How expert transport planning optimisation saves cost
Background
The client business was long established, and a major player in the UK timber importation and processing sector. Their business was spread across 4 timber processing and manufacturing plants as well as the use of 2 port locations for holding importation product. Some of the product held at port was directly for resale, some was manufacturing raw material to be used in the processing of other products.
The business and its operating solutions had, like many other businesses, grown based upon the application of knowledge and experience of its operational management teams to develop its solutions and customer fulfilment strategies in a basic but predictable way. Over time however, better working practises and enhanced customer fulfilment strategies were being deployed by its competitors who were delivering faster, more frequently and at lower cost and therefore putting pressure on the business to cut cost and improve service.
Customer delivery and fulfilment had long been overlooked as an area for improvement within the business. Customer delivery scheduling was based upon old fashioned and outmoded ways of working that were based upon ‘doing this week what we did last week, doing next week what we did this week’. Whilst the transport planning and management teams knew their product and customer base inside out, they were not driving change or adding value to the customer fulfilment solution.
The transport fleet was largely fixed and had not been evaluated in any scientific way other than through experience-based ‘best guesses’ of each site’s local management teams to evaluate if they needed a bigger truck, a smaller truck or a different type of truck etc. Across the network, the business operated in excess of 60 motive vehicles, of varying sizes From 7.5t rigids to 38t artic vehicles. Each site considered only its own operations and planned its own fleet. There was no network process at all, and even inter-site movements were not coordinated to share transport operations and reduce cost. It would regularly be the case that site A would deliver to site B on a Monday, returning empty, only for site B to deliver product to site A on the Tuesday, sometimes on own fleet and sometimes paying external contractors.
It would be easy for an outsider to simply point the finger of blame at the transport management teams present at each site for the lack of progress change and direction towards more modern working practises. However, this business had been under severe cost and profitability pressure for a number of years, and the two things that were severely lacking was experienced direction of the local site management teams from a national level, and the limited potential for any kind of investment. The business had prioritised investment in what it saw as the core areas of manufacturing, sales and IT. Transport and distribution had been a distant cousin in terms of potential spend to reap cost reward.
The challenge
It was clear from the outset that the customer fulfilment solution for this business needed a radical overhaul. This meant that there needed to be a significant amount of change and modernization to cover management organisation, the skills of the team involved, and the IT solutions used to plan the transport network.
This needed to be achieved in a way that met their businesses need to keep investment to a minimum at the same time as protecting or improving customer service capability. This required the project team to carefully consider how much change could be effected and by when.
For this business, change can only be accommodated in reasonable steps, and generally not ‘big bang’. So, a staged process was required to take this business on a journey towards cost reduction and service improvement.
Actions
A staged programme of initiatives was developed to gradually improve the operation towards a point where step change could be considered.
Stage 1: initial quick win opportunities.
There were a range of things the operation were doing that were costing the business money on a day-to-day basis where they did not need to expend that cost. The first thing to do was to sort out inter-site trunking movements, to unify these under a controlled process to improve predictability and cost of service. This meant that loads being moved between each of the manufacturing plants were no longer to be reactive emergency movements, but were to work on a fixed schedule that enabled protection of customer service as well as clear cost reduction opportunities.
This did not mean that dedicated trucking vehicles were required to cover the different legs of the inter site transport operation. Diamond journeys or backhaul loads were created off the back of existing customer delivery routes. This enabled loads to be collected from external manufacturing plants and brought back to base on a marginal cost basis rather than running dedicated vehicles where the driver and vehicle would be lost for an entire shift doing the run. Even such a small change as this enabled several days of vehicle running per week to be removed from the running schedule.
This change had zero impact on outbound customer deliveries but actually brought benefit in terms of accelerating the service of product to customers and reduced lead time for product not manufactured at the base location.
Stage 2: Rationalisation of customer to DC allocations.
