Optimizing Transportation Logistics

Optimization is an oft-used word, that has lost its meaning.  If all the trucks in a fleet are assigned, some would say that the schedule has been optimized.  In a sense, they’re right when they say it has been optimized, since there are degrees of optimization. 

However, the industry is being buffeted by the twin challenges of stubbornly high fuel prices and increasing government regulations of drivers, traffic, and engine emissions.  While a few tenths of a mile per gallon changes in engine efficiency don’t seem like much to policymakers, in fact that translates into a significant burden on the transportation sector.   

The trucking industry spent $111B on fuel in 2007, and about $135B in 2008.  Given the increase in regulation expected from Washington, increased inflation, and a slow economy means fleet owners will be squeezed as those fuel costs can only increase. 

While these external factors cannot be ignored, there is a way to make sure you’re wringing everything out of every ounce of fuel.  The best optimization must be done with software that uses advanced mathematics.  There are packaged software products from vendors such as I2, Manugistics, and Manhattan that do true optimization (by the way, this is not an exhaustive list).  While each situation varies, 3-8% savings is achievable.  That translates into roughly $4B to $10B in savings across the industry. 

However, implementing these applications takes executive commitment and determination.  Implementations can take several months of tuning after the implementation and integration into an existing operation.  There are guidelines for optimization that will help keep your effort going forward.  Just understand that these efforts can’t just be installed and forgotten. 

There is another topic that is very important to understand, and that is the issue of business rules.  The basic rule is that for every business rule (a.k.a. constraint) you introduce, you incur a cost.  One client had a business rule that would allow drivers to choose the load they would carry for the first load of their trip.  Given that it was how their business operated, the rule was introduced.  However, it introduced 0.5-1% in additional operating costs. 

The other thing to remember is that you need to model all your business rules.  If you have operational rules that you don’t model in the system, your dispatchers will constantly be overriding the system because it does not do what they expect.  While some of that is a training issue, it could also be a mismatch between the way your business operates and how your operation was modeled in the system. 

Transportation optimization is difficult work.  Manual systems are inadequate, and automated systems require expert guidance.  However, the effort is worth it in reduced operating costs and happier drivers.