Logistics Technology Finds New Life in “Green” Times

al-stCompanies increasingly understand the business benefits of going green—not only from the obvious perspective of operational efficiency, but also from a marketing perspective.  Green is the hot ticket right now, and if you’re green, you’re getting PR and attracting new customers.  “But many organizations don’t know how to begin accurately measuring and managing their environmental impact,” says Ted Cuzzillo, in his article “The Benefits of Going Green,” sas.com magazine, Q4 2008.  “Now there is much more focus on trying to quantify benefits, both in terms of measuring the impact of current practices on the bottom line and in quantifying the future under different scenarios,” said Alyssa Farrell, Marketing Manager for Sustainability Solutions at SAS, interviewed in the same article.

But there’s a lot more to “going green” than installing solar panels on your roof or planting trees to offset your carbon footprint.  As Braden Allenby so succinctly states in his book Reconstructing Earth, “…it could be said that the advances in mathematics that have enabled more efficient routing of vehicles among numerous points are possibly one of the most potent environmental technologies of the last decade. This is not a technology normally recognized by environmentalists and environmental regulators.”

One such technology is geographic information systems (GIS)-based logistics software.  GIS is not a new technology, nor is it a stranger to environmental issues.  GIS traces its roots back to the environmental planning theories developed by seminal landscape architect Ian McHarg back in the 1960s.  It’s now a multi-billion dollar industry, equally at home in environmental domains as it is in such seemingly contradictory applications as defense and business.

In these trying economic times, GIS-based logistics applications are experiencing record growth.  GIS-based logistics software provides the quantified information and analytical capabilities necessary companies are looking for to help them increase the efficiency of fleet vehicles by optimizing standard routes, leading to reduced fuel consumption.  But the benefits to companies go beyond simply “green” benefits; companies using logistic optimization applications also benefit from reduced labor expenditures and fleet size, as well as faster deliveries and more accurate time windows.

Delivery Optimization

The Star Tribune newspaper of Minneapolis-St. Paul, Minnesota, is using ArcLogistics GIS software from Environmental Systems Research institute, Inc. (ESRI) to route its delivery drops, and the software is projected to save the newspaper more than a half million dollars in the next five years. By employing ArcLogistics in its efforts to serve the Minneapolis-St. Paul metropolitan region, greater Minnesota, and surrounding states, the Star Tribune has found that using GIS technology for intelligent routing has delivered an economic advantage to the company.

Given current economic trends, the company began looking for new areas where the newspaper could save money. Traditionally, the newspaper used wall maps with pushpins to determine delivery routes for single-copy papers. Rerouting was a time- and labor-intensive activity that required three employees from multiple departments to sit in the map room for four hours a day over the course of a month. Determining new routes is a necessity each time one of the seven advertisement zone boundaries is shifted or when a threshold amount of new or removed newspaper drop locations is reached. After reviewing several options to increase the efficiency of delivery routes, the Star Tribune partnered with Truck Dispatching Innovations, an ESRI Business Partner from Chicago, Illinois, to implement ArcLogistics. After a two-week startup period geocoding more than 3,700 delivery drop points and the routes of 39 trucks, employees used GIS to create new routes. These outcomes had many benefits. Using this new methodology, one staff member inputs a list of delivery route changes into ArcLogistics and, in half the time of the traditional method, creates and shares maps displaying new routes. Tribune staff perform what-if scenarios, such as including different ad-zoned papers on the same truck. These reveal route options that could further increase the efficiency of delivery routes.

The Star Tribune expects a payback on its investment in 2.5 months and a five-year net savings of $672,740. This positive return on investment provides evidence showing the success of the venture to the company’s financial director. The Star Tribune analyzed the benefits of its investment in ArcLogistics by measuring fixed and variable costs. Fixed costs include the lease price and maintenance expenses for delivery trucks, as well as the initial cost and yearly maintenance of the software. One variable cost is the number of miles driven, which determines gas costs per route. Another variable cost is the number of hours driven, which determines the wage cost per driver per route. Fixed costs are added to variable costs to determine route costs. Combining cost savings in these four areas shows a more accurate cost savings, rather than just looking at the savings as stand-alone figures. The Star Tribune found significant savings of route costs, including the number of trucks needed, miles driven, and time spent delivering newspapers.

Quantifying Benefits

Large-scale users of ArcLogistics software have shown an average savings of $15 million over traditional manual methods, while other operators have found a 15 to 30 percent inventory reduction by taking corrective action earlier and mobilizing their inventory more effectively. To avoid being overwhelmed by the scale and cost of planning deliveries and operating fleets efficiently, businesses are turning to GIS-based logistics solutions, replacing guesswork with strategy to generate the most efficient routes.

Along with cost reductions of 10 percent in labor and more effective inbound and outbound transportation, companies are also realizing a 5–10 percent revenue enhancement through quickly responding to customers, managing their inventory more efficiently, and being able to reduce price markdowns. A 5 to 15 percent reduction in delivery times gained through route analysis, improved tracking, and the use of real-time data solutions saves these businesses even more.