When it comes to making good choices, everyone can use some help. In trucking, an entire category of software has developed over the last 20 years to help fleets make not just good choices, but the best choices for a wide range of business situations and conditions.
Often called optimization software, it's really a collection of applications designed to address situations that can be as simple as choosing the right fuel stop on the road or as complex as developing profitable freight lanes. Used properly, these applications offer significant increases in productivity and profitability, but they are complex systems that are often expensive and require high-power information technology capabilities. Before you can choose the right optimization systems for your particular fleet, it's important to understand the different types of applications available and what they can, and can't, do to help you routinely make good choices.
When trucking talks about optimization tools, it is generally referring to applications intended to help manage truckload and LTL types of operations. Route planning software, which is widely used by both for-hire carriers and private fleets, is also clearly a tool for optimizing fleet operations. However, it has developed into its own highly specialized category.
In general, fleets turn to optimization for help in making strategic, or long-term, and tactical, or near-term, decisions. “These are two different types of decisions with different characteristics,” says Dr. Chris Caplice, vp-marketing for Logistics.com Inc., a developer of transportation optimization systems for both carriers and shippers.
“Strategic decisions require more (computer) time, but they carry greater risk,” he says. “For example, if you make a bad decision on a bid, you're locked into it for a year, so the risk is high. Strategic tools might take a couple of hours to run, but they find the absolute best answer for given conditions.
“Speed is more important than waiting for the best possible solution in tactical decisions, but the risk is minimal,” he explains. “You might be looking at whether to accept a single load, so the cost of taking more time outweighs the risk of making a less-than-perfect fast decision.”
Strategic optimization includes applications for planning and scheduling LTL moves, for managing fleet productivity by balancing anticipated freight moves and equipment availability, for analyzing bid profitability, and for running what-if scenarios. Tactical or real-time tools help dispatchers match loads to drivers based on a host of variables, provide suggestions on accepting or rejecting freight to maximize profits, guide drivers to fuel stops that minimize cost and out-of-route miles, and even make freight solicitation suggestions for fleet sales forces.
“Essentially, real-time (tools) tell you how to play the cards you're dealt,” says Dr. Rick Murphy, founder and president of Integrated Decision Support Corp. “Strategic tools deal the cards you get to play.”
For that reason, most fleets start with the strategic applications, adding real-time systems as a second phase. “Real time can only make the best of bad conditions if you haven't made the long-term decisions well,” says Murphy.
The one exception is fuel optimization. “A fleet doesn't need much for fuel optimization,” says Murphy. “It's easy to implement, the savings are immediate and obvious, and those savings can be used to fund the other tools.” Even the smallest fleet with nothing but a PC and Internet connection can take advantage of newer subscription-based ASP (application service provider) fuel systems.
For the time being, at least, the other optimization tools are most effective for large and midsized fleets. Logistics.com's LTL tools are currently used by the country's largest fleets and by some with as few as 40 terminals, according to Caplice. On the TL side, tactical yield management systems generally work best in fleets with at least 200 power units, while strategic bid-response tools are being used by fleets with as few as 50 tractors.
Smaller fleets certainly face complex decisions that could be handled more quickly by information technology. For example, a six-tractor, six-load optimization problem has so many variables that humans can rarely match a computerized system in figuring out the most efficient solution, says Murphy. The problem is that smaller fleets offer fewer alternatives to consider, he explains. “If your trucks are scattered and you don't have many alternatives, you can't really optimize.”
Theoretically, smaller fleets willing to pool resources could use the Internet to set up a joint load-optimization system. “You could use the web to get enough size,” says Caplice. “But it wouldn't be easy because the systems weigh a range of cost parameters, and each carrier sets the relative value of each of those parameters. For example, one carrier might rank getting drivers home around Christmas as highly valuable, while another might not.”
However, a more limited web-based optimization system might work. “You already have membership exchanges for excess capacity and freight demand,” says Murphy. “They're just not optimized — but they could be.”
The other issue fleets need to consider when looking at optimization is the quality of their current data collection systems. All good systems, both tactical and strategic, include “scrubbers” to filter out data that is clearly erroneous, but imprecise or incomplete fleet operational data will severely hamper their ability to provide the best solutions.
Fortunately, the most common wireless data systems currently used by carriers already provide huge amounts of precise, accurate data on vehicle location, status and other critical parameters. “Fleets sometimes don't realize just how much good data (mobile communications) provides, and they don't take advantage of it,” says Murphy.
Finally, says Caplice, expect a lot from anyone offering optimization products. “It can be a broad term. It can cover any use of mathematics to find a single best solution for a given set of circumstances. But the real hallmark of a good fleet optimization tool is that it considers multiple attributes, not just one like cost or miles. Look for systems that go beyond a single focus and that can handle many real-world restraints and attributes in finding the best answer to your question.”
It's hard to imagine not having it,” says Jeff Thurman, executive vp at Sitton Motor Lines Inc. The Joplin, MO, truckload carrier has been using optimization systems from Logistics.com since 1996 for driver load matching, swapping loads in transit, fueling and various strategic planning and analysis chores. Currently, Sitton dispatchers are using the load-matching system's first recommendation about 50% of the time, according to Thurman. “And they take one of the system's top five recommendations 65 to 70% of the time.” With 530 tractors to keep full and moving, the system “adds a lot,” he says, especially combined with location and status data provided by the fleet's Aether mobile communications system.
The fleet also uses a fuel and routing optimization program, but the recommendations aren't mandatory so it doesn't analyze those results. Other optimization tools are used for strategic planning, including activity-based costing and bid response. “We had high expectations going in when we started in 1996,” says Thurman, “and we haven't been disappointed.”
“My advice to fleets (looking at optimization) is to start with a fuel purchasing system,” says R.D. Howell, president of ProLine Carriers. “It has a short payback, and it's easy to implement. We saw our diesel prices drop from 2 to 3 ¢/gal. below the DOE national average to 4 to 6¢/gal. below the average. And when fuel prices are dropping, that gap widens even more.”
The fleet, which runs 450 tractors in dry-van TL operations, also uses a full suite of both strategic and real-time optimization tools from Integrated Decision Support Corp. “We use them heavily, not just to match loads, but also to direct our marketing efforts and to identify the most profitable freight lanes,” says Howell. “Combined with some other initiatives, we've reduced our empty miles by 2%. We also help our customer service people identify the most likely areas to find freight and to determine profitable price levels.”
On the strategic planning side, Howell's advice is that fleets train people to use the tools effectively. “It took us six months to get people up to speed,” he says. “It wasn't hard to use, but it only guides you in pricing and marketing. People have to learn how to interpret that information to get the best results.”
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