Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

What’s New in Last Mile Routing?

Omni-channel logistics | By •

Last Thursday, UPS announced its plans to deploy 50 plug-in electric delivery trucks supplied by the Workhorse Group. What increased UPS’s willingness to invest in these vans is innovative “smart charging” software that has implications for last mile routing. There are other interesting developments in last mile routing as well.

UPS is collaborating with Workhorse to design delivery vehicles with zero tailpipe emissions. UPS will test the vehicles in urban areas across the U.S., including Atlanta, Dallas and Los Angeles. The vehicles will be delivered this year.

last mile routing
Artist Rendition of New UPS Electric Delivery Vans

Ecommerce is causing a boom in last mile deliveries.  But as consumers place smaller, spur of the moment orders, and forego shopping expeditions where they buy larger quantities of goods, ecommerce ends up contributing to air pollution. Delivery companies are under pressure from large cities to reduce pollution. The use of electric vans certainly mitigates air pollution and these trucks are also quieter.

Reuters reported on this deal. One paragraph in the story caught my attention. They reported that UPS recently rolled out “smart charging” software at a central London facility that allowed the company to nearly triple its local electric delivery fleet to 170 vans. This smart charging technology allows UPS to improve its last mile routing of these vehicles. “The smart charging technology determines when and how fast to charge vehicles. If vehicles are not scheduled for a full route the next day, the system can opt not to fully charge them and charge other vehicles more. Without the software, UPS would have had to install enough infrastructure to charge all the vehicles at the same time – the equivalent of powering an office building or hospital – at a cost of millions of dollars for electric grid hardware.”

Robust routing plays a critical role in last mile deliveries. Optimizing deliveries involves understanding the constraints and then intelligently grouping orders for delivery. In this case, there needs to be a feedback loop between the routing system and the charging software. The smart charging system needs inputs from the routing solution on planned deliveries, but the routing system also needs to know how fully charged vehicles are – and thus how far they can travel before recharging – as well as the location of the charged vehicles.

As opposed to a Google maps type application that efficiently routes an individual vehicle from an origin to a single destination, routing applications drive extra savings by intelligently dropping orders to a larger group of vehicles, all of which are typically making multiple stops. The intelligent grouping of orders on trucks, and multi-stop scheduling, saves money, reduces pollution, and improves service.

Ecommerce has made dynamic routing critical. Leading last mile routing solutions providers like Descartes Systems Group and Omnitracs have done this for some time. The way this works is that a group of orders comes in and is grouped for efficient delivery. Orders received at night, might be planned for dispatch from a depot by 10 am at the latest.  Meanwhile new orders come in from 8 am and 10 am, and these orders are consolidated and optimized for dispatch by noon at the latest. The software recognizes constraints that allow for better routing.  Examples of constraints would include things like, “on this road there is a bridge and the truck must be shorter than 12 feet tall,” or “this driver has detailed knowledge of these neighborhoods and orders in that zone should be dispatched to that driver” or “this order requires a truck with an attached lift truck.”

Dynamic optimization allows for the rerouting of a fleet of trucks if traffic congestion pops up in one part of the city, can allow for a dynamically added stop to pick up a returned item that just became visible in the system, and for other kinds of occurrences that could not be planned beforehand.  These routes use historical data on traffic speeds by time of day and day of week to plan the routes.  Then GPS tracking from complementary visibility solutions like MacroPoint – recently acquired by Descartes – helps to track whether shipments are proceeding on schedule and even provide dynamic estimated times of delivery to customers.

Christian Mähler, a Principal Software Engineer at PTV Group, pointed out that PTV Group offers not just routing software but also traffic management software.  There are synergies between these solutions.  For example, their traffic management software not only tracks congestion and traffic speeds, but can also forecast where congestion is likely to occur within 15 or 30 or even 45 minutes!  For example, if there is an accident, the software can predict which roads will become congested as vehicles move into adjoining neighborhoods. Their routing software can access this information to create better dynamic routing.

Routing will continue to get more detailed. Sharad Oberoi, a Director of IT & Software Engineering at Sanborn, predicts that within five years Google maps will provide not just maps of roads, but will be able to provide detailed maps of the inside of public buildings.  Sanborn is a provider of geospatial solutions. Once this occurs, deliveries will be efficiently routed not just to a building, but to the correct cubicle in a crowded room filled with cubicles.

