Routific CEO Marc Kuo gave a keynote presentation at Barn2Door's DIRECT Conference. The following is a transcript of his presentation.
Welcome everyone, my name is Marc Kuo. I am the founder and CEO of Routific. Thank you so much for joining us. We will be talking about how to grow your online sales with a five star delivery experience.
I will be talking a lot about route optimization. I will also talk about the act of delivery management as well, because route optimization is actually the planning phase of your delivery route, and route execution that is when you're going up and making actual deliveries. Both of these elements are important. So we'll cover both of those in this presentation,
Quick background on myself: Born and raised in the Netherlands. I studied computer science, and logistics. And about 10 years ago is when I graduated, and wrote a thesis on route optimization.
That's when I learned that the using route optimizations can really benefit delivery businesses. But it wasn't until 2015, when I started Routific, to really make that a reality and provide that full suite solution and software to make a real impact to these delivery businesses.
So my hope is that at the end of this roughly 20 minute presentation, you will have some takeaways that you can incorporate in your own delivery business, the very next day, and hopefully set up for success to allow yourself to grow and scale your online delivery business, and provide that level of experience to your customers.
So, diving in. Let's talk about route optimization. Why is it so important and why is it so essential for every business. In a nutshell, inefficient routes are extremely expensive and you simply cannot scale, an inefficient business, because at scale, you'll just be bleeding, more money. So you want to make sure that your business is tight, as efficient as can be, so that you can efficiently scale, and achieve profitable business.
So what is the route planning problem, exactly? In a nutshell, if you have let's say a few 100 deliveries, and a dozen drivers or so. It is the problem or the puzzle of how to decide which drivers take which deliveries, and in what sequence do they do those deliveries.
From the 11,000 SMBs that we surveyed, an astonishing 72% of these delivery businesses are still planning the routes manually, using spreadsheets, Google Maps—you just eyeball it. Draw some you know regions on a map, and be done with it. You might be able to get by with it when you're starting out, perhaps with, you know 15 orders a day or 30 orders a day, and still get by. But as soon as you scale beyond 50 to maybe 100 orders a day, that's typically what I've heard from our customers where they start to really feel the pain of manual route planning to take up to two hours every morning, and also the sense that their routes aren't as efficient as they can be.
And it's true. The manual route plan is typically will end up with a route solution that can be 20 to 40% less efficient compared to one that has generated a route optimization algorithm, so you end up with a picture on the left, but as you can see on the picture on the right, you will save a lot of drive time and fuel, both of which directly goes to your bottom line. The majority of the industry today, unfortunately still plans routes manually. If you identify yourself as a business that is still doing it today, don't feel bad. The majority of them still operate that way, but it is a huge opportunity. That means that you have an opportunity in front of you to cut down your delivery operation cost by 20 to 40%, which can make me quite a lot for your business. The other benefit is the environmental angle. As you reduce fuel consumption by 20%. You also reduce your carbon footprint by 20%.
And that brings me to give you a bit more background about Routific and the reason why I started the company in the first place. I've made in my personal life purpose more than a decade ago to help make a positive impact on the environment, which is why I would say about nine or eight years ago I quit investment banking, and in around 2014/15 really tried to start Routific, because first of all investment banking was quite soul sucking but I also felt like I didn't contribute much to the environment or the planets in any positive way. Whereas what I'm trying to do with Routific is to make that sizeable, scalable impact on the environment by making logistics, more efficient.
So, Routific's mission, to that end, is to make route optimization accessible to every delivery business. And assuming the very conservative 20% number, we have quantified and estimated that for each driver that's driving around that was planned by a manual route planner, if he or she were to drive an optimized route, and get that 20% benefit efficiency gain.
That equals to a carbon emission reduction, equivalent to planting 86 trees per year, per driver, which is pretty amazing. So across our customer base of more than 1000 customers on Routific today, we have, in the last year alone, cut carbon emissions equivalent to planting roughly half a million to 1 million trees in one year's time alone.
