Distribution and Consumer Goods
Route Optimization
Transport and logistics

The Ultimate Guide to Reducing Logistics Costs with Route Optimization Software

• Reading time: 2 min

Good customer service is one of the important aspects of establishing a firm foundation in any industry. Whether it is sending a technician for maintenance services in less time or providing your customer with an optimal route to reach your brand’s nearest branch, route optimization is an essential aspect to consider. 

The goal of route optimization software is to ensure that your driver’s trips are as efficient and seamless as possible. We understand that your objective is to deliver orders on time and reliably while increasing efficiency and profitability. However, with the rising cost of fuel and the shortage of drivers, this task is not very easy. Route optimization software will consider different aspects to provide the drivers with the best route in real-time. 

The market for route optimization software is predicted to be USD 6.99 billion in 2024. It is estimated that it will increase at a compound annual growth rate (CAGR) of 14.70% and reach USD 13.87 billion by 2029.

Are you thinking about how investing in route optimization software can cut down logistics costs? Well, you are at the right place, as we will explore all the details of route optimization software and how it can cut down logistics costs and improve profits. 

It All Starts With the Traveling Salesman Problem. 

If you are wondering why we are discussing the travelling salesman problem, then this is where it all started. The problem involves determining the shortest path or route for a salesperson, given a beginning location, several cities, and an ending point. 

Well, the travelling salesman problem is a well-known algorithmic problem in operations research and computer science. There are many different routes to reach from one point to another, but finding the best one (least distance, least cost) is the main agenda of this problem. 

Although the problem seems easier to understand, it is much more difficult to solve. This is because the number of routes increases exponentially if the number of cities or locations to visit increases. Now, there are many different methods to solve this problem, like: 

  • The Brute-Force Approach: This approach revolves around conducting an exhaustive search and identifying all possible routes. It finds the best route that is associated with less cost or the highest benefit. 
  • The branch-and-bound approach is based on the divide-and-conquer technique. It recursively divides the problem into subproblems with bounds. It rejects the path with unwanted results and finds the best route. 
  • The Nearest Neighbor Approach is based on a greedy algorithm that selects the closest unvisited node as the next step in constructing a solution. 

Understanding Route Optimization Software 

Route optimization software determines the best route from a combination of routes and delivery sequences and selects the one that best satisfies the company’s financial and customer service goals. 

It analyzes customer orders and takes into account the resources available, the road network, and operational constraints. 

For instance, a simple optimization strategy would aim to deliver customer orders at the lowest possible cost or ensure that each product is delivered regardless of its cost. Complex route optimization requires a more well-rounded technique that may be adjusted to the business’s financial and customer service plans.

It involves delivering the orders that yield the highest profit when delivery resources are limited, or it could involve satisfying customer delivery needs while keeping costs to a minimum. The number and type of variables included in the route optimization process have an impact on the route optimizer’s capacity to deliver outcomes that align with the goals of the business.

How Route Optimization Software Cuts Down Logistics Costs?

Here is the list of the benefits of route optimization software to help your business reduce logistics costs:

Optimized Delivery Routes

Route optimization software helps you find the optimal route for the vehicles in seconds. It determines a feasible route sequence that guarantees the least mileage and fuel consumption while still satisfying all of your customer, driver, and regulatory standards. The software does that by comparing the distances between each delivery place and your warehouse.

Reduced Planning Time.

Route optimization software helps you reduce the amount of time you spend planning from hours to minutes while also increasing route accuracy with just a few clicks. By reducing your planning time to minutes, you may organize your planning team or redirect staff to focus on higher-value tasks. 

Enhanced Vehicle and Fleet Utilization

Routing and scheduling software can help you reduce logistics costs by making the most effective use of your fleet’s resources. When the software powers your business, you can frequently increase the number of drops on each journey by streamlining your drop sequence. It helps you eliminate extra miles and utilize backhauls and multiple trips to reduce empty running. 

Improved Planning With Real-Time Data

Your vehicle tracking systems can be connected to real-time routing services, such as route optimization software, to examine data on planned and actual activities. This highlights areas where adjusting your planning parameters could reduce expenses. 

Better Reliability

With advanced route optimization software, the focus is on guaranteeing your plan can be executed in the real world. By adding five more drops to each route, you can eliminate one of your fleet’s trucks. The specific timings and distances between each of your deliveries are determined by route optimization algorithms, which also account for the vehicle’s maximum speed, extra time needed for unloading, and driver meal breaks.

Model Business Changes

Using your historical routing and schedule data from regular activities, route optimization software can help you model and assess the financial implications of expanding your business or using alternative transport strategies. Additionally, you can be assured that the operational and cost reductions are unique to your company and not predicated on projections and industry averages because the system utilizes your current business rules and historical data as a base.

List of Metrics that Businesses Should Track Continuously to Reduce Logistic Costs 

For determining whether your route optimization method is successful, there is no set formula. A cost component and a customer service/satisfaction component are obvious. However, the advantages of an effective route optimization software go well beyond truck mileage and expenses. Reliable delivery forms the cornerstone of your distribution company’s whole value proposition.

Your first steps should be to establish a precise baseline and choose the KPIs that matter most to your company. Here are the following metrics that should be included in the route optimization success:

  • Total fleet miles
  • Fuel costs
  • Total fleet operating costs
  • Cost per mile
  • On-time arrival rate
  • Fleet capacity utilization
  • Drops per shift
  • Planned versus actual stops
  • Hours invested to plan routes
  • Third-party/agency driver costs
  • Inbound call volumes
  • Customer satisfaction
  • Driver satisfaction and retention

The above list provides a selection of the KPIs fleet managers can use to evaluate the success of their programs. Pay close attention to these indicators and measure them precisely and religiously.

Conclusion

This guide showed you how your route optimization software can implement the process, resulting in technological advantage. Route planning software solutions make various business elements easier, so an increasing number of businesses are using them. Customized route planning software is an option based on your company’s needs and objectives.

Utilizing a field software management system is an excellent approach to improving your overall fleet management performance and increasing return on investment. It can also help you build beneficial relationships with your customers.

Nomadia’s TourSolver, a route optimization software, can help you generate the best routes that meet your business objectives in real-time. Book a demo today!