P&D Routing Strategies
Charting a Course for Your Organization
Ajesh Kapoor Chief Technology Officer
Executive Summary
Distribution professionals are constantly driven to streamline pickup and delivery (P&D) operations. But while pressure to control costs is significant, most organizations also want to exceed customer expectations. Balancing these two somewhat contradictory objectives is difficult, but not impossible. There are a variety of paths that can be taken, including new technologies and redesigned business processes. While there is no “one size fits all” solution, for many companies, evaluating the day-to-day planning, scheduling, and routing of orders is a good place to start.
Often viewed as a tactical exercise, building an effective operations plan and executing consistently can have strategic implications. Everyday, hundreds of decisions are made by frontline personnel that effect how fleet assets will be deployed and how customers will be serviced. If these decisions are made within an appropriate operational framework, the outcomes are much more likely to be consistent with the company’s overall strategic goals.
This paper identifies various strategies for managing local pickup and delivery and explores the rationale for selecting one approach over another. The objective is to help busy logistics executives determine which of these approaches best supports corporate strategy. Key topics include:
• How to identify the right approach for your organization
• The wide spectrum of vehicle routing approaches
• Successful approaches to automation
• Available optimization methodologies
Armed with this new intelligence, transportation and distribution executives can select the best framework with which to balance the conflicting needs of P&D operations.
The Shifting Sands of Pickup & Delivery
Balancing efficiency and customer service is like trying to hit a moving target. Rising fuel costs, driver shortages, and new regulations impact nearly every company. And changing market dynamics are once again raising the question of whether a centralized, regionalized, or localized distribution structure is best for business. Add to this the combination of increased demand, insufficient capacity, and stricter client requirements, and achieving this balance becomes extremely difficulty.
Technology solutions to these challenges abound, with dozens of new products hitting the market every year. These technologies range from on-board hardware such as engine diagnostics, data capturing devices, and mobile communications, to software applications such as transportation management and optimization systems. But harried logistics executives, inundated with product information, rarely have time to consider the potential impact of emerging trends. Somehow, they must quickly distinguish which technology is a fad and which one is going to become the next industry standard.
Just as technology is changing rapidly, so too is the nature of the transportation industry. Rail and inter-modal networks have become more reliable and predictable, reversing the trend of losing market share to TL carriers year after year. And with their acquisition of Viking and AF, FedEx has entered the LTL space, changing the rules of the game. LTL carriers have responded by expanding their service offerings and now include next day, two-day, and three-day delivery options. Managers must understand the effect all of this will have on their own distribution processes.
Bottom Line: to adapt successfully in a dynamic environment, logistics executives must
be extremely proficient in assessing business conditions and in determining how their organization will respond.
Selecting the Right Approach
Before making any changes to long-standing business practices, it is critical to first understand the operating requirements that originally lead to the creation of these practices. If the original assumptions behind certain processes are no longer valid, it
may be necessary to change or even abandon these processes. If the operating requirement still exists, however, any new ideas being considered must address these needs first.
When evaluating strategies for fleet routing and scheduling, several factors must be considered, and ongoing assessment is required. Customer service goals, operating philosophies and constraints, business models, and organizational flexibility all help determine which approach will be the best fit for an organization.
Savvy logistics managers understand that they are supporting the goals of a larger organization, so they adopt an operating philosophy that completely aligns with the operating philosophy and business model of that organization. For example, a company advertising strong customer relationships cannot send different delivery personnel to visit key customers each day. Every aspect of the logistics organization − including its distribution network, transportation modes, visibility, and claims management − has to reflect the image the company wants to project in the market.
How receptive is your operation to change? Major transformations are painful and require a strong commitment of the entire organization to make them succeed. An organization’s change readiness must also be considered when evaluating different vehicle routing approaches.
Unfortunately, market demands, technologies, and distribution options continue to change, creating the need for ongoing assessment. It is critical to continually assess the current logistics organization, its strengths and weaknesses, what’s working and what isn’t, and then identify where there is room for improvement. Supply chains are changing so radically today that the old dictum “If it ain’t broke, don’t fix it” is very likely to leave your organization struggling to catch up with the competition. Industries
“Accurate, effective routing has
made all the difference for us in
terms of operating costs and
efficiencies, as well as raising
customer service to the next level.”
