Using network design to optimize transportation routes

In a slowing economy, network design has been one of the fastest-growing supply chain software applications on the market. These solutions do the heavy math to determine where products should be made, where plants and warehouses should be located, and where inventory should be located and at what levels to meet service level requirements, support marketing plans and new product introductions. You can learn about network design and optimization in the upcoming December issue of Modern Materials Handling.

The tools can also be used to optimize transportation strategies. And in a slowing economy, that translates into real dollars. As Forte’s Ian Hobkirk noted last week in our Best Practices newsletter, if you want to deliver immediate savings to your bottom line, transportation is the first place to look.

Enter ILOG, a provider supply chain planning and optimization tools that has introduced tools for strategic transportation planning. While traditional TMS solutions are designed for operational planning – figuring out the best way to ship a group of orders to meet delivery dates at the lowest possible cost - ILOG’s tools use network design and optimization logic to solve big picture problems, says David Simchi-Levi, ILOG’s chief science officer. “There are already good solutions out there for operational planning,” says Simchi-Levi. “We’re applying our technology to create an off-the-shelf solution that allows a supply chain planner to quickly run multiple what-if scenarios to determine the best way to deliver products and utilize transportation assets.”

The solution can answer questions like:

For a given set of shipments, what are the best routes?

What are the best fixed routes to use?

What are the opportunities for combining shipments and finding continuous moves?

Which shipments should use private fleet? Commercial truckload? LTL?

What should the fleet size be?

What is the impact of backhauls? How can running inbound and outbound transportation together save additional money?

How does a company take advantage of hubs or consolidation centers?

What kind of savings can a transportation planning strategy deliver? One food distributor and retailer used the tool to remake a transportation network involving 50 suppliers, 40 to 50 trucks, and 450 stores in the Midwest. At the time, inbound and outbound transportation were being run independent of one another. The cost: $85,000 per week in inbound network costs from suppliers and $172,000 per week in outbound delivery costs to stores.

Using the design tool, the retailer was able to identify backhaul opportunities – picking up orders from vendors after making a delivery to the store. The new strategy resulted in a savings of $17,000 per week, or 7% of transportation costs.   

In a tough economy, Simchi-Levi says, those are savings that can make a real difference to a company’s operating costs.