Last mile's hybrid model of route optimization

B2B supply chain businesses—whether they’re food and beverage distributors, tire wholesalers, construction supply and metal sellers, you name it—have plenty of tools at their disposal for managing modern supply chain challenges. Modern warehouse management systems can help make inventory management—and thus order fullfilment—more efficient, AI-powered algorithms can help predict demand more accurately than ever before, and real-time visibility tools can have a powerful impact on fleet and delivery management. 

But it can all fall apart in the last mile. If the larger supply chain is an obstacle course, then the last mile is a high wire act—there’s very little room for error if you want to actually capitalize on any process improvements further upstream. 

The short answer to this challenge is: B2B businesses, at least as much as B2C, need a comprehensive approach to last mile logistics—which means finding the route optimization strategy. Unfortunately, the right route optimization strategy for most B2B businesses isn’t the most popular one.

Very loosely, people tend to talk about two different kinds of routing:

1. Static routing: This means different things to different people, but, generally, static routes involve a fixed schedule or sequence of stops. These routes are referred to as “static” because they aren’t responsive to changes in order mixes or volumes:

2. Dynamic routing: Ditto, this phrase can mean somewhat different things in different contexts—but the overarching theme is that dispatchers create a unique route plan every day based on the particulars of that day’s orders and customers, with an eye towards finding the fastest route for each combination of stops. 

At a high level, the salient difference is this: using the same routes every day or week (static) or starting your route planning from scratch every day (dynamic). 

In practice, there aren’t really solutions that offer purely static or dynamic routing. Most solutions functionally provide a mixture of the two, but the modern emphasis on dynamic routing frequently means that the benefits of static routing (and those benefits do exist) fall by the wayside.  

What B2B supply chains need is an approach to routing that takes the best of both worlds from each of these techniques:

1. Static routing capabilities: offer stability, as well as the ability to codify domain-specific knowledge that might otherwise only reside in the router’s head. A static route that has been optimized to your business’s specific goals saves you from having to reimagine delivery management from scratch every day, and it offers you a strong foundation on which to optimize;

2. Dynamic routing capabilities: provide you with the ability to stay agile and flexible, getting the most out of your capacity by optimizing based on daily volumes. Dynamic route optimization is an important means of managing delivery costs and cutting out waste and inefficiency.

There are different approaches you could take to combine those two routing techniques, but the most straightforward for our perspective is to create a hybrid approach that allows you to create static “skeleton routes” for your most important recurring business.  

One company might be placing its focus on customer relationship management while planning its logistics strategy—while another might be more interested in cost reduction wherever it can be accomplished. Either way, you should let your specific business goals drive your route optimization, no matter what stage you’re at. 

Once those routes are set, the rest of your routing process should look a lot like more typical dynamic route optimization. At the beginning of the day, you look at all the orders that have come in with an eye towards routing them in the most optimal way for your business—but instead of starting the routing process from scratch, you use your skeleton routes as a baseline, with stops for late additions and newer client accounts sequenced in between your “anchor stops.”

Here, where a purely dynamic routing process might have put equal weight on your top tier customer and a new, smaller addition to your roster of clients—potentially pushing your top tier stop to the end of the day and jeopardizing on-time performance—your hybrid approach keeps your anchor stops in place to make sure that doesn't happen. More broadly, it ensures that you’re not missing out on the domain-specific knowledge that your routers have acquired for the last mile of your supply chain. 
In this way, you’re able to reap the benefits of static route planning. At the same time, most of your routing is dynamic, and you gain those benefits as well. You’re able to maintain stability and predictability where it’s needed, but you can still respond to volatility without missing a beat. This enables you to keep your cost per delivery down even when volumes are fluctuating and new complexities are being introduced at every turn.

Source: https://www.supplychainquarterly.com/blogs/2-scq-forum/post/5031-why-b2b-supply-chains-need-a-hybrid-approach-to-route-optimization