Optimized vehicle routing key ingredient for successful Last Mile Fulfillment

Transcription

1 Optimized vehicle routing key ingredient for successful Last Mile Fulfillment

2 Introduction The term last mile originally referred to the difficulties faced by telecommunications providers in connecting homes to the local network hub, but has since been adopted by the logistics sector to describe the last leg of the supply chain: delivery to the consumer at home. This last leg is often the least efficient link in the supply chain, comprising up to 75 percent of the total cost of the delivery. The last mile problem also includes the challenges existing in the delivery of goods to dense urban areas which leads to congestion and pollution issues. There are logistical challenges to face at every link in the supply chain, but the last mile can be particularly tricky. One of the main characteristics of the last mile that distinguishes it from other transportation legs is the home delivery aspect, which requires what is generally the sole contact between the supplier and consumer. The person delivering the goods is the representative of not just the company they work for, but for all the companies that have contributed along the supply chain. This requires a professional and customer service oriented approach to delivery. The notion of what actually constitutes the last mile is undergoing rapid change because business-to-consumer deliveries have expanded far beyond what was traditionally limited to heavy goods and high-value items. Today, the last mile is populated by a huge variety of providers, from electronic appliances and clothing to groceries. The last mile logistics problem is not a new phenomenon, but has become a hot topic the last few years due to two key trends: Online sales is growing very fast. Consumers are shopping more and more online and are receiving the goods by mail. This has resulted in an increase in the volume of parcels shipped and also the number of returns. Delivery at home during the day is more and more difficult. Because people are working more and longer, and the number of single households is rising, the number of parcels that can be successfully delivered on the first try is decreasing. Due to the continuing growth in online sales, last mile delivery volumes will continue to grow and pose challenges to logistics service providers and e-commerce players. Last Mile Logistics page 2 of 9

3 How problematic can the last mile be? Modern transportation networks generally consist of a hub-and-spoke model: Between the hubs transport is very efficient due to the clustering of products which creates high volume flows (line hauls). These are B-2-B processes and for example often the goods are shipped on pallets. However, the 'feeding networks' (or first mile) and 'local distribution' (or last mile) to/from the spokes are typically more costly. The main reason is that it s not possible to have the same level of clustering due to the need to do door-to-door deliveries to consumers. This is the B-2-C part where no longer full pallets can be shipped, but instead individual parcels. This results in low volumes to do deliveries and pickups at individual customer locations. While there are logistical challenges at every link in the supply chain, the last mile is particularly difficult. It is the most expensive part of the supply chain mainly due to: High degree of failed deliveries ( not-at-home ) High degree of returns High degree of empty-running (due to door-to-door) Security problem during delivery (how to make delivery if customer not at home) Mostly done by small vans, which results in high cost & carbon footprint per kg For some regions, the critical mass of goods is not reached yet or consumer density too low How can technology help? There are a number of options to improve the last mile logistics: Tracking and tracing to have full visibility o Tracking & tracing technology is steadily being introduced into the last mile, which keeps all the various parties involved automatically updated about the progress of the delivery Improved routing through the use of optimization techniques o In order to optimize the large number of stops within a route, while meeting multiple constraints such as (real-time) congestion, vehicle type, driving time regulations, delivery time windows etc. require functionality not found in ERP or TMS systems. To support such complex decision making, powerful optimizers that can assign orders to routes (or routes to resources) are required. Innovative solutions o Automated pick-up/drop-off points In order to overcome the problem of failed deliveries, some logistics providers have developed a network of pick-up/drop-off points, either standalone automated or combined with convenience shops etc. o Consolidated deliveries In order to reduce the number of empty vehicles making deliveries in dense urban areas, a number of cities worldwide have started urban/smart city logistics initiatives. The common objective is to have a consolidation center outside the city center, and only allow fully loaded (shared) vehicles to do the last mile delivery Last Mile Logistics page 3 of 9

