Vol. 5 No. 3| Winter 2004

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The Wireless Revolution

Beyond the Protestant Work Ethic

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The Wireless Revolution

Pioneering Uses of Information Technology in Trucking


Research by Thomas N. Hubbard

Wireless networking applications in trucking have yielded significant increases in productivity.

The economic value of many applications of information technology (IT) rest on the same principles: information improves decision making, and better systems of communication enable people to implement those decisions more efficiently.

For every industry, productivity reflects not only how well inputs are transformed into outputs, but also how well information is applied to resource allocation decisions. Information technology can improve productivity by improving such decisions.

The trucking industry, usually perceived as low-tech, was one of the first industries to effectively use wireless networking applications to enhance productivity. While businesses today are developing wireless networking applications around laptop computers, cell phones, and PDAs, the trucking industry was using wireless technology as early as the late 1980s.

In trucking, IT has offered solutions to the long-standing challenge of matching trucks to hauls. Since the late 1980s, operators of trucking fleets have used on-board computers (OBCs), which allow dispatchers to more accurately match supply to demand via enhanced information processing and communication capabilities. Trucks' on-board computers were among the first commercially important applications of wireless networking technology. The on-board computers with the biggest impact have been electronic vehicle management systems (EVMS), which transmit geographic position to dispatchers and allow dispatchers and drivers to send short text messages to each other.

"I see the work of truck dispatchers as a metaphor for the types of resource allocation decisions made by white-collar managers," says Thomas N. Hubbard, an associate professor at the University of Chicago Graduate School of Business. "Information empowers dispatchers to make better decisions."

In the new study, "Information, Decisions, and Productivity: On-Board Computers and Capacity Utilization in Trucking," Hubbard offers strong evidence of productivity gains from adopting IT.

Estimates from 1997 suggest that on-board computers enabled adopters to increase trucks' utilization rate by 13 percent on average. In the aggregate, this led to 3.3 percent higher capacity utilization in the trucking industry. This increase in productivity contributed on the order of $16 billion in benefits to the economy.

"What wireless networking applications provide is the ability to communicate important information at the right place, at the right time-which can yield huge benefits in many industries," says Hubbard.

High Quality Matches

Industries involving intermediate goods, such as trucking, tend to fly under the radar of public consciousness. However, while the trucking industry is relatively invisible to consumers, it is highly visible to any company involved in manufacturing or shipping goods.

The American Trucking Association estimates that trucking (including private fleets) was a $486 billion industry in 1998, which equals approximately 6.1 percent of Gross Domestic Product.

"Trucking makes up a significant part of the economy, so even small improvements in the industry's productivity levels are important," says Hubbard.

In trucking, the output of the production process is the movement of cargo. All else being held equal, the cost per unit of output decreases as capacity utilization increases. Firms bear opportunity costs when trucks, and therefore drivers, are idle. Capacity utilization is high when trucks haul a series of full loads, with each haul starting soon after the previous one finishes.

Individual shippers usually do not have demands for both legs of a round trip, and shipments typically do not fill trailers. In such situations, high capacity utilization requires trucks to haul different shippers' cargo on the same run. Capacity utilization depends largely on how well individuals can identify and organize the demands of various shippers for individual trucks. Higher quality matches increase capacity utilization by keeping trucks on the road and loaded more-therefore raising truck drivers' productivity.

Truck dispatchers are the people directly involved in matching capacity to demand, and information is a critical input to dispatchers' decisions. Dispatchers work in a highly dynamic environment-supply and demand in trucking change constantly. Dispatchers have to forecast when and where trucks are available, and when and where shippers will demand service-usually with only a few hours notice. Dispatchers are constantly trying to ensure that each truck in their fleet is filled on its way from point A to point B, in addition to trying to find good "backhauls" for each truck's return trip.

Before the introduction of wireless applications, dispatchers had no way of initiating communication with drivers-they had to rely on drivers calling in every few hours in order to keep track of the status and location of each truck, an inefficient process for both dispatchers and drivers.