Routing software, and transportation management systems in general, continues to advance.  The modeling is becoming more granular – able to handle increasing numbers of constraints and able to access outside data on things like traffic congestion – to improve both the speed and the quality of the planning.

Sears Implements Descartes Routing Solution To Optimize Home Deliveries

Retail | By •

The Descartes Systems Group had their user conference – Descartes Evolution 2015 – this week in Miami.  There were about 400 in attendance.

The best presentation I saw at the event was given by two executives from Sears.  Sears is a North American department store and general merchandise retailer with over $30 billion in revenues.  Joe Macro, Network Planning and Analysis, and Steve Rutkowski, Director of Logistics Services, spoke on the “Next Generation Home Delivery” Route Planner solution from Descartes they implemented.

The solution was implemented at their Innovel Solutions division, a third party logistics company owned by the Sears Holdings Corporation.  This 3PL is the supply chain arm for Sears Holding Company which includes Sears and Kmart. Innovel also does work for outside entities like the Air Force and Navy Exchanges and Lands’ End (which was spun off from Sears in April of 2014).

innovel

In this case, the new routing solution was implemented on behalf of Sear’s home delivery services.  Customers can buy appliances, consumer electronics, fitness equipment, indoor and outdoor furniture, heating/cooling equipment at Sears.  They may then elect to have these goods delivered to their home, installed, and have their old appliance hauled away.

To support these deliveries, Sears has a network of 11 Distribution Centers with 7.5 million square feet; 106 market delivery centers (MDOs) – midsized warehouses that support this business line; and in some areas they deliver directly from stores, there are 86 retail outlets they deliver from.

As Joe pointed out, many traditional retailers are involved in omni-channel initiatives.  This often involves the use of parcel shipments from warehouses or stores.  What Sear’s is doing is more complex.  Their home deliveries involve big box items.  It requires insuring that the technicians with the right skills are assigned to a particular job, and the use of third party carriers.

Routing is made even more difficult by: changing delivery slots, 10 percent of Sear’s customers change their delivery time when they get the reminder call about the next day’s delivery; By their cut off times, they take orders until 3 pm for goods that may be delivered the next day; And, by the volume of deliveries the company does, 4 million home annually.  This is clearly a hugely complex routing problem.

Finding the right routing supplier was clearly going to be critical.  Sears had three finalists.  Each finalist took a week’s worth of delivery data and showed the kind of savings their solution could provide.  Descartes won.

Once Descartes had the contract, they were faced with an aggressive timeline for implementation.  The project kicked off in September 2013, had several stages, and was completed in July of 2014.  To meet that deadline, Sears elected to have Descartes prescriptively tell them how they should configure the system to get the best results based on their network and requirements.  And because of the time crunch, Sears decided to postpone until later detailed truck capacity planning.

To transform their delivery operations Sears needed more than a robust routing solution.  Sears also needed efficient warehouses with accurate inventory information – warehouse management systems (WMSs) from HighJump Software are being rolled out across the network.  That inventory availability is being made available to their carrier partners.

Sears also needed better integration to in-store point of sale systems so that store associates fully understood all the services associated with different types of products, and so the associates could accurately enter the dates and delivery windows.

Sears decided to integrate the routing solution with a mobility solution so that the company understood exactly where delivery trucks were.  This visibility allows the retailer to improve the routing optimization; it provides customers with updated notifications by phone, text, or call, that the truck is on the way; and finally the GPS data gives them information that can improve their processes.  For example, this GPS data can be mined to show how much time should be allocated to the delivery team to put in a certain type of refrigerator.  Sears also chose Descartes for the mobility solution, in part because it was preintegrated to the routing solution.

So what were the results?  Sears increased truck productivity by 2.8 percent, decreased their miles per shipment by 5.4 percent, and cut the number of full time equivalents in the planning department by one third.  This resulted in annual savings of $3 million in the first year with ongoing anticipated savings of another $400,000.  Further, Sear’s carrier partners report being very happy with the ability to take pictures of the goods delivered using the mobility solution and prove that the goods were delivered on time and undamaged.

