Truck.Com Feature: Getting Outside Help

Changes in technology and supplier resources may finally make outsourcing information a viable option for fleets of all sizes and types.Outsourcing is a simple concept -- hire someone to take over necessary business functions so you can concentrate on the parts of your operation that bring in the revenue, or in business school jargon, "focus on core competencies." The trucking industry is quite familiar

Changes in technology and supplier resources may finally make outsourcing information a viable option for fleets of all sizes and types.

Outsourcing is a simple concept -- hire someone to take over necessary business functions so you can concentrate on the parts of your operation that bring in the revenue, or in business school jargon, "focus on core competencies." The trucking industry is quite familiar with the concept, providing outsourced services through dedicated carriage and logistics services, or purchasing them with contract maintenance, full-service leasing, driver leasing, and other common service arrangements.

One area that's frequently outsourced in many businesses is information services. With the exception of value-added-network connections, however, trucking has traditionally kept its information management chores in-house.

One reason may be that since information technology (IT) has become critically important to a carrier's success, fleets have been hesitant to hand over control of such a central function. Also, trucking's use of IT is complex, reaching into a wide and disparate range of core fleet operations such as maintenance, dispatch, electronic commerce, and asset management. Even if a fleet had been considering outsourcing, it would have a difficult time finding organizations that have enough specific expertise to make them feel comfortable with that decision.

And until recently, trucking hasn't been all that attractive to IT suppliers. The companies that have traditionally provided outsourced IT services have had their eyes on "megadeals" involving major corporations with billions of dollars in revenue, not truck fleets where the annual revenues are more likely to be in the tens or hundreds of millions.

That may be about to change. Two companies with well-established track records in trucking are moving aggressively to offer fleets of all sizes a large menu of outsourced IT services, and others are sure to join them in the near future. If your fleet needs to conserve capital yet upgrade its information management systems, or if managing those systems has grown too complex to be handled comfortably in-house, it's probably time to at least consider the benefits, and risks, of outsourcing some or all of your IT operations.

Package deal The creation and victim of the consolidation craze that swept trucking in the 1980s, Burlington Motor Carriers emerged from bankruptcy reorganization just last December and posted its first profitable month in March. In the process, annual revenues shrank from $400 million to approximately $225 million, but the truckload carrier managed to keep its core of Fortune 500 shippers throughout the rocky reorganization.

"That's what interested me in the company," says Thomas Grojean, who purchased the carrier just a little over a year ago and is now the CEO and chairman. "But they were reaching the end of their tolerance with the bankruptcy. It was time to re-establish ourselves with our customers and with our drivers."

In the mid-1980s, Burlington began developing software to help manage the fleet, and set up a sizable data center operation in Joplin, Mo. That effort quickly evolved into a full-blown fleet management system, covering every aspect of Burlington's operations from billing and EDI to vehicle maintenance and driver recruiting. Even when the fleet was in reorganization, it continued to invest in its data center and IT, adding a sophisticated load optimization application just last year.

Grojean, who has a long history running transportation companies, including Tiger International, says: "The information department is the most unmanageable part of any operation. It involves huge expenses, but it's difficult to determine if you're getting a bang for your buck."

While Burlington had developed a good proprietary information system staffed by highly competent people, "the hardware and software still needed constant updating and improvement," says Grojean. "Trucking is in the information age now, and the number of uses (for IT) in fleets is accelerating. Making those investments involved hard decisions, ongoing and constant decisions."

The last decision was probably the most radical. In order to remain competitive with both customers and drivers, the fleet needed to add mobile communications. But that required scarce capital dollars to buy a communications system and integrate it into the overall fleet management program.

The solution was outsourcing. Agreeing to add HighwayMaster's communications system to its 2,000-vehicle fleet, Burlington sold its entire data center and IT operation to HighwayMaster. With Burlington as its first customer, that data center is being turned into a source of IT services for all of HighwayMaster's fleet users.

"We have to husband our resources, but still accelerate the development and use of information services," says Grojean. Since HighwayMaster is operating the data center as a business, "they will put a lot more firepower into improving the overall system and integrating the communications portion," he explains. "We get those additional resources and still keep our costs fixed."

Still, turning over control of a well-developed information system was "quite a leap of faith," Grojean admits. "But we're getting cutting-edge technology at the time we need it most. And now instead of managing an in-house department, we're a client. Clients have a lot of clout."

Pay as you go While Burlington may be the first beneficiary of the data center acquisition, the move should offer the most benefit to smaller fleets, according to Jeff Wisocki, HighwayMaster's vp of customer development. "This is a proprietary system built to handle a 3,500-truck fleet," he says. "It can accommodate almost any type of fleet, but we're focusing on the 50- to 300-truck arena. We'll be able to offer those smaller fleets a level of (IT) sophistication they could never afford to develop on their own."

As a service provider, HighwayMaster will be able to concentrate on continued development of the management software system; and as a mobile communications company it should be able to leverage that expertise. "We can really take advantage of mobile communications' strengths because we're in charge of the code now," says Wisocki.

Limiting its information services to HighwayMaster mobile communications customers, the company will provide those services on a pay-as-you-go basis with per-mile, per-vehicle charges. That will allow fleets to easily budget for IT and to add IT capacity as they add equipment without making large capital investments, Wisocki points out. The system has been designed to handle a wide variety of truckload fleet types, including regional applications, and plans call for adding LTL applications in the future.

