Operations ResearchManagement Science

1
Operations Research/ Management Science (OR/MS)

• OR/MS at Our Corporation

2
What We Do

• Our Accomplishments
• Our Mission
• Our Expertise
• Our Scope
• Our Approach
• Our Products

3
Our Accomplishments

• Example 1 OR/MS has benefited key clients in
  our organization in a major way
• The business problem
• The OR/MS solution
• The benefits we brought - and how much we helped

4
Our Mission

• Help you cope with the challenge of making
  complex decisions by
• doing quantitative analysis that provides insight
  into our organizations problem
• providing you with sensible options and
  recommending courses of action

5
Our Mission (cont)

• OR/MS models can have a dramatic, positive impact
  on a projects bottom line

6
Our Expertise

• Provide internal business consulting
• Conduct modeling analysis
• Math modeling, simulation, decision support, data
  mining, optimization, revenue management, supply
  chain management, logistics

7
Our Expertise (cont)

• Develop analyses, methodologies, tools
• Give technical support, training

8
Our Scope

• Any business unit, any function, any geographic
  area
• Top customers, key suppliers
• Assistance from strategy through execution

9
Our Approach

• Partner with management to frame and prioritize
  the issues
• Focus on business impact and implementation
• Establish a disciplined, consultants approach
  through teamwork and collaboration

10
Our Approach (cont)

• Build an objective, quantitative structure for
  analysis
• Transfer technology to your department so you can
  take over the project

11
Our Services

• Strategic planning
• Supply chain management
• Pricing and revenue management
• Logistics and site location
• Optimization
• Marketing research

12
Our Services (cont)

• Scheduling
• Portfolio management
• Inventory analysis
• Forecasting
• Sales analysis
• Auctioning
• Risk analysis

13
A Few Words About OR/MS

• What is it?
• Conventional computing isnt enough
• Combinatorial explosion
• The distinct nature of operations research
• and management science

14
OR/MS What is It?

• Operations research (also known as management
  science) is a collection of techniques based on
  mathematics and other scientific approaches that
  finds solutions to your problems.

15
Conventional Computing Is Not Enough

• Cannot enumerate alternatives
• Combinatorial explosion of viable options

Never Got Outside the Box
Few Alternatives
16
Combinatorial Explosion Example 1

• Shortest path through 10 points
• Assume a super-powered" computer analyzes,
  quantifies, and compares a million alternatives
  every second
• Answer found in less than one second
• Now find the shortest path through 20 points
• Same computer would take over 39,000 years to
  solve!

17
Combinatorial Explosion Example 2

• Construct a five-stock portfolio out of 100
  possible stocks
• Evaluate for risk and return
• Same computer as example one
• Answer found in 1.25 minutes
• Now diversify to nine stocks - 220 Days
• Add one more stock - 5.5 years!

18
Distinct Nature of OR

• Simultaneously analyzes all variables
• Seeks global, balanced solutions defined by
• Multiple criteria
• Multiple, conflicting objectives
• Helps mitigate risk and reduces uncertainty by
  modeling different scenarios
• Goes beyond single-issue management

19
OR/MS Successes

• Best cases from the annual INFORMS Edelman
  Competition
• 2002 Continental Airlines Survives 9/11
• 2001 Merrill Lynch Integrated Choice
• 2001 NBCs Optimization of Ad Sales
• 2000 Ford Motor Prototype Vehicle Testing
• 1996 Procter Gamble Supply Chain
• 1991 American Airlines Revolutionizes Pricing

20
Case 1 Continental Airlines Survives 9/11

• Business Problem Long before September 11, 2001,
  Continental asked what crises plan it could use
  to plan recovery from potential disasters such as
  limited and massive weather delays.

21
Continental Airlines (cont)

• Strategic Objectives and Requirements are to
  accommodate
• 1,400 daily flights
• 5,000 pilots
• 9,000 flight attendants
• FAA regulations
• Union contracts

22
Continental Airlines (cont)

• Model Structure Working with CALEB Technologies,
  Continental used an optimization model to
  generate optimal assignments of pilots crews.
  The solution offers a system-wide view of the
  disrupted flight schedule and all available crew
  information.

23
Continental Airlines (cont)

• Project Value Millions of dollars and thousands
  of hours saved for the airline and its
  passengers. After 9/11, Continental was the first
  airline to resume normal operations.

24
Case 2 Merrill Lynch Integrated Choice

• Business Problem How should Merrill Lynch deal
  with online investment firms without alienating
  financial advisors, undervaluing its services, or
  incurring substantial revenue risk?

25
Merrill Lynch (cont)

• Objectives and Requirements Evaluate new
  products and pricing options, and options of
  online vs. traditional advisor-based services.

