The basis for reducing costs and increasing efficiency
It would be difficult to count the companies that use vehicles and drivers in their daily work. In addition to the obvious sectors such as the entire logistics, transportation and CEP (Courier, Express and Parcel Services) industry, there are also small and medium-sized enterprises related to - for example - food delivery or the entire sector of installation, inspection and maintenance services.
Manual route planning is a time-consuming and inefficient solution. Taking into account the fact that in many industries driver wages and fuel costs alone account for 59,8% of total operating costs per kilometer, it is no surprise that route optimization solutions are so popular. Even a small increase in efficiency can translate into a significant improvement in financial results. As shown by the experience of many companies, the implementation of a route optimization system allows you to save up to 20% on vehicle mileage and increase the efficiency of orders by up to 100% without increasing the fleet.
Efficiency and profitability with many additional conditions
Route optimization is the process of setting the most efficient and profitable route that meets some specific conditions. What conditions are we talking about? It would seem to be a relatively uncomplicated matter of finding the shortest possible route between two points. In reality, it is rarely so simple because of the many factors that must be taken into account, including:
- The type of goods to be transported (e.g. pallets, out-of-gauge shipments, goods requiring cold chain)
- The number and size of goods to be transported
- The number and type of available vehicles
- The number, location and need to return to depot
- The number and schedule of drivers
- The number and location of stops
- Time windows (a specific time when you can visit the location)
- Traffic restrictions (traffic/entry bans, rush hour, etc.)
The problems of such complexity that are solved by route optimization are referred to as VRP.
Vehicle Routing Problem
Vehicle Routing Problem (VRP) is the challenge of designing optimal routes from a depot (or several depots) to a set of destinations. Each route has certain business-specific conditions and constraints, such as those mentioned above. In spite of appearances, these issues are not new, although they have recently taken on a whole new meaning. During the development of forwarding trade in the 19th century, there were the first attempts to define the problem, known to this day as the Travelling Salesman Problem (TSP). The solution to the TSP is to find the shortest possible route between several cities that a salesman can take, starting and ending at a specific point.
Over time, VRP has been broken down into much more sophisticated tasks. It can be assumed that currently the Vehicle Routing Problem is a combination of many Travelling Salesman Problems. Thus, instead of a few addresses, it is not uncommon to operate with hundreds of them, which must be multiplied by the number of drivers. All additional factors must be taken into account as well. The result is extremely large packages of data and complex calculations.
Last Mile Delivery
The last stage of the product’s journey from the warehouse to the customer’s hands is called Last Mile Delivery. In many ways, it is a key moment in the entire delivery process. Firstly, it is the most time-consuming and cost-intensive part of it - it is estimated that the last mile is responsible for 53% of all costs related to the transportation of goods. This is due to the specificity of this stage - in large cities, despite the short distances between destinations, drivers waste a great deal of time in traffic jams. In rural areas, on the other hand, destinations are far apart, which also generates significant costs.
However, cost-efficiency is not everything. As the moment when the goods reach the customer, The Last Mile is also the key to customer satisfaction. The game is no longer only about trying to deliver the goods, but also about doing it efficiently, quickly and conveniently for the customer - including responding to needs such as “same-day delivery”.
In the “post-covid” reality, due to the explosion of e-commerce, the problems described above and challenges of Last Mile Delivery have greatly intensified and taken on a whole new dimension. If you add to this the growing consumer expectation for free delivery and therefore the assumption of these costs by suppliers - it becomes apparent that last mile route optimization is now more important than ever.
OTIMO AND VRP
How does Otimo fit into this
and how can we help you?
VRP optimization is embedded in OTIMO’s DNA. We dealt with it together and separately long before our company was founded, taking part in various projects and research works strictly related to this area. We can pride ourselves not only on significant experience in this field, but also in world records. The algorithms we created achieve some of the best results in the world for given optimization problems and compete as equals with the algorithms of technological giants from the USA or China (often beating them). For details, please visit the website of the independent Brazilian research institute Galgos, which keeps records of the best known solutions in the “global optimization race”. We are listed there in Gehring-Homberger benchmark, which deals with CVRPTW (Capacitated Vehicle Routing Problem with Time Windows) problems, i.e. VRP with time windows:
How can our VRP optimization solutions (algorithms, libraries, APIs) help your company manage the fleet of vehicles as well as the transportation and logistics processes? Among other things, by:
Last Mile Delivery costs reduction
Advanced VRP optimization will set the most time- and cost-efficient routes and reduce the number of delayed or undelivered shipments, where a second delivery attempt will be required.
Fuel costs reduction
Thanks to our best-in-class algorithms you will significantly shorten the total length of routes traveled and reduce fuel expenses, which is the largest part of total transportation costs.
Better use of owned resources
Assigning delivery to the most appropriate drivers and vehicles for each order will allow you to use human and equipment resources more efficiently and, as a result, increase the daily number of orders processed.
Lower vehicle maintenance costs
Fewer kilometers and less time on the road result in slower wear and tear on delivery vehicles, and as a result, the total cost of truck ownership decreases and ROI increases.
Vehicle fleet minimization
VRP optimization will make you forget the reasoning that increasing your capital commitment and purchasing new vehicles is the best way to adapt to a large number of shipments and shorten delivery windows - you may find that the right algorithms to increase the efficiency of your fleet utilization will suffice.
The less involvement of the human factor and the more advanced the algorithms, the less frequent and less significant the errors - and our algorithms are among the world’s best.
As a result, you will not only significantly reduce your company’s operating costs, but also increase customer satisfaction and loyalty. By offering them realistic lead times and, importantly, by fulfilling them, you will make them more likely to return to you.