Executive Briefings

Omni-Mode Transportation Integration Is Key Tool for Profitable Fulfillment

Analyst Insight: In 2016, Amazon subsidized the cost of shipping to their customers by about $7bn, setting a very high bar for customer expectations of cheap or free shipping with rapid delivery. Most competitors don't have the same options as Amazon to buy market share this way, putting enormous pressure on them to squeeze every penny out of fulfillment and transportation costs (as well as to differentiate in other dimensions). Omni-mode integration is one tool that can help companies lower shipping costs to effectively compete. – Bill McBeath, chief research officer, ChainLink Research

Omni-Mode Transportation Integration Is Key Tool for Profitable Fulfillment

Companies using both their own private fleet combined with for-hire common carriers for transportation need to make decisions about which of those modes to use for any given shipment. For this they often use a very simple algorithm, such as:

• Destinations within 75 miles of the distribution center (DC) will go on our private fleet

• Destinations greater than 75 miles from the DC will be shipped via common carrier

This approach leaves on the table many opportunities to optimize. For example, consider two shipments within a few blocks of each other, one just inside the 75-mile radius, the other just outside the radius. The simple algorithm will automatically send two different trucks (private fleet for the one inside the radius and for-hire carrier for the one outside), even though it would be much more efficient to service both with a single truck.

Omni-mode integration takes a more holistic and dynamic approach to mode selection, integrating with both the route planning system used to manage the private fleet and the transportation management system used for managing carrier-based shipments. Each time a new shipment is created, the existing plans for both the private fleet and for-hire carrier shipments are considered to make the optimal mode selection, taking into account various constraints (e.g. capacity, driver hours, destination hours, special equipment needs, etc.) as well as objectives (customer service, cost, etc.).

This same approach can be extended to optimize across all modes. This is especially useful for a company doing significant e-commerce business. The same sort of simplistic decision is often made about e-commerce shipments, sending all of them via parcel carrier. In fact, there may be opportunities to piggyback on planned private fleet or carrier shipments, doing zone skipping, or pool distribution. With zone skipping, parcels whose destination is several zones away from the origin can be put onto existing private fleet, truckload or less-than-truckload shipments that are bound for a distribution center in or near the destination zone for the package (provided the delivery window can still be met), thereby saving significantly on parcel carrier costs.

Pool distribution providers are a type of 3PL that enables multiple carriers to share a common distribution center and fleet within a market where each shipper alone cannot justify putting a DC. Thus, full truckloads can be sent from the shipper to the shared DC, and the pool provider takes care of consolidating multiple shippers’ loads into full truck for individual store deliveries or potentially for home delivery. Zone skipping loads and store loads can be combined on the truckload shipment from the shipper to the pool DC. When outfitted with the right processes and systems, pool distribution can provide the speed and tracking of parcel at the cost of LTL. 

The Outlook

Omni-mode integration allows companies to look across all shipment mode options available, to find the least-cost method of shipping that still meets the customer’s requirements. In the past, this has been considered an advanced practice, used by only a few sophisticated shippers. In the future, competitive pressures, combined with expanding omni-mode integration capabilities pre-built into transportation software systems, will drive more mainstream adoption.

Companies using both their own private fleet combined with for-hire common carriers for transportation need to make decisions about which of those modes to use for any given shipment. For this they often use a very simple algorithm, such as:

• Destinations within 75 miles of the distribution center (DC) will go on our private fleet

• Destinations greater than 75 miles from the DC will be shipped via common carrier

This approach leaves on the table many opportunities to optimize. For example, consider two shipments within a few blocks of each other, one just inside the 75-mile radius, the other just outside the radius. The simple algorithm will automatically send two different trucks (private fleet for the one inside the radius and for-hire carrier for the one outside), even though it would be much more efficient to service both with a single truck.

Omni-mode integration takes a more holistic and dynamic approach to mode selection, integrating with both the route planning system used to manage the private fleet and the transportation management system used for managing carrier-based shipments. Each time a new shipment is created, the existing plans for both the private fleet and for-hire carrier shipments are considered to make the optimal mode selection, taking into account various constraints (e.g. capacity, driver hours, destination hours, special equipment needs, etc.) as well as objectives (customer service, cost, etc.).

This same approach can be extended to optimize across all modes. This is especially useful for a company doing significant e-commerce business. The same sort of simplistic decision is often made about e-commerce shipments, sending all of them via parcel carrier. In fact, there may be opportunities to piggyback on planned private fleet or carrier shipments, doing zone skipping, or pool distribution. With zone skipping, parcels whose destination is several zones away from the origin can be put onto existing private fleet, truckload or less-than-truckload shipments that are bound for a distribution center in or near the destination zone for the package (provided the delivery window can still be met), thereby saving significantly on parcel carrier costs.

Pool distribution providers are a type of 3PL that enables multiple carriers to share a common distribution center and fleet within a market where each shipper alone cannot justify putting a DC. Thus, full truckloads can be sent from the shipper to the shared DC, and the pool provider takes care of consolidating multiple shippers’ loads into full truck for individual store deliveries or potentially for home delivery. Zone skipping loads and store loads can be combined on the truckload shipment from the shipper to the pool DC. When outfitted with the right processes and systems, pool distribution can provide the speed and tracking of parcel at the cost of LTL. 

The Outlook

Omni-mode integration allows companies to look across all shipment mode options available, to find the least-cost method of shipping that still meets the customer’s requirements. In the past, this has been considered an advanced practice, used by only a few sophisticated shippers. In the future, competitive pressures, combined with expanding omni-mode integration capabilities pre-built into transportation software systems, will drive more mainstream adoption.

Omni-Mode Transportation Integration Is Key Tool for Profitable Fulfillment