Optimization is a ubiquitous term in the supply chain and logistics industry. We all talk about how we need to optimize our operations. In practice, however, relatively few companies are using optimization technology, particularly in transportation. In the past, a lot of companies believed that they didn’t need optimization, but is that still true today? What factors are shifting transportation optimization from a “nice to have” to a “must have” capability? How are companies leveraging optimization technology to improve their operations and deliver significant business benefits? Those are some of the questions I discussed with Jim Davis, VP Optimization Solutions at MercuryGate, in a recent episode of Talking Logistics.
Why is transportation optimization key today?
Most companies tend to focus on the basics of getting shipments to customers on-time, in-full. In the heat of day-to-day operations, optimization often gets put on the back burner for later consideration. With this in mind, I began our discussion by asking Jim why optimization is a more pressing issue today.
Jim explains that market forces are often what drives companies to move “nice to have” capabilities into the “must have” category. He cites as current examples capacity issues, the need for efficient supply chains, which Jim says, “are great until they break,” and customer empowerment, such as customers’ desire to have their orders delivered next day. The underlying theme of these examples is that they induce more cost in transportation, and that leads to the need for optimization.
Cost and complexity
The main reasons companies have deferred implementing optimization in the past is the perceived cost and complexity. But do you need a PhD to run these systems?
Jim notes that, “If you were to write an optimization system internally you certainly would need PhDs. But there are many commercial packages in the market today that have user interfaces that any savvy business user can operate. It’s not a problem anymore.
“As far as controlling implementation costs, many companies have developed best practices for various transportation optimization functions that enable companies to implement systems much faster and with less risk,” continues Jim.
Types of optimization
Just as each company’s business model is a bit different than the next, optimization is not a one-size-fits-all operation. Therefore, I asked Jim to explain the various types of optimization and their associated benefits.
Jim says, “The industry has for years solved the basic optimization problems such as load consolidation and multi-stop truckloads. What’s changed is the recent shift toward more efficient supply chains and the complexities brought on by the explosion in ecommerce. This has created the need for more complex options like continuous optimization within multi-tiered pool networks. As inventory comes into the pool network, it gives you more opportunities to dynamically adjust the optimization solve as time progresses. This has tremendous potential to reduce costs.
“Another one is zone skipping. With the vast increase in parcel shipments for ecommerce, the ability to plan a line haul, provided you have the volume, from New Jersey to a service center in California for distribution there locally can have a huge impact on costs.
“For manufacturers, the ability to do coast-to-coast intermodal transfers using rail schedules can save quite a bit. It involves using load consolidation and deconsolidation optimization routines.”
Selecting an optimization solution
Given all of the basic and advanced optimization capabilities available in the market today, I asked Jim for his advice on how companies should go about selecting the right solution for their needs.
Jim says, “I always advise companies to select an optimization solution for the company they want to be, not just the one they are today. Along with that, a key capability is ‘what if’ analysis. Beyond optimizing current execution, ‘what if’ analysis using historical and predictive data will enable companies to make more informed decisions on their future supply chains.
“Another factor that often gets overlooked is automation. The optimization solution should be able to run without much, if any, manual intervention based on schedules and business events. Analysts should only have to address the exceptions.”
Assessing the need
With all of the optimization capabilities and solutions available, I asked Jim how companies should go about assessing what their true needs are and determine their return on investment accordingly. For Jim’s insights on this question and more, I encourage you to watch the full episode. Then post a comment and share your perspective on this topic!