The airline deregulation Act of 1978 spawned a host of low-fare carriers. They could make money while selling seats at a fraction of the price charged by established airlines. The big carriers, locked into hefty labor and legacy costs, had no clear way of leveling the playing field.
The airline deregulation Act of 1978 spawned a host of low-fare carriers. They could make money while selling seats at a fraction of the price charged by established airlines. The big carriers, locked into hefty labor and legacy costs, had no clear way of leveling the playing field.
The airline deregulation Act of 1978 spawned a host of low-fare carriers. They could make money while selling seats at a fraction of the price charged by established airlines. The big carriers, locked into hefty labor and legacy costs, had no clear way of leveling the playing field.
- FINANCIAL FIA5CO: |olly ol fnonciol modclcrs - 5OLUIION 5IAkIUP5: Scvcn principlcs ol succcss - VHICL kOUIING: Survcy ol culling-cdgc sollworc R T T P : / / W W W. A N A | Y T l C S N AGA Z l N E . C O N kVNU MANAGMNI
V5. 5OCIAL NIWOkKING Counlcr-mcosurcs oimcd ol lnlcrncl- conncclcd cuslomcrs Excculivc Edgc: Cisco V.P. Kcvin Rorringlon on voluc cboin monogcmcnl * u : G: ER M B <L F:@: S B G> ' <HF NOTREkS O| lNVENTlON l NS l DE S T OkY If necessity is the mother of inven- tion, then deregulation is the father, and revenue management is the couples golden child, at least as far as the airline industry is concerned. The Airline Deregulation Act of 1978 spawned a host of low-fare car- riers that could make money while selling seats at a fraction of the price charged by established airlines. That gave the upstarts a huge advantage. The big carriers, locked into hefty labor and legacy costs, had no clear way of leveling the playing eld. Their sheer size became a liability. All ma- jor airlines faced a troubling question: How can we compete? If we lower fares across the board, it doesnt mat- ter if we have a 100-percent load fac- tor well still lose money. And if we dont match the upstart airlines fares, well lose market share, and eventu- ally well be out of business. American Airlines solved the dilem- ma by offering different fare classes in each market. American matched the low-fare airlines prices with a portion of its seat inventory on certain routes and saved another portion for late-ar- riving, high-yielding demand (typically business travelers). Thus was born the concept of rev- enue management, but several ques- tions remained: How many seats do you sell at a discount and how many do you hold in reserve? When and by how much do you change the price of each bucket of inventory? Again, analysts and their tools of the trade forecasting, optimization, etc. came up with the answers. Virtually every airline in the world adopted some sort of RM system, and the concept inevitably spread to many other industries (hotel, cruise, etc.) where you nd perishable, limited capacity. Alas, RM couldnt solve every corporations problems. Many airlines still went out of busi- ness, crushed by some combina- tion of high legacy costs, soaring fuel prices, post-9/11 paranoia, the recession and good, old-fashioned corporate mismanagement. Today, the purveyors and man- agers of RM systems face a whole new threat: the Internet and the tech-savvy customers it spawns as outlined in our cover story. - PETEk ROkNEk, EDlTOk borncrlionbrlpub.com PAkAGON |U|| PAGE AkTWOkK G>P:KMPHKD PAGE 1 Experience how AIMMS enables you to apply OR successfully AIMMS is a registered trademark of Paragon Decision Technology B.V. Other brands and their products are trademarks of their respective holders. Europe, Middle East & Africa = Haarlem, The Netherlands = Phone: +31 (23) 5511 512 Americas = Kirkland, WA, USA = Phone: +1 (425) 576 4060 Asia Pacific = Singapore = Phone: +65 9640 4182 www.aimms.com = info@aimms.com Transparent and maintainable model formulation Point-and-click integration with data sources Seamless links to powerful solvers Fast GUI builder to visualize results and to interact with your model Hassle-free deployment alternatives to end-users lree AlMMS Viewer We/ Services lxcel aJJ-in COM o/ject All etc. and many more... ILOG CPLEX CONOPT OLE DB OBDC ... Please visit our website for application examples, industry case studies and a free full trial license. www.aimms.com DRIVING BETTER BUSINESS DECISIONS C C | | | S FAIUk5 kEVENUE NANAGENENT VS. SOClA| NETWOkKlNG ;rRnkbE^obgZg]C^__F\@bee /| c |.c w|c |cc|scvvy \cccccc|cc ccscs cc cc|c || c|s |cw s|c|c cccc.cs csccc SUCCESS|U| SO|UTlON STAkTUPS ;rC^kkr;ZgdlZg]D^gFnll^efZg Scvc scs|.cs cvcy sys|cs cc|ys| cccs |c 'cw . ccc |c |cc| c cc,cc| 'c c cccc' c ||c .|| cc| ON TRE kOAD TO CONNECTlVlTY ;rCZgb\^IZkmrdZZg]KZg]heiaAZee \c|.c|c c|. sc|wcc svcy ccc|.vc .|cc|.c c ccc|c cc.cc|.c cc |ccc|.c |cc|c|cy ANA|YTlCS AT UPS ;rC^__Pbgm^klZg]=hn`Fhak Ccccc|c cc||c ccv.ccs c .s.cc |cc' c| ||c |cc| |cc|s cccwc. $' c.||.c cc|.vcy cc |c.s|.cs ccccy WOk|D-C|ASS CON|EkENCE ;rMa^k^lZ<krZg /cc|y. Sc.ccc |c ||c /| c |s.css |cv.cw c |||C||S s|c'c cc|y|.cs cccccc . C|ccc 12 17 22 29 32 + u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u PB GM > K +) )1 Easier, More Powerful and Far More Visual. From its classic Solver Parameters dialog to its modern Ribbon, modeless Task Pane, and charts to visualize the and produce instant reports, charts and graphs, without programming. And you can do even more in Excel VBA. and a wide array of charts and graphs. One simple, consistent user interface makes learning and teaching Free Trials and Support for Your Eorts at Solver.com. about the many other ways we can support your teaching and learning eorts all at www.solver.com. THE BEST WAY TO TEACH AND LEARN OPTlMlZATlON RlSK SOLVER PLATFORM Tel 775 831 0300Fax 775 831 0314nfo@solver.com 32 22 12 |/|C|/ /||| | 2! DRIVING BETTER BUSINESS DECISIONS C C | | | S *)%896)7 K>O>GN>F:G:@>F>GMOL'LH<B:EG>MPHKDBG@ ;rRnkbE^obgZg]C^__F\@bee /| c |.c w|c |cc|scvvy \cccccc|cc ccscs cc cc|c || c|s |cw s|c|c cccc.cs csccc LN<<>LL?NELHENMBHGLM:KMNIL ;rC^kkr;ZgdlZg]D^gFnll^efZg Scvc scs|.cs cvcy sys|cs cc|ys| cccs |c 'cw . ccc |c |cc| c cc,cc| 'c c cccc' c ||c .|| cc| HGMA>KH:=MH<HGG><MBOBMR ;rCZgb\^IZkmrdZZg]KZg]heiaAZee \c|.c|c c|. sc|wcc svcy ccc|.vc .|cc|.c c ccc|c cc.cc|.c cc |ccc|.c |cc|c|cy :G:ERMB<L:MNIL ;rC^__Pbgm^klZg]=hn`Fhak Ccccc|c cc||c ccv.ccs c .s.cc |cc' c| ||c |cc| |cc|s cccwc. $' c.||.c cc|.vcy cc |c.s|.cs ccccy PHKE=&<E:LL<HG?>K>G<> ;rM^k^lZ<krZg /cc|y. Sc.ccc |c ||c /| c |s.css |cv.cw c |||C||S s|c'c cc|y|.cs cccccc . C|ccc 12 17 22 29 32 + u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u PB GM > K +) )1 Easier, More Powerful and Far More Visual. From its classic Solver Parameters dialog to its modern Ribbon, modeless Task Pane, and charts to visualize the and produce instant reports, charts and graphs, without programming. And you can do even more in Excel VBA. and a wide array of charts and graphs. One simple, consistent user interface makes learning and teaching Free Trials and Support for Your Eorts at Solver.com. about the many other ways we can support your teaching and learning eorts all at www.solver.com. THE BEST WAY TO TEACH AND LEARN OPTlMlZATlON RlSK SOLVER PLATFORM Tel 775 831 0300Fax 775 831 0314nfo@solver.com 32 22 12 |/|C|/ /||| | 2! Analytics (ISSN 1938-1697) is published six times a year by the Institute for Operations Research and the Management Sciences (INFORMS). For a free subscription, register at http:// analytics.informs.org. Address other correspondence to the editor, Peter Horner, horner@lionhrtpub.com. The opinions expressed in Analytics are those of the authors, and do not necessarily reflect the opinions of INFORMS, its officers, Lionheart Publishing Inc. or the editorial staff of Analytics. Analytics copyright 2010 by the Institute for Operations Research and the Management Sciences. All rights reserved. |kONT|lNE |U|| PAGE AkTWOkK G>P:KMPHKD PAGE 3 DRIVING BETTER BUSINESS DECISIONS 0PAkIMNI5 lNSlDE STOkY EXECUTlVE EDGE PkO|lT CENTEk VlEWPOlNT NEWSNAKEkS ANA|YTlCS lN ACTlON |AST WOkD 1 4 6 8 10 35 37 , u : G: ER M B <L F:@: S B G> ' <HF REGISTER FOR A FREE SUBSCRIPTION: http://analytics.informs.org INFORMS BOARD OF DIRECTORS President Susan L. Albin, Rutgers University President-Elect Rina Schneur, Verizon Network & Tech. Past President Don M. Kleinmuntz, Strata Dec.Tech. Secretary Anton J. Kleywegt, Georgia Tech Treasurer Stephen M. Robinson, Univ. of Wisconsin Vice President-Meetings Robin Lougee-Heimer, IBM Research Vice President-Publications Terry P. 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Horner horner@lionhrtpub.com Tel.: 770.587.3172 Senior Art Director Alan Brubaker albrubaker@lionhrtpub.com Tel.: 770.431.0867, ext.218 Junior Art Director Kat Wong katwong@lionhrtpub.com Tel.: 770.431.0867, ext.223 Advertising Sales Sharon Baker sharonb@lionhrtpub.com Tel.: 813.852.9942 4 35 Risk Analysis is Easy as What-If with our Ultra-Fast, In true Excel 2007 style, select from galleries, drag and watch charts update instantly with new results. produce instant reports plus standard, Overlay, Trend and Box-Whisker charts, without programming. the consistent user interface makes learning and teaching Free Trials and Support for Your Eorts at Solver.com. about the many other ways we can support your teaching and learning eorts all at www.solver.com. THE BEST WAY TO TEACH AND LEARN SlMULATlON RlSK SOLVER PLATFORM Tel 775 831 0300 Fax 775 831 0314 info@solver.com Managing a global value chain for a $40 bil- lion company is a complex challenge. Thank- fully we have 9,000 colleagues to help us in our Customer Value Chain Management orga- nization at Cisco. My role is to lead a glob- al business operations team responsible for, among other things, strategy and planning, supply chain capability creation, ERP evolu- tion and business intelligence across an end- to-end spectrum of disciplines that we call the customer value chain. The value chain, as we dene it, goes beyond traditional supply chain management and covers everything from new product introduction and demand manage- ment through order management, sourcing, manufacturing, quality management, logistics, recycling and re-use. We developed this holistic approach as part of a business transformation program launched at Cisco approximately ve years ago. Our strategy was to bring together for- merly silo-ed teams around a shared nucleus of governance, metrics and culture. The accel- erated collaboration produced changes that have worked well for Cisco and our customers, helping us expand into new markets around the world while improving the customer experience and key metrics such as quality yields, on-time shipment and inventory turns. Today, when my boss asks for ideas on how to take our trans- formation to the next level of productivity and customer service, I begin my answer with two words: operations research (O.R.). O.R., I believe, presents us with key op- portunities to up-skill our organization, conrm our strategic directions and make better op- erational decisions every minute of every day. This has become clear, as our aspirations as a company have broadened beyond our core strength in networking equipment to encom- pass as many as 30 new market adjacencies. Cisco is not only expanding into new data cen- ter, virtualization and video markets; we are also reaching whole new customer segments such as home consumers making their own videos and downloading entertainment. These