ORTEC Simultaneous Routing and Loading: Driving the Success of Supply Chain Leaders

Transcription

1 ORTEC Simultaneous Routing and Loading: Driving the Success of Supply Chain Leaders Goos Kant PhD, Chief Strategist Logistic Solutions ORTEC Professor Logistic Solutions Tilburg University

2 Routing and Loading Trends and challenges The logistics industry has grown considerably more complex. Volumes have been under pressure due to economic instability, while labor and fuel costs climb higher. Shippers are considering how to optimize the multichannel capabilities to the customer, while there is also strong volatility in demand and, service level expectations are increasing. As a result, the average vehicle utilization in road transport is only 45% and typically 24% of the trucks drive empty (see [1]). Further, when one pallet space is occupied in the truck, it is rarely fully utilized. Hence there is a spike in demand for routing and loading optimization, as evidenced in recent reports by e.g., by Gartner (see [2]) and others. Information has become an essential element of competitive differentiation. Companies in every sector must obtain more accurate data-driven insight to make the right busi-ness decisions and stay ahead of the competition Another dominant trend is the improved availability of logistics data, in particular order characteristics, including measurements, stack ability and other loading aspects. The reason is that this type of data is also used in optimizing shelf and warehouse space and mechanization. With vast amounts of information available at our fingertips, harnessing and understanding all of this data is an essential element of competitive differentiation. Regardless of what decisions needs to be made - predicting sales volumes, analyzing customer product preferences, optimizing schedules - harnessing the power of Big Data will help businesses succeed. A third trend is the strong increase in optimization and computation power. Between 1991 and 2010, mathematicians increased the speed of optimizing a certain mathematical puzzle by a factor of 80,000. In parallel, between 1985 and 2010, the clock speed (Pentium Core) of a computer has been improved by a factor 8,000. The latter improvement step is also known as Moore s Law (see [3]). This means that nowadays much larger and combinations of optimization problems can be solved in a much shorter time frame. In response to these three trends: (1) the room for improvement in loading degree utilization in logistics, (2) the increased availability of all kind of logistics data, and (3) the enormous increase in optimization and computation power, 2 ORTEC Simultaneous Routing and Loading

3 we show in this whitepaper how global leaders - like Walmart, Coca-Cola, Molson Coors and Engen - (from different industries) have invested in integrated routing and loading optimization technology to improve their utilization considerably in the supply chain. Applications can be made in various industries such as consumer goods, beverage, retail, fuels, and building materials, which makes this a broad opportunity. The power of integrated routing and loading Over the last 10 years, there have been significant improvements in routing optimization and routing software solutions. From an academic perspective, world records and benchmarks are being set. From a business perspective, ten years ago people were talking about routing optimization and it was on a "wish list". Today, we have multiple cases to present. In parallel, strong techniques for optimizing loading are presented, which can be on (1) carton, (2) pallet, and (3), container level. These techniques are also applied for automatic palletization by robots. The process steps for combining the powerful techniques of routing and loading can be defined as follows: Figure 1: Order sizing, from units to cartons and/or to pallets 1. Order sizing: The first step is to compute the total size of grouping multiple order(line)s to the same delivery address. These orders are typically stacked together on pallets or roll cages. Typically this grouping is done at overall or at product group level. The total desired height of a pallet depends whether it will be (double) stacked with other pallets for the same or other customers in this load. Also, another decision variable is whether all orders to the same delivery address should be combined in one route or can be spread over multiple loads. 2. Combining orders to loads: Given the result of step 1, the next question is which orders must be combined in the same route, such that the total cost and mileage is minimized over all routes, while maximizing the loading capacity utilization. Traditionally, routing optimizers check for the feasibility of a route based on total volume, weight, loading meters or pallet spaces. An additional check here is whether the loading fits from a 3-dimensional perspective. This includes stackability rules, axle weights constraints, stability rules, trailer constraints and unloading sequence. In this optimization the trade-off can be made whether it is more efficient to split a total load to a delivery address into multiple smaller deliveries, assuming that both solutions are feasible. 3 ORTEC Simultaneous Routing and Loading

