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The parcel delivery industry is grappling with significant challenges posed by highly fluctuating volumes. Whether it’s seasonal peaks or slowdowns due to economic conditions, carriers must constantly adapt to remain competitive and profitable. This new reality disrupts traditional methods of resource and route planning.
It is in this dynamic context that Kardinal, a recognized expert in last-mile optimization, offers an innovative approach with its Territory Analytics & Optimization (TAO) solution. Combining powerful computing with detailed operational insights, TAO provides professionals with the tools to tackle the challenges of fluctuating volumes.
Discover in this article how to optimize your territory organization and routes to enhance performance, leveraging two complementary approaches tailored to operational dynamics.
Agile resource planning in a volatile logistics environment
Service quality and volume fluctuations: carriers' dilemma
In today’s economic landscape, characterized by volatility and unpredictability, steady, linear volume growth is no longer the norm. Carriers can no longer rely on historical trends to plan resources and manage demand spikes. Even short-term forecasts have become a headache in this unstable environment.
Facing this challenge, delivery companies must demonstrate great agility and responsiveness. To maintain profitability, they are compelled to implement very short-term operational plans. This could mean either drastically reducing human and material resources to achieve cost control and efficiency goals or rapidly scaling up deployed resources to handle sudden volume surges.
However, beyond financial considerations, their competitiveness is at stake. To stay competitive against rivals, carriers have no choice but to maintain impeccable service levels, regardless of the unpredictable fluctuations in volumes flowing through their networks. While profitability is crucial, it remains closely tied to service quality.
Retaining existing customers and attracting new ones hinges primarily on excellent service quality. According to Kardinal’s 2023 study on “Priority Initiatives for Optimizing the Last Mile in Parcel and Postal Services“, service quality ranks as the top concern among postal and parcel delivery industry experts (53%), surpassing profitability concerns (28%).
The peak season: a major operational and financial challenge
Consider the annual peak season as an example. While parcel revenues soar, network operational costs must rise proportionally to handle the additional volumes. Careful upfront planning is critical to ensure successful execution.
However, adding resources too quickly carries risks. Insufficient integration and training time can hinder the effectiveness of new teams in managing the intricacies of the high season (increased density, different delivery profiles, etc.).
The danger lies in operational costs skyrocketing, despite excellent revenue performance, potentially putting a carrier in a cash-flow negative situation during peak periods.
The trap of volume decline: balancing margin compression and service quality
Conversely, neglecting resource adjustments during volume downturns can be equally detrimental. If costs do not align with revenue declines, margins inevitably shrink, threatening business profitability.
Yet carriers often hesitate to systematically reduce their workforce, fearing the impact on service levels and potential customer loss. It is a delicate balance between cost control and customer satisfaction.
This challenge underscores the need for sector players to find the right balance between optimal resource allocation and maintaining impeccable service delivery, whether volumes are at their peak or trough. It’s a complex equation but essential to resolve to achieve sustainable margins.
Historical data: key to robust delivery routes
In an ever-changing environment, carriers must rethink their approach to route planning to adapt to volume fluctuations. This is where Kardinal’s innovative Territory Analytics & Optimization (TAO) solution comes into play, blending historical data with powerful algorithmic computing to optimize the creation of flexible routes.
Cells: the foundation of optimal territory sectorization
Kardinal’s approach begins with creating reliable work units known as “cells”.
We consider the delivery center’s territory, mapping field data and available statistics to obtain a precise overview. Each cell is built on thorough calculations using this data, allowing us to understand the number of deliveries made in a given area over a period of one year or more.
Our approach also considers specific operational aspects of each carrier. Cell definitions are determined based on their constraints and priorities, such as:
- Maximum/minimum volume
- Maximum/minimum working time
- Payload or maximum volume
- Presence or absence of pick-up points or automated lockers
- Proportion of B2B/B2C deliveries
- Collection requirements (handled by the same fleet or not)
- Required service levels, such as fixed-time deliveries
Our tool also allows for integration of specific operational constraints. For example, if a driver is particularly familiar with an area, priority can be given to assigning that cell.
From Cells to Optimized Routes
Once cells are defined, Kardinal’s TAO solution conducts over 10,000 calculations to generate optimized route plans. This covers a wide range of scenarios, from peak activity periods to seasonal lulls or changes in service requirements.
The result is a robust estimate of the time needed to serve a specific geographic area. Tool users have complete visibility into proposed routes, enabling them to thoroughly examine each route and validate its efficiency.
To create these routes, users can define key constraints such as work hours, the location of the delivery center (typically fixed), and the desired level of robustness. This can be adjusted based on specific needs.
For instance, when integrating a new major client, you may choose to temporarily allocate more resources than necessary to ensure optimal service levels during the transition period. Conversely, with high confidence in your operations due to an experienced field team, you might take slightly more risk and slightly under-provide resources. Kardinal’s solution adapts in both scenarios to propose the best routes.
Efficiently managing volume fluctuations: two complementary methods
For parcel delivery players, it is crucial to quickly adjust route organization without disrupting operations too much, as productivity is key in a sector where thousands of parcels must be swiftly delivered. The TAO solution enables two complementary approaches to agile organization adjustment.
First approach: manual adjustment of cells
Cells allow for highly flexible organization: they can be rearranged to create routes tailored to changing needs. Thus, when resource adjustment is necessary, these cells can be easily transferred from one route to another, facilitating swift responsiveness to volume fluctuations.
This allows you to quickly simulate different scenarios and observe their impacts on overall planning. This unique approach combines robustness, thanks to solid foundations based on your historical data, with flexibility to adapt agilely to market fluctuations, while maintaining excellent service levels for your clients.
Second approach: development of organizational scenarios
To cope with operational dynamics, Kardinal’s TAO solution offers the ability to create organizational scenarios, each tailored to a specific range of volumes.
In the example below, 3 scenarios (low, medium, and high) have been defined for an area where volumes vary between approximately 4,100 and 5,100 parcels per day.
Optimization has been conducted for each scenario to determine the optimal number of routes required:
- 27 routes for the low-volume scenario
- 29 routes for the medium-volume scenario
- 31 routes for the high-volume scenario
The objective is to transition between different organizational setups based on projected volumes for the day, with certain days of the week more likely to correspond to a particular level, for instance. Historical data indicates the frequency at which each level occurs (40% for high scenario, 47% for medium, and 13% for low), enabling advanced notification to subcontractors.
Kardinal’s TAO solution enables users to compare different scenarios and their impacts in terms of costs and performance.
Regardless of the chosen approach, the goal remains the same: to find the right balance between agility and operational stability by equipping oneself with a genuine ability to adapt to volume fluctuations, while avoiding disruptions to operational processes within the organization. This is particularly crucial when integrating a new client into a transport network, which is precisely the topic of our next article: “Carriers: How to anticipate the impact of a new client on your operations?“