new markets produce added com- plexity. Working with outsourced contract manufacturers and thousands of suppliers, we now design and build more than 300 ma- jor product families. Most of these products are custom-congured and built-to-order, but many now are built-to-stock. Some products need carrier-grade reliability and high-touch customer support. Others need to be localized or manufactured and shipped within legal, reg- ulatory and tax frameworks specic to different countries, including fast-growing but uniquely demanding markets in places such as China, India, Mexico and Brazil. In this multi-faceted environment, we no longer manage the supply chain. Instead, we are tasked to design and manage multiple high-performance global supply chains with different characteristics for multiple business models. As the mission grows more complex, and as the interdependencies among different areas of our operations continue to increase, it is becoming obvious that out-of-the-box soft- ware and conventional program management are not going to cut it. Increasingly, we are go- ing to need hardcore statistical analyses and other advanced analytics techniques to make smart decisions on forecasting, risk manage- ment, capacity planning and many other areas across our global operations. This optimism about O.R. is more than just academic speculation. O.R. has already made a significant impact on our value chain in areas such as demand management. Forecasting customer demand is, of course, a central part of supply chain management and a critical enabler of lean manufacturing. This discipline becomes ever more challeng- ing in times like our own characterized by rapid changes in the macro-economy and volatile swings in supply and demand. In fact, Ciscos need to write off some unused inven- tory after the dotcom bust in 2001 provided some of the impetus for the larger transfor- mation of our value chain. Ciscos determination not to repeat that experience led to an initiative to establish a world-class demand management and plan- ning capability. Constant changes in demand and our complex product mix made it clear that we couldnt count on the forecasting models - u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) SEElNG TRE |UTUkE lN VA|UE CRAlN NANAGENENT BY KEVlN RAkklNGTON ClSCO`S STkATEGY: BklNG TOGETREk |OkNEk|Y Sl|O-ED TEANS AkOUND A SRAkED NUC|EUS O| GOVEkNANCE, NETklCS AND CU|TUkE. E XE C U T l VE E D G E in conventional demand-planning applica- tions. In response, we began to recruit O.R. experts and point them at the problem. They responded by developing a forecast genera- tion process that combines advanced ana- lytics, which are applied to enterprise data on bookings and historical demand, with a consensus process incorporating current in- sights from sales, marketing and finance. To generate the best possible forecast for each product line, the analytic process compares the performance of a range of methodolo- gies over the available data. Because de- mand varies widely across different product lines, this ability to tailor both the data set and the analytic methodology has enabled Cisco to achieve significant improvements over a one size fits all approach. The results include better forecast ac- curacy, increased inventory turns and an overall improvement in supply-demand bal- ancing that has paid off for both Cisco and our customers in the form of reduced excess inventory and faster, more reliable service. During the worst of the recent economic downturn, Cisco was able to reduce inven- tory in the supply chain without write-offs or a fall-off in customer service. Today, our statistical forecasting experts are working to further refine the entire process and manage the increased demand caused by the global economic recovery. Managing risks associated with the econ- omy, political events, natural disasters and other potential disruptions is another area where O.R. expertise is helping us trans- form our value chain. Analytics allow our risk management team to quantify the impact of a supply chain node being disrupted. By cor- relating business continuity planning data, probability data and ERP data, we can fo- cus on those nodes that represent the high- est risks to a supply chain. This helps guide our capacity planning as well as contingency plans, and we gain the ability to keep prod- uct flowing to our customers independent of world events. For example, when Bangkoks airport was shut down by protestors in 2008, Cisco had truck convoys ready to move product from our partners nearby factory to an airport in Malaysia, sparing our custom- ers any disruption. Looking ahead, many additional opportuni- ties for O.R. exist within our value chain op- erations. For example, we have made good progress in implementing Six Sigma methods across our contract manufacturing and supply network, but we now have an opportunity to analyze the results of those changes to rene our future best practices and calibrate our in- vestments. In addition, we are looking at ways to use analytics to integrate resiliency into our value chain design process. This would help us balance risks with competing objectives such as cost and exibility. Overall, O.R. has the potential to enable a new level of productivity in Ciscos global value chain organization, along with an unri- valed customer experience. Analytics enable us to understand and automate an expand- ing list of data-intensive tasks and quickly get good answers to questions that are becoming more complex every day. How, for example, can we optimize innovation, operational ex- cellence and customer service, driving down costs even as we make new strategic invest- ments? With the added insights generated by O.R., we can secure competitive advan- tage while accelerating performance. That is a formula that pays off for our customers and our business. Kevin Harrington is vice president of Global Business Operations in Ciscos Customer Value Chain Management organization. . u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) DUklNG TRE WOkST O| TRE kECENT ECONONlC DOWNTUkN, ClSCO WAS AB|E TO kEDUCE lNVENTOkY lN TRE SUPP|Y CRAlN WlTROUT WklTE-O||S Ok A |A||-O|| lN CUSTONEk SEkVlCE. E XE C U T l VE E D G E Ciscos global value chain includes fast-growing but uniquely demanding markets such as China, India, Mexico and Brazil. A common question when starting down the path of analytics is whether to start big, small or somewhere in between. Like so many things in life, theres no one simple answer. There are, however, some useful guidelines. 5IAkIING 5MALL Common wisdom is to start small: find a good, specific project, make it a success and then build on that success. Management at a waste management firm might ask if it was possible to reduce the number of trucks and drivers it uses through better dispatch- ing. The problem can be examined by an individual with a combination of operations research and computer skills and a project sponsor with the clout to get access to the necessary data and people. Starting small can be an effective approach, but in practice it often indicates a lack of cor- porate interest. If the project sponsor is the CEO, the projects on solid ground. However, if the sponsor is a mid-level manager with a new idea, the project has a good chance of going nowhere. When starting small, its necessary to have a clear plan for expanding. Project participants need to spark excitement in the people they interact with, both before and during the proj- ect. Its also necessary to get management commitment up front for moving forward if the project is successful. If the commitment is, OK, give it a try, and well look at the results and think about what to do next, the projects almost certainly not worth the time to begin with. If the commitment is, OK, give it a try, and if its successful, Ill help you get support to roll out the results in the Eastern region, the project has a ghting chance. Its important to get that level of commitment early on. If not, its better to look for another project or nd an- other sponsor. The best way to get a commitment is to define the project around a problem of clear interest to someone else. The manager of a waste disposal facility isnt interested in re- ducing the number of trucks he has. More likely, hes willing to fight to keep them. Find- ing out how to help the facility manager solve a problem hes dealing with say, having fewer angry customers through better dis- patching practices is the best way to get project commitment (assuming, of course, that the facility managers ideas align with corporate goals). 5IAkIING 8IG While starting small can be effective, some- times its neither possible nor desirable to do so. If a big opportunity presents itself, and mo- mentum within the organization is to move for- ward, its almost always best to grab the reins and go. A good example outside the analytics do- main is the introduction of human resource planning software into an organization. The software is designed to manage human re- sources throughout an entire organization. Even if it would potentially make sense to try the software on a small part of an organiza- tion before undertaking a corporate overhaul, software sales agents sell a corporate vision, and organizations purchase that same vision. Such a large project will certainly be broken into smaller, more manageable rollouts. But the concept from the very beginning is, in a word, big. A good example in the analytics do- main is airline revenue management software, where decisions on what seat inventory to sell on one ight impact similar inventory decisions on all other ights throughout the network. In big projects, the focus shifts from convinc- ing management that analytics is of value to making the project successful. The very nature of a big project is that the value decision has been made. Nonetheless, as an analytics proj- ect, part of the value will be how much money the project makes or saves the organization based on the decision support it provides. When hu- man resource planning software is implement- ed, the value in terms of improved workow has already been accounted for. The same is true of an airline revenue management system, but airlines will nonetheless want after-the-fact demonstrations of the value. How much money did the revenue management system make last month? Is it giving results that make sense? Measurement and evaluation are common to / u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) CkAW|, WA|K Ok kUN BY E. ANDkEW BOYD Wbclbcr you`rc louncbing on onolylics corccr or pro|ccl, is il bcsl lo slorl big, smoll or somcwbcrc in lbc middlc? P k O| l T C E NT E k all analytics projects, and are a topic well ad- dress in a future column. 