When working with clients on business processes ripe for optimization, we often must prove and quantify the potential benefits of an optimization project applied to their specific operations. Some executives may say, “But our business is different” or “We already are operating efficiently.” We then propose a low-risk project that centers on a cost-benefit analysis of their operations, through which we quantify the potential costs of implementing an optimization project as well as the estimated benefits.
The Optimization Edge
A Blog for Business Executives and Advanced Analytics Practitioners
Technologies: Data Science, Big Data, Optimization, Machine Learning, Artificial Intelligence, Predictive Analytics, Forecasting
Applications: Operations, Supply Chain, Finance, Health Care, Workforce, Sales and Marketing
In May 2017, I had the pleasure and honor of interviewing Ralph Gomory for the INFORMS History & Traditions Committee project to create oral histories of luminaries in the field. The interview was conducted at The Century Association, a private club to which Dr. Gomory belongs. To those familiar with optimization, Gomory is known for starting integer programming with the creation of the Gomory cutting plane algorithm, and for the column generation methods known as the Gilmore-Gomory approach to cutting stock problems. However, most of Gomory’s career was spent outside of the optimization arena, and I attempted with the interview to create a thread among his many accomplishments.
When you are thinking of engaging an optimization advisor or consultant, keep in mind a number of important considerations. Optimization consultants are quants who focus on applying optimization techniques to real-world problems, and they are a unique breed. Think of them as brainiacs on a mission. They are driven to achieve practical results. Their passion is to create software programs that push the limits of computer applications. They could not care less about solving purely theoretical problems. They prefer digging into the nitty-gritty details of running a business and are fascinated by the idea that software can improve operations: from reducing the miles that trucks must travel, to improving the way planes are scheduled, to finding the perfect price that maximizes both sales and profits. All good optimization consultants want to perform miracles, succeed where others have failed, go where few have ventured.
Leaders of Remsoft, which provides optimized planning and scheduling for land-based assets, sought to eliminate performance issues that were impacting in-house and client-side users of their software. Attempts to uncover the root causes, which were inhibiting solutions for a growing category of business problems, had been unsuccessful for several years. Ultimately, their identification and correction required a formal quality assurance evaluation by an outside party with expertise in modeling, interior point algorithms, numerical computing, solvers, and deployment of optimization systems.
Much more is involved in the designing step of an optimization project than in designing a traditional IT project plan. The former involves creating a detailed vision of how the software will work, what kind of value the optimization software can bring to the organization, and the steps by which the software development will be carried out.
Note: Dr. Randall further explains the benefits of combining simulation and optimization in the cover article of the current issue of Analytics Magazine.
North American railroads have invested billions of dollars in recent years on terminals and infrastructure to improve rail intermodal, the transportation of containers and trailers on flat cars, which accounts for a quarter of major railroad revenue. In some cases, these investments have included the development of advanced technologies and analytics to assist speed and service and to ensure that intermodal remains an essential transportation strategy for shippers.
Improving revenue management offers great potential value because it goes right to the bottom line without additional capital spending. Moreover, it is needed in a world where pricing is getting faster.
What exactly is revenue management? The application of disciplined analytics that predict customer behavior at the micro-market level and optimize product availability and price to maximize revenue growth. It is an example of “analytics in motion,” which uses real-time streaming data (that can be big, fast and noisy) and dynamic optimization to improve the quality of an organization’s continuous decisions such as: pricing, order acceptance, resource allocation, scheduling, routing, and forecasting supply/demand.
As a consultant, I spend time keeping up with the latest technologies that can assist us in the delivery of analytics-based projects. Many software vendors, both large and small, claim that using their software will automatically deliver great business value. I beg to differ. At Princeton Consultants, we always start with a business question whose answer brings value to the organization before building a model and analyzing data.