And because we were able to demonstrate this environmental impacts, we were awarded two years ago by the Canadian government, with a $1.75 million sustainability grant.
Grocery delivery boom
So, coming back to industry trends, and some of the research into specifically the delivery market, this came from a study of 60,000 US shoppers, which projects, a continued boom in grocery delivery.
You can see there is a really big uptick the moment the pandemic and lockdown hit, and everyone started to scramble to order everything online. Businesses started to pivot to deliver, or to provide the products online. So you see that really big uptick from 2019 to 2020, but the projections are that that growth is going to continue, and by 2025, out of all of the total grocery sales, they project 21.5% to be online. So if you ever considered launching and running an E-commerce grocery delivery business food delivery business now is the time. It's never been a better time.
And if you're already running one, good for you. You must really feel that demand and pull from the market. It's a really interesting time to be to be where you're at right now.
I was just on a call maybe late last year with a farmer in I believe it was in New York City, who shared with me that in only one week's time, he was able to set up an E-commerce online produce delivery business, and within one week and the following week he already scaled up to about 100 orders a day, which was astonishing. It's unheard of in a pre-pandemic era, but such as a state of the industry, and I think now is a really good time to be in this business.
How to build a 5-star delivery experience
Moving on to the other very important trend that's been happening for a while and only recently got really accelerated: the consumer and the buyer expectation around the delivery experience. This has mostly been pushed by the players like Amazon or the Ubers of the world. And as a result the consumer base level expectation has been really rising over the years: that any business that does not meet those expectations, risks losing business. Examples are a very easy to use online ordering system. 76% of consumers that were surveyed has that expectation that they can easily browse and shop for your products, pay online and arrange for a delivery, without having to talk to anyone. That's been the trend for a while now and it's really been accelerating.
The other thing is, everyone wants to be in the know at all times: delivery notifications, what is the status of my order, when is it estimated to be delivered, or it was just delivered. They want to be kept up to date with the real time status of their order.
The Amazon-like buying experience. 69% of consumers surveyed expect every online business to provide a similar Amazon-like buying experience. Not just the speed and efficiency but also the constant communication. You know, when they deliver and they leave the product at the door, they'll notify you — oftentimes, with a photo attached to it as well. Photo proof of delivery is a very important one, especially in the world of contactless delivery.
And finally, good reviews. As you and I know, we are consumers, and whenever we shop online, I can speak for myself, like, the first look at our good reviews. So having good reviews and good online reputation is paramount to attracting more business. And the only way to get good reviews is to provide a great product, of course, but also a great delivery experience.
Because operating an E-commerce business is different from retail in that an E-commerce business, the only touch-points you have with your customers are the E commerce storefront and the delivery experience. So you got to make sure that both of those are stellar so that you can get good reviews.
Local Delivery Best Practices
Alright so what are some of the local delivery, best practices?
1. Use route optimization software
So first thing, manual route planning -- never a good idea. I can't see a reason, except for when you're just starting out you have only a dozen or maybe two dozen deliveries a day, you can still get by. But as soon as you start scaling to two, three drivers, definitely investigate some software to help you not just automate that planning process, but also, you can already get a lot of efficiency gain with route optimization.
2. Enhance the delivery experience with customer notifications
So make sure that you provide real time updates to your customers, automated notifications to keep them up to date when the driver is on the way, even sending the tracking link that they can track the driver approaching because then they can get ready to receive the package, which is especially important for perishables.
I've heard a few horror stories last year where produce, I think it was actually meat that was delivered to to customer left on the porch, but because they were not communicating to the customer that they had dropped it at the porch. The meat ended up going bad, so it was a huge waste and a very poor customer experience.
So make sure, as you deliver, you immediately notify the client, and ideally also take a picture of where you've left it, so that they can not only know that you deliver this for sure, but also know where it is so they can, they can easily find it.
Alright so the last point, optimize cost per delivery.
3. Optimize cost per delivery
Cost per delivery, I would say is probably the most important KPI to track as a delivery business because that one number can tell you if you are efficient, or you're leaving money on the table. So, let's do a deep dive in cost per delivery as a KPI.