5IAkI IN IH MI00L There are, of course, intermediate proj- ects. A good example is a grocery store chain testing a new pricing strategy at an individual store. Pilot projects of this nature require the involvement of multiple individuals. The orga- nization has enough faith in the effort to give analytics a try, but the ultimate decision has yet to be reached. In many ways, pilot projects are the most difcult, since they carry the bur- den of both developing corporate commitment, like small projects, and making a project with many moving parts a success. Pilot projects seem like a good idea, and they can be. An analytics project that demonstrates value in the laboratory is shaken out in the real world. Where problems arise is that the real world brings analytics professionals with new ideas face to face with professionals whove been doing their job for many years. As a result, pilot projects are often more fractious than help- ful. With no clear go/no-go decision made by management, theres endless room for bickering. Theoretically, bringing together many different opinions is a good idea, with the best decision rising to the top. In practice, the go/no-go deci- sion is a complex mix of facts and politics. Some of the problems can be mitigated if upper management conveys that a decision to move forward has been made and that the pi- lot project is an effort to iron out details. As a result, its worth the effort to seek this level of commitment before the project starts. If more work needs to be done to demonstrate that the underlying analytics has sufcient value, its easier to do so before beginning a pilot project. That doesnt mean ignoring those individuals in the eld, outside the laboratory. Quite the contrary. Analytics can only be successful if it deals with all the real world complexities of a problem. But its far more efcient to air the facts, make a decision and move forward than to be in a state of constant indecision. Too often, the decision to undertake a pilot project simply pushes problems into the future that are better dealt with now. 5UMMAkY Crawling, walking and running all have their advantages and disadvantages when starting down the path of analytics. But even if one ap- proach was clearly best, the approach thats ultimately taken is largely shaped by the cir- cumstances. Common to all approaches and really to all managerial decision-making is the need to understand the environment, have clear goals and choose a carefully reasoned path a path to success. Andrew Boyd served as executive and chief scientist at an analytics firm for many years. He can be reached at e.a.boyd@earthlink.net. 0 u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) TREOkETlCA||Y, BklNGlNG TOGETREk NANY Dl||EkENT OPlNlONS lS A GOOD lDEA, WlTR TRE BEST DEClSlON klSlNG TO TRE TOP. lN PkACTlCE, TRE GO/NO-GO DEClSlON lS A CONP|EX NlX O| |ACTS AND PO|lTlCS. P k O| l T C E NT E k One of the most influential mathematical finance models ever is the so-called Gauss- ian Copula model. Now consigned to the dustbin of failed experiments, the Gaussian Copula enjoyed untold stardom in the early years of this century, becoming central in the valuation and rating of the convoluted mortgage-related assets that unleashed the credit crisis. The formerly glorious concoction prom- ised to accurately estimate the joint default probabilities and default correlations of a bunch of debt securities pooled together. It was widely embraced around the finan- cial industry as a trusted indicator of the likelihood that a lot of the (often dodgy) mortgages making up those infamous Col- lateralized Debt Obligations would turn nasty concurrently. Due to its technical in- tricacies, the Gaussian Copula typically de- livered bland default correlation estimates, facilitating the confidence-building AAA-ing of junky subprime investments. As is now only too obvious, the model failed drasti- cally as numerous clustered defaults took place rather more habitually than theoreti- cally predicted. The models failure would not seem that surprising to those aware of the origi- nal rationale for its embedding in Finance- land. David Li, the father of the hitherto reputable mathematical baby, initially got his inspiration from academics engaged in modeling the broken heart effect (cal- culating the odds of a person dying once their significant others have passed away, an important concept in actuarial science). Believing that default is like the death of a company, so we should model this the same way we model human life, Li saw it only fit to apply the mathematics of death correlation to the tackling of default corre- lation. That is, the quantitative device that aided and abetted the lethal trading in toxic mortgage stuff first made its entry into the markets because someone saw nothing wrong with equating financial activity with the workings of the human body. Thats as odd as concluding upon seeing stock pric- es go up and down that the science behind elevator-building should be used to fore- cast the S&P 500. As would be plain to a 10-year old, just because companies, like people, can die, that doesnt imply that, barring the complete loss of our common sense, we can analyze debt defaults as the loss of a human life. No wonder the Gaussian Copula suffered an unmitigated defeat out there in the heart- less markets. Unfortunately, David Lis is not the only instance of wildly inappropriate analogies when it comes to financial modeling. Math- ematicians and theoreticians appear inca- pable of not attempting to equate market activity to all sorts of odd, insultingly un- related fields. For decades weve heard fi- nancial economists and assorted scientists tell us that market pros are like molecules, and that if you know physics then youve got the markets mapped. The ignored ram- blings of hopeless cranks? Far from it. Models borrowing from exactly such odd- ness have been furiously applauded, em- braced and granted the Nobel. Meanwhile, markets and real traders kept busy trotting along in a notoriously non-molecular fash- ion, naturally. These days, biological finance appears to be the new in phrase. Bank portfolios should be modeled on savannahs (appar- ently tropical rainforests are to be avoided at all costs). Regulators should heed the dic- tums of marine experts. In epidemiologists apparently lies the solution to too-big-to- fail. Mathematical biologists, mirroring the now-prevalent physicists, are reportedly try- ing to jump into the financial bandwagon, at- tempting to succeed where so many other brainiacs fell by the wayside before. Upon contemplating such process, the rest of us should worry. Bad things have afflicted the world fol- lowing the adoption of the creations of those bent on treating finance as something else. 1 u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) TRE PEkl|S O| EOUATlNG BANKEkS TO BEES BY PAB|O TklANA NATRENATlClANS AND TREOkETlClANS APPEAk lNCAPAB|E O| NOT ATTENPTlNG TO EOUATE NAkKET ACTlVlTY TO A|| SOkTS O| ODD, lNSU|TlNG|Y UNkE|ATED |lE|DS. V l E W P Ol NT The crash of October 1987 was caused by the use of a theory that espouses that stock prices behave like dust particles. The re- cent mayhem owes a lot of its misery not just to mathematically confusing corporate bankruptcy with human mortality, but also to assuming market activity to be a realm of chaos-devoid calmness. We should aim to prevent the next big troubles from emerg- ing via the adoption of a formula that de- picts hedge fund managers as pollinating bees. A big reason why we know that the odd mathematical homologies are unsound is that the process would certainly not work backward. Would a financier (even if quanti- tatively skillful) be able to accurately map the physical terrain, based solely on his market career? Be able to model death? Be able to model the survival rate of an ecosystem? Of course not. For the simple reason that finan- cial practice has little to do with the science of physics, mortality or biology. Just like a career trader would not be considered an authority on fisheries management or atomic studies, should non-financiers bearing irre- mediably weird theorems be given credence in Financeland? Pablo Triana (climacover@gmail.com) is the author of Lecturing Birds on Flying: Can Mathematical Theories Destroy The Financial Markets? 2 u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) TRE BlkDS AND TRE BEES: |ECTUklNG BlkDS ON ||YlNG AUTROk PAB|O TklANA WAkNS |lNANClA| NODE|EkS AGAlNST DEPlCTlNG REDGE |UND NANAGEkS AS PO||lNATlNG BEES. V l E W P Ol NT kEADEkSRl P SUkVEY Give us your opinion: http://vista-survey.com/survey/v2/survey2.dsb?ID=4850246745 HUMANIIAkIAN k5AkCH GkOUP kACI5 IO HAIII In the aftermath of the dev- astating earthquake in Haiti, one of the aftershocks facing the country is not seismic in na- ture, but concerns the struggle to coordinate relief efforts in order to reach those in need most effectively. INSEADs Humanitarian Re- search Group (HRG), part of the INSEAD So- cial Innovation Centre, has worked closely with many humanitarian organizations such as the International Federation of the Red Cross/ Red Crescent, World Food Programme, World Vi- sion International and Mdecins San Frontires. By listening to the needs and experiences of these partner organizations, INSEAD HRG has obtained rst-hand knowledge of the issues affecting humanitarian logistics in responding to disasters. HRG has developed a rigorous methodology to analyze these issues, develop solutions and disseminate knowledge to those working in and with the humanitarian sector. We are closely monitoring events in Haiti and have been in contact with many of our partners who are working there, says Profes- sor Luk Van Wassenhove (photo), director of the Social Innovation Centre and founder of INSEAD HRG. It is already a country with a lot of poverty and weak infrastructure, so the logistical challenges faced by humanitarian or- ganizations on the ground will be great. The tragedy in Haiti has prompted a rapid international reaction and outpouring of aid. The magnitude of the disaster combined with severe infrastructure, security and communi- cation problems illustrates the crucial need to continue working on this topic. For more on the INSEAD Social Innovation Centre, its reaction to the Haiti Earthquake and a video interview with Luk Van Wassenhove and Rolando Tomasini, manager of INSEAD HRG, click here: http://www.insead.edu/facul- tyresearch/centres/isic/HaitiEarthquake.cfm kAPI0 0LIVkY OF VACCIN5, ANII0OI5 The ongoing threat of the H1N1 u, future pandemics and biowarfare have given new urgency to pioneering research done by Professor Eva Lee (photo) of Georgia Tech on the rapid design and deployment of lo- gistical strategies to deliver both vaccines and antidotes during medical crises. Lee, in collab- oration with the Centers for Disease Control, is the creator of RealOpt, a decision support system enabling real-time strategic and opera- tional planning for large-scale systems model- ing and optimization for public health. RealOpt is designed to take the guess- work out of mass dispensing of medical countermeasures by providing good esti- mates of resource needs and operational performance. In numerous anthrax exercis- es and flu vaccination events conducted in the United States, emergency planners were able to determine best facility layout, opti- mal staffing and throughput, cost-effective operations, and perform strategic and oper- ational planning. The system provides rapid scenario analysis and makes dynamic deci- sion analysis instant and scalable. A more mature system since rst deployed in 2003, RealOpt is used not only by public health directors and coordinators (more than 1,600), but also by some re departments, school districts and the U.S. military for the purpose of setting up vaccine dispensing sites. It has been used for efcient clinic layout design, optimal resource al- location and disease propagation analysis. Plan- ning has been carried out for anthrax response exercises, actual u vaccination clinic operations and for hepatitis vaccination. Lees work has become an integral part of White House and DHS planning and discus- sions for preventing