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FLEET SOFTWARE MONTH: Why vendor financial models matter for route planning viability

960 640 Stuart O'Brien

Most distribution companies keep their route planning solution for 15 – 20 years before replacing it. Today, more so than ever before, within that timeframe businesses, industries, economies and technologies undergo significant change. Distribution business models need to ensure they change in step, which in turn means their route planning solutions need to evolve and grow in the same direction. 

However, the financial models of many route planning vendors are not designed to foster that seamless evolution, innovation and growth over time. Instead, many solutions become operational liabilities because of changes brought upon by vendor financial models that disrupt product innovation. Gary Taylor VP Fleet Solution in EMEA at Descartes, outlines three vendor financial models that can be high risk for long-term evolution and growth of their route planning solutions…

Private equity owned vendors.

Private equity firms have two guiding principles that significantly and negatively impact the evolution and growth of the once-successful route planning solutions they acquired. First, they need to make the route planning business more profitable to pay themselves and service any debt they may have used to finance the purchase. Second, they need to get the business in a financial position to sell the company at a profit to generate a return for their investors – typically within a five to seven-year timeframe.

With the clock ticking, private equity firms focus first on cutting costs: all non-revenue generating roles such as development and support are subject to extreme scrutiny. Combined with the consequential “brain drain” that occurs as leading employees become disillusioned with the cost reduction focus means product innovation and attention to customer issues begin to diminish. Over time, what was an industry leading solution becomes an “also ran” as the product does not keep pace with new capabilities required by customers or industries, leverage the latest technological advances or highly evolving cyber security requirements.

Key questions to ask to ascertain future product and support direction of a PE owned route planning solution:

  • What future product plans does the business have for the product and support organisations? Are they growing or shrinking in headcount?
  • What similar or complementary companies does the PE firm own and what are their plans for integration?
  • How many years has the PE firm held the route planning vendor and when does it anticipate selling that company?

Consolidator-owned vendor

Industry consolidators are acquisition-based technology companies. They look for companies whose founders are looking to sell or distressed companies’ shareholders who are trying to get some level of return. Industry consolidators are similar to private equity firms in that they focus on improving the profitability of the acquired company and do it through cost cutting. The difference is that an industry consolidator maintains ownership indefinitely. However, industry consolidator owned companies suffer the same fate as private equity owned ones – product innovation, evolution, growth and support diminish over time.

Key questions to determine future product and support direction of an industry consolidator owned route planning solution:

  • What future product plans does the industry consolidator have for the product and support organisations? Are they growing or shrinking in headcount?
  • How have those acquired companies grown their solution capabilities and support since being acquired?
  • What similar or complementary companies does the industry consolidator own?
  • Are there plans for integration of those companies?

Venture-backed vendors

A number of route planning companies were started in the early to mid-2010s powered by low interest rates and the ability of venture capital (VC) firms to easily raise money. With a growing economy, that accelerated after the initial impact of the pandemic. VC firms were happy to have their portfolio route planning companies prioritise market-share growth over profitability. Capital for investing was cheap and the ability to borrow money was easily available. This aggressive ‘growth without regard to cost’ business model does have some upside. It allows more capacity for innovation and risk-taking; however, growth without profitability is not sustainable in the long-run and few companies grow their way out of unprofitable operating models.

The global economic downturn has, in recent years, meant that VC-backed route planning vendors have had to shift focus towards profitability. This shift in strategy puts extreme pressure on their growth-first operating models, the maintenance of higher levels of product innovation and support, and possibly even the outcome of the company.

Many VC-backed companies have been forced to restructure, cutting resources across the company to reduce or eliminate their cash burn. The impacts have been significant in terms of the reduction in sales, development, support and other parts of the company. In some cases, route planning vendors have left major geographic markets.