In conclusion, Joe said that the savings Descartes said they would deliver, based on one week’s worth of data and simulations, was “almost exactly” what they did deliver.  Because the IT team was a little conservative on the ROI they committed to for management, the team ended up exceeding their ROI projections.

Guest Commentary: Algorithms, Optimization and Constraints

Guest Commentary | By •

I think it’s time we stopped using the word “optimization” in our transportation management conversations.

I believe this because when we talk about optimization, we usually apply the term toward solving rating and routing problems. For example, “We have many separate orders going out on the same day, to many different locations. Let’s run it through the Optimizer to find the best solution and create shipments in the way that saves the most money and satisfies our customers.

The word “optimization” means, “finding the alternative with the most cost effective or highest achievable performance under the given constraints.” Factually, Transportation Management Systems (TMS) are not using optimization algorithms to solve complex rating and routing transportation problems. Current TMS solutions use heuristic algorithms to address these issues.

Here is why.

Transportation routing algorithms have been around for over 25 years. The earliest algorithms focused on dedicated fleets — where all shipments had to be delivered as stops in transit. Typically, all of the routes were multi-stop truckloads — the trucks made all of their deliveries and then returned home. Eventually, these algorithms evolved into the first Transportation Management Systems that combined rating with multi-stop routing. In fact, before PC’s had hard drives, I wrote these algorithms that dealt with multi-stops, pool points and shipping directly by LTL.

So, algorithms are not a new concept, yet there are many misconceptions around them.

First, routing algorithms are not optimization algorithms. To solve rating and routing problems, we cannot apply optimization algorithms that find the “best” result — like the simplex method does for linear programming. Even the traveling salesman challenge, a miniscule subset of this problem, cannot be solved by using an optimization algorithm. So, in our real-world TMS discussions, let’s be careful in our usage of the word “optimization” because it sets up a false expectation of getting the absolute most effective solution to every rating and routing problem.

Instead, routing problems are solved using heuristic algorithms that utilize an approach of logic similar to an experienced routing professional. Heuristic algorithms surface an efficient and effective solution that manages shipping costs, meets the customers’ service level demands, and does not violate constraints — factors that must be respected and cannot be violated.

Today, transportation management is so complicated because of the number of constraints that have to be part of the initial planning cycle and acknowledged in the heuristic algorithm. Service level — when, where and how a customer wants his delivery — is the most important goal and the only issue that matters to the customer. It’s up to us to work successfully within constraints. Examples of constraints might be temperature control, or freight that has to go on a flatbed or products that need special handling. In any given shipment, there may be tens, or hundreds or thousands of constraints that have to be recognized in the planning of the shipment.

What separates one TMS from another is in the way it manages and works with these constraints — within the algorithms embedded in the TMS. Any one of these other constraints, if not part of the algorithm, can ruin the ability to meet the customer’s service level.

As John Wooden, the great college basketball coach said, “It’s the little details that are vital. Little things make big things happen.”

So, we not only have to make sure we know of all of the constraints, but that the TMS enables these constraints to be easily included in the planning of a shipment. After all, we really just want our customer to be happy by enabling a good solution that saves real money and doesn’t violate constraints.

This is our real challenge.

Mitch Weseley is the CEO of 3Gtms. With 30 years in the industry, Mitch is widely regarded as the “father of the TMS industry” having created six successful companies in the technology and logistics industry, including Weseley Software and G-Log.

Walmart’s New Solution for Outbound Routing and Load Building

Private Fleet | By •

Any time Walmart speaks about what it is doing in logistics, I’ll listen. In March, Steve Simpson, Senior Manager of Transportation Technology at Walmart, participated in a webinar on how Walmart is optimizing outbound loads through its implementation of ORTEC‘s routing and load-building solutions (ORTEC is a Logistics Viewpoints sponsor).

A couple of caveats need to be made here. Walmart is not using ORTEC across its entire transportation network; it is using this solution to support multi-stop outbound perishable loads to its grocery stores. Where possible, the routing includes backhaul stops at supplier locations.

Secondly, Walmart did not report its ROI from this specific project. Steve did say, however, that the company saved 4 million gallons of diesel fuel by driving 28 million fewer miles while carrying 65 million more cases. However, Walmart has many improvement projects going on simultaneously. While the ORTEC solution surely contributed to those results, there is no way to know the extent of that contribution.