So in a nutshell, cost per delivery essentially just summarizes what does it cost you, all in, to perform a single delivery, on average. It includes things such as driver wages, fuel costs, vehicle costs, etc, but the the biggest two elements there are driver wages, by far, they make up roughly usually like 70 to 80% of the operating costs. And the other one, the remainder, mostly being like fuel. So first of all, if you're not tracking or if you don't know what your cost per delivery is today I really strongly suggest you start tracking this KPI month after month just to make sure how you're doing.
Because only by tracking it to see how we can improve over time.
So just to give you some industry benchmarks, the key lever to improving this KPI really is route density, which is essentially how many deliveries can you make per hour. If you're only making one or two deliveries per hour while the drivers are on the road, that's going to be very, very expensive, because the hourly wage is immediately impacting the cost there and you're only amortizing that across one or two deliveries.
Anything below three per hour is considered bad. You're in a good healthy range if you're doing somewhere between three and maybe six deliveries power, that's considered like pretty industry average. And you are stellar if you can exceed that; you can do up to 7, 8, 9, 10 deliveries per hour, you're, really really good. You have really dense routes, you have high volume.
Just to give you a sense of FedEx or UPS, they typically would be at the 12 deliveries per hour range. Obviously they have a ton of falling so they can create super dense routes. But if you don't have a ton of volume, there are still a couple of ways you can improve route density. For example: delivery zones. You can set up a: Monday, you're going to do downtown; Tuesday you're gonna do that suburb. Because then, in a given week's orders, all of the orders in that area can all get scheduled into a single day so you can create a very dense route for that particular day.
So delivery zones is one way to do it. I will say it is a double edged sword, especially once you scale the amount of volume that you have because you can fall into the trap of having arbitrary zones, especially if you have multiple zones in a given day. For example, if you have two zones that are close to each other, and they're split across two separate days, it may actually make sense to do them together, given that you might have only one node in there in one zone, but you have 10 orders in the other zone, why split them up if you could just swing by, dynamically based on that information that you have.
So it's a double edged sword, it can help with density in the early days once you scale you have enough volume and density, in the order of magnitude of let's say 50 - 100 orders a day, you might want to explore trying it out without strict delivery zones, and simply uploading all your orders in one go. And then optimizing the routes dynamically.
So, say I just wanted to share some of these, these numbers with you so that you can, first of all start tracking your cost per delivery as a KPI for the business. And secondly, kind of benchmark as to how well are you doing today compared to what the industry averages are. Because all of that impacts your cost per delivery, which then also impacts how much should you be charging your customers in terms of delivery. Because the higher that is, the less specific you are likely get.
So in a worst case scenario end up contacting each delivery might cost you $5 to $15 so, if you're then gonna charge a delivery fee that is less than that you're literally losing money on the delivery. If you're in a really great range, so you're making more than six deliveries an hour, each delivery only cost us to $1.50 perhaps or $2.60, and you might even consider just providing the delivery service for free. Because, you know, free is much cheaper than $2 for perception perspective, and you could just incorporate that as part of your general cost. So yeah, the cost of delivery -- get it as low as possible, optimize your routes as much as possible, so that you can then, you know, perhaps even in the future offer free deliveries, which then feeds back into more orders which then allows you to get more density again and more efficiencies, and the flywheel will continue.
I also want to say that we are extremely excited to be partnering with Barn2Door because it really allows us to focus on what we do best which is route optimization and delivery management. Meanwhile Barn2Door takes care of everything else. Barn2Door is making a seamless API integration with Routific so that we can provide the joint solution from a customer experience perspective, to all of you. I'm really excited to be partnering with with Barn2Door.
So with that, thank you so much for your attention and your time, you can find us at routific.com. You can also find me on LinkedIn, or shoot me an email, email@example.com if you have any questions. If there's anything you wanted to you know have a deeper dive on any of the content of this presentation, I'm happy to have a chat.
And that's it for me. Thank you again.