Key questions to determine future product and support direction of an industry consolidator owned route planning solution:

  • Is your company profitable and is the most recent financial statement available for review?
  • Have you had to restructure recently because of a tougher economy or less access to capital?
  • How many years into your last VC investment round is your company?
  • If you are VC-backed what is their timing for closing and liquidating your funding round?
  • Do you anticipate needing additional funding to operate in the next 2 years and how do you plan to obtain it?

Conclusion

Route planning solutions are foundational to any logistical fleet operation and the company’s success.  This is why it is so important to understand the financial model of the route planning solution vendor and the role that outside funding resources play in the growth, innovation and evolution of the company and its products. This can tell you much about your existing route planning solution vendor, its time to replace them, and whether a potential new vendor will have the wherewithal to meet your needs today and in the future.

How distributors can improve fleet performance through route planning optimisation

960 640 Stuart O'Brien

By Chris Jones – EVP, Descartes Systems Group

Effective fleet performance is essential for distributors and can have significant financial and competitive implications – both positively and negatively – depending on how it is carried out.

Route planning is among the essential elements in that performance. And while distributors inherently understand this, experience shows that fleet performance varies widely across distribution organisations – even for similar businesses using the same route planning solutions. Yet, the performance advantage for top performing distributors is considerable, as they often require fewer people and vehicles, have shorter planning cycles and better productivity. The key metrics that underscore this advantage include:

  • 50% reduction in the number of planners required
  • Planners being able to plan 70–100 vehicles
  • Minimal manual interventions (<5% of stops reworked)
  • Reduced time spent planning (<1 hour) resulting in later order cut-off times
  • Ongoing fleet productivity improvement of 2%–5% annually

So why the performance variation? The simple answer: Poorer performers don’t employ route planning best practices for measurement, processes, organisation or education. The telltale signs of a distributor not leveraging route planning best practices are

  • No performance baseline and no financial weighting of metrics
  • Planners consider the planning process as more of an art instead of a science
  • No visibility into the effectiveness of planners
  • Decentralised planning and lack of planning process control
  • Missing/inaccurate planning data
  • Low planning expertise

The good news, however, is that all these challenges have straightforward solutions. Here are key route planning best practices that turn poor fleet performers into top ones.

Determine a performance baseline and financially weight operational metrics.

These two points are fundamental in the implementation of route planning best practices. However, many distributors face challenges in obtaining comprehensive performance data or metrics due to manual processes or legacy solutions.  To address this, distributors should adopt a route planning solution that combines route execution and GPS-based mobile applications to establish a performance baseline. Then, focus on improvement. Assigning weighting metrics financially is also important because not all metrics carry the same financial value and improving performance involves making trade-offs between miles, resources and vehicles. For example, one mile may cost 80 pence while a driver hour may cost £40 and a vehicle £100,000 annually. This shows that it may make sense to drive more miles if the result is less time and vehicles.

Track and compare plan results by planner versus route optimiser

It’s also wise to be aware that certain route planners will make subjective changes to the optimised plan based upon their “tribal” knowledge, which can negatively impact financial performance. Therefore, it’s crucial to measure the impact of these changes, especially when route planners come from manual or legacy system planning environments. For example, the route planner may want “petal” routes but doesn’t understand that the optimiser determined that non-uniform routes were the most efficient. The lesson here is that if the route planner adjusts the routes for greater uniformity, this can lead to – and often does – sacrificing efficiency gains.

Remove planner performance variability

Inconsistencies in planner performance can have a substantial financial impact on your organisation. All the time there is a significant difference in the quality of route plans across the planners, businesses need to identify the best planning process, document it and institutionalise it across the planner community. The end result of this will be higher plan quality and reduced performance leakage.

Elevate planner performance with automation 

All modern route planning solutions have automation capabilities. The key is to effectively utilise these by taking planning best practices, embedding them into the solution and executing without human intervention. In doing this, planners become more productive due to the fact that they can focus on the plan review and exceptions, ultimately ensuring planning consistency and better results. This also reduces the amount of planning resources needed as well as planning latency.