Steve Thiboulot, Software Director Tanguay Furniture
experiencing a slate of mergers and acquisitions have an especially strong need for ongoing assessment. Remember, combining two world-class logistics organizations can result in a network that is, nevertheless, inefficient.
Now that we have discussed the factors that must be considered in order to select the right fleet routing approach, let’s explore the full spectrum of options available.
Demystifying the Spectrum of Routing Approaches
Today’s logistics manager can employ a wide variety of routing approaches. As shown in the diagram below, vehicle routing solutions range from providing simple automation to very complex on-demand optimization. Of course, each step along the spectrum involves tradeoffs in the level of implementation effort and change management versus organizational impact. It is critical to recognize that an organization’s ultimate goal is not necessarily to reach the far right end of this spectrum. Don’t let software vendors push you to go too far simply because that’s the only option their solution will accommodate.
Business Transformation Automation Optimization Decision Support load scheduling customer intelligence territory design order sequencing static routes daily routes on-demand routes
Spectrum of Vehicle Routing Approaches
Business Transformation Automation Optimization Decision Support load scheduling load scheduling customer intelligence customer intelligence territory design territory design order sequencing order sequencing static routes static routes daily routes daily routes on-demand routes on-demand routes
Spectrum of Vehicle Routing Approaches
Logistics executives must assess an organization’s current starting point and determine the appropriate goal given the criteria discussed above. And it’s important to recognize that with ongoing assessment, the goal may change over time. That’s why it’s crucial to select a routing solution that has the flexibility to support a wide spectrum of options.
Let’s consider a specific example. With over 13,000 employees, 140 facilities in Canada, and daily pickup and delivery of over 1.1 million pieces, maximizing efficiency at Purolator Courier is a huge task. Two elements on the spectrum of vehicle routing
approaches – customer intelligence, including the speed and accuracy of geocoding, comprehensive territory design – were critical for Purolator. After a detailed financial assessment and successful pilot, Purolator easily justified a national roll-out of the A.MAZE solution. Results include an 11% reduction in the number of couriers required and a 4.5% improvement in productivity rate per zone. This adds up to over $11 million in annual savings.
Now that we have seen the entire spectrum of options, let’s explore each vehicle routing approach in more detail.
Defining Automation Approaches
Most organizations that rely on manual transportation planning can benefit from Automation of this process. Automation approaches include gathering customer intelligence (like correct delivery addresses and service parameters), reviewing geographic territories, sequencing orders, and scheduling loads.
In distributed organizations, each planner uses his or her own personal system to sequence and assign stops and route orders. Generally, no two people do it exactly the same way. Individual planners may even change the way they plan from one day to another. Automation forces everyone involved to reconsider their approach, and often requires some parts of the organization to change their current methodology. Ultimately, however, the result is a standardized set of best practices that are consistent across the organization. Although somewhat painful, with an organization-wide commitment this standardization can be achieved.
Now let’s review the definition and benefits of each automation approach along the spectrum.
Customer Intelligence
Customer intelligence is an important first step that includes pickup and/or delivery parameters as well as information regarding the physical location of each customer. Visual modeling of the pickup and delivery network, employing Geocoding technology that plots the distribution facilities, vendors, and customers on a digital map, can be
extremely enlightening. This step can identify inefficiencies and synergies within the distribution network, providing a solid foundation for streamlining the operation.
Territory Design
A large number of local pickup and delivery operations utilize the concept of Geographic Territories. This approach works well for companies that place a premium on driver / customer relationships and view these relationships as critical for customer retention and growth. However, it creates a high dependence on the driver’s knowledge of their geographic territory; hence a radical restructuring of this model can cause a major disruption in business. Automated territory design seeks to identify the optimal customer assignment based on available resources and customer requirements. Automated territory design, by itself, does not involve the actual rerouting of deliveries within a territory. Routing is still be done manually; thus significant opportunity exists to improve efficiencies beyond basic territory design.
