Operations Research- Management Science _OR-MS_ by AmnaKhan

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									           Operations Research/
           Management Science

       OR/MS at Our Corporation

Operations Research/Management Science   1
                        What We Do
 Our Accomplishments
 Our Mission
 Our Expertise
 Our Scope
 Our Approach
 Our Products

Operations Research/Management Science   2
           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

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                         Our Mission
 Help you cope with the challenge of making
   complex decisions by:
     – doing quantitative analysis that provides
       insight into our organization’s problem
     – providing you with sensible options and
       recommending courses of action

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                    Our Mission (con’t)

 OR/MS models can have a dramatic,
   positive impact on a project’s bottom line

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                       Our Expertise

 Provide internal business consulting
 Conduct modeling & analysis
     – Math modeling, simulation, decision support,
       data mining, optimization, revenue
       management, supply chain management,

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                 Our Expertise (con’t)

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

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                           Our Scope

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

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                      Our Approach
 Partner with management to frame and
  prioritize the issues
 Focus on business impact and
 Establish a disciplined, consultant’s
  approach through teamwork and

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                 Our Approach (con’t)

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

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                        Our Services

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

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                  Our Services (con’t)
 Scheduling
 Portfolio management
 Inventory analysis
 Forecasting
 Sales analysis
 Auctioning
 Risk analysis

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   A Few Words About OR/MS

 What is it?
 Conventional computing isn’t enough
 Combinatorial explosion
 The distinct nature of operations research
    and management science

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               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.

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    Conventional Computing Is
          Not Enough
 Cannot enumerate alternatives
 Combinatorial explosion of viable options

           “Few”                         Never Got
        Alternatives                     Outside the

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        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

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        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!

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            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

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                OR/MS Successes
       Best cases from the annual INFORMS
                Edelman Competition
             2002: Continental Airlines Survives 9/11
              2001: Merrill Lynch Integrated Choice
               2001: NBC’s Optimization of Ad Sales
           2000: Ford Motor Prototype Vehicle Testing
              1996: Procter & Gamble Supply Chain
          1991: American Airlines Revolutionizes Pricing

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   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.

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         Continental Airlines (con’t)
 Strategic Objectives and Requirements are
   to accommodate:
     –   1,400 daily flights
     –   5,000 pilots
     –   9,000 flight attendants
     –   FAA regulations
     –   Union contracts

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         Continental Airlines (con’t)

 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

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         Continental Airlines (con’t)

 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

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             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?

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                   Merrill Lynch (con’t)

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

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                   Merrill Lynch (con’t)

 Model Structure: Merrill Lynch’s
   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

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                   Merrill Lynch (con’t)

 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

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Case 3: NBC’s 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

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                NBC Ad Sales (con’t)

 Strategic Objectives and Requirements:
   Complete intricate sales plans while
   reducing labor cost and maximizing

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            NBC Ad Sales (con’t)

 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

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                NBC Ad Sales (con’t)

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

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    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.

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                     Ford Motor (con’t)

 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.

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                     Ford Motor (con’t)

 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.

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                     Ford Motor (con’t)

 Project Value: Ford reduced annual
   prototype costs by $250 million.

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     Case 5: Procter & Gamble
          Supply Chain

 Business Problem: To ensure smart growth,
   P&G needed to improve its supply chain,
   streamline work processes, drive out non-
   value-added costs, and eliminate

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          P&G Supply Chain (con’t)

 Strategic Objectives and Requirements:
   P&G recognized that there were
   potentially millions of feasible options for
   its 30 product-strategy teams to consider.
   Executives needed sound analytical support
   to realize P&G’s goal within the tight, one-
   year objective.

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          P&G Supply Chain (con’t)
 Model Structure: The P&G 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
     – Distribution/location
     – Product sourcing

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          P&G Supply Chain (con’t)

 Project Value: The overall Strengthening
   Global Effectiveness (SGE) effort saved
   $200 million a year before tax and allowed
   P&G to write off $1 billion of assets and
   transition costs.

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      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.”

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        American Airlines (con’t)
 Strategic Objectives and Requirements:
   Airline seats are a perishable commodity.
   Their value varies – at times of scarcity
   they’re worth a premium, after the flight
   departs, they’re worthless. The new system
   had to develop an approach to pricing while
   creating software that could accommodate
   millions of bookings, cancellations, and

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            American Airlines (con’t)
   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

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            American Airlines (con’t)

 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.

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          Some Important Points

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

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             Differences Between
                   OR and IT
   IT                                      OR
     – Focuses on data as a                  – Uses data as input
       corporate resource                    – Provides improved
     – Stores, retrieves,                      solutions
       formats, displays data                – Gives global focus
     – Understands business                       » Multiple objectives
       process and                                » Multiple criteria
       transactions                          – Evaluates tradeoffs

Operations Research/Management Science                                    45
        Key to Success: OR/MS

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

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 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.

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                           Next Steps
 Establish operating budget
 Approve pilot project
 Establish a team

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