Shift to centralised planning

Planners no longer have to be in the field to have the necessary local knowledge to make the best plans.  In fact, the best planning occurs when it is centralised. By centralising everything, organisations will build greater domain expertise, more effectively leverage planning resources, improve planner productivity and allow for more focus on continuous improvement. This approach also minimises the impact of the loss of a resource and their replacement.

Remain focused on data quality to drive better optimisation results

A clear indicator of route optimisation performance degradation over time is the neglect of maintenance of configuration and operational data. Failing to adjust the solution to your business’ ever-evolving needs or to enforce quality standards on items such as dimensions and weights will impact the optimiser’s performance. A knock-on effect is that planners then start to lose faith in the results and turn to more manual adjustments, leading to performance spiraling downward. Data maintenance is an on-going process; however, machine learning can offer a valuable solution. By constantly analysing actual performance data and making recommendations or configuration changes that maintain or improve route plan performance, your data quality will improve drastically.

Get a faster ROI by prioritising training

Route planning can often seem like rocket science and the knowledge that a planner has about route planning techniques and systems directly impacts plan performance, especially when so much effort is put into training the initial resources during implementation. However, over time, planners change and there is often not the same level of training for new planners. The situation is analogous to planning system enhancements when there is no focus on education on new releases. So, continuous training must be non-negotiable when it comes to fleet management and that is one of the reasons why centralised planning consistently outperforms distributed planners.

Applying rocket science isn’t, well, rocket science…

Route planning stands as the lynchpin of fleet performance, and the pathway to improving route planning performance is a logical set of steps that can be applied to any organisation, at any time.

  • Adopt fleet performance baselines that allow you to understand not only your overall performance but how each of your planners are contributing to it.
  • Eliminate planner variability by creating best practice planning processes and automation.
  • Centralize planning to create a critical mass of planning knowledge and a culture of continuous improvement.
  • Be vigilant on data quality.
  • Continually invest in training new and existing planners.

Photo by Garrett Sears on Unsplash

Route Optimisation & Planning: Unlock your fleet’s productivity potential

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By Trakm8

Finding the most efficient route from A to B is an easy task. But multiply that by hundreds of destinations, vehicles and deliveries, and you have a big job on your hands. For fleet managers, the result is a time-intensive route plan leaving potential productivity, fuel and carbon efficiency gains by the wayside.

Enter Trakm8. With Trakm8 Optimisation, you get the fastest, greenest, most productive route plan every time.

Trakm8 Optimisation takes easy-to-input data and runs it through Trakm8’s state of the art algorithm, computing route after route to find the best possible combination. Simply upload your data, click run, and Trakm8 Optimisation does the rest. 

Our partners can attest to how well the fleet management solution works for them. Supermarket chain Iceland uses Trakm8 Optimisation to drive fewer miles and make more deliveries – with Trakm8, they saved 10% on fuel costs all while increasing driver productivity by 30%.

Trakm8 Optimisation doesn’t stop at the route planning stage; it also provides a cohesive experience for both driver and fleet manager, whether your fleet provides delivery and collection, customer visits or any other service. 

Drivers can use the Trakm8 Optimisation app, providing them with a simple to navigate job list, route plan and electronic proof of delivery all in one place. While fleet managers can track jobs on the day in granular detail through the Trakm8 Optimisation web portal. As jobs progress, each stage, such as confirmation and signature by the customer, can be monitored in real time allowing intervention if necessary.

The best part is that Trakm8 Optimisation can be completely customised by you, in partnership with Trakm8, to build a system that suits the needs of your business. Whatever services your fleet provides, Trakm8 Optimisation can be built around your requirements.

In turn, Trakm8 will provide a cohesive installation and training service to make sure all parts of the business see and feel the benefits of Trakm8 Optimisation.

With Trakm8 Optimisation, not only will you save time on manual fleet management tasks, you will become a greener and more productive business. 

For more information on the full-range of Trakm8’s fleet management solutions, please visit www.trakm8.com.