Order Sequencing
Drivers are often responsible for determining the sequence in which they should service the locations in their area. It takes time for new drivers to learn how to effectively sequence orders within their territory, and the efficiency of any sequence is determined by the skill of the individual who created it. Implementing Automated Sequencing in such a scenario can ensure consistently efficient pickup and delivery plans across the whole organization without negatively impacting customer service levels.
Load Scheduling
Companies that have a significant number of customers with strict operating time windows and appointment time constraints can easily benefit from Automated Scheduling. Often, these constraints become tighter over time because customers, as well as drivers and planners, begin thinking of the usual pickup or delivery time as the actual time window. By reviewing contractual agreements and using effective customer communication, companies may be able to adjust service time commitments and thus generate efficiencies hitherto hidden from the planner’s scope. The benefits of this strategy can be quite pronounced for companies that have changed their customer base since the original route plan or route guide was created.
Until this point we have reviewed strategies that do not change the ongoing transportation operations in a significant manner. The automation approaches outlined above keep the geographic structure in place while making improvements within those boundaries. This limits the scope of improvement, but also minimizes the change management effort. We will now discuss optimization strategies that can help distribution operations better align with the overall goals of the business, but require greater organizational flexibility and increased executive-level commitment.
Understanding Optimization Approaches
Optimization approaches include static routes, dynamic routes, and on-demand routes.
Static Routes
The Static Optimization approach involves a one-time restructuring of operations followed by a very stable operational environment. For some organizations, it is just a small step in the right direction. For others it may be all that is required to achieve the optimal result. Static optimization can be implemented via Territory Design or Fixed Route Design depending on an organization’s specific needs.
•
Territory Design
Many package couriers, food & beverage distributors, newspapers, and other companies implement static optimization using Geographic Zone or Territory Design. In this approach, the entire service area is divided into balanced territories that are assigned to individual resources. These industries have unique operating conditions that make this model appropriate. For example, package couriers have a large number of delivery locations that do not repeat every day, but the density of stops within each geographic area remains fairly consistent throughout the week. Some food & beverage companies, on the other hand, contract out routes to drivers who are responsible for developing a customer base and get compensated accordingly. This necessitates territory assignment and hard boundaries. Many LTL carriers operate under this model as well, mostly due to technology infrastructure limitations. For these companies, static optimization may be seen as a stepping stone to dynamic optimization. Regardless the long-term strategy, zones and territories should be reevaluated periodically depending on how fast the customer population is changing.
•
Fixed Route Design
Fixed Route Design is another form of static optimization. Periodic store replenishment is a perfect example of where this model should be used. This approach can be used effectively for almost any organization that has known service locations with pre-determined service frequencies. There are, however, variations of the basic fixed route model that may be appropriate in certain special cases. Master Route Design or Super Route Design is appropriate for companies that service most of their customers every day. A set of master routes represents a superset of customers across all weekdays. Daily routes can then be created by selecting stops for each day of the week. This method ensures that the same driver visits a customer at approximately the same time every day.
When the customer mix changes frequently, Skeleton Routes may be a more appropriate form of fixed route design. A set of skeleton routes represents customers that are serviced every day of the week, with room left to accommodate stops that occur less frequently. Anchor Routes are an extreme variation of skeleton routes. With this model, the most important customers are assigned dedicated drivers and act as anchor points for the daily route plan.
All variations of fixed route design outlined above can also have a dynamic optimization component to them. Regardless of the type of fixed route design method selected, however, a periodic analysis to ensure that the current model is still appropriate is essential for companies with an ever-changing customer mix.
Dynamic Routes
Dynamic Optimization has been promoted as the panacea by every routing vendor to every pickup and delivery operation for quite some time now. This approach definitely represents a bigger opportunity for cost reduction compared to static optimization. But it may also be in conflict with some business models and with the customer service-centric philosophies of some organizations. Where dynamic route optimization makes sense, however, it can be implemented either via a batch or wave approach.