What makes the ORTEC solution special is that the routing and load-building problems are not solved in isolation. In other words, it is possible to build fuller trailers, but if that results in trucks travelling too many miles, those trailer-building savings are illusory. Further, it is possible to build a multi-stop route that minimizes overall route mileage, but if trucks are only half full, that is also not optimal. The ORTEC system provides the optimal low cost solution by solving both problems simultaneously.

What I found oddly encouraging is that even Walmart, a company famed for its use of technology, had a few hiccups during the implementation. The most interesting was a cultural issue. Walmart has historically hammered into its associates the need to build full trucks. And Walmart has for years measured the associates on how well they have done this. Now the optimal solution may be a truck less full than the planner is comfortable with, but which nevertheless optimizes savings. Basically, if a planner adds a stop just so he can add another 100 pounds to the truck, there is a good chance that is not the optimal solution.

Secondly, in the supply chain execution area, it is very common to hear that inaccurate item, case, and pallet weight and dimensional data is a key factor in delaying projects — the “garbage in, garbage out” problem. This was also true for Walmart, something I found surprising.

In conclusion, this was quite a coup for ORTEC. It is very, very difficult for software vendors to get Walmart to speak publicly about how it is using technology to improve its supply chain. Also, Walmart has, and deserves, a reputation for having one of the best supply chains in the world.

Guest Commentary: Is a Direct-to-Store Delivery Model Right for You?

Guest Commentary | By •

Speed is the name of the game in today’s retail landscape. How quickly products are purchased from store shelves depends on various factors, including consumer preference, special promotions, and brand recognition, just to name a few. The trick to gaining speed and increasing your inventory turns is to ensure you have a successful and cost-efficient replenishment system. Over the last few years, many consumer goods manufacturers have been increasingly using a Direct-to-Store delivery model as an alternative to their traditional wholesaler and distributor networks. A Direct-to-Store delivery model establishes a ‘closed loop’ network from the CPG manufacturer’s warehouse to various retail outlets, making multiple stops before returning to the point of origin.

Below are a few tips of how you can set up a Direct-to-Store Delivery model for your business:

  • Create the Demand Profile – Understanding who your retailers are, and what their demand (i.e., order volume) looks like, is critical.
  • Routing Deliveries – Once the right mechanisms are in place to capture the daily demand profile, you can map the optimal route for each day’s delivery. The route plan should take into consideration variables such as traffic patterns, speed limits, distance and time calculations, and Hours of Service for drivers.
  • Loss Prevention – Because DSD involves multiple stops at retailer locations, building in processes to prevent and monitor product theft is very important. In addition to GPS and security cameras, training drivers on identifying suspicious behavior is paramount.
  • Capturing Proof of Delivery – A variety of new technologies can enable electronic proof of delivery, primarily using handheld devices. This has an incredible impact on Order-to-Cash cycle time, reducing it to a matter of hours.
  • Continuous Improvement – Using information captured through the demand profile, route designs, and delivery information, you can set a baseline for performance. This way, you can measure the effectiveness of incremental and ongoing improvements to the network, through cost savings and increases in efficiency.

Is a Direct-To-Store Delivery model right for you?
If your products and supply chain have these requirements, you may be a good candidate for this model:

  • Control of the deliveries is very important. For example, delivery windows are small or limited to specific times.
  • A large portion of your customer base are small retailers like convenience stores that cannot store excess inventory and require frequent replenishment.
  • Direct contact with retailers is a critical element to customer satisfaction, and therefore, drivers making the delivery broker the retailer relationship.
  • If goods are not on shelves, you lose a sale and, consequently, market share. For example, if one soft drink brand’s products are not on retailer shelves, then the consumer will buy the competitive brand as their second choice.
  • Security or product theft is an issue, especially in the case of high-value goods like tobacco, alcohol, and jewelry.

Is your organization following a Direct-to-Store Delivery model and, if so, what benefits are you seeing? Post a comment and share your experience and viewpoint.

