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Are the Benefits of Telematics Worth the Expense?

January 2007, by Mike Antich - Also by this author

Currently, there are more than 2.5 million telematic units in service managing fleet vehicles, mobile workers, trailers, heavy equipment and other assets. According to a study by C.J. Driscoll and Associates, the market is expected to expand to 5.8 million units by 2009, with revenues growing to more than $2 billion.

Telematics is the integration of wireless communications, vehicle monitoring systems, and location devices. Among the early adopters of telematics have been fleets such as ServiceMaster, GEICO, Ryder, KinderCare, Wal-Mart, UPS, and long-haul trucking fleets. These fleets are using telematic devices to continuously measure fuel consumption and fleet utilization, plus monitor vehicle and performance. However, the question for many fleets is whether the benefits of telematics are worth the expense.

Does the Value of Telematics Justify the Cost?
The experience from fleet pilot programs is yes.

"Our experience with telematics is that companies can achieve an extremely rapid payback (less than one year)," said David Coleman, VP of telematics strategies for PHH Arval. "Up-front planning is the key to rapid success. It's important to know the policies and enforcement process, as well as the productivity measures and metrics, which are key to managing and measuring the results. It's essential to communicate and enforce driving policies; we've found that providing a driver incentive program for policy compliance is a significant contribution to quick payback. Another key is integrating telematics/location data into enterprise resource management tools."

This has been the same experience with GE Commercial Finance Fleet Services.

"Most companies will see between a 2 to 10 times ROI, but like most solutions, the value depends on unique customer needs," said Steve Tenzer, vice president, Mobile Resource Solutions for GE Commercial Finance Fleet Services. "A few benefits fleet managers are seeing when implementing telematics into their fleets include decreased fuel usage (see chart), increased worker productivity, dispatching efficiency, improved customer service, as well as vehicle, driver, and cargo safety," added Tenzer.

The question fleet managers need to ask themselves is what are they trying to solve and who are the key stakeholders? "Telematics is a broad range of technologies and solutions that can impact multiple functions in an organization. Are we trying to reduce fleet operating costs? Optimize the scheduling and routing of our mobile workers? Reduce greenhouse gas emissions? Reduce at-fault accidents? The list goes on, but answering these questions and identifying the key stakeholders are important first steps," said Tenzer.

For commercial fleets employing a telematics program, a number of benefits offset the expense.

"The positive results we're getting come from several areas - savings in fuel and risk, increases in productivity, safety, lower risk factors, vehicle lifecycle cost reductions, and improved performance," said Coleman. "Specific savings in each category depend on the profile of the company. Service fleets are more heavily weighted in fuel savings and lifecycle cost reductions, while sales fleets are more heavily weighted in productivity and risk savings." Fleets using systems such as PHH Onboard have reduced fuel costs by 10 percent and idling times by 25 percent, eliminated unauthorized use, and helped diminish bad driver behaviors that cause accidents and increase risk.

Commercial fleets participating in the GE Commercial Finance Fleet Services telematics program report similar results.

"Real-world fleet tests have repeatedly shown that the use of telematics in fleet management helps reduce overall fuel consumption, improve safety, and enhance employee productivity," said Tenzer.

Is telematics worth the expense? Initial pilot programs among fleets say so. If you are finding it difficult to generate year-over-year incremental cost savings mandated by senior management, then perhaps telematics is something worth investigating.

Let me know what you think.

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