Transportation Optimization - a silver bullet to solve "last mile delivery?"
Ted Matwijec, Managing Director, ACT Operations Research – Raleigh, NC.
Learn how knowing your constraints and customer demands feeds sophisticated algorithms to provide optimal routing and balance delivery vs costs
Lately I have been seeing more and more of those brand-new Amazon Prime - Mercedes panel trucks making deliveries around my neighborhood. Also, I have even seen the USPS delivering packages on Sunday (contracted by Amazon I am sure). What’s going on Sunday deliveries?
On demand delivery with time windows specified by a customer is becoming the consumer norm. Remember the delivery or service call by your cable TV/Internet provider saying my service guy will be there between 8 am and noon then shows up at 11:50am. Met their promise, but ruined your whole morning wasted sitting around! Let me assure you that customer service problem can be solved and you don’t need the resources of Amazon, UPS or Fed Ex.
Amazon is clearly moving into the supply chain delivery markets much to the chagrin of FED EX and UPS to take back their “last mile” deliveries of their goods and solve this problem for the customer. The question is how can they make the most expensive part of delivery – the “last or golden mile” to a customer profitable?
From our experience in these markets, simply put, Amazon, Fed Ex, UPS and other large transportation companies have the best and brightest staff of Math, Statistical Phds that constantly hone their algorithms to minimize costs and maximize the service requirements. When profit is measured in pennies in a transportation system – (that’s why you see the UPS guys running from each delivery back to their trucks) – the solution cannot be a spreadsheet or database or even year 2000 optimization technology.
It is not rocket science, well maybe sort of, but rather advanced mathematics (think Calculus) applied to route planning optimization and fleet capacity analysis. These transportation algorithms (remember the traveling salesman problem) have generically been around for decades, however now they are totally customized, enhanced and improved enough to cover the most minutia of system requirements – by many software companies. I read that UPS has put 10’s of millions of dollars in R&D over the years into their algorithms to update and improve optimize their KPIs – as an example!
So, why now is the “last delivery mile” more complex and expensive than ever?
The short answer, the customer is demanding it and will go other places if your company cannot provide it! We all know how poor delivery can be written up in YELP or GOOGLE about your business – a big problem in the social media world for your marketing department. (eg. – delivered food late for a kid’s birthday party)
The good news for any retail or grocery store fleet manager is that to solve the “last mile delivery” the technology today is much less expensive and available for all size of fleets and route planners
The long answer is the complexity of the business rules, constraints and requirements to execute this service. First some examples…of customer/supplier requirement I am seeing today in our markets of retail and grocery applications -
Wants confirmation of a tighter availability of their grocery delivery – eg. In the next 30 minutes
Desire communications via a mobile app, email or text to the customer – about the updated arrival time.
Want a positive experience to tell their friends how good their deliveries are! – We all want that on demand!
Grocery/Retail Stores with their own fleets, or outsourced via 3PLs -
Wants a confirmation signature the groceries have been delivered and that information is sent back to the IT system in real time, with SKU information, for example – for replenishment purposes.
Wants real time updates from their drivers about location, traffic and estimated delivery window to communicate back to the customer.
Wants to be able to reschedule a driver in real time for a new pickup at the store/warehouse or pick-up a returned item.
So, the lengthy transportation distances between warehouses to stores is a natural issue solved by logistics teams for inventory replenishment. Now add that complex delivery network and inventory now required “on demand” from a store location or back in the warehouse for a customer that wants it delivered this afternoon – and you get to see why the “last mile” delivery starts to become complex and expensive! From a labor, IT system connection, communication systems, loading, unloading, time window point of view, the human brain cannot possibly manage all the variables in your network – to balance cost vs services. Lot’s of moving business costs involved to serve the customer.
So, from my 30 + years in the Operations Research field, I can strongly recommend an updated math model is appropriate for route planning and optimization and is the potential strategic “silver bullet” you are looking for – to support you competing in your markets! Of-course it is not the whole answer, you have to execute a plan, change some processes and manage the fleet – the cultural processes. Question, when was the last time you asked for your route planning algorithms to be updated in your home grown business system, TMS or ERP system, meanwhile your points of service network has changed a lot just in the last 5 years! I have seen the market share winners in the tight margin grocery or retail store business realize that the supply chain strategy to optimize delivery to their clients from source through the delivery point is accomplished by using transportation optimization. Managing constraints like labor, fuel costs, traffic conditions, time window, texts and emails to meet that short time window and the “last mile” requires serious modeling/computational power and IT changes.
The good news is that this technology is more readily available, less expensive from providers, easier to use for your staff, and has proven real cost savings – to meet or exceed your customers expectations. How much did your optimization algorithms cut your cost in your delivery system last year? Find the hidden value in your delivery system today, using math optimization, your savings should be a min. 10%+ or more in our experience to deliver on time or earlier and impress your customers!
About the Author
Ted Matwijec – ACT Operations Research – Managing Director – Raleigh, NC. 30+ years Simulation, Optimization of Transportation systems. (Transportation Network redesign, Fleet Route Planning/Optimization, Warehouse process and Design Optimization – his experience includes the project of a lifetime - the Panama Canal new lock transportation optimization)
ACT Operations Research provides advanced Control, Forecasting, Simulation and Optimization Products and Services to improve customers profitability via asset management utilization. Built on a cross-engineering background team, ACT Operations Research specializes in decision-making support and process control. Formed in 1996, ACT Operations Research is a privately held company headquartered in Italy (Rome) with offices in Italy, UK and USA.
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