Daphne de Poot, Director of Director Continuous Improvement at ORTEC
"On behalf of ORTEC, I would first like to thank everyone who attended OPTIMUS 2022. It was wonderful to interact face-to-face and we had a lot of fun, meaningful discussions on what we can do with data and analytics to continuously improve your business. If you missed OPTIMUS or the "Flaw of Averages" presentation, don't worry. We've got you covered in this article."
What is the Flaw of Averages?
As you can see, there is a book cover of the same name by Sam L. Savage. You'll see it depicts 2 darts on a dart board. One is to the left of the bullseye and the other is to the right of the bullseye. Clearly, both darts missed their marks. However, if I take the average of both darts, I've hit the bullseye directly. What is the point of this analogy? Averages can be very useful in managing your business, and they are being used all over the place. However, you should also be very careful with averages, or single point values. They can sometimes lead to making the wrong decisions. Therefore, it is important to also look beyond the averages and analyze the details beyond this number.
That is where analytics comes into play and where growing in analytics maturity can help you to overcome the Flaw of Averages and make better decisions. Start with collecting your data. From there, we will help you create visibility with what we call descriptive analytics. Our solutions help you understand your business’ performance over time and use historic data to analyze plans vs actuals. By doing this, we can identify improvement opportunities. Growing in analytics maturity is about using additional mathematics, statistics, machine learning, and optimization to support with proactive decision making. This is what is also called predictive and prescriptive analytics. By using your business’ historic information, you make use of more advanced analytics models to prepare for the future.
Machine learning models will help you to predict what is the right stop-time setting for a specific day, customer type, region, or any other specific routing detail. When it analyzes this data, the software gives you recommendations on where to update your settings. This allows you to be more precise in your decision making by taking out the rule of averages and replacing it with concrete data.
At OPTIMUS, we performed an exercise using the diagram above. In this exercise, everyone was asked to list 3 items of what they currently tackle with analytics on 3 yellow sticky notes, and 3 items of what they would like to tackle in analytics on 3 red sticky notes.
From the exercise, we see that in the last years some great steps have been made into bringing visibility, using the data, and understanding current performance (think about on time delivery percentages, stop time numbers, mileage and volume numbers per route). If we move towards more advanced analytics there is still much to win around cost calculation. For instance, understanding your individual cost to serve (which is not easy for multi stop routes), and using historic information for predictive analytics, like forecasting demand to use this to support proactive resourcing decisions. After this exercise, we dived into a few examples of how ORTEC Analytics Solutions can support your business no matter where your sticky notes landed.
Planned vs Actuals: As discussed above, our solution will help you plan for accurately, lending you the tools for better decision-making.
Cost to Serve: We probably all have average cost numbers, like cost per mile, cost per route etc. But when we think about the flaw of averages, we would like to go a step deeper. We would like to use all information that is available from the routes and individual stops to make an honest cost allocation and get to a detailed cost to serve per delivery / stop. This is where advanced machine learning models can help you. Having the detailed cost to serve information can be used to understand cost outliers, bring your attention to where you can and should improve your operations, but also give direction into the effect of specific sales / customer agreements to your operations. Think about tank sizes, frequency of delivery, minimum order sizes, specific time windows or delivery days in specific regions, and a lot more.
Resource Forecasting: We can come up with an average number for trucks, trailers, and drivers that would be needed to be able to run the full year. However, we all know not every day is the same. We have weekday fluctuations, seasonal fluctuations, peak periods and low periods. Being able to use historic information to predict what is upcoming and match this with your current resource availability will help you to fully understand the gaps. Where do we have a shortage? Where do we have overcapacity? Can we do something with resource relocation between regions? Do we need to have support from other parties? These questions can be answered with ORTEC's Resource Forecasting.
There's a wealth of benefits these solutions offer your business: increase profitability and cost efficiencies, increase customer service and satisfaction, increase driver happiness and retention and reduce the environmental footprint. For those of you who attended OPTIMUS 2022, I really enjoyed spending time in person with you and I hope to continue our conversations by working together to continuously improve! If you were not at OPTIMUS, let's chat soon as I'd love to explore what we can do to help your business thrive.
