Evaluation of Business Effects of Machine-To- Machine System

UNIVERSITY OF VAASA FACULTY OF TECHNOLOGY DEPARTMENT OF PRODUCTION Tuomo Heikkilä EVALUATION OF BUSINESS EFFECTS OF MACHINE-TO- MACHINE SYSTEM Master’s Thesis in Industrial Management VAASA 2012 1 CONTENTS 1. INTRODUCTION .............................................................................................. 10 1.1. Background of the study .............................................................................. 12 1.2. Objectives of the study ................................................................................ 12 2. EXISTING SOLUTIONS ................................................................................... 13 2.1. Industry standards and applications ............................................................. 15 2.2. Truefficiency Basic ..................................................................................... 19 2.3. SKF @ptitude .............................................................................................. 21 2.4. Wialon ......................................................................................................... 24 2.5. iTrak Fleet Executive ................................................................................... 26 2.6. Fleetilla vehicle tracking solution ................................................................ 28 2.7. Telogis Fleet ................................................................................................ 30 3. SERVICE MODELS ........................................................................................... 33 3.1. On-premise .................................................................................................. 33 3.2. ASP ............................................................................................................. 35 3.3. SaaS ............................................................................................................ 36 4. METHODS FOR SALES FORECASTING ........................................................ 42 4.1. Top-down sales forecasting ......................................................................... 42 4.2. Bottom-up sales forecasting ......................................................................... 45 4.3. Synthetic sales forecasting ........................................................................... 46 5. INVESTMENT DECISION METHODS............................................................. 47 5.1. Payback period ............................................................................................ 47 5.2. ROI ............................................................................................................. 48 5.3. NPV ............................................................................................................ 49 5.4. IRR ............................................................................................................. 51 5.5. Break-even analysis ..................................................................................... 53 6. METHOD ........................................................................................................... 54 2 7. RESULTS ........................................................................................................... 55 7.1. The solution................................................................................................. 55 7.2. Service model .............................................................................................. 59 7.3. Estimation of the project costs ..................................................................... 60 7.4. Financial evaluations ................................................................................... 64 7.4.1. Remote electricity meter reading system .............................................. 65 7.4.2. Remote water meter reading system ..................................................... 80 7.4.3. Condition-based maintenance system ................................................... 92 7.4.4. Fleet management .............................................................................. 106 7.4.5. Summary ........................................................................................... 120 8. CONCLUSIONS ............................................................................................... 124 REFERENCES ......................................................................................................... 129 APPENDICES .......................................................................................................... 143 3 SYMBOLS AND ABBREVIATIONS 3G Third-generation mobile communications ADC Analog-To-Digital Converter AES Advanced Encryption Standard AMI Advanced Metering Infrastructure AMR Automatic Meter Reading API Application Programming Interface AVL Automatic Vehicle Locator BMS Building Management System CAN Controller Area Network CBO Condition Based Operations CBM Condition-Based Maintenance CDMA Code Division Multiple Access CFO Chief Financial Officer CRM Customer Relationship Management CSV Comma-separated Values DOCX Microsoft Word document format since Word 2007 ERP Enterprise Resource Planning GIS Geographic Information System GPS Global Positioning System GPRS General Packet Radio Service HTML Hypertext Markup Language HVAC Heating, Ventilation and Air Conditioning IEC International Engineering Consortium IP Internet Protocol IRR Internal Rate of Return ISA International Society of Automation ISO International Organization for Standardization J1708 Serial communication standard in heavy duty vehicles J1939 Vehicle bus standard in car and heavy duty vehicle industry J2EE Java 2 Platform, Enterprise Edition JDBC Java Database Connectivity LAN Local Area Network M2M Machine-to-Machine MRO Maintenance, Repair and Operations NPV Net Present Value 4 O&M Operations and maintenance OSA Open Systems Architecture PC Personal Computer PDF Portable Document Format PLC Power Line Carrier RC4 Ron’s code #4 ROI Return On Investment RTF Rich Text Format SMS Short Message Service TCO Total Cost of Ownership TCP Transmission Control Protocol UDP User Datagram Protocol VPN Virtual Private Network WAN Wide Area Network XHTML Extensible Hypertext Markup Language XLS Microsoft Excel File Format XML Extensible Markup Language 5 TABLE OF FIGURES Figure 1 An example of fleet management system (Stojanovi ć et al. 2009). ................ 13 Figure 2 OSA-CBM Functional Blocks (MIMOSA 2006). .......................................... 15 Figure 3 Major functions of OSA-EAI (MIMOSA 2006). ........................................... 17 Figure 4 OSA-CBM integrated with OSA-EAI (MIMOSA 2006). .............................. 18 Figure 5 Truefficiency Basic user interface (Konecranes 2011). .................................. 19 Figure 6 SKF @ptitude Analyst user interface (SKF 2007). ........................................ 22 Figure 7 Wialon user interface (Gurtam 2012). ........................................................... 24 Figure 8 iTrak Fleet Executive (iTrak 2012). ............................................................... 26 Figure 9 FleetOrb user interface (Fleetilla 2009). ........................................................ 29 Figure 10 Telogis user interface (Telogis 2012). ......................................................... 31 Figure 11 Budget for an on-premise software environment (Chong & Carraro 2006). 34 Figure 12 Typical ASP infrastructure (Walsh 2003). ................................................... 35 Figure 13 The NIST cloud computing definition framework (Williams 2010, 8). ........ 37 Figure 14 SaaS solution (Bhardwaj et al. 2010). .......................................................... 39 Figure 15 Typical budget for a SaaS environment (Chong & Carraro 2006). ............... 41 Figure 16 Development of a top-down forecast (Havaldar 2010, 122). ........................ 43 Figure 17 Example - market share analysis (IHS Emerging Energy Research 2011). ... 44 Figure 18 Development of a bottom-up forecast (Havaldar 2010, 123). ....................... 45 Figure 19 Use of a particular evaluation technique (Graham & Harvey 2001). ............ 47 Figure 20 Determining break-even point (Brealey et al. 2011, 275). ............................ 53 Figure 21 Overview of the system. .............................................................................. 56 Figure 22 An example of AMR system (Rajakovi ć et al. 2009). .................................. 66 Figure 23 AMR NPV as a function of discount rate. .................................................... 74 Figure 24 Data transfer cost per month effect on the payback time. ............................. 75 Figure 25 Equipment purchase price effect on the payback time. ................................. 76 Figure 26 Maintenance cost of an AMR meter effect on the payback time. ................. 76 Figure 27 Distribution of the payback periods in the Monte Carlo simulation. ............. 77 Figure 28 Break-even point in number of AMR meters. .............................................. 79 Figure 29 Remote water meter reading system NPV as a function of discount rate. ..... 86 Figure 30 Data transfer cost per month effect on the payback time. ............................. 87 Figure 31 Equipment purchase price effect on the payback time. ................................. 88 Figure 32 Maintenance costs of an AMR water meter effect on the payback time. ...... 89 Figure 33 Number of customer with manual readout effect on the payback time. .......

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