4 Increased importance of the quality of routing As can be seen from above list of potential solutions, there is an increased importance for routing. Regardless of whether delivery is to be made at home or at a collection point, and regardless whether a delivery company is making deliveries in the current unregulated way or will have to somehow work together with other delivery companies in a city logistics way, there is a need for technology that can answer the following question: which type of truck should be used to do the door-to-door deliveries in the most efficient way (shortest distance) while meeting the delivery time window and other constraints. To determine the optimal route a vehicle should take doing deliveries and pickups to customer locations is a well-known problem in Logistics. This is called the Vehicle Routing topic and several software vendors exist in the market that have Advanced Planning Solutions (APS) for this. Such software uses the power of mathematical optimization to calculate the daily transport plan based on advanced algorithms. Typical functionality includes: Automatic trip creation with possibility of intervention by scheduler After generating the planning results automatically, planners can quickly examine and update routes and schedules through digitized road maps, planning boards etc. Adjustments in schedules can typically be made using the drag & drop functionality or by manual changes in grids, the planning boards, or on the map Last Mile Logistics page 4 of 9

5 Alerts, reporting and analytics If during the execution of the plan any delays or changes occur, alerts will be shown that will allow the scheduler to take action, re-plan etc. Various reports are typically available to show KPI performance such as total distance, total cost, service level etc. Integration with mobile devices Information such as routes, ETA and status updates can be send to mobile devices in the vehicle or used by the driver. Drivers can also communicate back by confirming deliveries, indicating delays due to for example congestion etc. The benefits of using such Vehicle Routing software are both quantitative and qualitative. Increase productivity reduce cost o Maximize truck utilization and balance workload Increase the number of orders per vehicle o Optimize routes Reduce mileage, save fuel and working time Improve customer satisfaction o Commit to narrower delivery time windows o Predict more accurately arrival times o Increase responsiveness to last-minute orders More efficient planning process o Reschedule deliveries quickly and easily In fact, the savings to be made from shorter distance and more orders per vehicle are relatively easy to quantify and a business ROI case is usually straightforward to present. Vehicle Routing & E-commerce Being able to plan your transport with vehicle routing APS has one additional major benefit for E-commerce players: an important part of the online shopping experience is promising the delivery date (and cost). In many cases this is still being done in a one size fits all approach, meaning a fixed cost and fixed delivery lead time. However, by integrating the transport optimization with the e-commerce platform allows you to take many other parameters into account: Which day of the week / time of the day o Customer demand is not constant throughout the day and the week, but usually has peaks and troughs. o By changing the price, customers can be encouraged to select delivery times at time slots with low demand When is a delivery vehicle in the same neighbourhood o By taking into account when one of the delivery vehicles is already in the same area, customers can be offered time slots in the same period so that the delivery can be combined with other orders to minimize distance travelled. Last Mile Logistics page 5 of 9

6 This enables a best practice which is called time-slotting. Take historical demand patterns into account to set variable price to smoothen demand Take vehicle capacity and deliveries already committed in the same neighbourhood into account when proposing the delivery date & time Such integration between Vehicle Routing APS and the e-commerce platform can bring great benefits to the e-retailers in terms of higher customer service and at the same time lower delivery cost. Case studies Leading e-commerce players in Europe and USA are already implementing these kind of innovative solutions. Two examples are included below. Last Mile Logistics page 6 of 9

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8 Summary The importance of Last Mile Logistics will only increase with growing online sales. The technology to allow more efficient transport optimization and integration of transport planning with your e-commerce platform is there. Those players that will adopt this latest technology will stand a better chance to master this vital part of the supply chain, giving them a distinctive competitive advantage and be the leaders of tomorrow. Last Mile Logistics page 8 of 9

9 About ORTEC ORTEC is one of the largest providers of advanced planning and optimization solutions and services. Our software products and services fully optimize fleet routing and dispatch, vehicle and pallet loading, workforce scheduling, delivery forecasting, supply chain network design, 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. Want to learn more about our solutions? Contact us at: ORTEC Singapore 16 Collyer Quay Singapore Tel: Luc Kremers Director Consulting Asia Pacific Hp: Last Mile Logistics page 9 of 9