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Case Study: Route Optimization Leads to Shared Savings with Customers

Everyone is under pressure to trim costs from their distribution operations. Especially in the food distribution business, where margins tend to be razor-thin, such savings can mean the difference between profit and loss. But what if you could consistently find efficiencies big enough that you could share your savings with customers? Food distribution is notoriously cut-throat competitive; if you can offer a better service at a lower cost than your rivals, you’re way ahead of the game.

One of our customers has used the continuous efficiency improvements and savings offered by route optimization software to do just that. A large, family-owned processor of fresh produce for the fast-food industry, the company reduced its delivery costs by 20 percent – and passed some of those gains on to their customers. Add in the improved service levels they also achieved by making deliveries more predictable, and they got an enviable competitive boost.

The Challenge

This produce processor operates out of a single warehouse in the Southeast US, using 50 trucks to make daily deliveries to all Southeast states, plus Texas. The company’s trucks drive about 5.5 million miles a year, and speed of delivery is critical, because all of their products are perishable – mostly lettuce, tomatoes and onions that go in burgers and sandwiches. Because the products are perishable, in fact, the company clears its warehouse out every day, with all products taking 48 hours or less to reach their destinations at fast-food distribution facilities, for onward distribution to individual restaurants. These are major quick-serve restaurant chains, and they have high service demands, including precise delivery time windows. Route plans need to be highly accurate, or the produce processor can get hit with late delivery penalties.

“It used to be ‘get here between 7am and noon,’” said our customer’s VP of Transportation. “Today, they want a precise ETA, and if you miss it by five minutes they might hold you for three hours until a dock door opens up. Customers are much more demanding.”

But efficiency is just as important as accurately hitting delivery time windows. The produce processor is under constant pressure from its restaurant chain customers to reduce costs, and a lot of those costs are tied up in distribution operation.

Our customer says technology has greatly helped improve fleet efficiency at the company. He explained that when he joined the company, route planning was done purely with spreadsheets, and it took hours to produce plans. The measured delivery cost-per-case was $2.40. Today, with route optimization software, plans are ready in under 30 minutes and the cost-per-case is down to $1.92 – a reduction of 20 percent. Calculated from the company’s current mileage, that’s a cost saving of $2.5 million per year.

Let’s break down where those savings specifically come from. The biggest contributor, our customer says, has simply been the ability to reduce the number of trucks required to make its deliveries. Now, the produce processor uses 10 fewer trucks to make more deliveries than ever, as their customer base has expanded. That’s because the routes are more efficient – the average number of routes driven by one of their trucks has risen from 75 routes per week to 110. Even better, the trucks are fuller. Using the load optimization functionality in Paragon, the company has increased pallets per trailer by about 25 percent over the last five years.

Enhances service, compliance, too

Compliance is another area where technology helps. With closer oversight of driver Hours of Service (HoS) restrictions, it’s more important than ever to make sure a driver is not scheduled to drive 12 hours when he only has 11 hours left on his HoS limit. To help get better visibility of driver availability, the company implemented a system where data is fed from in-cab Electronic Logging Devices (ELDs) directly into Paragon’s routing and scheduling software. As a result, route plans consider not only the most efficient routes, but also individual drivers’ actual available hours.

Another issue is regulatory requirements regarding maintaining product integrity throughout the cold chain. Products may ship at different temperatures, sometimes in the same truck. Paragon’s routing software allows the company to capture detailed trailer specifications and load accordingly, based on a product’s temperature requirements.

The system also gives a clear, immediate and ongoing view of delivery performance. On a single screen, the produce processor can now see all its planned routes, and how drivers are performing against the plan. Being able to see the truck’s exact location in real time is an enormous boon to the customer service team, as they proactively notify customers of any possible delays, or respond immediately to customers’ requests for information during a weather event, for example.

Sharing efficiencies, savings

On a strategic level, the produce processor uses Paragon route optimization software to identify opportunities to route more efficiently, and then proactively brings those recommendations to fast food chain customers. It could be simply changing the day of delivery, or going from delivering six pallets three times a week to nine pallets twice a week. The company has found that some changes like these are significant enough to allow it to eliminate a truck from the fleet, resulting in significant cost savings.

A significant further benefit happens when this produce processor collaboratively reviews potential changes with restaurant chain customers, makes sure changes fit with their own distributor network, and then makes the cost-saving changes. The company then shares those savings with customers – a real game-changer in the relationship. Our customer tells us that its own customers greatly appreciate having a partner that can play out these “what if” scenarios to identify savings opportunities on both sides. It’s a real win-win situation.

Asked if he had any advice for fleet operators looking to use route optimization technology to drive down costs and wow customers, the VP of Transportation said: “Allow the technology to work as it was meant to.”

He gives the example of a customer who, for years, was receiving fresh produce every Tuesday and Thursday at 6am. Obviously, that delivery time constraint can be entered into the Paragon system. But what if the customer was satisfied with a 5am-8am window? That opens up a whole load of opportunities to increase delivery routing efficiency.

“The less rigid your constraints, the more freedom you give the software to do its job,” he said. “The algorithm won’t optimize if you give it the answer.”

For those still planning with spreadsheets or basic software, our customer says it’s wise to look at the software as an investment, not an expense. “Do the math,” he said. “What would a 10 or 20 percent cost-per-mile reduction mean to your operation?”

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