and preempting health care threats. Last year, the Department of Health and Human Services invited Lee to the White House for a public meeting to discuss H1N1 vaccine distribution issues and to share her knowledge on vaccination distribution, dis- pensing and tracking strategies with state, lo- cal and tribal public health directors. Professor Lee also works with White House Biodefense Policy and Medical Prepared- ness Policy Directors on matters related to *) u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) DlSASTEk kE|lE|, BlODE|ENSE PO|lCY, NANAGENENT lDEAS lT lS A|kEADY A COUNTkY WlTR A |OT O| POVEkTY AND WEAK lN|kASTkUCTUkE, SO TRE |OGlSTlCA| CRA||ENGES |ACED BY RUNANlTAklAN OkGANlZATlONS ON TRE GkOUND Wl|| BE GkEAT. NE W S N A K E k S emergency response, mass casualty mitiga- tion and medical preparedness and policy. RealOpt-regional is an interactive online software enterprise that features visualization tools and large-scale optimization. The system equips users with spatial understanding of im- portant landmarks in the region, assesses the population densities and demographic makeup of the region, and identies the most cost-ef- cient network of dispensing sites and modali- ties for effective population protection. Besides specifying the number of necessary healthcare workers, security personnel and oper- ations personnel, the system displays the demo- graphic mixture of the region to help emergency planners identify appropriate personnel for spe- cial needs (e.g., pediatric assistants, translators). Economic analysis can be performed to identify combinations of dispensing modalities (walk- through, drive-through, public, private, mobile, or postal) to accommodate the affected population in a timely and effective manner. Lees effort aligns particularly well with the recent news that the Department of Health and Human Services will review in rst-quarter 2010 how the nation can more quickly devel- op and produce medical countermeasures for public health emergencies. 'ANALYIIC5' MAK5 H8k'5 LI5I OF IOP I0A5 Competing on Analytics wasnt just a best-selling book by co-authors Tom Davenport (photo) and Jeanne Harris (photo), it was also one of 12 most inuential management ideas of the millennium (so far) according to a handful of edi- tors at the Harvard Business Review. Decades of invest- ment in systems capturing transactions and feedback nally yielded a toolkit for turning all that data into intelligence, wrote the editors. Operations research types, long consigned to engineering realms like manufacturing sched- uling, got involved in marketing decisions. Managers started learning from experiments that were worthy of the name. Davenport and Harris both recently contrib- uted articles to Analytics magazine. Davenport wrote The Rise of Strategic Analytics for the Executive Edge column in the Fall 2009 issue (http://viewer.zmags.com/publication/2d674a 63#/2d674a63/5), while Harris was co-author of a feature article, How to Organize Your Analytical Talent, that appeared in the Janu- ary/February 2010 issue (http://viewer.zmags. com/publication/ed2f8ceb#/ed2f8ceb/16). Along with Competing on Analytics, HBRs list of most inuential ideas included: Share- holder Value as a Strategy, IT as a Util- ity, The Customer Chorus, Enterprise Risk Management, The Creative Organization, Open Source, Going Private, Behavioral Economics, High Potentials, Reverse Inno- vation and Sustainability. For the complete story, click here (http:// blogs.hbr.org/hbr/hbreditors/2010/01/the_ decade_in_management_ideas.html). ** u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) ECONONlC ANA|YSlS CAN BE PEk|OkNED TO lDENTl|Y CONBlNATlONS O| DlSPENSlNG NODA|lTlES lWA|KTRkOUGR, DklVE- TRkOUGR, PUB|lC, PklVATE, NOBl|E, Ok POSTA| TO ACCONNODATE TRE A||ECTED POPU|ATlON lN A TlNE|Y AND E||ECTlVE NANNEk. NE W S N A K E k S <HGG><M>=%M><A&L:OOR<HGLNF>KL<:GLB@GB?B<:GMER EHP>KK>O>GN>L'AHPLAHNE=<HFI:GB>LK>LIHG=8 IF WE DONT invent an answer to this were history... These words could serve as a cautionary note to any managers who ignore the importance of analytics in their industry. They are attributed to Donald Burr, the entrepreneur who helped found People Express Airlines in 1981 and, over the next four years, led it through exceptional growth to revenues nearing $1 billion reportedly the fastest growth of a U.S. company in history to that time [Cross, 1997]. The company worked with a lean workforce and minimal overhead while providing no-frills service. This allowed it to offer airfares signicantly lower than those of any major competi- tor. By 1985, People Express was the fth largest U.S. passenger carrier and was directly challenging major U.S. airlines in many of their key markets. What Burr needed to invent an an- swer to was an extraordinary action tak- en by American Airlines. In January 1985, American introduced deep discount fares across its ight network, including every route own by People Express. American was a full-service airline with much higher xed costs than those of People Express. How could it sustain these prices without threatening its own survival? Americans secret was its new yield management system, which permitted it to maintain or increase its protability while lowering fares for signicant amounts of seat inventory on nearly every ight. This was not short-term predatory pricing at a loss the airline could sustain these pric- es until competitors either responded by kEVENUE NANAGENENT lN TRE EkA O| SOClA| NETWOkKlNG BY YUkl |EVlN l|E|T AND 1E|| NcGl|| lklGRT IF II WE to thi Th ti I CAU T l ONA kY TA | E *+ u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) *, u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) increasing their service levels (and prices) or went out of business. People Express did attempt to change its business model but ultimately failed, and the airline was forced out of business two years later. This is a classic example of what has been called strategic analytics [Davenport, 2009] detailed, data-driven analyses sup- porting outcomes of strategic importance for a company. In the case of American Airlines, the analysis involved careful cal- culation of the number of discount seats on each ight that could be sold early without excessive revenue loss from late-booking, high-fare customers. These calculations depended critically on the probabilities or odds of future levels of passenger de- mand for full and discount fares based on computer records from thousands of past ights. In effect, Dallas-based American played a winning game of Texas Hold-em against an ill-equipped competitor. American subsequently reported reve- nue gains of $1.4 billion over three years directly attributable to its yield manage- ment system [Smith, Leimkuhler and Dar- row, 1992]. Such publicized successes in the airline industry were soon followed by expansions into related businesses in the travel and hospitality industries and, later, into areas like broadcasting, event ticket sales and seasonal goods retailing. Yield management is now more commonly called revenue management (RM) or its newer counterpart, dynamic pricing. The growth of the Internet and other information technologies has had obvious and important impacts on the spread of RM for producers. There are, however, inter- esting implications for RM in the spread of Internet applications for consumers. Man- agers of existing RM systems face genuine challenges from consumer-based systems in the age of social networking. A variety of responses are possible, but the key is to recognize the need. What is revenue management? The usual answer is something along these lines: Charge the right price to the right custom- er at the right time; however, this sounds more like a slogan than an answer. Many managers would rightfully ask: Whats new about that? Indeed, this matching of price, customer and time is the outcome of good ol-fashioned haggling if all goes well, the customer receives something for less than they would have been willing to pay, and the seller receives more than their minimum ac- ceptable price. An economist would say that the customer receives a consumer surplus and the seller a producer surplus. A skilled negotiator on the producers side can maxi- mize his or her surplus by minimizing each customers surplus (while leaving customers somewhat satised). This, of course, means that prices are likely to be different for every consumer. Revenue management aims to maxi- mize a producers surplus in modern mar- kets, where prices cannot be determined one customer at a time. Instead, different prices are charged to different segments of customers according to their estimat- ed willingness to pay. Negotiation is re- placed with fencing that aims to limit switching of customers from high-priced to discounted products. In most settings, economic surplus translates directly to revenues, and, in industries like the air- lines with high xed and low marginal costs, revenues mean prots. Firms practicing RM are not the only winners differential pricing can extend the possibility of purchase to a much wider population of consumers who were formerly priced-out of the market. In effect, there is a partial transfer of consumer surplus from well-healed consumers to those less fortu- nate a form of free-market socialism! Conditions appropriate for RM are typically based on the airline and hotel situations: perishable assets, nite ca- pacity, low marginal costs and ability to use differential pricing. Recent expan- sions into areas such as retail sales have blurred the distinction between RM and other pricing practices, but regardless of the terms used, the basic objectives re- main the same. For further details of RM theory, many excellent references are available, including [Phillips, 2005] or [Talluri and van Ryzin, 2004]. How are RM and dynamic pricing re- lated? In its early days RM was an inventory control technique. Prices for different mar- ket segments were announced by market- ing departments, and operational decisions were limited to deciding how many assets to allocate to each price class. As the strategic importance of RM grew, the need for coor- dination of prices and the quantities became apparent. In modern systems, price uc- tuations can occur either because different predetermined price classes are opened or closed (inventory control) or because prices are being adjusted over time within market segments (dynamic pricing). The choice to use inventory control, dynamic pricing or both gives analysts signicant exibility. The re- sult looks the same to the customer prices that uctuate over time but the differences can be substantial in implementation. Where is RM practiced today? RM developments have been reported in k . N . & S OC l A | NE T WOk K l NG RE|P PkONOTE :G:ERMB <L Its fast and its easy! Visit: http://analytics.informs.org/button.html *- u : G: ER M B <L F:@: S B G> ' <HF all of the following areas: air, rail and cruise travel; lodging, hotels and ca- sinos; car rentals; sporting and enter- tainment event ticket sales; retail sales, particularly seasonal or short-life-cy- cle goods; Internet search (click and ad pricing); broadcasting (advertising time); Internet service providers; cel- lular telephone services; cable televi- sion; manufacturing; energy markets; sea and air cargo and freight; nancial services; and health services. Given the scope of this expansion, it might be more sensible to ask where it has not been applied. Good