Improving efficiency and reducing delivery costs should be an ongoing process for all businesses that need to deliver their products, and the current surge in fuel prices and driver costs alongside the shortage of drivers has made this even more important.
Transport is a service providing function and is therefore constrained by a combination of service levels and unit costs on the other (vehicles, drivers, fuel and overheads). This article looks at ways to minimise own fleet resource requirement for a given delivery workload. The options are grouped according to whether they can be implemented in the short, medium or long terms.
Short Term Options
- Automated Planning – There are still many businesses using either no planning tools or those that are outdated, relying on staff and Google Maps to plan their fleet. Gone are the days where planning software was only available to large companies. Nowadays there are many accessible desktop or cloud based packages to suit nearly every budget and requirement. Many businesses see a return on investment in just a few months, giving them the freedom to grow and allowing transport planners the opportunity to look for further efficiency savings. Adopting such a package should pay for itself in two ways:
- Reducing the transport fleet resource requirement through increased efficiency and better utilisation.
- Minimising route planning staffing requirements.
- Producing achievable routes leading to reduced driver turnover.
- Investing in Other Technology – With regard to saving transport costs, even the best strategies and techniques will fail if the team does not cooperate or follow them. Success will only be achieved when drivers or field reps comply with route plans and best practice. Tendencies including the following need to be monitored and minimised:
- Too many personal stops
- Long idle periods
- Too much abrupt acceleration and braking leading to increased fuel consumption and expense
- Reckless driving leading to damage
- Speeding
A transport management system coupled with GPS transponders in vehicles will allow daily work performance to be monitored.
- Partial Outsourcing – The in-house fleet will not be economic and fully utilised across the whole of a business’s territory. There will be routes and areas where it would be more economic to disband the route and send those orders out via a third party. It is important to identify always seek to use the most economic delivery channel available.
- Service Level Enforcing –
- If agreed service levels are not enforced, it is likely that a pattern will emerge where orders are delivered on the nominated days agreed in the contract, but so will afterthought orders be delivered on off days. This is costly, inefficient and unnecessary.
- If a customer has been assigned a delivery day and window because it fits on an efficient skeleton route, then it must not be possible for a sales rep or other individual to access the customer’s master file and change this day and window without due process.
- Partnering with another compatible businesses – Partnering with compatible businesses can offer savings through increased group drop density, smoothing of seasonality peaks and troughs and other ways.
- Increased drop density: Shared used distribution is economic because increased combined drop density leads to increased efficiency, utilisation, lower inter-drop and stem mileage and lower cost per delivery.
- Seasonality: When a business has many of its deliveries during a narrow period of the year with a product that’s hard to outsource, then it is beneficial to seek a business with similar delivery requirement but with opposing seasonality.
- Goods not suitable for couriers: For products that cannot be delivered by couriers or general haulage then, for outlying areas, drop density and fleet utilisation can be improved by sharing distribution with a compatible business, sometimes even a competitor.
- Double Shifting the Fleet – This offers the opportunity, for businesses that can deliver at night, to “sweat their assets” by running vehicles at night on second shifts when otherwise they would be standing in the yard. However, double shifting usually promises more than it delivers in terms of savings because:
- If approached carelessly, drop density decreases when random deliveries are put onto nights. To avoid this, whole efficient routes or tight clusters of customers need to be put onto nights. It is counterproductive to put a customer on nights if it fits well onto a day route.
- There are no fuel savings available, only higher utilisation of capital equipment.
- Night drivers come at a premium.
- Avoiding empty legs – There is opportunity for some businesses to get a return or backload at the end of a delivery run or overnight with double shifting. These include trunking loads for Amazon, supermarkets, Returnloads.net, Haulage Exchange, etc.
- Planning for Minimal Fuel Usage – Not making the heaviest order the last delivery as this would consume excess fuel unnecessarily.
- Planning to Avoid Failure – If a delivery window closes at a certain time, it is risky to plan that delivery to arrive five minutes before the window closes. It is well advised to plan to arrive at least half an hour before closing. A safety margin could be built into the customer master file by setting all delivery windows to close 30 minutes or more earlier than the actual closing times.
- Adopt live vehicle tracking – Linking the transport plan to telematics technology will enable the detection of “off route” increases in distance, as well as identifying areas of slack in the planning which, when tightened, will result in improvements in productivity. It will highlight customers that habitually keep the driver waiting or are slow to unload so that such working times can be reflected in the plan.
- Benchmark and Review Progress – KPI information should automatically be generated each day to benchmark the planning process and to spot trends.
- Driver Debrief Feedback Loop – Establishing a driver / planner feedback loop will improve the quality and achievability of plans. It will also:
- Highlight problem areas such as long term road works, new speed restricted zones or congestion blackspots so that the planning software can be updated with the required slow-down regions.
- Highlight customers that habitually keep the driver waiting or are slow to unload so that such working times can be reflected in the plan.
Mid Term Options
The preceding opportunities deal with extracting savings from daily operations, but periodically a step back must be taken to determine whether the right distribution strategy is being followed, the fleet has the right size and profile for the business in hand, what will the marginal resource requirement be for new business, business loss or changes in service levels, etc.
