Transport optimization: when rules of thumb fail
Posted by Bart Gadeyne on 18/03/2016
The international transport business is characterized by a high level of complexity. Orders can be delivered directly to the end-customer or can be dropped-off at one of the many partner hubs, incurring the last-mile delivery fee. As a result, transport planners are facing multiple possible end locations for every order. During rush hours this complexity increases pressure on the transport planners. In these situations, planners use rules of thumb to cope with the complexity.
International network optimization
International transport companies face complex choices when planning their routes. An important one is the choice to either ship a parcel directly to the end customer or to make use of groupage services. This groupage model employs a network of hubs, allowing planners to consolidate several small shipments into one large transport load for part of the route. Although groupage is very efficient, it significantly increases complexity for the planners. They now have to consider what orders to aggregate, which intermediate depots to use, the mode of transport etc.
To cope with this increased complexity, planners often rely on simple rules of thumb. After the rush hours, everyone is happy that all orders are scheduled on a truck… but should you be? No! Planning by rules of thumb results in suboptimal solutions. These solutions end up costing you a lot of money!
"Everything should be made as simple as possible, but not simpler" - Albert Einstein
Rules of thumb
Order cutoff weight. If the weight of an order is lower than a predefined cutoff weight, this order is obligatory sent to a partner hub to be combined with other small shipments. The cutoff weight is based on operational experience. Still, research shows that the optimal decision for orders with a weight close to the cutoff weight, highly depend on the characteristics of the other parcels that need to be transported that day. Furthermore, some partners offer volume discounts. Planners following the cutoff weight rule miss out on this opportunity. Money is lost on these orders.
Regional planning. When using this rule of thumb, every transport planner is responsible for the transport within his own region or department. However, the borders between regions hold an optimization potential that is often overlooked. Cross-region planning increases the number of possible combinations and creates the ability to look at the planning puzzle with a helicopter view.
Preferred partner hub. In this constellation, each zip code is linked to one (preferred) partner hub. All shipments from or to this zip code are automatically assigned to the linked partner. But what if the linehaul to that hub is full and there is still space left on the linehaul to a neighboring partner hub?
City centers. Planners opt for outsourcing city center orders. They don’t like to send big trailers through city centers.
Linehauls. Vehicles between the DC and the partner hubs are easy to plan. These linehauls can do only one stop: at the partner hub. However, there hides a potential in doing a stop&go at the hub and delivering orders in the neighborhood of the hubs.
Advanced planning and route optimization
Time to get rid of these suboptimal rules of thumb and to start optimizing your groupage network!
The number of choices that need to be considered by planners is huge, making it nearly impossible for any human being to reach an optimal solution. Instead of relying on rules of thumb, a better approach is to use advanced transport optimization software. This software is able to consider a significantly higher number of parcel combinations than humanly possible. The optimization algorithms embedded in this software aim at minimizing total aggregate costs for all shipments. During an iterative process that generates hundreds of thousands of possible load configurations, the algorithm searches for the lowest cost scenario.