•
Batch Routing
Batch Routing is the most common form of dynamic optimization practiced today. Businesses that service a different set of customers every day with no pre-defined frequency patterns can use this model to achieve a very significant level of cost savings. Companies that are considering a move from static to dynamic optimization can minimize the risk of moving too far too fast by implementing the change in a couple of steps rather than one big leap. For instance, companies operating a hard boundary, zone-oriented network can minimize the risk by making boundaries flexible, so resource allocation becomes more optimal, before eliminating boundaries altogether. Similarly, a company using master routes or skeleton routes can identify customers with inflexible service requirements and keep them as anchor sites, working to minimize the number of anchors over time to achieve a fully dynamic routing environment.
•
Wave Routing
Some companies stagger their fleet departure times to service customers for a longer part of the day. Wave Routing is a very effective way to manage such an operation. It differs slightly from daily batch routing since the orders are released for optimization in waves, with routes being finalized at the time of departure, maximizing optimization time.
On-Demand Routes
On-Demand Optimization is considered by many to be the holy grail of distribution operations today. Companies managing time-sensitive shipments often find this to be the best way to meet customer expectations. For instance, call-ins are a fact of life when it comes to pickup requests for courier companies or for service technicians. These requests have to be assigned, scheduled, and communicated to drivers in real-time. Equipment breakdowns and traffic and weather conditions also create the need for effective exception and event management in real-time. Evaluating profitable backhauls is another application that requires on-demand optimization. Since this approach is more suited for time-critical requirements than optimal planning, it is always recommended to test the requirement for time-criticality. Moving towards smaller waves instead of individual order assignments is more optimal and may bring more stability to the operations. Moving towards a wave-based or closer-to-time dispatch communication as opposed to real-time communication can achieve the same impact on operations.
What’s the Best Approach for Your Operation?
Based on an understanding of the full spectrum of routing approaches, logistics executives should be ready to choose the best fit for their operation. This selection becomes even more challenging
since more than one strategy may be appropriate for a given company. The preferred approach might be different for various aspects of the logistics operation, such as inbound versus outbound or pickup versus
delivery. It might also vary by customer type, market, geography, or product line. Regardless, determining where to start requires an analysis of the organization’s business competencies and technical sophistication.
It’s critical to practice ongoing assessment of the operation since changes in organizational goals or customer needs may dictate that logistics objectives and routing approaches also change over time. That’s why it’s important to select a routing solution that has the flexibility to support a wide spectrum of options and a vendor with the expertise to guide your business through the transformation. With careful analysis and the right technology, transportation and distribution executives can get closer than ever to their ultimate goal of balancing P&D operations.
“Virtually all of our business is time critical,
and utilization of A.MAZE optimizes the
routing and scheduling of our deliveries,
allowing us to provide more efficient and
expanded services to our customers.”
Vince Wasik, Chairman & CEO Velocity Express
About the Author
Ajesh Kapoor − Chief Technology Officer
Ajesh Kapoor is a technology industry veteran with over 15 years of experience and an advanced understanding of transportation and logistics business processes. He is responsible for guiding the company’s product and technology strategy, overseeing every aspect of research and development, and ensuring that GEOCOMtms continues to deliver the most comprehensive fleet optimization and territory design solutions available.
Prior to joining GEOCOMtms in 2000, Ajesh served as Director of Business Development for Baan Supply Chain Solutions (formerly CAPS Logistics). He holds an M.S. in Operations Research from the Georgia Institute of Technology, an M.B.A. in Business Development from Panjab University, and a B.E. in Mechanical Engineering from the Indian Institute of Technology.
About GEOCOMtms
GEOCOMtms gets things moving with fleet management solutions that make local pickup and delivery operations run smoothly. Everyday, leading organizations choose the company’s A.MAZE™ suite to direct thousands of vehicles from hundreds of depots and distribution centers. With tools for territory design, route planning, dispatch, mobile communications, and fleet tracking, A.MAZE is the first fully integrated solution
developed specifically for local P&D. Busy logistics executives depend on A.MAZE because it delivers enterprise visibility and complete control over fleet operations. And that translates into greater asset productivity, improved cash flow, and increased return on capital. By partnering with GEOCOMtms, customers like Purolator Courier, Genuine Auto Parts, McPherson Oil Products, and Velocity Express have reduced operating costs while raising the level of customer service they provide. For additional information,
please visit www.GEOCOMtms.com.
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