Operations Research: Critical Applications for Business

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>> It's not just nice to have in today's competitive environment. If you don't do it you're losing out because your competitor's probably off.

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>> You're on an airplane and you find out the guy sitting next to you paid $350 more for his ticket than you did. Who came up with those prices?

>> This is Pam, how can I help you?

>> You're running customer service for a large credit card operation, nine different call centers, six different countries, seven days a week, 24 hours a day. How do you figure out how many people you need and how do you get your CFO to pay for it? You're running a retail apparel chain; thousands of products; hundreds of suppliers, tens of sizes and color combinations. How do you figure out how much of each product to have in each store? The answer to all of these questions is operations research--the science of the better.

>> Operations what?

>> In a nutshell operations research is the art and science of applying advanced analytical techniques to solve real practical business problems. Operations research helps managers make the most of their resources and opportunities that they have.

>> The world's largest package delivery company, UPS, uses OR for its routing and scheduling needs.

>> A typically UPS Hub can handle over 350,000 packages an hour. They handle 10 million ground packages everyday; two million air packages and those numbers are doubled during peak season and they're ground network is unbelievable. If you think about a network of 25 different places there are 15.5 trillion ways to route things from one place to another; just 25 places. Now think of the UPS now of course that's got thousands of locations. UPS in order to compete has really got to figure out how do we do things in the best way possible? In operations research is something that they invest millions of dollars in every year. They save hundred million dollars from those investments every year.

>> Online advertisers have also become more sophisticated with the help of operations research.

>> We know a lot about every customer we show an ad to on the internet. We know what sites they've visited, we know what products they've bought; we know whether they've been here before and what pages they've looked at. Using operations research, companies like Google and AOL have made an awful lot of money and saved advertisers an awful lot of pain by getting the right add in front of the right people at the right times.

>> Operations research has been around since the 1940's but a few new trends--faster computing, niche marketing and outsourcing have brought it back center stage.

>> For example, RFID on containers enables the shippers to track exactly where a container is at a particular time. It enables people to understand where their packages are and to make better decisions about where to send them and how to get them there. Operations research helps them do that smart routing.

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>> Back in the 1930's, Henry Ford said you could have any color model-T you like as long as it's black. Today, you can't even order a soda pop that simply. You've got to deal with diet coke, caffeine free diet coke, cherry coke, cherry coke with lemon and Splenda. And all of this adds complexity for anybody that's manufacturing, distributing and selling a product. On the one hand you want to have enough of it so you meet all of your customer demand; on the other hand you don't want to be stuck with extra inventory. Outsourcing in my mind is different companies working together to deliver a product or service to an end customer to create value. And when you've got different companies working together, you've got a lot of complexity. You've got different incentives, you've got building relationships and maintaining those relationships, structuring contracts, competing priorities, different motivations. All this is hard; all this requires a lot more smarter coordination. OR has played a huge role in that and has really enabled, along with smart information technology, has really enabled this outsourcing revolution.

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>> Today managers' jobs are becoming harder and harder as they face rising expectations, steep competitions and the relentless demands of customers, bosses, and employees. So isn't asking managers to also master advanced analytics a bit much?

>> You don't have to be a mathematician. What you really need to be is knowledgeable about your own business, the ins and outs of it, how it runs, where its potential weaknesses are, where the opportunities for improvement are. At that point, an operations research specialist can help you model it, analyze it, identify opportunities to improve, identify better ways to make decisions. For example, somebody running a UPS Hub doesn't need to know about combinatorial assumed spelling optimization. They need to know how they're conveyor belts run, who's on their staff, what kind of flexibility they have in terms of scheduling people, what kind of throughput they have through their facility, and what kind of options they have in terms of making changes. At that point, the OR people can help them make use of the data they have to figure out better ways to do things.

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>> Okay so you're sold. You know the ins and outs of your business but need an OR professional to optimize it. Who are you going to call?

>> The field is mature enough now so that there are operations research experts in virtually every area of business; electric power, airline pricing, internet advertising, the list goes on and on. OR is not a silver bullet, it can't magically tell you where to go but when you understand where you want to be it can help you get there a lot faster.

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>> For more information, go to bnet.com.

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