Why Your Delivery Business Needs Route Optimization Algorithms

December 4, 2018

For delivery companies of all sizes and industries, from the tiniest startup to the biggest multinational firm, optimizing “last-mile delivery” operations is critical for profitability. The term “last-mile” refers to the transport of an item from a local distribution center, like a warehouse or central kitchen, to a customer’s doorstep. Though last-mile typically has the shortest routes of any part of the supply chain management process, without the right tools or skillset, optimizing last-mile delivery routes is anything but quick and easy.

A recent analysis of logistics challenges found that last-mile delivery accounts for a whopping 53 percent of transportation costs. As a result, small businesses that service only local customers are taking on a very expensive part of the delivery process.

Additionally, unpredictable factors such as traffic patterns and last-minute changes can wreak havoc on your route planning efforts. Some small businesses literally spend hours every morning mapping out their delivery routes by hand or using inappropriate tools for the job like Google Maps—only to find that these plans need to be adjusted throughout the day.

Because last-mile delivery  can be inefficient, costly, and time-consuming, improving operational efficiency and lowering costs should be a top priority for any company that makes local deliveries. Lowering the expenses associated with last-mile delivery, such as fuel and time spent planning and managing delivery routes, is crucial in order to make your business more profitable, to keep your customers happy, and to stay ahead of your competitors.

Technology like route optimization software attempts to solve the problem of last-mile delivery by getting drivers to the right places more quickly and efficiently. Unfortunately, when it comes to routing solutions, which are based on specialized algorithms, not all solutions are created equal in terms of performance and ease-of-use.

Why Not All Routing Algorithms Are The Same

Although it’s incredibly tricky to get right, delivery route optimization is well worth the effort for your customers and your business: items are delivered more quickly, efficiently, and predictably. The benefits passed on to you include reduced mileage, less wear and tear on your vehicles, lower fuel costs, and a great deal of saved time.

For example, when compared against other approaches in the Local Motion challenge, Routific’s algorithm for route optimization performs 30 percent better on average. Notably, it performs 41 percent better than the “pure greedy” algorithm, a very inefficient method which many delivery businesses rely on. Greedy algorithms make a straightforward choice at each step (such as always sending drivers to the next stop that’s closest to their current location).

Here at Routific, we're so passionate about getting the algorithm right that we've hired PhDs to build our routing engine. Our Founder & CEO wrote his thesis on advanced route optimization algorithms. 

One of our customers, a FedEx Ground Operator in California, came to us looking for help optimizing his fleet. With the help of Routific, they saved 17 percent in net operating costs. Their route map went from this:

Routes for FedEx Ground fleet in central California before using Routific

To this:

FedEx Ground Operator routes after Routific

How Routing Algorithms Help You Manage Unexpected Changes

Algorithms can also handle unexpected detours and bumps in the road in ways that human dispatchers can’t.

Suppose that a customer suddenly needs an item delivered between the hours of 2 and 4 p.m. The algorithm can easily take that into account when calculating the best route for your drivers. The same goes for issues like roadblocks, traffic jams, coffee breaks for your drivers, and last-minute cancellations.

Letting an algorithm do the heavy lifting doesn’t just give you better performance—it gives you peace of mind that your drivers are on the right path. Best of all, the time and money that you save with route optimization builds up over time, and it can be invested right back into your business.

With many delivery companies still using pencil and paper, Excel, and/or Google Maps to calculate their routes, delivery route software is just the competitive advantage you need.