It was clear from the outset that significant levels of overlap of customer deliveries were happening between each of the distribution centres. This was sometimes just in geographical terms, i.e. a depot would deliver to a given post code area on the same or different days of the week to another DC, or even 2 different distribution centres would deliver to precisely the same customer sometimes on the same day, sometimes on different days, sometimes even with the same product!
These overlapping delivery areas and customer sets had developed over many years due to lack of interaction between logistics and sales teams within the business. We conducted a full analysis of customer locations and used a transport modelling tool to establish the optimal customer to distribution centre allocation. However, to implement this revised allocation required a considerable amount of customer communication as well as buy-in from the sales teams to ensure that they were able to work with customers to ensure that orders were placed against the correct distribution centres.
At face value, the reallocation of customers to distribution centres significantly tidied the distribution network across mainland GB for the business. However, this came with a known issue insofar as the backhaul trunking arrangements between each of the sites that had been implemented in stage 1 were now less viable as each site’s delivering vehicles were no longer travelling close to the other distribution centres in the network. This made the inter-site trunking process more challenging, but this was known and was planned in to the development of the customer allocation optimization process.
In planning the allocation process, the management team were instructed to consider a new way of working to enable inter-site trunking to be carried out with greater efficiency, even speeding up the process to service customers further. Overnight operation was introduced to make full use of existing vehicle fleet to run two-way trunking trips between each of the DC’s on a fixed schedule. The schedule was set out to balance the movement of product between each of the DCs in the most efficient way, so that day trunking trips could all be conducted on a single shift overnight, and the mileage for conducting the trunking trips could be minimised. Additional processes were also applied to the businesses supply chain management structure to enable further enhancements to business operations driven by this solution.
The process to review trunking schedules and the levels of movement in between different distribution points identified that there was real opportunity to rationalise the production points being used for certain products in the network. It was possible through SKU categorisation and customer segmentation analysis to identify that some products could and should only be manufactured in one or a maximum two locations within the network. This applied to the products typically in the tail of the SKU pareto curve, those typically moving less frequently and in lower volume to fewer customers. Fast moving SKU would not be affected by these changes, as local production of these products remained the most cost-optimal solution.
Revised production plans were put in place that enabled significant gains in manufacturing OEE (Overall Equipment Efficiency) through the use of larger single SKU production runs for those products produced on single sites rather than multi sites. In a business where production capacity was often its most difficult challenge, the gains in available production time, reduced batch change over and enhanced utilisation of produced product were very beneficial to the overall business. It also meant that supply of problem products could be much more certain and controlled, and could be forecasted much more easily as these forecasts were at a national level rather than a local level.
Stage 3: Reorganising delivery days.
In stage 2, the customer to distribution centre allocation had been re-optimised to ensure customers were being served by the right delivery point. The next stage was another that required close management and control of customer communication and sales team acceptance. The days of the week that customers were receiving deliveries were in many cases almost random, and not based on any type of routing logic to account for daily and weekly demand to certain areas. It was also the case that some customers would only be allocated one delivery day per week, and most were allocated no more than two days per week. This was true even for the most volume intensive customers in the network.
Using our transport modelling tool, we were able to conduct a MIP (Mixed Integer Programming) analysis to evaluate how best to structure delivery areas by day across the week. Rules were set up within this MIP analysis to ensure that all customers would receive a minimum of two deliveries per week, the only exceptions being Highlands and Islands, and areas such as the Isle of Wight and Channel Islands.
Iterative analysis was conducted and tested against real life order profiles using our transport modelling tool to ensure that the delivery date is specified by area were valid and achievable and created the best balance of fleet utilisation versus customer demand profiles. Once the clear delivery area matrix was confirmed and validated, there needed to be a ‘Big Bang’ change for each DC to move to its new delivery day structure. It was not possible to gradually introduce this change at each site as working to old schedules and new could not be managed within the operation; a truck cannot be in two areas at once.
