Cutting Costs

6 min read

As fuel prices continue to increase, businesses that deliver products and services to homes and offices must figure out ways to reduce their transportation costs, or risk declining profits. Many companies are deploying new technologies that allow them to compare alternative routing and scenarios, achieve scheduling precision in times of congestion and balance customer goals with costs. But to get the most out of any of these fuel-reducing solutions, companies must first understand how their fleet is operating and then identify areas that need improvement.

The nationwide price of a gallon of regular unleaded gas is about $3.85, up from $3.08 in 2011. This represents, on an annualized basis, an average increase of more than $650 per vehicle driving 2,000 miles per month. Fleet managers believe that fuel represents more than 30 percent of their costs. Rising fuel prices have affected most supply chains through increased operating costs and transportation spend.

There are a number of things fleet managers can do within their current operations to reduce fuel consumption in order to stay competitive and lower the impact on their bottom line. This includes offsetting rising fuel costs by rightsizing fleets with the most cost-effective class of vehicle per job application, more aggressive vehicle cycling to take advantage of the strong resale market, and exploring the use of hybrids and alternative-fuel vehicles.

Best practices suggest that fleet operations utilize solutions for routing and scheduling optimization, strategic transportation planning and truck tracking technology. A combination of these solutions provides companies with the optimal route for deliveries that save on mileage and lower fuel costs.

Routing & Scheduling Optimization

It’s a simple equation – fewer miles add up to less fuel use, cutting operating costs and making companies more environmentally friendly. Advanced truck routing and scheduling software solutions help companies make the best use of their fleets. Most of these solutions utilize advanced algorithms designed specifically to optimize road-based transportation operations and incorporate digital mapping to calculate the most effective delivery schedules. Optimized routes improve equipment utilization and simultaneously minimize mileage, lowering fuel costs.

Routing and scheduling software stores information about customer delivery requirements, truck fleet, required delivery windows, truck capacities, driver shift information and other transportation parameters. More accurate route scheduling means drivers are less likely to run out of legal hours and can be compliant with hours of service requirements.

Optimized schedules yield faster turnaround time, as customers are more ready to receive deliveries. This also means trucks idle less, which reduces fuel consumption and lowers carbon emissions.

Strategic Transportation Planning

Using software to analyze a typical week of delivery routes and then running comparisons to test alternative options, such as truck sizes, driver shifts, DC locations or time window options, companies can quickly find out which decisions will give them the best transportation cost savings.

For example, with strategic transportation planning software, companies can identify the cost benefits of:

Combining pick-ups into delivery routes;
Double-dispatching trucks;
Introducing tighter or wider delivery windows;
Using smaller or larger trucks;
Changing DC locations; and
Allocating different customers to different DCs.

For each scenario, transportation planning software calculates optimized routes and schedules, and outputs the total fleet resources, miles, drivers’ hours, CO2 emissions and transportation costs so that companies can make cost-based decisions. Companies can also analyze their Distribution Center networks, optimize driver territories, and model multi-frequency deliveries.

For 3PLs bidding for new logistics contracts, logistics planning software enables 3PLs to design cost-effective transportation solutions for their customers. They can set up a few weeks of delivery information and automatically create a set of transportation routes and schedules to fulfill their customer’s delivery requirements. 3PLs can evaluate alternative options and propose alternative solutions, such as looking at a different fleet mix, evaluating service levels, combining deliveries and pickups, drivers’ shifts and DC options. In each case, the software determines the overall time, mileage, cost and truck numbers required enabling 3PLs to make clear cost-based comparisons.

By planning ahead and evaluating where supply chain activities are performed, as well as current processes, companies can face these challenges head-on and reduce the impact on their operations and the bottom line.

Optimizing Driver Territories

Territory Optimization software can help companies design efficient compact territories with even workloads by using true, road-based journey calculations, taking into account highways and rivers, for example, to accurately calculate transportation workloads and the compactness of each territory.

The result is a set of territories that:

Is geographically compact to reduce overall mileage, travel time and transportation costs;
Has similar workloads, taking account of stem mileage, journeys between stops and the delivery or service time at each stop; and
Enables drivers to become familiar with customers in their territory.

Once your territories are finalized, you can use routing and scheduling optimization software to calculate regular delivery routes, or for daily dynamic route scheduling – while respecting the specified territories.

Driver Behavior and Fuel Costs

Driver behavior is a critical factor in managing fleet fuel costs. Drivers sometimes use vehicles improperly, speed to appointments, and aggressively brake or rapidly accelerate, all of which increases fuel usage. Using a GPS telematics tool to monitor drivers’ locations and behavior in real-time enables fleet managers to reduce speeding and aggressive driving.

Using GPS devices that communicate to fleet management software in real-time the exact location of trucks ensures optimized route schedules and plans are followed precisely by drivers. This added intelligence enables companies to check that delivery schedules are on-plan and on-time, provides alerts to any late running issues or route deviations, identifies recurring inefficiencies and can provide customers with updated arrival time alerts.

Real time tracking data, including GPS locations and ignition settings, can be linked into fleet management software, which uses advanced matching logic to continually assess each truck’s location in relation to its planned schedule and update the timings for the remainder of its route.

Real-time tracking of trucks and drivers allows fleet operations to:

Pinpoint speeding incidents;
Uncover improper vehicle use;
Monitor driver location;
Route and dispatch vehicles with greater efficiency;
Increase driver productivity; and
Update customers with regular ETAs and approaching deliveries.

Real-time visibility of fleets increases control of the operations and allows businesses to re-optimize schedules based on planned and actual reports. This enables companies to significantly improve their customer service goals, respond efficiently to problems or delays that arise, ensure delivery schedules remain legal and achievable, maintain efficiency levels as the picture changes during execution and unearth hidden inefficiencies for continuous improvement.

Optimizing routes, improving scheduling and increasing driver productivity is critical to lowering transportation spend. Utilizing best practices and new technologies helps companies reduce the impact of rising fuel prices on their operations and their bottom line.

William Salter is CEO of Paragon Software Systems. For more information, visit www.paragonrouting.com.