Optimizing Distances by the Means of Logistics
The Travelling Salesman Problem (TSP)
Transportation is a very complex and costly part of the supply chain, and it is of a crucial importance for a business to have a proper planning in order to minimize these costs. In this sense, the travelling salesman problem (TSP) is one of the most intensively studied optimization problems. The problem was first formulated in 1930 and it is used as a benchmark for many optimization methods. TSP asks for the following question: "Given a list of cities and the distances between each pair of cities, what is the shortest possible route that visits each city exactly once and returns to the origin city?"
The TSP is dealing with determining the optimum geographic route, in which the salesman begins from his domicile, visits a prescribed set of locations and returns to the initial point. The TSP has several applications such as planning, logistics, and the manufacture of microchips. The problem might not seem complicated when considering a small number of locations, however, it gets very sophisticated when we think about a global business with thousands of stores.
For example, possible routing-options for only 10 cities are 181,440, and the degree of complexity increases with the number of locations (Muddassir, 2017). However, there are multiple advantages from having your operations scheduled.
By applying the TSP, a business cuts on it operational, transportation and labour costs. Such optimization enables companies to gain 5% to 20% cost-savings regarding local and global-transportation Gutin & Punnen (2004). For instance, the example of UPS in the USA showed that the company saved 20 miles per truck/ day, when using the routes travelling salesman problem. These cuttings enabled UPS to save expenses massively and increase supply chain efficiency. The same source gives the example of FedEx that managed to cut unnecessary costs by identifying the optimum geographic map. The cost per route was not significant, however by having 55.000 routes, alone in the U.S, the grand total made the difference (Rosenbush & Stevens, 2015).
Moreover, by minimizing the traveller’s distance and time also allows to decrease the lead time, which means a higher customers’ satisfaction. Apart from that, the minimization of the transportation distance translates into fuel and carbon emission reduction. This, in turn, is beneficial for the environment and contributes to the development of green logistics, which, nowadays, becomes an increasingly important aspect.
Mercadona – Renfe – Acotral collaboration (European Logistics Association, 2009)
Initial outlay: Mercadona needs to transports 19,000 tonnes of goods daily from the eastern coast to southern Spain. Being the most commonly used, road transport is congested in Spain, which causes longer delivery time and unnecessary costs. On the other hand, Renfe, a train company carrying both passengers and goods, had suffered losses following market liberalization and therefore needed to change their business model in order to survive.
Solution: Mercadona signed a contract with Acotral and Renfe for them to transport non-fresh food and non-food goods. Renfe had to provide eight trains a week from Sevilla to Tarragona and from Sevilla and Valencia in a round trip. This new route connects suppliers’ warehouses in the south of Spain with Mercadona Distribution Centres in the east coast. Acotral was responsible for the logistics management and transport coordination. As a result, Acotral scheduled the trucks to pick up the goods at the specified time, and Renfe was in charge of delivering them on time. Train journeys take place twice a week, in two trains assigned exclusively to Mercadona. The total load transported during a year approached 220,000 tonnes.
Challenges:
Coordination between the road transport and train companies to manage the logistics chain. Coordination between trucks and warehouses to achieve on time fulfilment of deliveries. Customisation of Renfe services to fulfil Mercadona’s requirements.
Results: Mercadona has found improvements in goods being delivered on time, at lower cost, in a more sustainable way. This approach allowed Mercadona to cut up to 9,152 truck delivery journeys and to reduce its freight transport CO2 emissions by over 12,000 tonnes. As well, the cost savings for Mercadona coming from this project are estimated at €13,1 million.
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