A process was followed whereby DC 1 was changed, and through the course of the first week the change was closely monitored with learnings about route structure and actual route delivery being captured. This identified certain real-life factors that enabled the project team to make minor alterations to the delivery day structures to ensure that loads could be kept within vehicle capacity and delivered efficiently in the right window through the course of the day.
After the initial changeover week, and a further 2 weeks of learning and development, the second distribution centre was migrated to its revised delivery day structure. The 3rd and 4th distribution centres were subsequently implemented on a two-week schedule thereafter.
Like with all change, customers were nervous about the changes and the impact this would have to their business and ordering profiles. The nervousness was also echoed by the in-house sales teams covering each geography. Clearly there needed to be a demonstration that the changes would bring good effect for both the customers and the business, and this was evidenced by clearly substantiated pre-planned logic and evidence of the two-way benefit that will be available. Ultimately this proved to be the case, and once the new schedules were bedded in, feedback from the customers was extremely positive that they had much greater certainty about their delivery days, and welcomed the fact that many customers were now able to receive more deliveries per week than they previously could have received based on old working practises.
Stage 4: The path towards routing optimisation.
The above stages had led the transport management teams on a real journey towards improvement and optimization. However, there was still a long way to go. At this point each site was using fleets, driver shifts and routes that were still very fixed. There was a high degree of bus-stop level planning and much as the routes had changed, the way they were established had not, and it was clear that without further improvement, old practises where bad habits would return. It was also clear from the way routes were building that the fleet profile needed changing as well.
It was at this point that the project team set out to demonstrate to the business that with the level of operational change, as well as change in management culture and approach had led them to a point where implementing systemic transport planning processes could be highly beneficial to the organisation.
A process was then put in place to conduct a review of the best and most suitable transport planning software packages available on the market that could add value for the business. That review led to a number of different packages being evaluated against a business requirements definition (BRD) that was compiled for the business. It was essential that the BRD was accurate and represented the true requirements of the business to ensure that any solution that would be implemented would be robust and fit for purpose to support the ongoing needs of the business.
Upon completion of a full review of the proposals and solution definitions provided by the routing and scheduling vendors, a business case for change was compiled for presentation to the group board. It was recognised that simply implementing a routing and scheduling package alone would not be sufficient to meet the needs of the business.
The transport management organisation structure was reviewed as part of the business case and identified that the business would benefit from centralised transport planning, based at one of the DC locations or the head office of the company. The reason for this was that executing transport planning should be seen as a group function to enable optimization of transport activity from site to site ensuring that cost could be minimised on an ongoing basis.
The board agreed with the approach, as well as the justification for the cost to implement the solution. Through careful management of roles and responsibilities, there was no requirement to make redundancies at any of the local distribution centres as work that needed to be done locally could still be executed locally such as transport compliance activity and day-to-day loading management. The benefits of the change outweighed the cost of implementing the solution and staffing the central transport planning team by many multiples of the cost; the benefits case was clear.
A programme of change was led by the project team. The team liaised with the selected IT vendor and worked with them to create training plans, installation plans and IT integration plans. The process took overall three months from start to finish including go-live of the first site with the revised transport planning process.
Like with the other changes undertaken by the business, clear customer communication was required to ensure that the changes that were being made would be understood and accepted at customer level. The move from fixed bus route schedules to variable route-planned schedules also required significant management within the driver team of the business. Drivers and customers had become used to loads arriving at a typical time of day on their delivery days.
In new world systemized transport planning, the delivery days were fixed, but delivery windows were required for each customer so that the transport planning tool could create the optimal route structure based upon actual demand to be delivered on the given day. This had a significant benefit for the business insofar as customers could order right up until 4:30pm on day 1 for delivery on day 2. It was this improvement in service that comforted the customers that the changes to fixed delivery times, whilst not their initial desired outcome, would bring significant benefit to them, and this was wholly accepted by the customer base.
