Supply chain algorithms: cost-effective, agile and customer-focused logistics

It has never been more difficult than today to attract, inspire and retain customers. Customers in the B2C as well as B2B sectors are increasingly demanding an individual approach and a shopping experience tailored to their needs.

It is no longer just the product, but the entire end-to-end shopping experience that is decisive for customer satisfaction. These requirements do not stop even before the goods are delivered: Customers want ever faster delivery and they want it cheaply. Customers also expect flexibility in delivery, punctuality, convenience and real-time shipment tracking.

In order to meet these constantly increasing expectations, it is crucial to redesign the supply chain around customer needs. This means that companies and logistics service providers must create a supply chain that is more customer-oriented and more responsive. Not an easy task given the challenges facing the logistics sector: Rising costs, a shortage of skilled workers and ever stricter environmental regulations are just a few examples of the problems that need to be overcome. Against this background, it is necessary to redesign the transport network, warehouse operations and optimize transport routes.

But how can logistics be optimized so that the customer is served perfectly while keeping costs in check? This is where new technologies and algorithms come in handy: Through the interplay of machine learning and optimization algorithms, demands can be anticipated and orders can be automatically planned into efficient routes and routes. In this way, efficiency gains can be achieved through better utilization of vehicles and warehouse space, and delivery times can also be minimized and transport costs reduced.

LOGISTICS: A KEY FACTOR IN THE SHOPPING EXPERIENCE

E-commerce continues to grow in importance. Numerous studies predict a significant boost in online trade. In other words, more and more customers are shopping online, both in the B2C and B2B markets. The result? More and more packages to be delivered. Experts from Oliver Wyman According to this, the number of parcels to be delivered in Germany will triple by 2028: from 3.5 billion parcels in 2018 to up to 9 billion. At the same time, the costs for door delivery will probably rise from €2.50 to around €4.50. This is compounded by the increasing volatility of customer demand and thus a fluctuating quantity of parcels that must be delivered daily. The episode? About the Half (58.5%) of all truck trips in Germany are empty runs.

Without logistics, i.e. without the delivery of goods to the customer, the online sales process would simply not be possible. Logistics is therefore increasingly playing the role of a main source of value for customers. This increases customer expectations. Especially among today's digitally savvy consumers (especially Generation Y), the online purchase decision is significantly influenced by delivery, returns and the experience gained in doing so. But what exactly do customers expect? The following exemplary figures give an impression:

EVER FASTER

55% of customers expect a one-hour delivery service in major city regions (MetaPack Benchmark Study).

  • MORE AND MORE ENVIRONMENTALLY CONSCIOUS
    77% of buyers are aware of or concerned about the environmental impact of their online deliveries (MetaPack Benchmark Study).

The need to deliver more and more parcels ever faster and at lower costs is therefore increasing the pressure on delivery service providers to find solutions for the so-called last-mile delivery, i.e. the last stretch of the journey when transporting the goods to the customer's front door. Because, according to a recent study by Capgemini, this last supply step is the biggest cost driver in the supply chain.

For the logistics and supply chain of the future, this means creating a supply chain that meets the end-to-end customer experience. In short, the supply chain of the future must be intelligent, agile and customer-focused.

WHAT DOES CUSTOMER-FOCUSED AND AGILE LOGISTICS MEAN?

  • CUSTOMER-CENTRED means the customer and their expectations should always be in focus. Companies must therefore anticipate the needs and needs of their customers and adapt the supply chain accordingly.
  • AGILE means adaptability to changing market conditions and speed in delivering services. In other words, capacity flexibility, short lead times from order to delivery and quick responses to daily changing demand are decisive here.

However, meeting these increasing expectations and remaining profitable at the same time is a significant challenge in view of the enormous cost pressure (due, among other things, to high fuel/energy prices, high tolls and rising personnel costs). Although the logistics sector is currently jumping from high turnover to turnover high in order to remain competitive in the long term in view of changing market conditions, new paths must now be taken. This means that companies and logistics service providers must now improve their operating processes through the intelligent use of new technologies in order to increase process efficiency and reduce logistics costs. But how can new technologies help deliver the mass of parcels flexibly, quickly and cost-effectively?

USE INTELLIGENT ALGORITHMS TO ANTICIPATE DEMAND AND DELIVER GOODS COST-EFFECTIVELY

In order to be able to meet this challenge, a combination of various intelligent assistance systems is required, which supports logistics in two ways.

INTELLIGENT FORECASTS
The use of machine learning methods to accurately predict the pickup and delivery locations, the time and quantity of orders so that capacity requirements (vehicle, personnel, warehouse, etc.) can be optimally planned.

These predicted orders or orders then serve as input for the tour and route optimization algorithms. Because once the information on the orders is available, the question of delivering as cost-effectively as possible follows. Does this mean which orders should be bundled into a tour and in which order should the customers of a tour be delivered from where and with which vehicle so that transport is as cost-efficient as possible?


DYNAMIC TOUR & ROUTE OPTIMIZATION

Optimization algorithms are used to fully automatically plan thousands of orders into optimized routes and routes within a very short period of time, so that delivery times are minimized and transport costs are reduced. The methods and algorithms used are able to find quick solutions so that an already optimal route plan can be adjusted in real time. Dynamic route planning thus makes it possible to react in real time to events across the entire network in order to plan them directly into new, optimized tours and routes.


In a digitally connected supply chain, customer forecasts and special events can then be shared among the individual participants within seconds. This allows decisions to be made dynamically and staff is specifically supported in their day-to-day work.

CONCLUSION

Supply chain management is on the verge of changing from a supporting function to a key factor for better customer service. Innovative solutions, driven by new technologies in the field of artificial intelligence, are an important supporter and driver to help your company build a customer-centric supply chain that is resilient and flexible enough to meet these future requirements. Companies must therefore now ask themselves the question:

  • Are our supply chain processes set up in such a way that we can guarantee agile and customer-oriented logistics today?
  • What investments must be made now across the entire network in order to meet the cost and performance pressure in the future?

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