overviews for most of these can be found in the general RM references listed earlier. Social networking and Strategic Consumers what todays RM manag- ers need to gure out an answer to. Consumers can become aware of the patterns of price reductions prac- ticed by producers, particularly if these are systematized by RM practices, and become strategic; for example, de- laying their purchases to times of an- ticipated lower price. There is nothing really new here; some cost-conscious purchasers can always be counted on to wait to the end of a model run for a lower price. However, the capabilities of the Internet open up the possibility of entirely new levels of sophistication for consumers. We classify these op- portunities under the general heading social networking, but potential devel- opments certainly extend beyond the range of Facebook and Twitter. Here are some examples: Buyers cooperatives are an old phenomenon with new potential. In their traditional form, such co- ops aggregate purchase requests for individual consumers or small retailers and then use increased buyer power to seek quantity discounts or other favorable terms. It is now feasible for consumers who are informally linked on the Web to quickly form a buyers club and exercise similar power. Such co-ops could form and dissolve in a matter of days for the sole purpose of acquiring the latest hot product at a discount, or they could become a permanent and expanding reality. RM systems that use bulk purchasing as a fence for their market segments beware! Online markets such as E-Bay or Craigslist are widely used for exchange of both old and new assets. They are also used for exchange of tickets for entertainment or sporting events perhaps an k . N . & S OC l A | NE T WOk K l NG *. u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) innocent transfer for someone who cant use the tickets, but more often, high-tech scalping. It is well known that holders of season passes to popular venues can more than pay for their passes in the secondary market. Essentially, social networking can create an informal futures market for virtually any good or service that can be transferred. (Airlines are protected from this because airline reservations are linked to purchasers and, with heightened security, particularly difcult to transfer.) These consumer behaviors can be likened to tunneling under the fences that suppliers have created to segment their markets; for example, a late-purchaser who gets a ticket for something close to an advance purchase price. Managers of venues and ticket brokers are well aware of these practices and have been trying to devise strategies to combat them, but it is not yet clear what success they are having. (Efforts of suppliers to enter the unofcial markets themselves have led to howls of unethical conduct [see, for example, MusicFiX, 2009].) The key conclusion is that any proposed or existing RM system that involves transferable assets needs to be alert to the possibility of an unofcial futures market in their business. All that is needed for such developments are prices that vary over time in a manner that is somewhat predictable. Transparency of pricing is perhaps the most immediate impact of the internet and social networking. Firms accustomed to practicing differential pricing selectively and opaquely may now have their prices exposed either ofcially through their own Web sites or unofcially, through consumer networking. This can have the unintended effect of making some consumers aware of more appealing market segments for themselves. Online pricing advisors amplify price transparency. Companies such as Expedia, Travelocity and Priceline currently give consumers free passive information about prices across the travel and hospitality industries. We say passive because such sites mainly summarize current prices, or in the case of Priceline, offer the possibility of bidding for preferred prices. However, there are also companies such as Farecast (acquired by Microsoft in 2008) that boast: Unlike other travel companies, Farecast predicts when a user should buy a ticket based upon 175 billion points of previous airfare data. Its engine can currently predict whether airfare goes up or down up to a week into the future with a claimed success rate of 70%-75%. While Farecast has a lot of competition, they claim it is the only company which can predict future prices [Crunchbase, 2010]. Evidently, it is possible to predict future prices with a reasonable degree of accu- racy by simply studying the outputs of RM systems in the form of their prices over time. How much longer will it be until a pricing advisor moves to the next level: develop- ing counter-RM analytical tools to model a producers RM policies and improve con- sumers purchasing strategies even more? A company with such capabilities could charge a subscription or other fee and be a commercially viable enterprise doing noth- ing but undoing RM systems! A variant of this is exemplied by Bid- LessTravel.com (BidLessTravel), a free Web service that simply shares users infor- mation about successful bids on Priceline. This is perhaps the best current example of the potential of social networking applica- tions to increase consumer surplus. PAkIIAL AN5Wk5? STRATEGIC CONSUMERS and consum- er choice modeling. One answer to the complicated consumer reactions involved in RM decisions is to explicitly model the k . N . & S OC l A | NE T WOk K l NG Purchaser-link reservations and security issues help protect airlines from informal futures markets. */ u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) reactions of consumers to system actions. The area of consumer choice modeling is very active and likely to grow. For example, discrete-choice models developed in the 1960s to model travelers choices in urban transport have been generalized for much more complex settings. No individual con- sumer can be pinned-down by a model, but average behaviors can be captured, and the law of large numbers can take over after that. Such models, integrated with RM control systems, are being used effectively, and these applications will likely increase rapidly as both computer power and data- capture technologies expand. Can such modeling actually encompass strategic consumer behavior? Our own re- search on this question is consistent with intuition; strategic consumers can signi- cantly lower the revenues obtainable with an RM system, in some cases below lev- els that can be achieved with no RM at all. However, companies that adjust for consumer responses to their RM systems can regain signicant amounts of the lost revenue. In some cases, they can do bet- ter than that; for example, the adroit use of price matching guarantees can actually increase revenues beyond those achieved without strategic consumers [Aviv, Levin and Nediak, 2010]. In effect, strategic con- sumers can be treated like a new market segment that can be accommodated, with positive outcomes on both sides. 5PIkAL-0OWN FFCI5 IT WOULD SEEM that we have laid out enough concerns to satisfy the most avid worrier, but there is one more issue that deserves mention. An inuential paper [Cooper, Homem-de-Mello and Kleywegt, 2006] details the implications of an RM system that imperfectly models consumer reactions to RM policies. Under the right circumstances, such a systems pricing or inventory decisions can cause subsequent shifts in consumer demand that lead to pol- icies that reinforce those shifts, leading to further policy changes and so on. The end result can be seriously degraded policies. When consumers responses are being guided by counter-RM systems, is there a possibility that such situations can be ex- ploited by those systems? This needs not be a deliberate reaction designed into the counter-RM system; it could simply result from that systems quick and consistent reactions to the changes it detects on the other side. A slow spiral-down could be converted to a death-spiral! At the very least, this reinforces the need for appropriate modeling of consumer reactions. Also, the use of intelligent reality checks in any sys- tem should catch such system failures be- fore they progress too far. CONCLU5ION REVENUE MANAGEMENT IS widely recognized as a major success story for analytics. Our cautionary notes here are not meant to sug- gest that RM systems will soon be a thing of the past. To the contrary, we expect RM ap- plications to continue thriving and expand- ing as more organizations reach the levels of awareness and analytical capability they need. By properly adjusting for increasing capabilities on the consumer side, organiza- tions can still achieve signicant gains. They may have to give back some of that pro- ducer surplus, but not so much that RM will fail to be worth the trouble. However, Donald Burrs fateful warning could now be sounded for managers of existing RM systems who ignore the importance of consumer reac- tions in the age of social networking. Yuri Levin (ylevin@business.queensu.ca) is an associate professor and Distinguished Faculty Fellow in operations management at Queens School of Business in Kingston, Ontario, Canada. He has published widely in the general areas of revenue management and dynamic pricing and currently serves as an associate editor of Management Science. Levin was guest editor (with Jeff McGill) of a 2009 special issue of the European Journal of Operational Research on revenue management and dynamic pricing, has consulted widely on consumer choice models and optimization of pricing, and serves on advisory boards of several companies.
Jeff McGill (mcgillj@queensu.ca) is a professor of management science and Distinguished Faculty Professor of Operations Management at Queens School of Busines. McGill has researched revenue management and related areas for more than 20 years and has eight years of full-time industrial experience in product development and operations research. He is former associate editor at Transportation Science, associate editor at Operations Research and senior editor at POMS Journal. McGill was the 2008 winner of the INFORMS Revenue Management and Pricing Section historical prize. k . N . & S OC l A | NE T WOk K l NG The authors thank Georgia Perakis of MIT who suggested grouping strategic customers under the general heading of social networking; Robert Phillips of Columbia University and Nomis Solutions Inc.; and Andy Boyd, former chief scientist at PROS Inc. ACKNOWL EDGMENT 1. Aviv, Y., Levin, Y., and Nediak, M., 2010 (working paper), Can Price Matching Mitigate Strategic Consumer Behavior? 2. BidLessTravel (n.d.), retrieved from http://www. bidlesstravel.com/. 3. Cooper, W., Homem-de-Mello, T., and Kleywegt, A., 2006, Models of the spiral-down effect in revenue management, Operations Research, pp. 968-987. 4. Cross, R. G., 1997, Revenue Management: Hard Core Tactics for Market Domination, New York: Broadway Books. 5. Crunchbase.com, 2010, Farecast (February 2010) retried from www.crunchbase.com/company/farecast. 6. Davenport, T. H., 2009, The Rise of Strategic Analytics, Analytics (fall 2009), www. analyticsmagazine.com. 7. MusicFiX, 2009, The Boss angry over Ticketmaster scandal (Feb. 5), retrieved Feb. 7 from NINEMSN: http://music.ninemsn.com/article.aspx?id=741242. 8. Phillips, R., 2005, Pricing and Revenue Optimization, Stanford, CA: Stanford University Press. 9. Smith, B. C., Leimkuhler, J. F., and Darrow, R. M., 1992, Yield Management at American Airlines, Interfaces, Vol. 22, No. 1, pp. 8-31. 