Not knowing the available resources or capabilities at any given moment can cause inefficiencies, especially when filling backhauls. Dispatchers might turn down an order they could actually fill, take an order they can't fill, or assign a distant truck to a haul when a closer truck is available.

For over a decade, two types of on-board computers have been used in the trucking industry:

1. Trip recorders: These low-end devices serve as a truck's black box, and allow dispatchers to monitor how drivers operate trucks-providing information such as when trucks were turned on and off, and whether drivers were speeding. Since information from the trip recorders can only be downloaded once a truck has returned to its base, these devices are not as useful for matching trucks to hauls.

2. Electronic vehicle management systems: These high-end devices contain all the capabilities of trip recorders, but also provide dispatchers real-time information about a truck's location via satellite tracking.

"With the use of electronic vehicle management systems, dispatchers can now tell a potential customer 'Yes, I have a truck 30 minutes away from you, expect them at this time,' because dispatchers will know exactly where the driver is, and can relay this new request to the driver," says Hubbard.

Productivity Benefits

Hubbard's study addresses the question: Do on-board computers enable firms to get more loaded miles out of their trucks than they otherwise could? The results indicate that they do, especially in contexts where real-time scheduling is important.

Hubbard used data from the U.S. Bureau of the Census' 1992 and 1997 Truck Inventory and Use Surveys. These surveys are taken every five years as part of the Census of Transportation, and provide variables which can be used to evaluate how on-board computers affect truck utilization. In particular, the survey includes questions about trucks' loaded miles, and whether trucks have trip recorders or EVMS installed.

Using this data, Hubbard investigated whether trucks with on-board computers obtained higher loaded miles per period in use, holding constant a set of variables that indicated how trucks were used (e.g., whether they were used for long or short hauls).

Hubbard found that in 1997, loaded miles per period in use were 13 percent higher among trucks with EVMS than without. This is roughly equivalent to getting an extra 200-mile haul per week out of each truck. Other evidence indicated that this improvement was mostly due to the advanced capabilities of EVMS-dispatchers could determine trucks' position in real time and communicate with drivers while they were on the road.
In contrast, there is little evidence that this improvement reflects dispatchers' increased ability to oversee drivers.

Other evidence indicates that on-board computers were more beneficial in some circumstances than others: three-quarters of the capacity utilization gains appear in the segment of the industry that hauls goods long distances in nonspecialized trailers. The matching between the trucks and hauls in this segment tends to be done far less in advance than in other segments that haul goods shorter distances or use specialized equipment; it follows that on-board computers' value in helping dispatchers match trucks to hauls is higher.

Finally, Hubbard found evidence that it took time for firms to obtain returns from their IT investments. Hubbard found no evidence that on-board computers improved capacity utilization in 1992-even though many firms had adopted them by that time. The fact that positive returns appear in the 1997 data but not the 1992 data suggest that returns lagged adoption, which supports the conventional wisdom that it takes time to realize the full benefits of IT.

"After a few years, trucking firms figured out how to best exploit the technology-adapting software packages to better use real-time information," says Hubbard. "As in many industries, technology has improved productivity, but it took much longer to realize those gains than people expected."

The Wireless Future

Wireless networking applications are expected to diffuse more broadly in the near future. This study helps illustrate the economic implications of the new technology.

"Information technology can have wide productivity benefits by improving managers' ability to make resource allocation decisions," says Hubbard.

While Hubbard's study focuses on trucking, his findings can be applied to a broad range of industries. Hubbard uses the example of a multinational manufacturing firm: Wireless networking applications allow a manager sitting in a firm's Chicago office to know what is happening in the firm's manufacturing plants around the globe. Managers can gauge how full capacity is at each plant, so that orders can be allocated to the appropriate plant and completed efficiently.

Hubbard notes that for CEOs, while the investment in wireless applications is important, it should be perceived as a long-term rather than short-term investment.

"When firms consider how to best exploit these wireless platforms, the question is what information is needed at what time," says Hubbard. "If firms can get that question answered, then these wireless applications can have significant productivity benefits."

 

Thomas N. Hubbard is associate professor of economics and strategy at the University of Chicago Graduate School of Business.

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