Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

Are You Getting the Best Out of Order Consolidation?

Consolidation TMCA key feature of advanced transportation management system (TMS) technology, especially in conjunction with Managed TMS® solutions, is an optimization tool that dynamically consolidates orders to create efficient routing and scheduling plans for multi-leg shipments.

But order consolidation and routing is generally perceived as a relatively straightforward operation that is carried out manually, so why should shippers invest in automating optimization processes?

The main reason is that the process is actually a lot more complicated than is often assumed.

In fact, identifying the lowest cost solution that also meets all relevant service criteria can be like finding the proverbial needle in a haystack.

To give you an idea of just how complicated, consider the challenge of finding the best consolidation and routing solution for a group of 41 orders. Mathematically, the number of possible combinations is 3.3 x 1049—about equivalent to the number of atoms on earth!

Sifting through these alternatives to pinpoint that one best-case “atom” quickly is a tall order for any person, but typically represents the path of least resistance for busy freight managers. As a result, solutions arrived at manually often leave cost savings on the table and can expose the shipper to excessive risk.

Much of the complexity comes from the sheer number of variables involved. The shipper has to weigh direct ship versus multi-stop options, available mode of transport, available routing options, freight compatibility, and which cross dock configurations apply. The load plan should be flexible enough to allow for variances in ship and delivery dates. And the end-to-end transit time must meet the shipper’s needs. Other nuances that require attention include allowing for various costs such as stop off charges, fuel surcharges, and truck rates.

That is a lot of information to digest quickly. It’s easy for a person to overlook important details and underestimate the potential number of variations to be considered, particularly for large numbers of orders.

The TMS-based tool uses heuristics (rules or methods that give close approximations rather than exact answers) to do the job. It allows for all relevant factors, constraints, and cost data, and estimates the best solution in a matter of minutes, or a few hours where there are many orders. Importantly, the shipper’s constraints are never violated by the optimizer.

It is possible to generate the ideal solution rather than a close estimate, but this would take much longer, and in the time-constrained real world it’s better to be good than perfect.

In addition to being much quicker than manual consolidation methods, optimization tools can deliver the most optimal plan at less cost. TMC has achieved average cost savings of 15% compared to a shipper’s previous consolidation strategy by using an optimization engine.

A TMC analysis of one shipper’s manual process underlines the potential benefits of automation. The study found that some 15% of the customer’s consolidation decisions actually cost them money, because comparing direct LTL costs to multi-stop route costs manually was so difficult. Moreover, about 10% of the decisions contravened the shipper’s own constraints, a flaw that can ripple through supply chains, potentially causing stock outs and production delays. A negative outcome that we see fairly frequently is the creation of consolidations that violate legal weight limitations or the carrying capacity of trucks.

Problems like these are not generally caused by incompetence or faulty methods, but the complexity of the process and the inability of manual consolidation methods to accurately evaluate cost expeditiously.

Automated optimizers also provide some important benefits in the areas of data management and analytics. At TMC, the TMS-based tool accesses order information from Navisphere®, a global technology platform that provides shippers with visibility to all transportation activities in one online interface. The system can generate customized reports on the performance of routing plans.

In some instances—for example, where the number of orders is small—manual consolidation and route planning might still be deemed the better option. Also, some shippers can be uncomfortable with ceding control of this process to a faceless optimization engine.

A shipper’s service priorities also have a bearing on the use of this TMS-based tool. For instance, shippers that adhere to rigorous just-in-time schedules might be more interested in the reliability and precision than the cost of their consolidation strategies.

Still, the inherent complexity of planning multi-leg shipments lends the process to automation. And today’s TMS technology makes it fairly easy to implement an optimizer tool.

Looking ahead, the benefits of automation will surely increase. Logistics companies are developing ways to incorporate more factors such as extreme weather events into order optimization and routing. The availability of this data will make TMS-based optimizers even more powerful.