10. Talluri, K., and van Ryzin, G., 2004, The Theory and Practice of Revenue Management, Norwell, MA: Kluwer Academic Publishers. WORKS CI T ED SUBSCkl BE TO :G:ERMB <L Its fast, its easy and its FREE! Just visit: http://analytics.informs.org/ *0 u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) |Ok SYSTENS ANA|YSTS, GETTlNG O|| TO A GOOD STAkT ON ANY PkO1ECT lS CkUClA|. A POlNT-BY-POlNT GUlDE |Ok |AUNCR. THROUGHOUT OUR CAREERS, we have found ourselves work- ing from certain principles that have served us well. We share these managerial guidelines to pro- vide the systems analyst with an appropri- ate and hopefully helpful grounding. We concentrate on the start of a project for we have found that making a good start goes a long way toward having a successful nish. The principles are presented here in outline form so the analyst can consid- er them point-by-point and refer to them easily as the need arises. 1. To nish strongly, start strongly. Take the following actions when starting a new project: a. Introduce the team that will be working toward the solution of the problem. Give a very short summary of each team members qualifications, experience and the role that each will play. You can say something humorous about some or all of the members. But, dont make that the focus of your introduction. Its not necessary to discuss failures that individuals have suffered. b. Be aware of team member limitations. No one can, nor should, do it all. Instead, strive for a representative balance of responsibilities among the team members depending on their strengths and need for development. This will require making choices and changing what is not working. c. Explain why the study is being conducted. People may be quite concerned that the study is being done. Will it eliminate their position or change their work function with which SEVEN SUGGESTlONS |Ok SUCCESS|U| SO|UTlON STAkTUPS BY 1EkkY BANKS l|E|T AND KEN NUSSE|NAN lklGRT THROU have ing fr that ha I P k AC T l T l ONE k S & P k O1 E C T S *1 u : G: ER M B <L F:@: S B G> ' <HF they have become so comfortable? There may be rumors about the purpose of the study and what its impacts might be. Dispel the rumors; tell the truth, even if it might have a negative impact. d. Confirm the objective. This complements the previous guideline. Instead of dwelling on what is not the intention of the study, tell the customer what it is. A complete success is unlikely without a clear and common goal. Write it down! The team needs to be properly aligned from the start; unless everyone knows what is expected and is reminded of it, they have little chance of accomplishing it. People contribute more if they understand what the intention is. 2. Crisp at the beginning, crisp at the end. Crispness is enhanced by making sure that your objectives have the following characteristics: a. They need to be precise. For example, dont say, Our objective is to improve communication. Thats too general of a concept. Make the objective more specific, such as, We want to decrease customer complaints by 10 percent from the last quarter of the current year to the first quarter of next year. b. They need to be achievable. If you make the goal so vast that it cant be achieved, it will be virtually meaningless and will undermine the spirit of the team before they even start. Dont say, We want to end lung cancer. We certainly wish for that to happen, but in many years and billions of dollars spent, it hasnt happened yet, and likely wont over the course of your project. c. They need to be understandable. Upon reading the objective, it should make sense to every team member. If the objective is, We want the Type II error to go below 8 percent, that may or may not have any meaning to the team. What is a Type II error? What does 8 percent represent? What is the error rate now? By what date is this to be accomplished? d. They need to be measurable. Avoid words that are subjective. For example, We want to have a substantial impact on the percentage of defectives. What is substantial? What is a defective? For what product or S U CC E S S | U | S TA k T U P S *2 u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) class of products? Over what time period? e. They need to be communicated repeatedly. Team members can easily forget the specifics of a goal statement. Hence, repetition is needed. Moreover, by keeping the goal in the forefront, team members work harder toward its achievement. 3. Control expectations at the out- set, exceed expectations at the nish. This can be accomplished by taking the following actions: a. Temper expectations at the start, or they may become outlandish at the end. If expectations arent managed early on, the customer might begin to have many erroneous ideas about what might be accomplished. These ideas tend to grow as time passes. b. Make sure that the customer knows the boundaries of the investigation, whats included and whats excluded. The model should be large enough to answer the questions asked. It shouldnt be any larger than that. For example, in modeling the assembly of automobiles, it was noticed that the seats, among other components, arrive just-in-time from an external firm. Should the seat manufacture be monitored? The answer is that it depends on the questions asked. c. Conrm the timeline. There are two elements to an expectation a what and a when. The best solution is of limited or no value if delivered after the time needed. Gain the customers support by clearly laying out the project plan. Armed with this road map, the customer is in the best position to support the course of action and its timing. If the timeline is not regularly conrmed, a late completion is more likely. Team members must be reminded of what is on the front burner. d. Dont agree too readily; put your foot down. There is a tendency among younger analysts to accept every challenge. But, some requests are completely out of line. Usually, they are beyond the scope of work. Or, they may be technically difcult. Accept what is in the agreement, or what might be an alternate. But, add-on tasks each have a time requirement, and when all of those additions are made, there may be surprises about what the analysts have accepted as the amount of work to be performed. e. Continuously monitor and manage. Midcourse corrections should be anticipated. An analyst doesnt have enough knowledge and foresight to get it totally correct from the start. Expect change; nothing runs as smoothly as expected. This doesnt mean to paralyze your progress for fear of all that might go wrong. Rather, it means to manage change. Be quick to curb unrealistic ideas, yet be open to value-add adjustments. Learn to stay exible, for it is the best antidote for change. 4. Manage the project by managing the people. Consider the following: a. Maintain control of the flow of meetings by following an agenda. An agenda is useful for several reasons. First, if its on the agenda, its more likely to be covered during the meeting. Second, extraneous topics are less likely to be raised if they are not on the agenda. Third, the most important topics can be covered earliest so that the meeting is less likely to end prior to their discussion. b. Respond to any questions that are raised. Listen to each question and respond factually. Dont sugarcoat your response. The truth always emerges. It is better if it comes from the solution providers. c. Moderate the customers concerns. If there are concerns raised, discuss them. Some may be legitimate, some may not. Throughout the discussion, inspire trust. This, in the end, will give the customer the condence to act on the recommendation. e. Respect the customers time. Listen attentively to the issues that are raised, but move on once consensus is reached. To the customer, how you run meetings foreshadows how you will run the project. 5. To get good answers from the customer, ask good questions. Consid- er these suggestions: a. Prepare. By preparing your questions in advance, you are less likely to omit something important, and your questions will tend to be more logical and targeted. The questions can be organized so that each topic is fully explored before moving to the next one. b. Attempt to answer the questions yourself. Can you comprehend how S U CC E S S | U | S TA k T U P S kEADEkSRl P SUkVEY Give us your opinion: http://vista-survey.com/survey/v2/ survey2.dsb?ID=4850246745 +) u : G: ER M B <L F:@: S B G> ' <HF to logically answer the question? Its not as important that you know the correct answer as it is that the question makes sense. If you were asked, What is the distribution of time between failures of a machine, how would you answer it? What denition of terms do you need? Under what conditions is the measurement made? Is the distribution what is desired, or will the clock times of failure and when the machine is running again be sufcient responses? c. Ask lots of what if questions. This shows the customer that you are really thinking seriously about their problem. What if the SKUs are placed in the wrong bin? How will the correction be made? What activities occur when a machine goes down? Who is responsible for taking action? d. Avoid asking questions that can be answered by a yes or no response. Dont ask if SKUs are ever placed in the wrong bin. Ask what causes this to occur. What are the consequences of an occurrence? You want the process to reveal information, not preclude it. Thus, be attentive to not just the answer, but also your question. e. Dont upset the customer by putting them on the defensive. i. Bad: Why did you store those incoming pallets in the mixed pallet makeup area rather than the racks? Your tone is accusatory! ii. Better: How do you decide where to store incoming pallets? Here you are asking for information, which is a much better approach. f. Ask the customer to predict the solution. This is not an attempt to get the nal answer as much as it is to gain early insights and establish value. The exercise actually serves several purposes. First, it determines whether the customer has the same alternatives in mind as you. Second, the customer knows more about the system than anyone else. You will denitely learn something from the responses. Finally, it establishes a baseline of thought. In the end, should the solution turn out differently, the exercise legitimizes the projects value. If the solution turns out the same, the team needs to explore why there was no knowledge gain. 6. Dont approach the assignment with preconceived ideas. Follow these suggestions: S U CC E S S | U | S TA k T U P S +* u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) a. Be a good systems analyst. Maintain your skills. Read case studies. Read the literature. Learn about new software and its applications. Attend technical conferences. b. But, be a better listener. You can learn a lot by listening to the customer. Allow them to transcend your thinking. They often hold the secret to success. Its unlikely that any individual will be able to explain the entire system. So, you will have to meet with many individuals. Take adequate notes that will enable a more complete understanding of the system later. c. Give the customer a chance to explain. Dont lecture. This is not the time to prove your worth. Listen to the customer. Avoid putting words in the customers mouth. You are looking to draw out facts and encourage participation. A successful solution starts with