transportation optimisation

Optimising your transportation network: the prerequisites

Although reducing costs via effective transportation management is a top goal for the majority of organisations to optimise the transportation network, assessing which approach is best from among the range of proven solutions can make decisions difficult.

Transportation management solutions can include:

To achieve excellent results, companies face issues and decisions in key areas including operational changes, investments in technology and systems and identifying areas of strongest potential and opportunity.

With large numbers of companies still dependent on some level of paper-based processes, there are multiple ways to boost transportation management and shipping performance. But to achieve the tantalising cost-savings that can be realised, most companies will need to firstly automate, then secondly focus on optimisation, which is used in transportation networks to assist decisions on infrastructure, contract negotiation and resource planning.

Automation solutions supplied by transportation management system providers, focus on the necessary processes and actions for shipment transactions, while optimisation technologies focus on load building. Other benefits of transportation optimisation technology deployment relate to resolving consolidation issues in high volume and complex networks.

Transportation Automation

Transportation management solutions that automate transportation execution, capture the essential operating characteristics of a transportation network to improve the planning and execution of shipments. These solutions can be deployed across the organisation, while being managed centrally to leverage corporate operational requirements.

Improving transportation execution with automated solutions can streamline transportation planning and execution. Transportation cost savings are achieved by reducing or eliminating human mistakes, aligning with corporate strategies, reducing the number of exceptions and minimising labour needs. Automation can be deployed to all shipments to streamline carrier rates and lanes, rating and transport routing decisions and accounting.

Transportation Optimisation

Optimisation extends beyond automation technology, offering solutions designed to reduce costs by identifying consolidation opportunities in high-volume LTL environments and complex transport networks. Mathematical programming and algorithms are used to process large shipments and aggregate costs for multiple truckloads.

Six prerequisites to consider

Let’s now look at the prerequisites to consider in order to understand the feasibility of implementing an optimisation solution in a particular transportation network.  

The answers to the following commonly-asked questions about transportation optimisation technology will provide a better understanding of the capabilities and opportunities for optimising your transportation network.

1. What is the difference between strategic, tactical and execution optimisation?

It is important to understand that transportation optimisation technology must be configured to address the problem it is trying to solve. Strategic, tactical and execution transportation planning require very different applications.

It is critical to select technology that will produce plans that conform to the constraints used to make everyday decisions, including determining the extent that operational constraints can be incorporated. The use of averages, assumptions and workarounds should raise a red flag and be avoided whenever possible.

2. ls optimisation more cost-effective than automation?

In all but large volume operational environments, tools that automate transportation planning and execution can deliver a benefit comparable to transportation optimisation. A robust transportation execution solution that includes load building functionality will enable transportation planners to identify opportunities and reduce costs. Results can therefore be attained more quickly and with higher certainty.

While transportation planners cannot match the power of optimisation tools to consider the thousands of possible consolidation combinations, significant savings can be achieved using basic rules of thumb to create loads and plan shipments. Transport optimisation software requires many of these same tools.

3. Does optimisation eliminate the need for load planners?

Transportation optimisation is often presented as a decision-making tool replacing traditional transportation planners and doing a better job of consolidation. This is a dangerous assumption for many reasons, including the dynamic nature of transportation execution. Simply put, transport optimisation software cannot make decisions, but can only recommend solutions based on available information. Reliance solely on optimisation to make decisions will increase expediting, labour costs, the number of shipment exceptions, and result in the processing of infeasible loads.

Additionally, transport optimisation software is not effective at planning on short notice because of the impact on every other shipment being processed. While most will be executable, a few loads will inevitably require additional attention due to order changes or other environmental factors.

4. What existing costs apply to optimisation benefits?

Total transportation expense is sometimes used as a basis for calculating financial benefit. This is a highly inflated number that is inappropriate for making this calculation. Total transportation expense is made up of inbound and outbound transportation, parcel, LTL, truckload and other modes used in shipment execution.

Only LTL shipments and truckloads that consist of more than one delivery are relevant candidates for transportation optimisation ROI. If extraneous data is used to calculate an optimisation ROI, the potential benefit will be overstated.

