We won’t fool you – it’s not easy. But since you’re here, this must be the question you are asking yourself, and we’ll try to dig deep into the topic, helping you overcome the transportation costs obstacles. We witnessed a significant increase in the transportation costs. Some of the main reasons for this are the shortage of drivers and vehicles, rising costs of fuel, and regulatory changes.
As per the ATRI data, the overall marginal expenses for trucking marked a significant of 21% increase in the year 2023.
The rates for road transportation within the United States have experienced a roughly 23% increase since the year 2020.
Vehicle initiation costs have increased by 50% in year 2023.
To jump straight to the point, some basic strategies for handling rising transportation costs, which we’ll cover in this Playbook, are related to optimal network design and route optimization.
There’s no room or time left to wonder why transportation costs are exceeding limits, or if they’ll stabilize. Instead, let’s prepare for market dynamics and uncertainty. To make the process easier for you, we’re explaining the best practices for managing escalating transportation costs with Log-hub solutions. If you serve numerous clients across diverse geographical locations, it’s crucial to ensure proximity to them. This not only builds trust and loyalty but also ensures timely or early deliveries. Therefore, having sufficient warehouses near your key customers is essential. Optimizing the location and number of warehouses is a great start, but not enough for complete optimization. The second phase of this process should be route optimization. So let’s dive in, and figure out how to do it with Log-hub’s solutions.
Handling rising transportation costs with Network Design Optimization Apps
Within the Network Design App, we focus on optimizing the outbound process. In the input data, you’ll encounter three tables: factories, warehouses, and customers. We presume you’re familiar with the locations of your customers and factories, considering factories as your sources or suppliers. The app provides a cost-optimal solution, emphasizing cost-based optimization for outbound activities. While the focus is on outbound optimization, the solver also manages factory assignments, ensuring the correct ones are incorporated into the solution.
While mathematics is powerful, it may not always align with real-world scenarios. If you have business-specific constraints and need to ensure a particular customer is supplied through a specific warehouse or factory, you can directly configure this in the app. Additionally, if desired, within the warehouse list, you have the option to fix certain warehouses, ensuring their inclusion in the solution. Whether specifying customer assignments for a particular warehouse or allowing the solver to handle the assignment, the flexibility is yours.
A Network Design case can vary depending on the business maturity level or other factors. You might want a complete redesign or to start from scratch. Alternatively, you may simply aim to assess if your current situation (AS-IS) is optimal or compare various scenarios to identify the best one. To delve deeper into this, if you’re interested in utilizing Network Design Apps alongside our Center of Gravity Apps and the Scenario Comparison feature, refer to our Playbook titled ”Why is Scenario Comparison in Network Design the key to success?“
To summarize, here’s the data required for the Network Design App:
- Your Factories: Provide their locations, costs, and truck capacities.
- List of Potential Warehouses: Include locations, capacities, costs, and indicate if a warehouse can be fixed in the solution.
- List of Customers: Specify the weight for distribution, number of shipments, the specific warehouse/factory for supply (if desired), and a maximum distance from a warehouse (optional to leave empty).
To tailor the calculation to your needs, use the parameters section to specify whether the calculation should be done at the street level, the preferred distance unit, and whether to activate our Save in Platform and Scenario Comparison feature. Additionally, define the minimum and maximum number of warehouses you seek. If you prefer the solver to have complete freedom for optimization, remove any fixed warehouses and specified assignments, allowing the number of warehouses to align with the facilities listed in the warehouse’s table.
And what are the outcomes?
You’ll obtain a cost-optimal factory-warehouse assignment, and warehouse-customer assignment, along with associated costs and distances. Consequently, you now possess a network design optimized for cost. However, the question remains: how do you determine if the transportation itself will be optimal?
Keep up the cost optimization with Transport Optimization Apps
Determining the optimality of transportation is straightforward with our Transportation Optimization category. Optimization can be performed based on costs using the Transport Optimization App and Milkrun Optimization App, or based on time using the Transport Optimization Plus App and Milkrun Optimization Plus App. Let’s swiftly go through the Transport Optimization App.
Begin by listing all your locations, including pickup/delivery points or depots. Next, specify your vehicles, detailing their speed, capacity, and costs. When listing shipments, define from-to relations, including customer availability time windows. Optionally, specify the vehicle for a particular pickup or delivery. Utilize the warehouse-customer and factory-warehouse relations from the Network Design optimization in the shipments table. Configure parameters run the calculation, and voilà—your optimal routes, presented through a fully customizable map and essential KPIs on a dashboard.
You can as well analyze your AS-IS situation and current routes, to calculate complete cost savings after both Network Design and Transport optimization.
Besides getting cost-optimal routes and ensuring timely deliveries, you are getting a detailed overview of your transportation plan. You can analyze the total costs and distance of each route, weight, and driving duration. The tool will inform you if it is more cost-efficient for you to outsource some of the shipments, in the Dropped Shipments Table.
Some of the outcomes you can expect after the implementation of the described process are the following:
OPTIMAL VEHICLE UTILIZATION, AND DECREASED COSTS OF VEHICLE INITIATION
WAREHOUSE AND TRANSPORTATION COST SAVINGS
FUEL CONSUMPTION REDUCTION
CONSOLIDATED SHIPMENTS RESULTING IN DECREASED TRANSPORTATION COSTS
ANALYSIS OF THE MOST IMPORTANT KPIs, LEADING YOU TO OPTIMAL STRATEGIES
TRAVEL DISTANCE AND TIME REDUCTION
This represents just a single facet of supply chain optimization, yet it serves as a solid foundation, wouldn’t you agree? If you’re keen on exploring further opportunities in routing optimization, shipment performance, pattern analysis, network design, demand forecasting, or inventory management, delve into our comprehensive Supply Chain Apps portfolio.
Our Team is always open to providing you with a custom demo, covering the topics you wish, and showcasing the possibilities of our solutions based on your use case. Here is where you can book a call with us.