a complete understanding of the problem. d. Solve the customers problem, not yours. As the saying goes, If you only have a hammer, you will see every problem as a nail. So, you need a comprehensive tool kit to ensure that you work on the right problem. e. Dont leap to conclusions. Go through the entire process of analysis before deciding on the solution. Dont make premature judgments. State the problem, determine what others have done to solve this kind of problem, collect data, analyze the problem, then, select the best alternative and implement it. Importantly, include the customer in this process. Selling the solution is done in concert with the customer, not apart from the customer. f. Avoid criticizing the customers response. If you violate this, the customer is eventually going to stop responding to you. And, the customer may brand you as fault-nding so that no other customer member responds to you. 7. Lay out a good pathway for com- munication. We suggest the following: a. Get everything in writing. If it becomes necessary to verify some part of the understanding concerning the assumptions, solution procedure, data or selected alternative, you had better have it in writing. Oral records are useless, and recall is prone to error, advertently or inadvertently. Writing everything down also confirms to the customer that you are listening. b. Provide a project road map. The customer needs to see the entire project plan laid out in advance. This helps the customer know when resources will be needed and for what purpose. With projects, people dont like surprises. c. Make the customer a part of the solution team. If you do this, the customer becomes your advocate. If you dont, the customer can quickly become an obstructionist. d. Plan on having lots of interactions. Have frequent meetings, many milestones and early deliverables. Results are sold all along the way, not at the end. e. Let the customer know. In the spirit of good communication, if a problem ever arises during the project, inform the customer. Dont withhold some negative aspect of the solution for fear of the reaction. The customer will be even angrier if the issue is disclosed too late to deal with it. The guidelines given above have worked well for us. And, they have worked for a long time. They should work for you as well, but perhaps there are cultural differences in where you operate and where we operate that necessitate some refinement. There- fore, our final bit of advice is to adjust accordingly. We might not have thought of all the advice that could be given. If you can think of something else, let us know, and we will do our best to publicize it widely. Jerry Banks holds the title academic leader at Tecnolgico de Monterrey in Monterrey, Mxico. Previously, he retired from the faculty of the School of Industrial and Systems Engineering at Georgia Tech in Atlanta, Ga., and then he was senior simulation technology advisor at Brooks Automation. He may be contacted by e-mail at jerry_banks@itesm.mx.
Ken Musselman is the strategic collaboration director for the Regenstrief Center for Healthcare Engineering at Purdue University. He also currently serves as the immediate past-president of the Institute of Industrial Engineers. For more than 30 years, he has actively consulted in the design, monitoring, planning and scheduling of healthcare and manufacturing systems through business activity monitoring and response, simulation and advanced planning and scheduling. He may be contacted by e-mail at kenmus@purdue.edu. S U CC E S S | U | S TA k T U P S 1. Musselman, Ken, Guidelines for Success, in Banks, J. (Ed.) Handbook of Simulation, John Wiley, New York, 1998, pp. 721-743. F URT HER READI NG SUBSCkl BE TO :G:ERMB <L Its fast, its easy and its FREE! Just visit: http://analytics.informs.org/ CkEATlVE lNTEGkATlON O| CONPUTEk, CONNUNlCATlON AND |OCATlON TECRNO|OGlES RE|P A WlDE kANGE O| lNDUSTklES TRklVE lN Dl||lCU|T TlNES. IN THE TWO YEARS since our last survey of vehicle routing soft- ware, the world has suffered through a nancial collapse unlike any since the 1920s. Sinking home values, overseas wars, terrorism, threats of global warming and turmoil in health care have capped a decade that many would prefer to forget. As we look forward, the global nancial disaster has taught us one thing: simply moving money from account to account does not produce prosperity. Instead, our well-being depends on building economic activities that deliver goods and services to real people, when and where they need them. Routing software companies are offer- ing creative ways to integrate computer, communication and location technologies with algorithms and software, helping a wide range of industries thrive in a period of recovery. These technologies enable routing software companies to provide so- phisticated connectivity and productivity tools to an increasingly mobile workforce and widely distributed customers. ICHNOLOGICAL FOUN0AIION5 A DECADE AGO, cell phones were for the rich, map databases were still being de- veloped and GPS-enabled navigation was beyond the average consumer. Routing software worked well, but it wasnt ex- ible and relied on an imperfect platform, making it difcult for the drivers to access information on the road, and sometimes creating a mismatch between the route that drivers were directed to follow and what they knew to be the best course. According to Cyndi Brandt of UPS Lo- gistics Technologies, new data sources have recently become available, includ- ing a more complete commercial roads database, and true historical trafc data based on real travel times. Chris Jones of Descartes Systems Group also notes an explosion of map data attributes and capabilities. In the next year or two, we ON TRE kOAD TO CONNECTlVlTY BY 1ANlCE PAkTYKA l|E|T AND kANDO|PR RA|| lklGRT IN THE surve ware, throu I VE R l C | E k OU T l NG S O| T WA k E ++ u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) +, u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) will have predictive travel speeds for road segments down to 15-minute inter- vals. Currently, drivers say the software doesnt know everything that they know about the routes. It is sometimes true now, but wont be that way in the future, Jones says. Likewise, we are now seeing stronger connectivity between routing softwares traditional functions that of assigning stops to drivers and placing them in an optimal sequence with on-the-road nav- igation. A computer-generated printout listing turn-by-turn directions is becoming more of an anachronism these days, when so many drivers can receive voice com- mands and dynamic map displays from their phones or navigation devices. As Jones notes, Customers and prospects are really looking for combined solutions that both route and navigate. The big growth market is in the portable market, he continues. You see eets that would have never gotten GPS technology now using it with a mobile phone. According to Julian Stephens of MJC2, Smart phones are changing the industry in a big way because they allow real-time data capture, which in turn enables real- time re-optimization of the operation. This is of particular interest to us because our dynamic scheduling algorithms can make use of these data to increase operational efciency of mobile workforces. With this type of on-the-road connectivity, MJC2 and other routing software companies are investing in their real-time routing features and algorithms. Route Solutions Inc., for instance, has integrated their routing solutions with por- table TomTom devices. Estimated times of arrival are generated automatically, and dispatchers can remotely change stops, directly through the device, while drivers are in the eld. 5OFIWAk A5 A 5kVIC ACCORDING TO GREG WIEITHOLTER of Route Solutions, Desktop-based rout- ing is going away. Instead, he says, people want Web-based solutions, so all parts of the organization can have vis- ibility. This is now often accomplished through the Software as a Service (SaaS) model, whereby the software vendor generates solutions and man- ages data from their own servers. Alter- natively, MJC2, for instance, has found that many customers prefer to host the software themselves as this gives them more control and flexibility. SaaS is changing the nancial model of some software companies. As Jones of Descartes notes, SaaS is the way the in- dustry has headed. It means that custom- ers pay as they go. It reduces the initial payment of the customer and removes a barrier to entry. UPS has a SaaS offering aimed at smaller eets, which treat the soft- ware costs like utility charges rather than an up-front capitalization. For the software companies themselves, cash ows are changing from the initial large balloon payment and lower mainte- nance fees that come from purchase of li- censes to more continuous income ows. For some, the switch is a difcult nancial transition that requires cash reserves. How- ever, many routing companies have found ongoing support nancially challenging un- der the license model. IH 8U5IN55 OF kOUIING MANY OF THE ROUTING COMPANIES pre- dict that consolidation in the industry is VE R l C | E k OU T l NG S O| T WA k E RE|P PkONOTE :G:ERMB <L Its fast and its easy! Visit: http://analytics.informs.org/button.html +- u : G: ER M B <L F:@: S B G> ' <HF likely to accelerate and that compa- nies run by mathematicians will be unsuccessful. Customers are looking for stability and distribution system expertise more than the latest algo- rithms. Nevertheless, one of the chal- lenges that all of these companies will face is the ability to process data to re-optimize routes in real-time. With map data getting richer and real-time traffic adding road segment data in small time intervals, the processing requirements will grow substantially. The underlying architecture of these offerings and how the processing is distributed will be a critical factor in how well each product fares. XPAN5ION INIO NW IN0U5IkI5 ROUTING SOFTWARE IS being used in an increasingly diverse set of indus- tries, both in traditional truck pick-up and delivery as well as in mobile ser- vices, such as repair crews. Among Descartes customers, Sleepys Mat- tress Stores uses routing software to schedule deliveries on the spot at point-of-sale, within one-hour time windows. At Appian Logistics Soft- ware, it is being used to synchronize trucks and plumbers so that icemak- ers can be installed soon after a re- frigerator is rolled in the door. Route Solutions customers are using rout- ing software to schedule multitudes of merchandisers and installers, who travel among retail outlets to install product displays and signage. One clear trend is that the com- panies that use routing software in- creasingly want to offer services that set them apart from their competi- tion, and these services demand both faster solution times and improved communication frequently generat- ing new solutions on the spot. How- ever, given the tough economy, cost remains an important driver. While desirable to route the same drivers to the same customers each and ev- ery day, that level of consistency can be inefficient. As Hugh Gigante of Appian notes, If we tell a customer that it costs them $100 a day to keep the same drivers servicing the same customers, most fleets will decide it isnt worth the cost. Instead, routes can be continuously re-optimized so that every vehicle is used to its max. Defining features now are anything that reduces windshield