Opinion: Route Optimization and Your Bottom Line
b>By Stephan Karczag
i>Vice President
heetah Software Systems
Raising shipping rates is a possibility many are considering. But with competition so tight these days, even a small price increase could cost you your long-term customers. It could also divert new business to your rivals, if they resist the temptation to increase their rates.
A better alternative is automation. Modern route optimization techniques can shave off miles while increasing efficiency and profits.
As a case in point, take “Acme Trucking,” a large less-than-truckload carrier headquartered in Pennsylvania and serving the mid-Atlantic area. Under its old dispatching system, Acme struggled to gather pickup and delivery data. Manual tracking techniques relied largely on dispatcher experience. Inevitably, this led to errors in route planning and major inefficiencies, with freight having to be handled multiple times.
Acme realized it needed a faster, more reliable way to gather P&D data and improve its route planning, so its executives decided to automate the entire route planning and forecasting process.
As a result, the miles driven by just one of the company’s service centers fell by 6%, while at the same time, the number of stops per day increased by 6%. Eliminating poor route planning, inaccurate data and wrong addresses and directions meant drivers could visit more customers in less time, and at the same time cut fuel consumption considerably.
At that same Acme service center, drivers averaged 6 miles per gallon, so the 6% reduction in fuel purchases at the
ost-Hurricane Katrina rate of $3 per gallon represented a $4,650 per month saving in fuel costs — almost $56,000 a year.
Fuel aside, fewer miles translate into less wear and tear. Factor in a 6% drop in the maintenance budget and the amount saved soars even higher.
The significance of these savings, of course, is that they drop directly to the bottom line.
But that is just the beginning of the benefits of automated route optimization. In addition to reduced mileage, the service center experienced improved stop productivity — nearly one additional stop per day per driver. Acme does not disclose its revenues, but if you use an industry standard of $110 per bill, with two stops per bill and 15 stops per day per driver, it could mean an extra $50 a day per truck, or a healthy $450,000 in revenue per year — with the same or fewer drivers and equipment.
Yet another benefit of major significance is what route optimization does for the environment, when fuel consumption is cut by 6%. At Acme, every 9,000 fewer miles driven each year cuts the company’s annual carbon dioxide emission tally by about 10 metric tons. At one terminal alone, this represents almost a 179 metric ton reduction in emission.
That actually flies in the face of the argument that environmental measures restrict businesses and increase overhead, because Acme has substantially reduced the amount of pollution emitted from its trucks while at the same time increasing the amount of stops made by its drivers.
Such benefits are no single-company fluke. Similar results are recorded routinely by logistics providers who take the bold step of automating their fleets.
UPS recently announced that its drivers now cover about 250,000 fewer miles per year in the Sacramento area alone. That meant 30,000 fewer gallons of fuel and almost 300 fewer metric tons of CO2. This came about because of the implementation of route optimization technology.
Simply put, a company can map out the routes that re-quire the fewest number of miles to complete. And as
n extra bonus, the technology helps cut back on missed deliveries.
The benefits of route optimization are manifold. Fuel efficiency, lowered costs, lower maintenance, higher stops per day and less pollution. However you look at it, automated route planning has become more than just a winning proposition. With fuel costs expected to soar further before settling into a higher range in general, a strong case can be made that route optimization has suddenly become a vital necessity for the transportation arena.
Perhaps in a small operation of one or two trucks, it might still be possible to get away with manual methods. But once you get beyond about 15 trucks, the inefficiencies that are built into non-automated logistics rapidly catch up and eat away at the margins you are working so hard to keep.
Cheetah Software Systems Inc. is located in Westlake Village, Calif.
This opinion piece appears in the Oct. 31 print edition of Transport Topics. Subscribe today.