Bob LaMere has run the data center for Burlington since 1990, and with the acquisition he will continue running it as senior vp of transportation systems for HighwayMaster. "We're going to offer service in levels or steps," says LaMere. "A fleet can start with the most basic and add components as needed."

The first, or basic, level starts with EDI, which will allow smaller fleets to compete with larger carriers for freight from major shippers that require electronic commerce capability. "It's a simple system to use," says LaMere. "The fleet fills in a template for each new customer, and we take it from there. It also cross-checks shipment time requirements with the dispatch function and can pass on dispatch information to EDI capable shippers."

In addition to EDI and dispatch, that first level of IT services also includes a driver recruitment system, customer service functions, log auditing and fuel tax reporting, and driver settlement, as well as rating and billing applications.

One step up, the outsourced services add vehicle maintenance, breakdown, safety, and fuel purchasing management, as well as analytical tools for fleet sales and marketing operations.

The third level adds load optimization, which provides a good example of how HighwayMaster expects the marriage of mobile communications and information services to provide added benefits. "Adding GPS (with the company's mobile communications) means more accurate location information than you get with driver check calls," says LaMere. "When you give the optimization model better and more timely information to work with, you get even better results."

Initially, HighwayMaster is concentrating on helping Burlington make the transition from an in-house to outsourced information system. "We're adding some enhancements, automating more of the dispatch functions, and looking at areas where people need more training," LaMere says.

However, the goal is to begin offering the new outsourced services to other fleets by October. "We've already had some inquiries from fleets, but we want to be sure the integration of the two systems is seamless when we go to market," says Wisocki.

Household name in IT The other company that sees the trucking industry as a ripe market for outsourced IT services is IBM Corp., probably the world's most recognizable provider of information services and hardware.

The company got into the outsourcing business about six years ago, according to Kathy Dodesworth, IBM North America's director of managed operations for small and medium businesses. "Typically, large companies simply turned over their data centers and we managed them," she says. Price and freedom from the headaches of managing complex technology were the driving forces in initial outsourcing arrangements.

But that relationship has changed. "Now businesses want more than operational efficiencies," says Dodesworth. "They're looking for information technology partners. They want access to skills they don't have so they can leverage technology within their own specific business. The focus has moved from cost to skills."

Today, IBM offers a menu of services, and "clients select the necessary services as required," says Dodesworth. What was initially "just delegation of work to an outside party," is now "the most intriguing part of our business," she says. "We have a strategic partnership driving change (in a customer's business) through the IT expertise of IBM."

One example of this new type of outsourcing is IBM's current relationship with Ruan Transportation, which has a full-service leasing fleet, as well as various for-hire operations. Early last year, the company began a series of what it calls "major initiatives" to bring its information systems up to "best in industry" standards.

"This is a big leap for our organization," says Chuck Spang, vp of sales. "We could have done it in-house or outsourced the entire project. Instead, we decided to bring in someone with the knowledge base to handle the project and to also dedicate Ruan resources so we could apply that knowledge in the future as needed."

Initial studies evaluated Ruan's current systems and determined goals for the project based on customer needs. It was determined that the company needed to update its financial system, increase sales force automation, and restructure its maintenance information system. The company also wanted to establish a data warehouse that could provide easy access to information throughout the entire multi-faceted organization.

The results of those studies were turned over to several potential outsource suppliers. "We made it clear that we wanted to improve our processes, not just apply technology," says Spang.

Responses from those potential suppliers were evaluated by a Ruan team using ten criteria that included IT capabilities and skills, cost, cultural fit, change management abilities, local support structure, and history of delivery, according to Spang. When the group finished its evaluation, IBM emerged as the best possible partner for this particular project.

"They are providing the technical and management skills we need to speed up implementation," says Spang, "and we'll operate it and maintain it with our in-house staff."

While traditional outsourcing, i.e, turning over an existing data center to an outside party, is limited to large fleets with substantial AS/400 or other midsize computer operations, smaller fleets are becoming interested in other information services offered by IBM, according to JoAnn Washam, segment executive for IBM's Travel/Transportation Segment.

"These fleets are starting to see real complexity in their information systems, and they never had plans to become computer experts," says Washam. As a supplier of outsourced expertise, IBM can provide services that range from Ruan's project management and systems integration partnership to support for a fleet's desktop computers.

In the near future, IBM's internet system, called the IBM Global Network, could even provide an IT channel to small fleets, offering them low-cost access to management applications that are currently only available to large fleets. While Washam calls such outsourced fleet management services "theoretically possible," she says IBM does not have plans to announce such services right now. Still, she admits, such network offerings "are part of IBM's core competency, and we're looking into them."

TMW Systems is a major provider of fleet management software for truckload carriers. Mark Woodka, the company's vp, sales & marketing, says that "the industry has talked about outsourcing for a while, but no one was offering solutions, only ideas on how to approach building solutions."

Given the lack of complete outsourced products, the drawbacks have, up until this point, outweighed the potential advantages. "Technology has become critically important to a carrier's success," says Woodka. "With outsourcing, a fleet gives up some control over technology and could lose the ability to get things done in a timely manner."

But the balance may now be tipping in favor of outsourcing. "Given the complexity of today's information technology, the expertise and experience of a company like IBM has to offer real benefits," says Woodka. "There are probably some savings there, too."

Whether or not it proves valuable for individual carrier operations, outsourcing all or part of a fleet's information needs is now at least a viable option.

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