When filling up at the pump, consumers aren't the only ones to suffer searing gas pains thanks to exorbitant gas prices. Businesses of all types have been enduring similar burdens, including the United States Postal Service. Fortunately, as the USPS has learned, there are ways to harness the power of IT to substantially reduce not just fuel costs but overall transportation expenses.
The USPS announced today that it has succeeded in cutting annual transportation costs by more than $5 million. The decrease in transportation has also resulted in reducing fuel consumption by 615,000 gallons per annum. The solution: a transportation-optimization system called HCAP (Highway Corridor Analytic Program), developed by the US Postal Service and IBM using ILOG CPLEX optimization software.
As described by IBM, "optimization technology enables quick calculation of the best possible utilization of resources -- including vehicles, people, time, processes, equipment, raw materials, supplies, capacity, and securities -- needed to achieve a desired business result."
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Implemented in 2006, HCAP determines the most efficient plan for using existing mail-transportation assets in various types of scenarios, such as bulk-mail delivery, planning for holiday peak volumes, weekend transportation, and along highway corridors. It accounts for specified parameters such as starting and ending points, delivery times, truck-capacity restrictions, and mail classes. The system analyzes existing scenarios then generates alternative loads and routes that would save USPS money but still meet all of its service goals (e.g. getting that First Class letter from Boston to Washington, D.C. within two days).
"The HCAP model starts with the existing transportation network, which is meeting the service standards. HCAP then identifies opportunities to consolidate trips or eliminate some trips and put those mail volumes on other trips, provided that the new trips assignments also meet the service standards just like the existing trips do," says E.J. Matto, associate partner at IBM.
So hypothetically, the system might find that USPS needs three fewer trucks driving from Chicago to Phoenix on a given daily run, or that 12 routes in Northern California could be consolidated into seven.
The savings USPS has enjoyed thus far are indeed notable: In the Midwest, the organization was able to consolidate transportation resulting in annual savings of $1.3 million. Savings on the West Coast were even more substantial: Transportation reductions resulted in a savings of $3.7 million per year.
These days transportation savings are particularly critical, considering USPS says that every 1-cent increase in the price of gasoline costs results in another $8 million in fuel costs for the organization. Although $5 million annual transportation savings from those two model runs may be a small portion of overall USPS transportation expenses, if USPS were to use similar approaches throughout its entire network, the savings could add up.
The savings also result in a reduction in CO2 emissions, which scientists have linked to global warming. All told, USPS reports a carbon dioxide savings of 6,350 tons. If those reductions could be monetized, the value of offsetting those CO2 emissions would be $47,000 per year.
[ To learn more about carbon-reducing technology, please read "Carbon-measuring software evolves." ]
Thus far, USPS appears to have limited the application of HCAP to mail transported in the United States. However, it's evident that the technology could be applied to international mail as well as with appropriate adjustments to the system. Although USPS hasn't provided information regarding such direction, given the savings to date, I'd be surprised if postal officials didn't pursue that further.