4 Combining orders and routes Thanks to the quality of data and the computation power, optimizing these process steps are now within reach. This means that more complex loading structures can be checked when combining orders and routes. As a result not only routes are optimized, but also the utilization of each pallet and trailer / container. The value of early stage order calculation It is relevant to check the total size of an order at an early stage. When this is a customer with multiple deliveries during a certain period (e.g., a week or a month), then the related question is whether more or less volume can be brought to this customer at this particular visit. When a pallet is utilized for 90%, it might be possible to include additional (fast-moving) orders to this customer (or to postpone the visit) to reach a loading degree of 100%. Similarly when the total volume to the customer is 110% of a pallet space (or carton, container, etc.), it might be possible to postpone a part of this order to obtain full pallets. Ideally, this check of the total volume to one order is directly calculated, when the customer is booking its order, to optimize logistics cost during the ordering process creating a perfect shipment. This in particular becomes even more relevant when sending individual orders to customers by an airfreight carrier, who have a strong focus on volume-based pricing. So, in conclusion, having information on the loading utilization at the stage of order creation is the right moment to have the right impact on logistic optimization. Ideally, this check of the total volume to one order is directly calculated, when the customer is booking its order, to optimize logistics cost during the ordering process creating a perfect shipment. The importance of loading feasibility The computation power of checking loading feasibility during the routing optimization has various applications. Typical application is in the bulk and liquid industry where a tank trailer or container is split up into multiple compartments. Road transport to multiple addresses in one route requires a fast compartment check (which product should be loaded into which compartment), dealing with various restrictions like contamination, axle weights, dangerous goods requirements, axle weight restrictions during the route, etc. Checking loading feasibility during route optimization is also a crucial factor in the consumer goods industry. Here large amounts of goods in various sizes and stackability play a major role. This load can be a multistop delivery route, but also a fulltruck-load (e.g., from plant to warehouse), where the split-up into full-truck-loads is essential. The multi-stop optimization is also critical in the grocery industry, where products of multiple (temperature) groups can be combined into one combined load. These compartments for the different temperatures can be flexible, pallets might be stackable, and the unloading sequence and axle weight restrictions can be crucial. 4 ORTEC Simultaneous Routing and Loading

5 How to optimize the loading during the routing optimization? Traditionally, this method is a two-step approach: after constructing feasible routes based on volume and/ or other (simple) criteria, the feasibility of the loads is checked by an optimizer. But, what to do when the capacity is violated or when there is empty space left? This is exactly the enormous added value when performing this in a one-step approach: when the loading constraints are not extremely complex (e.g., for compartment checking, or when stacking rules are relatively simple), then this calculation is done during each check of possible order combinations in the routing optimizer. Otherwise, during the routing optimization simplified loading checks are applied in every check, and from time to time, the more complex loading optimizer is called. The result of this loading optimizer (over- or underutilization) is adapted in the routing optimizer, meaning that the routing optimizer has to solve maximum capacity violations or attempt to optimize the empty spaces. Sometimes this is done by intervention of the user, in other cases fully automatic. Our experience, proven with many customers (a few of them explained in this whitepaper) is that this integrated concept delivers a huge potential for additional savings. Figure 2: Example of integrated routing and loading, for multi-compartment, multi-stop delivery Seamless integration in SAP From an application perspective it is important that the optimization platform is seamlessly integrated in the overall supply chain. There are multiple alternatives: (1) consumer good companies typically run SAP. Here the optimization techniques are fully embedded in the involved SAP-modules, like DSD (direct-store-delivery) and LES (logistic-execution-software). (2) Retailers and logistic service providers typically run a back office system for managing their warehousing and transport capabilities. This system should be integrated with the routing and loading optimization both during planning as well as execution. During execution, the optimization engine needs to be linked with the Mobile Data Terminal for receiving actual data and changes. 5 ORTEC Simultaneous Routing and Loading