- Fleet Size and Profile – Planning software will minimise cost for the fleet at hand, but if the fleet is the wrong size and/or profile then unnecessary costs will still be borne.
- If rigid vehicles are multi-tripping regularly, this is a sign that some need to be upsized.
- If it is hard to consistently achieve 75% or more average vehicle fill, this is a sign that some vehicles need to be downsized.
- When, on a regular basis, planned routes could have been delivered more economically via a third party, this is a sign that the in-house fleet is too big.
- When spot hire vehicles are in constant use, this is a sign that the in-house fleet is too small.
- Service Level Review –
Service levels have always been used as a tool for differentiation and competitive advantage, but cost to serve is proportional to service levels, and since this is an article on savings, it must be questioned whether the service levels offered or adhered to are needed by all customers or could be lowered by agreement with some customers without consequence.
- Delivery Frequency: Delivery frequency and cost are linked. Unless delivery frequency is driven by volume in the shape of full artic loads, it should always be minimised. Delivery frequencies should be periodically challenged. It is possible that some customers don’t really need the frequencies they enjoy and could still function with a lower frequency enabled by some order planning and discipline.
- Nominated days: Trying to cover the whole delivery territory daily reduces drop density, efficiency and fleet utilisation thus increasing cost. When challenged, some customers’ existing nominated days may have no foundation. A quick and easy way to increase efficiency and utilisation whilst reducing cost is to split a fleet’s delivery territory into two areas of similar workload with each area comprising of whole postcode areas. Area 1 would be served on Mondays, Wednesdays and Fridays, and Area 2 would be served on Tuesdays, Thursdays and Saturdays or Mondays of Week 2 on a rolling basis and so on. This way, each customer would know on which weekday day they are scheduled a delivery based on their postcode, and they will adjust their ordering pattern accordingly. This is simpler and easier to maintain than a traditional postcode to delivery day matrix.
- Time Windows: Booked times, specific time windows or am/pm restriction will reduce efficiency and increase cost. The need for such time windows needs to be constantly questioned.
- Service level creep - Service level creep can manifest itself in more than one form and must be kept in check:
- Not enforcing nominated delivery days and delivering on off-days as well as nominated days.
- Allowing the internal changing of nominated days and windows without due process
- Not charging for chargeable deliveries.
- Fixed or Skeleton Route Revision and Optimisation – As customers, seasonality and business profiles change, so should fixed or skeleton routes to keep costs down and efficiency up. Automated route planning packages make this periodic adjustment relatively quick and easy.
- Warehouse Boundary Review –
- Are all customers being served by their nearest depot?
- What is the cost of network imbalances due to warehouse capacity constraints?
- Review of planning software optimisation parameters - As customers, seasonality and business profiles change, so will the performance of route optimisation software. Parameters vary from package to package, but changes to test could include for example:
- Seed drop: Should it be the furthest unrouted call? The nearest? The biggest order? The earliest booked time or the tightest delivery window?
- Prioritisation: Think about how remaining deliveries should be prioritised for selection on routes. What's the biggest order? What’s the earliest booked time? Is it the tightest delivery window? Is one delivery containing a specific code?
- Algorithm passes: Some highly restricted operations may not get routed that efficiently by the default algorithm and in some cases the standard algorithm may not be able to cope beyond a certain level of restriction complexity, which regularly leaves unrouted deferrals after a routing pass which planners need to incorporate into the plan by hand. In this case, if the software has the facility, it needs to be “led by the nose”. How this is done will vary from package to package but conceptually this is a set of layered instructions or algorithm passes prescribing how the software should proceed when route building. For example:
- Start routes with customers that close by 09:00.
- Fill spare capacity of started routes with customers that close by 11:00.
- Fill remaining capacity of started routes with any customer.
- Start second trips.
- , all within the stipulated restrictions and standard optimisation protocol.
- The developer of the planning tool used should be contacted for specific advice and assistance.
Long Term Options
In the long term, the option is to review the network design. These reviews are usually triggered when the business has outgrown its premises, has come to the end of its lease or has been involved in a merger or acquisition. Issues to investigate would include:
- Are property assets in the right place relative to their territory’s centre of gravity? – Moving away from a territories centre of gravity requires more transport resource and subsequent cost for a given workload. The centre of gravity for inbound transport is likely to be different from that for outbound transport, so property assets should be located close to the combined centre of gravity to minimise aggregate primary and secondary transport costs.
- What is the economic number of depots for the network and where should they be located? – More depots in a network lead to a lower delivery transport costs but increasing warehousing related costs. What is the lowest cost combination?
- Where is the best place to place a new warehouse or factory? – Blue sky situations are rare. The addition of new factories or warehouses to a network is usually influenced by legacy network components. The blue sky optimum for a new addition may not be possible because of the impact on the existing elements of the network.
- Is a hub and spoke network structure appropriate or not?
Conclusion
There are many incremental ways of extracting cost from a road transport operation, but not all opportunities are available or suitable for all businesses and not all will deliver results. LPC International has the tools and expertise to guide your business with identifying the options listed above that are relevant and viable and then testing them, providing in the process accurate and robust quantitative solutions and decision support for the removal of cost from your transport operation. If you’d like to know more about our services then contact us here, and a member of our team will be in touch.