Guy Toksoy is Vice President of Ryder Canada’s Supply Chain Solutions business segment. He is responsible for directing the development and operations of logistics solutions for Ryder’s global and domestic customers. Prior to joining Ryder, Guy held progressively senior positions at APL logistics, including Head of Logistics operations with responsibility for the operational and sales activities of all Canadian services. His career also includes progressive senior management positions at Cebra Inc. and GATX Logistics, as well as several entrepreneurial companies. Guy has a Bachelor of Science degree in Mechanical Engineering from Middle East Technical University, a Master of Science degree in Mechanical Engineering from University of Cincinnati and an M.B.A. from Miami University.

A Tale of Two TMS Implementations

Transportation Management Systems | By •

In recent months I’ve talked to two natural resource companies that have implemented a transportation management system (TMS) and have achieved very different outcomes. Both companies had similar goals: reduce freight spend and improve service. But only one company achieved success on both fronts; the other has had limited success in improving service.

The company that achieved success was Baillie Lumber, a leading manufacturer and exporter of hardwood lumber to furniture, cabinet, and hardwood floor manufacturers around the world.

The company that failed? I won’t name them.

At the OTM Special Interest Group last August, I attended a presentation by John Vitale, IT Director at Baillie, about the company’s implementation of Oracle Transportation Management (OTM). John was kind enough to have a follow-up phone conversation with me to fill in some details.

Baillie moves lumber on flatbed trucks. There are not many large carriers that compete for flatbed moves. Baillie actually gets its best rates on the spot market. In short, the company’s ability to drive savings in its domestic business, which relies on trucking, was limited.

Baillie’s largest TMS ROI bucket is on the export side and is based on optimized routing. Routing is something that many people associate with multi-stop truck movements, but it also applies to global moves. Here is a simplified example of the shipping options that exist between one of Baillie’s plants in Leitchfield, Kentucky and a port in Shanghai.

In reality, there are many optimization runs that generate more than six options, which OTM automatically lists with the lowest-cost route on top and the highest-cost option listed last. Based on the number of shipments Baillie does, and the complexities associated with global moves, the company needed new hardware so that it could scale to solve the problem sets.

Historically, when I have talked to companies with failed supply chain implementations, they typically do not blame the software company. Rather, they admit that the fault was their own, usually because they couldn’t change their internal culture, especially if a project requires the sales force to change the way it wants to do business.

This was the case with the failed TMS implementation. This company had customers complaining about late deliveries. The TMS was implemented, in part, so that the company could give potential customers more accurate estimated time of arrivals as part of the quote. But in many cases, the sales force ignored the estimated time of arrivals from the TMS and promised quicker than feasible delivery dates to win business. The transportation analyst responded by creating and publishing an average days late report. The average is currently less than 10 days late, but it was substantially greater in the past. There is evidence that this is driving new business and increased wallet share on lanes where the company can consistently hit the promised delivery date. But the sales quotas, combined with a lack of executive oversight and support, has made progress much slower than it should have been.

Baillie has a very different culture. At Baillie, the President and top management actually continue to sell. They have their own accounts and have to face their customers on an ongoing basis. Consequently, when the TMS project started, the top executives clearly understood the problems and provided the executive-level support necessary.

Baillie sets targets for its sales force, but there are targets for both revenue and margin. The IT department generates daily reports that show how all the salespeople are performing to both their revenue and margin targets, up to date as of midnight the previous day. Salespeople can’t maximize revenues by “low balling” transportation costs without taking a hit on margin.

The sales force should not always quote the low-cost option. Usually the quoted price, which includes transportation costs, is given to the customer before carriers can confirm that they can take the load. The shipment may end up going out on a higher-cost route than initially estimated. The transportation manager can add comments to the options to help guide the sales force. When a salesperson pulls up the different route options on their Blackberry, they may see a note that the low cost ocean carrier on a particular lane is having a hard time supplying containers. Or perhaps a particular carrier’s charges will go up $400 on this lane next month. Further, sales people need to understand what their customers want. A customer, for example, may ask them not to use a particular carrier because they have performed poorly in the past.

Baillie’s goal for the future is to have the transportation options displayed on the salesperson’s Blackberry show up with an asterisk next to the suggested route. How they will balance predicted service levels and cost has yet to be fully worked out. An IT Director’s work is never done.

(Note: Oracle is an ARC client)

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