In the parcel delivery industry, territory optimization and resource management are major challenges that postal and parcel delivery companies have to address daily. In the episode “Postal and parcel resource management” of the Postal Hub podcast, Ian Kerr sits down with Cédric Hervet, Chief Product Officer and co-founder of Kardinal, to talk about these key issues. The interview highlights the complexities of managing delivery contractors, balancing routes and optimizing territory. Based on a case study conducted with DPD France, Cédric Hervet outlines the current difficulties delivery companies are facing, including the lack of digital tools to efficiently leverage data.
This article covers the main topics discussed during the interview, highlighting the importance of resource management, route optimization and the proper use of data in maximizing productivity and ensuring profitability for delivery companies.
Parcel delivery: resource management meets many challenges
Delivery players not yet fully digitalized
In the current delivery market, with both private carriers and postal companies, resource management represents a major challenge. Some outsource last-mile delivery to contractors, while others rely on a mix of in-house drivers and contractors. The challenge is to efficiently divide up the areas managed by each delivery driver for efficient deliveries. Today, these decisions are mainly made manually, with limited support from tools such as Excel spreadsheets.
Postal carriers and delivery companies face a lack of reliable and accurate data to support their decision-making processes. Even if they have some information, they struggle to use it efficiently. Data is only the first step: knowing how to use it is the key. Unfortunately, they lack the digital tools to properly harness the potential of their data. For companies that rely on contractors for last-mile delivery, the challenge is all the more complex, since the latter are fully independent in managing their operations. Access to their data is complicated, as contractors usually have even less access to high-performance tools for optimizing their activities. As a result, important decisions on local coverage and resource management are often inefficient and lack optimization.
An increasingly unstable and unpredictable delivery market
As the Covid-19 health crisis revealed, the logistics market can be subject to serious fluctuations. E-commerce growth, global inflation, seasonal peaks… managing volume changes in an increasingly unstable environment is a major challenge for companies in the parcel delivery industry. When parcel volumes increase significantly, companies need to maintain a consistent quality of service. This can put pressure on resources, requiring rapid staff recruitment and training, and potentially the need to lease or purchase additional vehicles.
However, during seasonal downturns or periods of low activity, delivery companies can run into overcapacity issues. Fixed costs such as employee salaries, warehouse rental fees and operating costs continue to apply, even if the number of packages transported declines. This can lead to inefficient use of resources and financial losses for delivery companies and their contractors.
Transport contractors at risk
The lack of reliable data and the business instability are having a major impact on last-mile delivery contractors. They often operate on tight profit margins and depend heavily on the stability of their contracts. Making decisions based on inaccurate and flawed data makes their business model unsustainable and puts them at risk of bankruptcy. In France, for example, the average lifespan of transport contractors is only three to four years, and there are tens of them going bankrupt every month.
The instability of the delivery market further increases these risks, making it essential for contractors to have access to accurate data and efficient processes to ensure their financial viability. The risk of transport contractor bankruptcy is not without consequences for delivery companies. It disrupts the entire delivery network and affects service quality. This is even more important today with the industry’s severe driver shortage: in Europe, 10% of positions were vacant in 2021 (i.e. 380,000 to 425,000 positions) according to the IRU, a number that has risen by 41% in just one year!
Delivery companies need visibility on the financial health of their contractors, so they can proactively address any potential risks. Sharing data related to contractor performance, profitability and operational efficiency can help identify early warning signs and take appropriate action to mitigate these risks.
How to improve collaboration between a delivery company and its contractors?
Complex and subjective negotiations
Negotiations between parcel delivery companies and their contractors are often based on intuition and subjective judgments. But how can you tell the difference?
Data-driven decision-making provides fact-based evidence that cannot be disputed. Companies can move from subjective discussions to objective activity analysis, enabling informed agreements, accurate pricing and optimized operations based on volumes, predictive distances and working times. Kardinal solution’s ability to analyze data enables precise planning, such as the optimal distribution of deliveries in a specific area.
Depending on the company and the area, pricing models can vary. Prices per parcel or per stop are common, making contractor revenues highly variable from month to month, depending on volumes. The contractor must then be sufficiently productive to generate as much revenue with as few drivers as possible. However, without the right optimization, delivery drivers’ working hours are likely to be unreasonably high, increasing turnover.
Negotiating a single price per parcel for all contractors is complex, as delivery areas offer different profitability margins. Significant disparities exist between densely populated urban areas near sorting facilities and remote rural areas requiring longer journeys.
Data sharing for optimized and fair pricing
With access to information on activity volumes and route performance, parcel delivery companies and contractors can negotiate more efficiently and fairly. As the costs of last-mile delivery (fuel, driver salaries, vehicle maintenance costs, etc.) are borne by contractors, it is essential that this data is accurately calculated and shared if necessary, to secure their profitability.
Achieving a balance between cost optimization and an attractive contract price requires careful analysis and negotiation. Delivery companies need to consider both their own financial constraints and the needs of contractors. By leveraging data analysis, companies can identify cost-saving opportunities within their operations while ensuring that their contractors receive fair compensation. Collaborative discussions, where both parties openly share their concerns and objectives, can help find a win-win solution.
Optimized operations and trouble-free negotiations thanks to Kardinal's solution
Kardinal plays the role of a trusted third party, providing detailed figures on the optimal organization of territory and routes, enabling delivery companies and their contractors to hold informed negotiations.
Based on historical data and operational constraints, Kardinal’s solution recommends the best territorial organization for each geographical area. The algorithms use advanced mathematical optimization and Machine Learning techniques to accurately determine the best delivery areas over the long term.
We offer an innovative approach to data analysis that goes beyond simple averages. With parcel volumes changing so rapidly, the conventional approach becomes unrealistic half the time. Our algorithm takes this into account, giving companies control over the desired balance between productivity and resource use. They can make data-driven decisions to efficiently manage resources, plan routes and run scenarios to deal with business variations. This gives companies the flexibility they need to improve their operations and deliver a better customer experience.
A successful collaboration between Kardinal and DPD France
For the past two years, Kardinal has been helping DPD France to optimize its parcel delivery operations. Kardinal’s territorial analysis and optimization solution has been deployed in DPD France’s 72 depots across the country. One of the most significant results of this collaboration is the improved negotiations between depot managers and their contractors, who now jointly use Kardinal’s solution to optimize delivery areas.
Productivity improvements have been noted, especially in branches with local inefficiencies caused by long-standing contractors or frequent changes of depot managers. Even in depots that were already relatively well optimized, Kardinal helped to create a new work balance between drivers, thus reducing staff turnover. Overall, the collaboration between DPD France and Kardinal has brought significant productivity improvements and better resource management, enhancing the efficiency of DPD France’s parcel delivery operations.