The change in process for the business was quite significant. To meet the enhanced customer service offering, outbound loading could not start as early as it once did. Only once orders were completely closed down at 4:30pm could the transport planning process be finalised. Whilst there were indicative pre-plans created at various points through the day, the finalised plan was only available at 5:00pm for loading purposes.
However this meant that routes to be delivered the following morning could still be efficiently loaded in the correct order based upon a daily plan simply by pushing back the loading crew shift times on a daily basis to enable later presence on site.
The ability to plan each day on a daily basis against precise demand was groundbreaking for this business. After a period of bedding in to the new process, the project team were able to work with the central planning team to start to identify how the optimization process is driving benefit within the business, and also identifying new opportunities to create further benefit.
What became clear was that KPI measures such as miles per cubic metre of product that were delivered were improving significantly, and as a result, the transport modelling tool was then used to run a series of scenarios identifying how, based upon real life customer demand, revised fleet profile could look, should the fleet be changed. It was apparent as a result of this analysis that the business had too many vehicles, and an incorrect profile of vehicle size and type. Some of these profile challenges were different from site to site, and the business was able to re balance fleet from one operation to another to get closer to the best mix of vehicles.
It was then also possible for the business to sell off some fleet that was no longer required and also modify pre-orders for new lease vehicles ensuring new vehicles were of the correct specification size and type.
A further piece of analysis was conducted looking at customer delivery times and windows in conjunction with the company’s sales teams. It was identified that the traditional delivery time windows applied to customers could be extended to later in the afternoon from what had traditionally been a fairly early delivery cut off time. This analysis when tested using the transport planning team identified that the traditional 8 hour driver shift was no longer efficient for the business. A vehicle shift would ideally be 10 to 11.5 hours on a daily basis. Whilst this shift length would be perfect to optimise vehicle utilisation, it was not possible within both the contractual or legal working hours capabilities of drivers to achieve it.
As a result of the above opportunity identified, the HR team and driver representatives were invited to discuss opportunities to change the structure of driver shift patterns. It became clear that it would be beneficial to both the business and the drivers to move to a four-day working week, set around a rolling plan for rest days each week. Initially this was a challenging concept, particularly for the driver teams. The project team lead a number of driver reviews to discuss with them why the change was beneficial and the way it helped the drivers themselves.
After following all due process to execute the change in driver working patterns, a successful transition to new staff schedules and driver shift rotas was implemented. Change brought significant benefit for the business as well as the driver teams. It meant that the planning day for deliveries could be extended and much greater vehicle utilisation capacity could be achieved.
This additional capacity guaranteed the removal of vehicle fleet, and made much better use of each driver’s day in terms of productive utilisation. Stem mileage as a proportion of overall delivery route mileage was massively reduced, and the average number of customer deliveries executed per day per driver was significantly increased.
The Results
The outcome for this business from a transport perspective in relation to all of the change executed as part of this project was nothing short of transformational. The business was able to reduce its vehicle fleet by approximately 40%. Significant cost savings were seen through the removal of agency drivers and overtime from the business. Some of the permanent driver fleet did need to be let go as part of the process, but no formal redundancy was required. A number of drivers elected to take retirement, and of the remainder who would be at risk, these were voluntarily accommodated into operations within the manufacturing and warehouse processes at each of the DCS in the network, becoming spare back-up drivers in the process, to help cover Absence, Sickness and Holidays (ASH) in the driver pool..
This process was not only transformational, but it was also an award-winning transport cost reduction and optimization process. The management team were awarded the annual prize for innovation at the Logistics Leaders Network annual awards ceremony that year. This was an award competitively won against a number of other worthy programmes by other blue-chip businesses across the UK. The fact that the Logistics Leaders Network identified the level of change and benefit driven by this project and the innovative use of the transport planning structure that was implemented is testimony to the success overall of the programme.
For more information or to contact us to discuss how we can help your organisation accelerate the delivery of transformation or supply chain and logistics change, please use the contact us section to send us inquiry and a member of our team will be happy to discuss your challenges with you.