Strategic Optimization VS Operational Optimization.
Updated: Mar 17
"Labyrinthe", by PublicDomainePictures, licences under CC BY
Optimisation these days is a buzz word used everywhere in logistics, often in very different contexts with very different meanings.
When looking at the final kilometre we can generally break optimisation down into two distinct types…
…Strategic Optimisation and Operational Optimisation
Optimisation tools are generally designed to specialise in one aspect or the other.
Regardless of which area a specific tool is designed to address it will still be powered by an optimisation algorithm that, for a given scenario with defined constraints, can calculate the “minimum cost”.
To lean more about how optimisation algorithms work, check out this article we wrote earlier.
A strategic optimisation tool looks at the macro elements of distribution. Strategic optimisation tools tend to specialise in scenario analysis. For example, they may address questions such as:
Is it cheaper to have one large warehouse that is, on average, further from my customers or two smaller warehouses that are closer to my customers?
What is the minimum number of vehicles I need to add to my fleet to serve a new customer base? Or
What is the additional cost of moving from a 4-hour delivery time window to a 3-hour delivery time window?
This often makes these tools useful when an operation is about to be launched, is expanding, or undergoing a periodic review.
Because of the varying nature of scenario analysis, they are called upon to perform, strategic optimisation tools often have complex and adjustable optimisation settings. This means users often face a steep learning curve and may need training to use the tool to maximum effect.
Additionally, as strategic optimisations are only run periodically, an optimisation that takes a few hours to calculate a result is considered acceptable.
An operational optimisation tool takes the testing and evaluation that was performed in the strategic optimisation and puts it into production.
When routes are fixed, the operational optimisation may not be required and a periodic, strategic optimisation can suffice. However, if your business involves visiting multiple different customers every day then an operational route optimisation tool will give a significant return on investment.
It is designed to work with, and optimise, daily activities. With the Macro elements (warehouse location, customer service levels etc.) pre-defined it looks to optimise the operational elements, which resource should complete which task in what sequence so that…
… customer and business constraints are not breached, and costs are minimised.
Because of this, an operational optimisation tool should be set up to calculate and produce results faster (a few minutes at most) than a strategic optimisation tool. Additionally, complex optimisation settings should be pre-defined so that users in operations, who are not optimisation experts, can optimise in a production environment.
Your operational optimisation tool should also be paired with your other production systems so that users do not waste time (or make mistakes) manually importing and exporting data. Our platform, Tarot Routing, combines route optimisation with delivery management so you have the most important aspects of your final kilometre transport software (planning, tracking and proof of delivery) in one platform.
So, what can we take from this? It is not strategic optimisation vs operational optimisation; they both have their place and purpose. Ultimately it will depend on your business. But, if you want optimisation advice for your business or assistance with implementation, reach out! The team at Tarot Analytics is always happy to assist.