By using algorithms and other metrics to change the routes its trucks take, the garbage hauler can save big. (Baseline)
Kristine Schmidt plays a lot of roles depending on what the day has in store for her: project manager, logistics and operations analyst, information-systems expert, or interpreter between top Waste Management Inc. executives and the folks driving the companys trash collection trucks.
As fleet optimization manager for the New Jersey market area, her job is to free colleagues such as Steven Masterson, senior district manager for Waste Management of Delaware, from using highlighters, string, pushpins and maps cut into pieces and then pasted together to create routes for his drivers. Those were Mastersons tools until early last year.
"Our system was antiquated," says Masterson. "By the time we were finished, six months to a year later the routes had to change [due to new customers and acquisitions]."
Enter Schmidt. Her goal was to centralize the most basic, and arguably the most important, process the trash-hauling giant faces every day: the sequence of stops each truck must make to pick up the daily refuse of American life.
Its no small issue. At the end of 2003, the company operated 18,850 routes in every state in the U.S. If Waste Management can eliminate one route, which includes a truck, a driver, fuel and maintenance, it can save $10,000 a month. Thats $120,000 a year per route. In 2003, Waste Management was able to save $18 million and is on track to save $44 million in 2004. Thats a boost of 7% for a company that earned $630 million in 2003. Over a five-year period, Waste Management plans to save $498 million on operations, resulting in a cash flow increase of $648 million.
Not bad for a $10 million initial investment in a homegrown application it now calls WasteRoute.
"This is a moving process," Schmidt says, without irony. Each of the companys 66 market areaswith a geographic region such as New Jersey and Delaware comprising an areaincludes an average of 285 routes. To reroute the trucks in a given district took six to 12 months five years ago; now, it takes four weeks. If the company can map the route system efficiently, the savings can last a year or more. "Were trying to be proactive so we dont have to do a complete reroute every six months," she says.
Waste Management relies on operations research, a quantitative technique designed to create models to predict the behavior of a system and the humans that operate it. Operations research uses mathematical theory, statistics and computing to solve problems. In Waste Managements case, mathematics is applied to the numbers behind pickups such as the time it takes a driver to hoist a container via a robotic arm versus doing the job manually, or the time needed to deal with construction detours.
Once dozens of variables are combined into a route knowledge bank, WasteRoute uses algorithms to pick the most efficient paths. These algorithms sort through the myriad issues Waste Management executives face daily: Is construction delaying a driver? Are there promised windows of time to pick up waste? Is a driver close to running more than the 60-hour-per-week maximum imposed by the Department of Transportation?
WasteRoutes rollout took 18 months to plan. First, Waste Management tried multiple off-the-shelf applications before determining it needed to build the application itself to account for all the variables it faces, such as when a local ordinance prevents a truck from passing over a storm drain. A Woodlands, Texas, logistics software company, Institute of Information Technology (IIT), won a 19-vendor bake-off to figure out the mathematical formulas for such factors as estimated pickup time, which side of the street to be on, and truck speeds. IIT won a final three-supplier round after Waste Management figured its algorithms were the best at cutting routes, balancing workload and meeting constraints such as a 400-customer cap per residential route.
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IITs marching orders were to develop a routing system that could be used by any Waste Management executive or manager via a Web browser. Drivers still get information via printouts called route sheets.
The result is delivered over Waste Managements intranet. The application pulls data from the companys sales, customer service and operations databases, plots addresses to a map and then recommends route changes to increase efficiency. For instance, if a commercial customer gets three pickups a week for one 4-cubic-yard container, it may be possible to "upsize" him to an 8-cubic-yard container and cut visits to once a week.
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