5. What are network constraints and why are they important?

All distribution networks have constraints, such as customer requirements for a specific carrier or service level, tight time windows, special equipment, or specific loading rules that may require special handling. These constraints will have a substantial impact on the performance capability of transport optimisation software. Each constraint forces the optimisation software to consider something that is less than feasible and work other deliveries around it. Depending on the number of operational and customer level constraints, a potential reduction of up 50% in opportunity can be lost.

6. How do shipment volume and shipment density affect optimisation?

The benefit that transportation optimisation can achieve depends heavily on sufficient volume to maximise the alternative load plans being considered. Density is also important as 500 shipments that are shipped throughout Australia provide a much smaller opportunity for consolidation than 500 shipments destined for Victoria.  Without a high volume of qualified, unconstrained shipments with sufficient density, optimisation can provide little financial benefit.

Assign enough time in the transaction execution process for optimisation and replanning, leaving time between order cut-off and shipment execution to optimise and plan, then achieve the benefits you want.

Execution optimisation is an issue for transport optimisation software, which run in a batch mode, meaning that all shipments being considered are suspended for a time period, with additional time required to resolve more complex or large issues. Executing the plan necessitates foregoing possible time savings to allow adequate time for running the optimisation.

Do you have the right people and expertise to implement and supervise your transport optimisation software? Often, employees with an operations research training background have the specialist skills and experience to manage the complex math modelling that transport optimisation software require.

In addressing this specialist staffing issue, initially consider the expenses of appointing and retaining a qualified employee on staff, or of having an external consulting firm manage your optimisation modelling requirements.  

So what are some of the key factors that help determine if optimisation is right for your company?

  • Less than $5 million value of transportation spend is typically not relevant to optimisation.  
  • Non-alignment of execution infrastructure and optimisation capabilities.  
  • Lack of trained employees who can successfully operate transport optimisation software.
  • No use has been made of manual transportation planning tools for a year or longer. 
  • Lack of central transportation management systems.  
  • Incomplete data.
  • A significant percentage of shipping is adversely impacted by customer, product or operational processes.  
  • Consignee locations don’t have many areas of density and are not geographically close.  
  • Understanding of the network is not shared internally with other departments and staff.
  • Instead of being operationally planned, the network has just developed ad-hoc.  
  • There is less than half a day between an order’s last possible change and its execution.

Practical Steps to Optimisation

With many promising and proven transportation optimisation opportunities available, it can be extremely difficult initially to accurately monitor its effectiveness and collect enough data for useful assessment to determine potential improvements.

Some practical steps to be considered in applying new transportation management systems include:

  • First, develop solutions to automate as many as possible of your transportation network’s execution processes. This will necessitate good communication and understanding of working roles and responsibilities for the company, suppliers, carrier and consignees.  Areas for clarification include establishing transport routing guides and setting up rating engines. With an enhanced understanding of the network’s physical infrastructure and automation now in place, data for each transaction can be collected.
  • After approximately a year or more of gathering data and knowledge, modelling tools are valuable in identifying the cost impact of any infrastructure or strategy decisions on changes. They can also identify further opportunities for improvements and consolidating processes.  At this stage, more accurate data and information present a strong base for looking at next incremental steps and improvements and assessing their budget impact.
  • Third, if optimisation is proven to be an advantage, the company can implement transport optimisation software that successfully builds on its current infrastructure for transportation planning and execution.

Conclusion

None of these steps happens overnight, but the investment in time, budget and focus are worthwhile for optimising your transportation network. Transportation optimisation can be successfully achieved in incremental and practical improvements, significantly reducing the risk of cost over-runs, implementation failure and supply chain disruption.

Is transportation optimisation and automation right for your company? Start with an assessment of how long it will take for new technology solutions to cover their initial costs and where their most effective transportation management system is suitable for your business. For the majority of companies, transportation optimisation will simplify decisions and processes, increase efficiencies and enhance profits.


Supply chain and logistics management consultants are available at New World Business Solutions to provide you with expert assistance. Contact us today:

Phone: 02 9401 9152
Email: info@newworld.com.au

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