For over 60 years, the parcel delivery industry has used route optimization solutions to reduce the costs of the last mile, both economically and environmentally. However, in recent years, the sector has encountered challenges due to the growing volatility of parcel volumes, the rise of B2C deliveries, and a shortage of drivers.
In order to transport the parcels as quickly as possible, the parcel delivery companies rely on a very extensive territorial network of sorting depots spread throughout the country. These are responsible for delivery to the end customer, which they largely subcontract by assigning sectors to different transport providers.
Subcontracting in parcel delivery: maximizing profitability and efficiency
Subcontracting has long played a significant role in the organization of the parcel delivery industry. It generates more than half of the industry’s turnover, which is one of the highest rates in the road haulage industry. However, it can be difficult to find an area that is profitable for both parties, as it requires anticipating parcel volumes and the number of stops. Typically, subcontractors are paid per stop or per parcel. Loading trucks to their maximum capacity and avoiding empty trips is essential to maximizing earnings and efficiency. However, operators note that in practice volumes vary from day to day with low demand on Monday but high demand on Tuesday, making it difficult to determine the appropriate fleet size.
Today, parcel delivery companies are striving to strike the right balance between agility and resilience. To achieve maximum agility, it is important to optimize your territory by adjusting the sectorization on a daily basis. However, negotiating with subcontractors can be a challenge, as you need to provide them with visibility and anticipate volumes in order to make decisions well in advance. But even with the best planning, unforeseen circumstances can arise, such as the need to use emergency drivers to meet demand. To reduce costs, parcel delivery companies must minimize the use of these emergency resources as much as possible while maintaining quality service for their customers.
It is becoming increasingly important for parcel delivery companies to retain the best subcontractors who have developed genuine expertise in their territory. These subcontractors are able to navigate the intricacies of their local region, including traffic patterns or alternate routes, to deliver packages quickly and efficiently. In fact, their expertise can make a significant difference in delivery times, ensuring that packages arrive on time and in good condition. As such, the ability to attract and retain these qualified subcontractors will be a key factor in the success of parcel carriers in the future.
Kardinal's unique approach: upstream optimization of the last mile to unlock its full value
The process of parcel sorting begins weeks or even months in advance to ensure smooth and efficient delivery. This crucial step involves labeling each parcel to facilitate tracking and organization until delivery to the end customer. Route optimization is the final step in the delivery process. At Kardinal, we believe that all decisions made upstream have a significant impact on downstream operations:
Our solution allows last mile players to optimize their organization in order to maximize their efficiency and get the most out of their resources.
Route optimization and load balancing are closely linked because their common goal is to reduce last mile costs, both economic (up to 53% of total delivery costs!) and environmental. To achieve this goal, it is essential to accurately estimate the cost of the last mile. Unfortunately, parcel delivery companies face difficulties in determining this cost because they lack reliable data to rely on, including:
When negotiating with their subcontractors.
Indeed, subcontractors themselves struggle to accurately calculate their cost structure, making it difficult to negotiate with parcel delivery companies. If they pays them too little, the subcontractor risks bankruptcy. On the other hand, if they pay them too much, it reduces their own margin. Finding the right balance between the profitability of contractors and their own margins can therefore be a difficult task.
With Kardinal’s solution, Depot Managers can now negotiate with their subcontractors by sharing all business data, and define their territory digitally. This approach eliminates the traditional manual processes using maps or Excel files, which greatly improves the efficiency and accuracy of negotiations.
When they want to adopt a “green” fleet (with electric vehicles and/or cargo bikes for example).
Operational managers can often struggle to determine the best mix between thermic and electric vehicles, and to plan for this transition. By analyzing current data, Kardinal’s solution is able to find the best trade-off between reducing CO2 emissions and achieving profitability.
It is still very common to observe data quality issues among logistics players. At the strategic and tactical level – when allocating areas and projecting activity – logisticians usually make assumptions. The quality of the data is not necessarily the most central element. However, it is still important to have a minimum of 85% good quality data in order to build a highly efficient optimization. Based on our observations of our clients’ activities, this level of data quality is generally sufficient, the remaining 15% may be made up of data of lower quality (10%) or unusable (5%).
On the other hand, when it comes to the operational level when optimizing and performing routes, a perfect dataset is essential. Improving data quality can be achieved through various means, such as using machine learning algorithms or asking drivers to make corrections on the fly. Both of these practices are highly recommended for ensuring the accuracy and relevance of the data used for route optimization.
Continuous route optimization to address field hazards
For logistics companies, having good quality data is one of the main challenges when implementing route optimization. By relying on poor quality data (incorrect, missing or obsolete), the optimization solution calculates routes that will be irrelevant and impractical to implement in the field.
Traditionally, route optimization has involved defining a scope, sending the data to an optimizer, and then waiting 10 to 15 minutes to get the calculated routes. However, in today’s world, this approach is difficult to implement because parcels usually arrive at the last minute. This operation rules out the possibility of using static route optimization softwares, which requires having all the data before launching the calculations. Continuous optimization therefore allows more flexibility in managing these just-in-time operations.
Kardinal’s PhDs in mathematics have designed the first route optimization API on the market that works continuously, from the first parcel entered into the system to the last delivery completed. Thus, the user can modify, add or delete any data at any time without having to restart the optimization. This mode of operation is now essential in an increasingly complex delivery environment, punctuated by numerous hazards.
At Kardinal, it is estimated that for parcel delivery in urban areas, a route calculated beforehand is no longer accurate after 3 minutes (essentially in terms of ETA) once the drivers are on the road, as a better alternative can be recalculated every 10 minutes or so. Continuous optimization is therefore the right answer to maintain efficient routes that are consistent with the reality in the field.
With a more comprehensive approach to last mile optimization – from territory sectorization to route planning to picking and subcontractor pricing – we help our customers manage their resources more efficiently while building a more resilient and agile organization. Our solution bridges the gap between management’s desired strategy (e.g. zero CO2 emissions) and what actually happens in practice. Based on reliable and accurate data, logistics actors can make the right decisions and implement them in the field. Every step of the delivery process can be optimized, unlocking the true value of the last mile for greater efficiency and profitability.
