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Increase margins with route optimization

Explaining how the rising demand for last-mile delivery services and consumer expectations for quick and free delivery can impact carrier and shop earnings.

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Delivery services are in great demand as much of the world seeks refuge and consumers appreciate the convenience of at-home deliveries. Is this increase in final-mile delivery translating into better earnings for enterprises that meet this demand? Nope! Consumers’ demands for quick and free delivery are putting a strain on carrier and shop earnings.

So how can carriers protect their margins without sacrificing market share today? Route optimization is the answer, and route optimization apps like EasyRoutes can help you save and make money.

Table of Contents

  • Introduction
  • Route optimization can cut driving distances and times in half
  • Route optimization boosts efficiency
  • Route optimization lowers your company’s carbon footprint
  • With automated route planning and optimization, you can increase your profitability and meet customer expectations

Introduction

Last-mile delivery costs are a disproportionately large share of total supply chain costs because they are complex, labour-intensive, and resistant to economies of scale. Your last-mile delivery charges can have a big influence on your bottom line in an age where consumers are increasingly purchasing online and expecting local businesses to deliver products to their doorstep.

Are you aware of what percentage of your revenue is spent on last-mile delivery? It could be more than you think if you aren’t aggressively managing your logistics costs.

Last-mile delivery is estimated to account for 28 percent to more than 50 percent of total supply chain and logistics expenditures, according to analysts.

Some of these expenses are not passed on to your customers. Consumers nowadays expect firms to deliver goods to their homes quickly and for free (or at a cheap cost). According to a survey conducted by Capgemini, firms spend an average of $10.10 per customer purchase on last-mile delivery, with just $8.08 being recovered from the client. According to Capgemini, firms’ absorption of to-their-door and click-and-collect delivery charges will diminish their net profitability by 26% by 2021.

The repercussions of this shift in customer shopping patterns are being felt by even huge corporations. Target reported a 141 percent growth in digital sales revenue in the first quarter of 2020. At the same time, the company’s operating profit margin fell from 6.4 percent to 2.4 percent. The four-point reduction was attributed to a change in consumer spending toward lower-margin items, as well as higher supply chain costs linked with rising online sales volume.

UPS spent the second quarter of 2020 recuperating from a sharp drop in operating margins in the first quarter, when demand for smaller, more frequent home deliveries outstripped commercial deliveries, disrupting the company’s cash flow. Only by immediately adjusting its distribution techniques and price was it able to recover.

To ensure a prosperous future, businesses must discover ways to lower the prices of this critical supply chain link. Because of the COVID-19 pandemic, more people are purchasing online and using home delivery services than ever before. According to a McKinsey survey conducted in July 2020, these new shopping patterns are expected to persist after the present health crisis has passed.

What is the corporate bottom line? Finding strategies to accommodate increased consumer demands for convenience while keeping delivery costs down is key to protecting business margins. Utilizing the capabilities of route optimization technology is one approach to do so.

Route optimization software automates the time-consuming process of manually preparing delivery routes while also enhancing the effectiveness of your route planning efforts. Businesses can save time and money by using computers to determine the ideal combination of segments and stops for each driver. Large carriers have been using such apps to assist them make better routing decisions for years. Even modest delivery businesses can now benefit from cloud computing and mobile communication-based cost-cutting technology.

Route optimization can cut driving distances and times in half

Your costs rise with every mile your trucks travel and every minute your drivers spend delivering deliveries. Multiple variables, such as delivery windows and vehicle capacity, can be processed by route planning algorithms to uncover efficiencies that you would miss while manually designing routes. By minimizing backtracking and misrouting, automated route planning reduces the distance your vehicles have to travel.

By allowing your dispatchers to adjust to changing conditions in real time, add pick-ups and drop-offs, and move loads between drivers, a route optimization tool saves time and fuel. You may cut the lengths your trucks travel and the time it takes your drivers to complete their routes by up to 50% using route optimization technologies.

