How are parcel delivery networks organized?
- October 6, 2021
- 3 mins
[REPORT]
What route optimization to meet the challenges of the parcel delivery industry?
After analyzing the different types of parcel delivery, let’s discover how a parcel delivery network works and how it is organized.
The intense competition on the market requires parcel delivery companies to lower their prices and to meet their delivery time commitments. These challenges require a sophisticated infrastructure with efficient and timely processes. In this article, we’ll look at the specifics of how a parcel delivery network works, based on a very specific organization with a wide range of players.
An industry-specific network structure
To reduce delivery times and increase productivity, parcel delivery companies rely on a network structure that combines grouping, sorting and parcel routing. Parcels and goods go through different steps before being delivered to their final recipient:
1. Pick-up
Carriers organize pick-up tours to collect parcels from shippers and bring them to the local sorting office.
2. Bundling
The parcels are then weighed, sorted by destination and grouped in front of the truck loading station. Carriers group the goods of several customers in the same truck in order to fill the vehicle as much as possible and make the trip more profitable. This allows them to make more deliveries and reduce transportation costs, especially for small companies that do not have enough goods to fill an entire truck. Agencies have elevated docks to make vehicle-to-vehicle transfers easier.
3. Hauling
The drivers pick up the packages grouped on their dock and load them into their truck. They then start hauling the parcels from the sending agency to the receiving agency. In fact, each agency constitutes a haulage route for long-distance shipments. Depending on the territory, the agencies will send or receive freight to a greater or lesser extent (agencies in industrial areas will send more goods, while agencies in urban areas will be responsible for final deliveries).
4. Unbundling
Like bundling, goods are unloaded and sorted based on their delivery area (often their zip code). They are then loaded into the vehicles in an optimized way: the last parcels delivered are the first ones loaded to be at the bottom of the truck.
5. Delivery
The delivery drivers make their tours by delivering each parcel to the destination address chosen by the recipient. During their tours, they may have to collect other goods that will follow the same steps to their final destination. These collection operations allow for optimized tours with mainly distribution at the start/middle of the route and mainly collection at the end of it.
Source : Pierre Launay. Le redéploiement technique et organisationnel des réseaux de messagerie dans les territoires. Infrastructures de transport. Université Paris-Est, 2018.
While this process may seem simple for a single shipment, it quickly becomes very complex on a national (or even international) scale as the number of load transfers increases and the transport time lengthens. To meet their tight delivery deadlines, operators must comply with two requirements:
– To have a great regional coverage to have as many branches as possible that are perfectly connected to each other.
– To efficiently coordinate the different flows between the platforms. A good schedule of departures and arrivals of shipments is essential to guarantee an efficient and successful service.
Parcel delivery companies have a dense network (generally based on one agency per area) but it does not always cover some remote areas. In this case, they can call on local partners or subcontractors.
Strategic sectorization solution dedicated to the parcel delivery industry
Outsourcing: between economic strategy and dependency
Subcontracting has long played an important role in the organization of the parcel delivery industry. It represents more than half of the parcel delivery industry’s turnover, one of the highest rates in the road haulage industry.
Transport outsourcing can occur at two levels: during haulage (the transfers between agencies are, in this case, entrusted to road carriers) or during the last mile (the delivery to the final recipient is ensured by independent transport companies or self-employed contractors). For the latter, the contractor can ask the subcontractors to show its colors and brand on the vehicles while mentioning “transport partner” or “independent subcontractor”.
The outsourcing of less strategic operations such as transport has significant benefits for parcel delivery companies:
Greater flexibility
As the delivery drivers are employees of the subcontractors, the parcel delivery companies do not have to worry about their recruitment or human resources management. This is all the more advantageous because of the very high turnover in this trade. The staff is also not subject to the same working conditions, as the legislation for self-employed workers can be more flexible in terms of working hours, for example. When activity increases or decreases, they may require more or less resources from the service provider (e.g., during Black Friday and Christmas).
If the services of a subcontractor are not satisfactory to the parcel delivery company, they can choose not to renew the contract and go for another provider.
Cost savings
Parcel delivery companies are forced to lower their prices to win as many tenders as possible from shippers, and are trying to reduce their operating costs. In an industry where margins are very low, every saving is important.
Outsourcing labor allows parcel delivery players to significantly reduce their costs. These savings are even more important for the last mile delivery in urban areas. Deliveries in dense urban areas are very expensive due to their high labor requirements and the different elements that can impact delivery times (parking difficulties, traffic jams, numerous stops, limited traffic speed, etc.). As a result, these tasks are often outsourced to subcontractors. In a study by Mazars and the Île-de-France General Council in 2011, 80% of the 29 parcel delivery platforms in the region surveyed subcontracted their last mile delivery operations. The major players in the parcel delivery industry prefer to focus on bundling and unbundling activities that require less manpower, as sorting is often automated.
As subcontracting companies are far more numerous than parcel delivery companies, the competition is tougher for them. Depending on their ability to find and retain different parcel delivery customers, a subcontractor will be more or less dependent on them.
The parcel delivery industry is very well organized. Based on bundling and parcel sorting processes, their routing is optimized to reduce operational costs and thus offer attractive rates to clients. A well coordinated workflow and an efficient territorial network allow parcel delivery players to stand out from competitors thanks to an efficient service. Financial pressures are driving clients to outsource some costly, non-strategic operations, such as last-mile delivery. This approach, which is specific to the parcel delivery industry, keeps prices low while ensuring speed of execution.
