireless 2-way communication between vehicles/drivers and premises of the trucking companies. Most services are satellite based, but some are cellular based. Telematics is usually associated with a geographical positioning system (GPS) that determines the geographical location of the vehicle. In addition to a telematics control unit (TCU) installed in the vehicle, the system requires a wireless carrier to provide for airtime and communication to a service data center. Data centers download information to Internet protected web sites where clients -- trucking companies-- can get access to the information from the vehicles. Apart from GPS, TCUs can incorporate a number of options to read sensors and computers installed in the truck. With the appropriate software, truck operators can remotely activate sensors/message screens to instruct vehicles/drivers. Options include automatic messages when predetermined events occur. Events can be anything from going out of predefined geographical areas, notice of arrival/departure, presence/absence of cargo, trailer hooked up, to abnormal engine operational indicators and need of maintenance work. Conclusion The possibility to have real time access to the vehicle/driver is opening new managerial options to fleet managers. However, the conservative style of trucking companies is not simplifying the implementation of telematics products. In addition, the rather slow pace of installation of telematics products in the automotive industry is not providing an incentive for fleet managers. Even more, the spectrum of telematics companies offering trucking products is very large, with usually small participants. New companies enter the market easily, but dropouts are also news of the day. Telematics product definition is still on the go. The initial ability to locate trucks/trailers is now becoming the best tool to improve management of mobile assets. Caution is still the attitude of the trucking industry with telematics. However, there is no doubt that telematics would provide the platform for an efficient and more profitable trucking industry. The revolution to match inventory costs savings with transportation cost saving is coming. Frost & Sullivan is currently researching the North American Commercial Vehicle Telematics Market. Frost & Sullivan is also completing a study on the European Commercial Vehicle Telematics Market. Background Frost & Sullivan is an international marketing consulting company that monitors a comprehensive spectrum of high-tech markets for trends, market measurements and strategies. This ongoing research is utilised to complement a series of research publications to support industry participants with customised consulting needs. Interviews and free executive summaries are available to the press. For more information contact: Kristina Menzefricke, Public Relations Department Tel. +44 (0) 20 7343 8376 Fax. +44 (0) 20 7343 8380 kristina.menzefricke@frost.com http://frost.com http://pressroom.frost.com --------------------------------------------------------------------- If you would prefer not to receive further messages from this sender: 1. Click on the Reply button. 2. Replace the Subject field with the word REMOVE. 3. Click the Send button. You will receive one additional e-mail message confirming your removal.