How much money might route optimization save you by shortening your delivery routes? Look at your cost per delivery and cost per mile indicators to start calculating your possible savings.

Do you need a rough estimate? According to a survey published by the American Transportation Research Institute, fuel and wages account for 43 percent of overall delivery expenses for motor carriers. According to the ATRI survey, overall delivery costs for less-than-load carriers averaged $1.90 per mile in 2018, making the fuel and salaries portion $0.82 per mile. Dry van spot prices were $2.23 per mile in July 2020, according to Overdrive.

Route optimization boosts efficiency

While cutting the amount of miles your delivery workers travel is a simple method to save money, it’s not the only benefit of route optimization. Your drivers will be able to make more deliveries every shift thanks to route optimization. Your drivers’ productivity rises as they travel fewer miles to complete the same number of deliveries. This increased capacity can then be used to serve more clients per day or lessen your reliance on overtime to achieve delivery dates.

What would a ten percent to thirty percent increase in capacity mean to you? To find out, look at the average number of deliveries per driver each route.

On-time delivery is improved by route optimization

Maintaining and enhancing drivers’ on-time delivery rates is also dependent on route optimization. You can’t predict every delivery issue ahead of time. A single delay along a driver’s route, however, can have a cascading impact, causing your driver to miss successive delivery windows. Arriving early or late might sometimes be a concern. In a Mapillary poll, 96 percent of delivery drivers reported they lost time each day waiting for a delivery window to open.

How much time do your couriers spend in jail on a daily basis? Your dispatchers can respond to possible timing difficulties before they cost you money with a cloud-based route optimization solution like EasyRoutes.

On-time delivery success is more than a measure for your company. The costs of failing to produce on time can soon mount. If your drivers’ initial delivery attempt fails, you’ll have to execute a send-again, which will double the cost of fuel and labour. Fines may be imposed if carriers providing delivery services for third parties make late or missed deliveries.

Failure to produce on schedule can also result in lost money in the future.

If a company fails to deliver on time, 45 percent of customers say they will not order from them again. Customers who are satisfied with their delivery experience, on the other hand, are more likely to shop and spend more. Businesses that consistently deliver on time are winning new consumers at the expense of those that do not.

Route optimization lowers your company’s carbon footprint

Optimized routing increases your vehicle’s fuel economy while lowering your environmental effect. You can cut the amount of miles your trucks travel, prevent traffic congestion, and limit engine idling by combining automated planning with real-time response capabilities. DHL’s continuous sustainability program includes route optimization, which has helped the company decrease CO2 emissions while also saving 20% on costs.

It is beneficial to both the environment and your business to reduce your carbon footprint. According to the National Retail Federation, shoppers in 2020 will be more concerned about sustainability. According to a 2020 global study, 57% of customers stated they would change their purchasing patterns to help lessen negative environmental impacts, and 72% said they would pay more for ecologically friendly products.

With automated route planning and optimization, you can increase your profitability and meet customer expectations

You must utilize every tool at your disposal to keep last-mile delivery costs low in order to sustain your business’s profitability while reacting to shifts in consumer expectations for want it now, get it now delivery of everything from fresh groceries to home furnishings. For today’s delivery businesses, EasyRoutes is the right tool.

EasyRoutes route optimization and delivery management app is free to try, and you’ll see how the big guys like Amazon, DHL and UPS save time and money on every delivery.

Get EasyRoutes on the Shopify App Store
Get EasyRoutes on the Shopify App Store

About Roundtrip

Roundtrip's mission is to equip every business with the software tools they need to deliver products to their customers in a delightful way. Thousands of Shopify merchants worldwide choose EasyRoutes to power their local deliveries across dozens of product categories, from meal kits and groceries to coffee, cupcakes, kibble, and so much more. Our easy-to-use route planning and delivery optimization app is certified Built for Shopify, a two-time Shopify staff pick, and the top rated local delivery app on the Shopify App Store.

"I'm not sure how we would have made it through the past 6 months without this tool."
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