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Retail Delivery Route Optimisation Savings: Return On Investment Part One

In my last blog I looked at the example of a furniture store using Route2GO Lite to optimise a day’s deliveries. This time we are going to look at the payback, or as I like to call it WIIFM, What’s In It For Me.

The first thing to look at with any business investment is what you are trying to achieve. One furniture retailer we are talking to, told us that they currently achieve an average of 8 deliveries per truck per day and would like to achieve 10 per day. That’s great because it is easily measurable. Start with a goal in mind, but there is of course much more and I’m going to look at two levels of Return On Investment (ROI). They are tangible and intangible.In this blog I will focus on the tangible, but as you will read in the next one, intangible is equally as important if not more so. Bookmark or subscribe to this blog and come back to find out why.

Tangible

First you have your fixed overheads as far as deliveries go. The first one is your vehicle. It is difficult to get specific vehicle running costs for commercial vehicles. As it was explained to me, when you buy a car, they come off the production line in 10’s of thousand identical vehicles. In theory they should have the same lifetime costs. When you buy a truck or van, you will have a choice of gearbox, and everything that goes on the chassis. For example you could have a metal truck with a luton over the cab, it could be a flatbed, it could have cloth sides. It may have low gearing because it is designed to carry heavy loads etc.  This means that there is no list available that will tell you cost per km for commercial vehicles. I managed to get hold of a document that says that a new 3001 cc diesel car running 14,000km a year has an average cost of 98.4 cents per km over a 5 year life span. Obviously commercial vehicles will drive far more than 14,000km a year and will have great costs.

The best thing you can do is ask your accountant, they will be able to work it out very quickly. I suspect at best you’ll get no change from $1.30 per km.

Let’s back track for a second. What is route optimisation again? It is a tool which looks at all the stops you want to make on a journey and calculating the sequence that you should do them in, in order to drive the least distance in the shortest time.

Why use GeoSmart’s Route2GO and not leave it up to the driver? Because we have a full turn restriction dataset for routing. That means we take into consideration a variety of factors including main roads vs. minor roads (designed for faster traffic flow), one-way roads, no right turns, implicit turn restrictions where you may be able to legally turn but a large vehicle couldn’t safely complete the manoeuvre, roads with median strips where you can’t do a U-turn etc.

Proof? Don’t take my word for it. Give me some run sheets of completed days trips in the order they were done and we will process them and show you the difference. We did this recently for a firm with half a dozen routes. Half of them returned modest results, but the other half generated some significant savings. Consider that if you could cut as little as 20km off a day’s deliveries for one vehicle at $1.30 per km, that’s a saving of $26. Do that every day over a year and you have saved almost $10,000! Of course petrol and diesel prices aren’t coming down any time soon!

But wait there’s more: What about labour costs? Your truck or van doesn’t drive itself. It has at least one, or in the case of bulky or heavy items such as furniture two people on board who have a cost. What do those people cost you per hour? No I don’t mean what do you pay them. Employing staff includes all sorts of things. Perhaps office space, special clothing, phone, desk, mobile, Taxes, ACC Levies, training, holidays, insurance, management and of course all the ancillary costs of doing business, accounts, kitchen facilities, tea and coffee, bathrooms etc. I think you’re getting the picture.

Whatever way you measure the cost of your staff, they key is productivity and in the area of productivity, the simplest way of looking at it to start with from an ROI perspective is, if you can increase their productivity without increasing your overheads, you are making more money right? Let’s say you could have your driver be more productive by half an hour per working day. From memory, we work around 222 days a year after taking off weekends, public and annual holidays. Half an hour a day increase in productivity is almost 3 weeks over a year. I’m not going to guess that cost, but your accountant can tell you what that represents.

These are only two tangible ROI Factors, but they on their own already produce an impressive result.

What does it cost? What’s the catch. I’m glad you asked that question.

The great thing with Route2GO Lite is that it is a web application. You don’t buy it, you don’t pay a monthly fee, you only pay for what you use. When you are not using it, you pay nothing.It is volume based and the more you use it, the cheaper it is per use, but even at the lowest entry level it is very economic.

Route optimisation comes with 2 components. The first part is what we call geocoding. This is where we get the geographic coordinates of the address. That could be the driveway of a home, or it could be somewhere inside a complex, such as a school or a business park. The dearest this gets is 12.5 cents per address. You only do this the first time for each address, so if you have regular customers, this is a once of cost.

The second part is the route optimisation. You tell us the starting location and optionally the end location and our application then looks at every possible combination of the route many times until it is satisfied it has the best combination. This starts at 50 cents per location.

So let’s look at a hypothetical example. We looked at a typical customer trip in the furniture delivery example. We saved a vehicle with 2 staff 20km at a total of $26 savings on a standard trip.  Lets say we also saved $40 in wages. We now have $66 in savings. The cost for Route2GO Lite was 8 geo-codes at 12.5 cents = $1 plus optimising a journey with 8 stops at 50 cents each = $4. So total cost to save $66 was $5. As I mentioned, there are no additional costs, no set up costs, no monthly license fees, its pay as you go.

But wait, there’s more ROI, plus you aren’t going to dock these guys half an hour in pay, you want them to do 2 more deliveries. Well now you have time to do that, so you can increase their productivity. You probably charge per delivery, but your fixed overheads aren’t going to change much, so you will save even more.

If you found this interesting, please bookmark this page or subscribe to this blog, because there is much more coming. The ROI on this page equals more than 1200% return, but the intangible benefits also make very interesting and exciting reading, so please come back to find out how this works. Also if you know anyone in the retail industry that does deliveries, why not email them a link to this page and share the knowledge.

If you want to give Route2GO a try and get us to compare a few of your routes for free with no obligation, contact us.

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September 28, 2010 - Posted by | Delivery, driving, Freight, Furniture Delivery, geosmart, GIS, location based services, map tools, Marketing, new zealand, new zealand maps, Return On Delivery, route optimisation, Route2GO, Sales, software, Uncategorized | , , , , , , , , , , , , , , , , , , ,

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