1. Highlight the inefficiencies at the company before implementing SAP System.

2. With the SAP System, what information do managers have that they did not

have before?

3. Identify indicators for greater efficiency at the company after installing new

system?

4. Of the strategic moves/initiatives to gaining competitive advantage discussed

in chapter 2, which one is applicable to this case?

Sources: Pettis, A., “Knight Gets a Handle on Trucks,” eWeek, July 31, 2006; U.S. Department of Transportation, 2002; finance, 2007; www.knighttransportation.com, 2007.

The trucking business is highly competitive. In recent years many trucking companies have adopted information technologies to improve performance in what seems like a conservative industry. Those who innovate can reap great rewards. Trucking is still the least expensive and fastest way to move goods from one location to another in the United States; 80 percent of all goods transported in this country are moved on trucks.

Knight Transportation, Inc. was established in 1989 and is headquartered in Phoenix, Arizona. The company has experienced fast growth. At the start of 2002 it operated 1,087 trucks (“tractors” in industry lingo) and 4,834 trailers. In mid-2007 it operated 3,400 trucks and 7,900 trailers, of which 400 were refrigerated.

The company transports a great variety of items: consumer staples, paper products, packaging and plastic materials, manufactured goods, and imported and exported goods. Its refrigerated trailers transport perishable foods. With the growth of its fleet and variety of items handled, the company felt it was necessary to know more about its truck and trailer locations and the contents of trailers.

These needs were in addition to the old challenge of locating stolen trucks. Thieves often follow a truck from the time it is loaded until the driver stops for the night. In one case, a ring of criminals stole items with a combined value of $2.2 million from several trucks. The ring, which was arrested near Chicago in 2006, stole prescription drugs, liquor, copy machines, cookies, and car parts. The director of communications for Knight Transportation estimates that truck cargo theft is more pervasive than bank robbery.

Trucking is still largely an inefficient industry, mainly because timing is highly dependent on clients: the senders and receivers. Although handling perishable foods is fast, the story with other items is different. A truck may wait hours or even days until a store has the room or personnel to off-load the cargo.

Communication between truckers and their delivery sites is poor. The company often does not know which of its trailers is loaded and which is not, let alone the contents. It often sends trucks with empty trailers long distances to pick up cargos, while there is an available trailer much closer to the location. This increases the need for more trailers than is actually necessary. In the past, Knight maintained a ratio of more than four trailers per truck. These are costs that could be saved with more accurate and timely information.

The company explored ways to use global positioning systems (GPS). Many of the companies specializing in the field offer systems that locate drivers to ensure they do not stop excessively or do not take longer than-necessary routes. Knight wanted more information than this.

In 2001, management decided to engage Terion, Inc. of Plano, Texas. At that time, Terion’s product, SAP System, could only locate trucks through its GPS devices and communicate the location of trailers. In 2005, Terion introduced an adjunct product called Cargo Sensor, which is mounted inside a trailer to detect the presence of cargo. The sensor uses ultrasonic, high- frequency sound waves to determine if an environment is empty and reports to the fleet operator. Cargo Sensor is adaptable to trailer lengths and interiors, such as metal or plywood, and can record the exact time a trailer is emptied. The sensor detects exactly when the trailer doors are open and closed. Both this information and the trailer location are transmitted over the Verizon cellular network. The SAP System device costs $500 and can be installed in an hour. Terion charged Knight $125 per installation. Later, Knight decided to have the device installed at the trailer manufacturing site, which lowered the installation price to $100.

Fleet operators can also save money by timely maintenance of their trucks. SAP System sensors are also able to relay information about fuel level and tire air pressure. Drivers may receive calls to take care of the truck accordingly, or bring in trucks for routine maintenance at the proper time. Knight decided to install the sensors in all its trailers.

The information transmitted from the road gives Knight information about trailer contents, location, and times. Special software aggregates the information for staff at headquarters, and the workers receive a complete picture of vehicle activities. They can immediately detect when a trailer is hitched to an unknown or unauthorized truck, which could mean a theft is in progress.

Before the Terion device was implemented, drivers could drop off a trailer at a retailer such as Wal-Mart and then sit idle. Now, managers are able to go onto the company’s Web site, bring up the current record of each trailer, and have an instant view of where the trailers are and where they are moving.

Knight management has not computed all the benefits from the new system. However, it estimates that it has saved at least $1 million dollars in fuel alone since installation. The carrier is able to dispatch its trucks on more efficient routes and reduce the need to drive around in search of an empty trailer. Management also estimates that the company’s fleet operators spend one hour less daily trying to locate trailers.

For many years the trucking industry could not reduce the ratio of trailers to trucks from 3 to 1. In 2002, Knight’s ratio was 4.4 to 1. Although its fleet grew, the ratio now is only 2.3 to 1. In this industry, this is a significant indicator of efficiency. Perhaps this is why the company is profitable. In 2006, Knight enjoyed an 11 percent profit.