26
Merrill Lynch (cont)

• Model Structure Merrill Lynchs Management
  Science Group simulated client-choice behavior,
  allowing it to
• Evaluate the total revenue at risk
• Assess the impact of various pricing schedules
• Analyze the bottom-line impact of introducing
  different online and offline investment choices

27
Merrill Lynch (cont)

• Project Value
• Introduced two new products which garnered 83
  billion (22 billion in new assets) and produced
  80 million in incremental revenue
• Helped management identify and mitigate revenue
  risk of as much as 1 billion
• Reassured financial advisors

28
Case 3 NBCs Optimization of Ad Sales

• Business Problem NBC sales staff had to manually
  develop sales plans for advertisers, a long and
  laborious process to balance the needs of NBC and
  its clients. The company also sought to improve
  the pricing of its ad slots as a way of boosting
  revenue.

29
NBC Ad Sales (cont)

• Strategic Objectives and Requirements Complete
  intricate sales plans while reducing labor cost
  and maximizing income.

30
NBC Ad Sales (cont)

• Model Structure NBC used optimization models to
  reduce labor time and revenue management to
  improve pricing of its ad spots, which were
  viewed as a perishable commodity.

31
NBC Ad Sales (cont)

• Project Value In its first four years, the
  systems increased revenues by over 200 million,
  improved sales-force productivity, and improved
  customer satisfaction.

32
Case 4 Ford Motor Prototype Vehicle Testing

• Business Problem Developing prototypes for new
  cars and modified products is enormously
  expensive. Ford sought to reduce costs on these
  unique, first-of-a-kind creations.

33
Ford Motor (cont)

• Strategic Objectives and Requirements Ford needs
  to verify the designs of its vehicles and perform
  all necessary tests. Historically, prototypes sit
  idle much of the time waiting for various tests,
  so increasing their usage would have a clear
  benefit.

34
Ford Motor (cont)

• Model Structure Ford and a team from Wayne State
  University developed a Prototype Optimization
  Model (POM) to reduce the number of prototype
  vehicles. The model determines an optimal set of
  vehicles that can be shared and used to satisfy
  all testing needs.

35
Ford Motor (cont)

• Project Value Ford reduced annual prototype
  costs by 250 million.

36
Case 5 Procter Gamble Supply Chain

• Business Problem To ensure smart growth, PG
  needed to improve its supply chain, streamline
  work processes, drive out non-value-added costs,
  and eliminate duplication.

37
PG Supply Chain (cont)

• Strategic Objectives and Requirements PG
  recognized that there were potentially millions
  of feasible options for its 30 product-strategy
  teams to consider. Executives needed sound
  analytical support to realize PGs goal within
  the tight, one-year objective.

38
PG Supply Chain (cont)

• Model Structure The PG operations research
  department and the University of Cincinnati
  created decision-making models and software. They
  followed a modeling strategy of solving two
  easier-to-handle subproblems
• Distribution/location
• Product sourcing

39
PG Supply Chain (cont)

• Project Value The overall Strengthening Global
  Effectiveness (SGE) effort saved 200 million a
  year before tax and allowed PG to write off 1
  billion of assets and transition costs.

40
Case 6 American Airlines Revolutionizes Pricing

• Business Problem To compete effectively in a
  fierce market, the company needed to sell the
  right seats to the right customers at the right
  prices.

41
American Airlines (cont)

• Strategic Objectives and Requirements Airline
  seats are a perishable commodity. Their value
  varies at times of scarcity theyre worth a
  premium, after the flight departs, theyre
  worthless. The new system had to develop an
  approach to pricing while creating software that
  could accommodate millions of bookings,
  cancellations, and corrections.

42
American Airlines (cont)

• Model Structure The team developed yield
  management, also known as revenue management and
  dynamic pricing. The model broke down the problem
  into three subproblems
• Overbooking
• Discount allocation
• Traffic management
• The model was adapted to American Airlines
  computers.

43
American Airlines (cont)

• Project Value In 1991, American Airlines
  estimated a benefit of 1.4 billion over the
  previous three years. Since then, yield
  management was adopted by other airlines, and
  spread to hotels, car rentals, and cruises,
  resulting in added profits going into billions of
  dollars.

44
Some Important Points

• Differences Between OR/MS and IT
• Keys to Success
• Conclusion

45
Differences Between OR and IT

• IT
• Focuses on data as a corporate resource
• Stores, retrieves, formats, displays data
• Understands business process and transactions

• OR
• Uses data as input
• Provides improved solutions
• Gives global focus
• Multiple objectives
• Multiple criteria
• Evaluates tradeoffs

46
Key to Success OR/MS

• Focuses on business impact and implementation
• Improves decision processes
• Helps operations become stronger
• Establishes a disciplined, consultants approach
• Transfers technology to your department so you
  can take over the project

47
Conclusion

• Operations Research/Management Science provides
  analytical tools that help leverage information
  technology to solve complex business problems
  involving millions of variables.
• OR/MS departments collaborate easily with other
  departments to achieve goals.
• OR/MS can realize savings and benefits in
  dollars, time, customer satisfaction, and
  retention.

48
Next Steps

• Establish operating budget
• Approve pilot project
• Establish a team