What is Route Optimization Software?
Posted by Nathalie Göbel on 20/01/2023
Margins for transport companies are notoriously low, as the industry is highly competitive. In order to increase profits, companies must focus on reducing costs and increasing efficiency, without compromising service levels to their customers. In today's digital world, transport and logistics businesses are leveraging the most innovative and high-performing technologies to stay competitive. Route optimization software is one of those powerful technologies that can help transport businesses save time and money by creating fully optimized delivery routes.
What is it?
Route optimization software is a type of technology that supports transport businesses in their daily operations. It utilizes mapping data and algorithms to find the most effective combinations of pickups/ deliveries that result into the most efficient set of routes, taking into consideration factors such as traffic, distance, and road types. In addition, a wide variety of business-specific planning constraints can be included as well: vehicle profiles, driver preferences, delivery time windows, product types and their own specific constraints, etc. Route planning easily becomes extremely complex. Consequently, this technology is a great way to drastically speed up and automate the planning process.
How does it work?
When creating a routing plan, the first step is to import correct and high-quality data concerning the orders and available resources (vehicles and drivers). This data is either imported manually into the software or automatically collected from a TMS or ERP system using an API. The next step is to check and/or adjust optimization settings. In some businesses they may be set at a default level that is optimal. In other businesses, these settings need to be changed more regularly according to, for example, seasonality, high fluctuations in demand, or other specific factors that affect the planning result. Lastly, the user starts the optimization. The planner is free to evaluate the proposed plan, compare different plan alternatives, and make adjustments before finalizing it. When the plan is finalized, it can be exported to the driver's mobile app or on-board computer.
Who can benefit from Route Optimization Software?
Basically, any company that delivers goods or services to its customers and needs to distribute the orders over multiple routes. This could be a parcel delivery service, laundry service, maintenance service, or any other type of service that requires transport movements in order to be completed. The solution can be used in a wide variety of industries such as food delivery, e-commerce, retail, waste collection, pharmaceuticals and many more. Finding the right supplier often depends on the size and complexity of the plan, and the industry you are active in.
Key benefits of using Route Optimization Software
There are numerous benefits of using route optimization software. The three most impactful ones are: lower transport costs, faster planning and fewer kilometers driven.
Lower transport costs
The algorithm that drives the software uses complex mathematical models to minimize the total transport cost. As a result, the software is able to calculate the shortest and most cost-effective route. Typically, this leads to savings of at least 5%, with exceptions of up to 17%.
Thanks to the computing power behind the software, the planning time is reduced to a minimum. This allows planners to be more efficient, as they no longer need to spend time calculating routes manually. Furthermore, it frees up time for other important planning-related responsibilities.
Fewer kilometers driven
A great way to reduce the carbon footprint of a transport operation is by reducing the number of kilometers driven. As route optimization software aims to minimize the total cost, which fuel cost is a part of, an optimal plan will minimize the total distance.
Pitfalls and points of failure
Although route optimization software can bring many benefits to transport operations, there are certain pitfalls and points of failure that need to be taken into account.
The most common point of failure is the need for high quality input. If the data is inaccurate, outdated or incomplete, the software will not be able to provide accurate results. In some cases, this data can be incredibly difficult to obtain since a great deal of it is not captured by current systems and lives within the heads of the planners instead. If this sounds familiar, know that the implementation will require extra time and effort from your planning/operations team, in order to capture all the necessary data.
Another point of failure is the algorithm design. A poorly designed algorithm has a huge impact on the performance of the system and its results. It is therefore important to choose a software provider that has the necessary proven mathematical expertise in the field of routing solutions. The best way to evaluate the quality of the algorithm, is by taking the time to test several solutions with a day’s worth of your own data. With the help of your suppliers' expertise, the data can be calibrated to ensure an apples to apples comparison. This will prove that in the end, the software can only be as good as the algorithms that drive it.
Optimal parameter settings
The parameter settings of the system need to be tailored to the specific transport operation, its processes and objectives, otherwise it will not deliver optimal and realistic results. Using the software without knowing the impact of the parameters on the result, is like driving a fast car without a steering wheel. Therefore, extensive user training is a must, which your software provider should be willing to offer.
Route optimization software is a powerful tool used to determine the most efficient routes for delivering goods or services. It helps businesses complete pick-ups and deliveries in a cost-effective way by saving them money on fuel and labor costs, while reducing their carbon footprint, helping them stay competitive in their industry. Although it is important to be aware of possible points of failure, the benefits of this software far outweigh them. Ultimately, businesses that use route optimization software, will be able to provide improved customer service, thereby safeguarding future growth and profitability.