Most telematics systems capture and transmit data on driver and vehicle performance, so that fleet managers can make smart decisions to improve fuel economy, promote safer driving behaviors and prevent downtime — all with the aim of squeezing more profit from their operations. But according to a recent report by the Advanced Services Group at Aston Business School in the U.K, telematics could also transform the fleet ownership model altogether.
Think of it as “truck-as-a-service,” a new vehicle acquisition and service model — made possible by telematics and the Internet of Things — that’s starting to gain traction in the trucking industry in the U.K. and might eventually have implications for the broader fleet market, says one of the report’s authors, Andreas Schroeder, senior lecturer in information systems at the Advanced Services Group.
A Trend Toward Servitization
This idea is based on a concept called “servitization,” where manufacturers harness the power of data generated by their machines to sell ongoing advanced services based on outcomes. Well-known examples include Rolls-Royce, with its “Power by the Hour” offering and General Electric’s “Zero Downtime” service on locomotives, wind turbines and jet engines.
The pioneer among truck manufacturers is MAN Truck and Bus, which Schroeder says is currently operating about 15,000 trucks under its full servitization model in the U.K.
“Instead of the operator owning a truck, it’s a pay-per-use model,” Schroeder says. “MAN owns the truck and uses telematics and digital connectivity to manage the risk and maintenance of the truck; the fleet operator is responsible for the fuel and driver costs.”
Value Driven by Data
Under this model, the fleet “hires” the use of the truck — including all service and maintenance — for a fixed period, with a maximum anticipated mileage parameter. Any miles above that, you pay as you go.
Instead of the operator owning a truck, it’s a pay-per-use model. — Andreas Schroeder
This arrangement in itself is not necessarily novel in the U.K. But what is innovative is that MAN’s program also offers an “uptime guarantee,” putting the responsibility on the OEM to ensure that the customer never loses revenue due to a broken-down truck.
The program also provides fleets with access to telematics data on driver behavior, with the option for a driver training program to help drivers improve their skills in ways that boost fuel economy, put less wear and tear on the truck, and keep the drivers — and the public — safer on the roads.
“MAN is feeding data about individual driver behavior back to operators in quite a sophisticated way of stratifying the different drivers and their quality,” says Schroeder. “By indicating which driver is good and which is bad, [fleets] can build their own incentive programs around that. They can say to drivers, ‘If you can manage to become an ‘A’ driver [based on MAN’s data], instead of a ‘C’ driver, we have a bonus program for you.”
What this does is take the servitization model full circle. A fleet not only gets use of a good truck with the latest technologies and an uptime guarantee for a predictable monthly fee, but it also gains access to driver data and training services that help them achieve even further reductions in perhaps their biggest and most unpredictable cost — fuel.
“We’re talking about, in some cases, companies doubling their profit. If you can get a 10-percent fuel savings because of a driver incentive program, that may double your profit,” says Schroeder.
Roadblocks to Wider Adoption
Schroeder says the shift to a servitization model has catapulted MAN from near the bottom in the U.K., in terms of number of trucks on the road, to the second or third largest truck manufacturer in that market. Yet, despite the promising results, the industry still has significant roadblocks to overcome to make truck-as-a-service a more mainstream offering.
If you can get a 10-percent fuel savings because of a driver incentive program, that may double your profit. — Andreas Schroeder
Schroeder says that cultural resistance at companies to adopt new technology, lack of industry-wide standards in the telematics market, and limited collaboration (between manufacturers, technology providers and fleets) are among several challenges outlined in the Advanced Services Group report.
“Joint innovation among the different players is virtually non-existent in the European truck world because they all are very suspicious of each other, which means there are very few partnerships right now,” says Schroeder.
But, as the report says, the tighter the collaboration between truck manufacturers, telematics providers and fleets, the greater the potential cost savings — and profit margins — for all stakeholders involved.
Been Here Before
It wasn’t long ago that the software industry experienced a similar crossroads. It used to be you could only buy software. Then, with the rise of the Internet and the cloud, software-as-a-service (SaaS) emerged, allowing you to pay as you go without a steep capital investment. That’s because SaaS products are delivered over the Internet and offered as a monthly or annual subscription, where the manufacturer retains ownership of the app — and the responsibility to continually upgrade and maintain it to ensure constant uptime. It’s a win-win: You reduce costs with more efficient access to the latest technology, and manufacturers gain more predictable recurring revenue.
So, could a SaaS-like model be applied to another capital-intensive part of your business — your service fleet —where ongoing efficiency and uptime are so critical to success? MAN is showing it’s possible.