6 Four integrated routing and loading innovators The desired solution approach, discussed in the previous paragraph can be applied in various industries. Following are detailed cases: Walmart - grocery/food retail: Walmart is the world s largest food retailer with annual revenues of $477 Billion. Their US operations consist of 165 DC s, 4,300 stores, 7,000 drivers, 60,000 trailers, and 12 supply chains to manage. Here the integration of routing and load building for store delivery, dealing with multi-stop delivery, multi-temperature trailers, and applying splitting of orders and integrating back-haul orders resulted in delivering 65 million more cases in 2012, while their drivers logged 28 million fewer miles. The power of the load building was to facilitate stacking of all kind of pallets, checking the axle weight constraints, and optimize the utilization of the flexible temperature compartments. Molson Coors - beverage: Molson Coors Brewing Company is a leading global brewer delivering extraordinary brands that delight the world s beer drinkers. Business challenges were focused on the fact that they had all of these legacy systems that had been built over the years for delivery planning. They wanted to build an integrated solution in SAP that could provide for all the capabilities necessary to deliver to over 17,000 customers in Quebec alone. Routing and dispatching has now become part of their SAP framework, as well as pallet and load building and territory planning. Molson Coors has over 200 different bay-trucks, and among other various constraints, the routing optimizer considers the positioning and the orientation of the built pallets to optimize the utilization of the load. With 500 brands, 2000 products and tens of thousands of skus, we are the world s largest distribution system, helped significantly by ORTEC to get to market in an efficient and effective way. Joe Tripodi, EVP & CMO, The Coca Cola Company The Coca-Cola Company (TCCC) - beverage: The Coca-Cola Company runs the world s largest distribution system for a portfolio of iconic brands beloved across the globe. The TCCC truck fleet is one of the largest in the world. Operating in a highly competitive market, TCCC management wants to provide world-class customer service, optimize its labor and assets, reduce natural resource consumption, and provide its employees with a productive, rewarding working day. With such a vast sys-tem and the goal of having the most efficient fleet possible, TCCC used analytics to improve the routing and loading of its trucks. TCCC achieved its goals by implementing an integrated routing and loading optimization model, the result of a joint cooperation between TCCC, ORTEC, and Tilburg University. In addition to handling the unique characteristics of TCCC, the implementation transitioned smoothly from prior business practices. Over the last 12 years, the impact includes annual cost savings of $50 million. Missed deliveries have dropped, increasing customer satisfaction and diminishing lost sales. The reduction in miles driven has resulted in reduced consumption of fossil fuels, and less pollution. The success of the approach has burgeoned. Successful implementations have rolled out to Coca-Cola bottling companies around the world. 6 ORTEC Simultaneous Routing and Loading

7 Engen - oil/gas: Engen is an Africa-based energy company focusing on the down-stream refined petroleum products market and related businesses. For optimizing their distribution to the petrol-stations in South-Africa, they have implemented a Supply Chain Optimization solution, including order forecasting and generation, and rout-ing optimization. They have a mixed fleet with all kind of compartment constructions. Assigning the products optimally to the compartments is an integral part of the routing optimizer, taking various business constraints into account. Examples are minimum and maximum filling (ullage) rate of some compartments, different product densities, and compartment stability rules (e.g., in a multi-stop route the front compartment can only be unloaded at the last delivery location). In order to maximize the volumes delivered per km the loading algorithms also have a unique ability to adjust up/down the order quantities (within predefined business rule limits) to ensure maximum volumes on the selected tanker. Engen has measured double-digit improvements in their most important logistical KPI s, like volume/km. On top of this, planners are working more efficiently and are very satisfied with the system. Figure 3: Example of compartment assignment and editing possibilities Conclusions Companies leave money on the table, by thinking and managing supply chains in silos. Typically, routing and load building were considered to be two separate inde-pendent process steps in the Supply Chain. The solution presented in this whitepaper show that an integrated solution is available today and operating very successfully. It also explains the underlying technique of this concept. Moreover, the various industries and results show that there is a wide range of applications, and a strong interest from multiple sides. Given the integrated way of routing and load building, typical cost savings are enormous, typically over 10%. This is because of the interaction between the two as-pects, and the fact that the typical experience facts of routing and load building individually equals over 5% of savings as well. These savings imply a similar reduction in the emission footprint. Improved accuracy, more dynamic routing, and transporting less air in the truck all contribute to a higher service level and stronger positioning against competition. Considering this innovation was developed in partnership with ORTEC and global leaders like Walmart and Coca-Cola - and that this solution is embedded in SAP - it is our view that integrated routing and loading represents a new era of optimization in logistics. 7 ORTEC Simultaneous Routing and Loading

8 References [1] World Economic Forum, Supply Chain Decarbonization, the role of logistics and transport in reducing supply chain carbon emissions (2009). [2] Gartner, Simon Mingay, the Hype Cycle for Sustainability (2013). [3] Moore s law, Wikipedia, the free encyclopedia (2014). 8 ORTEC Simultaneous Routing and Loading

9 ORTEC world wide About ORTEC ORTEC is one of the largest providers of advanced planning and optimization solutions and services. Our products and services fully optimize fleet routing and dispatch, vehicle and pallet loading, workforce scheduling, delivery forecasting, logistics network planning, and warehouse control. We offer stand-alone, custom-made and SAP certified and embedded solutions that are supported by strategic partnerships. Our 750 employees support over 1,800 customers worldwide from offices in Europe, North America, South America, and Asia Pacific. North America USA South America Brazil Western Europe Belgium France Germany Italy Netherlands UK Asia Pacific Australia China Singapore Nordics Denmark Central and Eastern Europe Greece Poland Romania Want to learn more about our solutions? Contact us at: