The definitive guide to logistics route optimization

What is Route Optimization?

In simple terms, route optimization (RO) refers to the process of finding the quickest and most cost-effective route between any two points on the earth. However, there’s more to it than just route planning or finding the shortest route between A and B. The best routes for a business usually depend on a lot of different factors – where the customers are located, when they want to be serviced, traffic and road conditions at any given time, or which driver or vehicle is needed to do the job.

Why use Route Optimization (RO) for logistics?

It’s not quite that simple to find the shortest distance between two locations on earth because as the number of touchpoints increases, the number of possible ways to travel between them grows exponentially.

The below infographic shows the magnitude of the problem:

9

locations

The grains in 1 kg of sand

22

locations

Atoms in 20 grains of sand. Also, grains of sand of Earth, including deserts

60

locations

Atoms in the known universe

102

locations

Replace each atom in our Universe with a universe the size of ours. The number of atoms in all those universes put together is approximately this number.

With just nine locations to visit, the number of possible ways of traveling equals the grains in 1 kg of sand. When you increase the number of locations to 22, the possibility of routes increases to the number of grains of sand in the entire universe. Take the number of stops to 102 and the possibilities of the ways to travel become incomprehensible.

Globally, the route optimization software market is expected to witness growth at a CAGR of 10.9% over the forecast period of 2020-2025. Delivery route optimization helps drivers to complete day-to-day tasks in less time and eliminates manual delivery route planning with automated multi-stop route planning ability. Such software makes it possible for fleet route optimization as it can optimize the routes for several drivers simultaneously.

The business case for route optimization

Enterprises today are catering to customers with steep demands. This includes providing world-class products at reasonable prices and a top-quality experience. For businesses that deliver products and services to doorsteps, a large part of this experience involves making speedy deliveries on time. Because research from McKinsey shows that more than half of omnichannel consumers are willing to switch brands if their delivery timelines are too long.

On the other end, the pressure on companies is two-fold: Meet the steep demands of customers while keeping costs in check and productivity levels high. Or lose them to the competition.

The one place with the most potential to accomplish both? The all-mile, given that these deliveries form more than 53% of shipping costs. This is why supply chains need technology to automate logistics activities from end-to-end in order to save time, improve efficiencies, and reduce human dependency.

To that end, route optimization is the method of using Artificial Intelligence to figure out the quickest and most efficient route to all your stops and destinations. By testing multiple ‘what-if’ scenarios, a route optimization engine gives various route options by taking the costs involved, the resources available, historical data, and real-life road constraints into account. It allows you to cut down on operating costs, save time, and improve workforce productivity.

Using advanced route optimization software also helps in streamlining delivery processes and optimizing on-ground operations, including shipment, transportation, all-mile delivery, and reverse logistics.

With proper route optimization tools, your business could save up to 20% in mileage and improve your order capacity by as much as 100% without increasing your fleet.

Route optimization constraints

Here is the list of constraints your route optimization solution should consider:

Real-time traffic

A route optimization software should ideally consider real-time traffic conditions to save your logistics costs, ensure on-time delivery and better adherence to key SLAs for increasing customer delight.

Historical data inspection

Route optimization software should also examine historical data on three levels: riders, customers, and time of the day.

Data inspection

Inspecting historical data to offer logistics insights for better decision making.

Fleet constraints

Often, software tends to focus on cold, hard data and ignore real-life order-vehicle constraints. For instance, different categories of products such as electronics and perishables cannot be shipped together. Sometimes, a specific kind of product, say medicines, can only be dispatched in a special fleet. An ideal RO software considers these constraints and has a better chance of helping businesses in real-world scenarios.

Importance of geocoding

Geocoding, in layman’s terms, is the process of converting raw input data such as names of buildings, landmarks, and complex addresses into precise latitude/longitude coordinates on a map.

Locus’ proprietary geocoding engine distills and converts even the most ambiguous addresses into precise geographic coordinates that can be easily identified on a map. Powered by Artificial Intelligence and Machine Learning algorithms, the geocoding engine is capable of distilling the most useful parts of the address and creating a geocode that represents each individual address correctly on the map.

Simple route planning

Some businesses simply assign a certain number of jobs to a rider, usually based on geography, or customer visit frequency, and need software that can figure out a route for that rider to finish their assigned work.

This kind of route planning software, i.e navigation and turn-by-turn directions, has been traditionally used by companies. The basic form of simple route planning is built into almost every digital device that has a global positioning system (GPS)-based navigation system.

However, it lacks the ability to interact with on-ground restrictions and real-time traffic conditions to suggest the shortest journey from a time or mileage perspective.

Scheduled route optimization

Scheduled Route Optimization on the other hand has the ability to accept operational dynamism and complex business constraints to determine an optimized route.

Scheduled route optimization software accepts daily planning-related data, not limited to order details, location details, fleet details, volumetric data, etc. along with operational constraints such as workload balance, rider preferences, tribal knowledge and skills, etc. to suggest the most efficient way to successfully execute the deliveries.

What to look out for in route planning software?

Autonomous route planning

AI-driven route planning that can reduce errors caused by human negligence and minimize human intervention

Accurate geocoding

Advanced geocoding abilities that can convert fuzzy addresses into precise geographic coordinates on the map

Intelligent vehicle allocation

Smart vehicle allocation based on traffic, shipment, vehicle type, etc.

Cost-based route optimization

Consideration of multiple cost variants to offer the most economical route

Optimal fleet mix

Offering a best-fitting fleet mix based on consumer preferences

First attempt delivery

First attempt delivery is ensuring deliveries in the first time around, saving you storage and re-delivery costs.

Single route plan

Intelligent forward and reverse logistics in a single route plan by clubbing returns along with regular deliveries

Automated escalation

Notifying authorities in case of route divergence or contingencies

Historical data inspection

Analyzing historical data such as riders’ tribal knowledge, delivery preferences, customers’ preferred time slots, etc. to plan routes effectively

Rider preferences

Taking into account rider skills, expertise, and preferences for a smooth transition from traditional routing to AI-based route planning platform

Powerful route automation for the smart business

What is real-time dynamic routing software?

Real-time dynamic routing software optimally handles on-demand orders alongside scheduled orders. In case the orders/preferences of the customers change while the rider is out to deliver, it can change and create new routes for the rider instantly.

With routing requirements of companies becoming more complex, it is of prime importance that companies choose vehicle routing solutions that operate in real-time, that can help plan routes intelligently to improve delivery efficiency, and reduce costs.

Better results with better routes

How route optimization helps solve the all-mile problem

All-Mile delivery is the end-point in the supply chain and perhaps the most important one because this is the point where the customer and your brand interact in person. Customer experience is therefore a top priority for businesses in the supply chain, above and beyond cutting down logistics costs and improving productivity in operations.