time, saves VE R l C | E k OU T l NG S O| T WA k E kEADEkSRl P SUkVEY Give us your opinion: http://vista-survey.com/survey/v2/ survey2.dsb?ID=4850246745 +. u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) gas and decreases wear and tear on trucks, concludes Gigante. And trucks need to be full. 8A5IC 5OFIWAk FAIUk5 THE ROUTING SOFTWARE surveyed pro- vide a common set of basic capabilities: geocoding addresses, i.e., locating the latitude and longitude by matching the address against data contained in a digital map database; determining the best paths through street networks between pairs of geocoded points; solving vehicle routing problems, entailing an assignment of stops to routes and terminals, sequencing stops and routing vehicles between pairs of stops; and displaying the results in both graphical and tabular forms in such a way that dispatchers can guide the solution process and communicate results to drivers, loaders and other personnel. Applications differ somewhat accord- ing to their target market, special features and integration capabilities, as discussed in the following section. IHI5 YAk'5 5UkVY SIXTEEN SOFTWARE VENDORS (12 North American and four from Europe) participated in this years routing software survey, representing 22 products. Our questionnaire was divided into sections covering platform, algorithmic capabili- ties, interfaces and features, applications, system integration and background infor- mation. All responses are self-reported and unveried. Platform. Windows remains the dom- inant platform for routing software and is available for nearly all software pack- ages, with only one company offering a Mac version of their software, and an- other three in Linux and Unix. Fourteen products are available in SaaS, two of which are only available in SaaS. From a hardware perspective, vendors gen- erally recommend a high-end PC oper- ating in the 3 GHz range, combined with 1 to 4 Gb of memory and up to 100 Gb in hard disk space (much less if SaaS is used). These figures have not changed much in the last four years, again show- ing that powerful routing software has become easier to run on ones desktop computer. In SaaS applications, com- puting requirements are even smaller than in the past. Algorithmic capabilities. The algo- rithms underlying routing products are gen- erally proprietary, though typically involve a combination of integer programming methods and heuristics. QuantMethods and Jeppesen were more specic, re- spectively stating that linear program- mi ng/branch-and- bound and column generation were used. FreshStart Lo- gistics, new to this years survey, indi- cated that their al- gorithms are based on articial intelli- gence and expert system approaches, rather than tradi- tional mathematical programming. DNA Evolutions response of construction and improvement is likely representative of the general class of heuristic methods used by most routing vendors. Vendors generally claim unlim- ited problem size for their software, but from a practical perspective, com- putation time, memory size and disk space bound product performance, so it is important to test software on actual problems. In this regard, most vendors claim computation times in the one-to- five-minute range for an average-sized problem, described as the time to solve a problem with 50 routes, 1,000 stops and two-hour hard-time windows. (Keep in mind that computation times are pro- vided by the vendors and have not been verified.) These times are similar to two years ago. Fast computation times are particu- larly important in real-time applications, such as when deliveries are scheduled while the customer is on the phone or when stops are inserted and scheduled while vehicles are in the eld. Research- ers in vehicle routing are well aware that route-length approximations can be very effective at producing good solu- tions in a short amount of time. This year, VE R l C | E k OU T l NG S O| T WA k E Routing the same drivers to the same customers each day can be inefficient. +/ u : G: ER M B <L F:@: S B G> ' <HF vendors were tight lipped about use of approximations. Node routing is the capability to assign and sequence discrete stops, and arc routing is the capability to as- sign and sequence street segments. The former is needed most often, and occurs when the driver visits 100 or fewer locations per day. We believe it is available on all products. Arc routing is more specialized and occurs when vehicles visit every (or most) address on block segments, as in meter read- ing, mail delivery and garbage pickup. Most of the vendors claim they can do both of these, along with real-time routing, daily routing and route plan- ning. However, a single routing pack- age is unlikely to be adept at all of these functions, and it is important to select a vendor that has experience in the planned application. More than half of the products offer some capability for real-time routing, which could come in the form of real- time re-routing of vehicles or real-time stop scheduling. Six vendors (Appi- an, Descartes, FreshStart Logistics, MJC2, SAITECH and UPS Logistics) have the ability to incorporate real- time traffic, which is now more widely available in major cities. This can en- able a fleet to reschedule in response to customer requirements, vehicle de- lays or traffic conditions. Most vendors claim the ability to solve routing problems with soft time windows. However, when asked for specics, some simply indicate that they represent a range of time or maxi- mum allowed delay rather than a true soft window approach. On the other hand, IBM ILOG permits early and late penalties, DNA Evolution windows are fuzzy by default and MJC2 uses con- gurable rules. Interfaces and features. As a start- ing point, basic features offered by most include an ability to display routes and stops on maps and edit these routes with the drag-and-drop feature (i.e., click on a stop and move it to which- ever route you desire). This enables the dispatcher to modify the algorithm- produced routes and is needed in prac- tice to satisfy customer constraints. To make these features work, products need digital maps, such as the com- mercial products from NAVTEQ (based in the United States) and Tele Atlas (based in Europe). Maps, which are not VE R l C | E k OU T l NG S O| T WA k E RE|P PkONOTE :G:ERMB <L Its fast and its easy! Visit: http://analytics.informs.org/button.html +0 u : G: ER M B <L F:@: S B G> ' <HF inexpensive, are often sold separately and are chosen by customers accord- ing to their requirements. Integration. Real-time communica- tion with drivers, as well as tracking their locations, has become particu- larly important, and most products offer these features. This usually is provided with vehicle-mounted de- vices or mobile phones. Interfaces with other software systems such as order-entry and inventory man- agement is also important for re- tailers and distributors. We saw less emphasis on this feature in this years survey than in the past, though many (Descartes, FreshStart Logistics, IBM ILOG, MJC2, Prophesy, SAITECH) of- fer integration with supply chain man- agement. Other important features include forecasts for delivery require- ments, generation of load manifests and load planning. Applications. Whereas vendors generally claim that their products are designed to serve a broad range of applications, most specialize in an in- dustry sector. Specialization is largely driven by interface requirements both in terms of presenting informa- tion in a manner that is useful to the target user and in terms of interfacing with business software systems and hardware devices. Police, taxi and emergency vehicle dispatch, for in- stance, each demand special require- ments that differ from the traditional market of private fleets. They fall in the realm of niche markets, even though in theory they are just variations of vehicle routing. Vendors that are more experienced in an industry will be better prepared to consult on software installation and more likely to have relevant features, leading to a higher likelihood of suc- cess. The optimization code might also be different to account for the particular network structure, for instance the hub- and-spoke design of less-than-truck- load (LTL) networks. In our survey, most of the respon- dents have specialized in private truck eets, serving such markets as food and beverage (e.g., Anheuser Busch, Coca Cola and Gold Medal Bakery). Jeppesens PlanOp is being used by for-hire eets, such as Australia Post and Purolator Courier. Routing installations tend to require a large degree of customization, as re- ected in software prices, which often runs in the tens of thousands of dollars. As an alternative, SaaS provides rout- ing services for a monthly fee, perhaps as low as $99 per month. Beyond these VE R l C | E k OU T l NG S O| T WA k E +1 u : G: ER M B <L F:@: S B G> ' <HF software costs, some level of consulting is likely needed to ensure full integra- tion into a eets information systems, typically priced in the neighborhood of $125 per hour. In terms of pure size, many companies now claim more than 1,000 installations each. General information. The accom- panying directory provides contact in- formation and product names for the vendors. Pricing is available for some vendors (in many cases, prices are negotiable and depend on eet size). Expect to pay $10,000 or more for the software alone. Higher-priced products generally offer more customized service, a larger array of features and interface capabilities, and specialized experience in a particular industry. Price structures do vary, so be sure to compare the full installed cost before making a choice, including license fees, installation and maintenance costs, hardware and digi- tal maps. 5LCIING A PkO0UCI BEFORE PURCHASING A PRODUCT, eet managers should rst assess the degree to which routing solutions and data must be integrated across multiple sites and decide whether they would like adopt the SaaS model or host their own software. It also important to ask ques- tions such as: How big of a problem will be solved, measured in vehicles, stops and terminals? How frequently will the solution be updated, and how quickly must the software generate a solution? Can stops be scheduled on the spot, or will they be generated in batches? Who will use the software, how is the infor- mation best presented to the user, and are the users distributed among many locations? Who will install and maintain the software? With which software sys- tems must the routing system interact? Vendors should demonstrate that they are experienced serving other eets with similar requirements, and they should provide references so that you can verify claims. Janice Partyka (jpartyka@jgpservices.net) is principal of JGP Services, a marketing consulting practice that focuses on mobile technologies and applications. Randolph Hall (rwhall@usc.edu) is vice provost for Research Advancement at the University of Southern California. VE R l C | E k OU T l NG S O| T WA k E |l NK: To view the directory of vehicle routing software products along with the survey data, see: www.lionhrtpub.com/orms/surveys/vehicle_routing/vrss.html Founded in 1907 as a messenger company in Seattle, Wash., United Parcel Service (UPS) has grown into a $51.5 billion corporation by clearly focusing on the goal of enabling com- merce around the globe. Today, UPS is a glob- al company with one of the most recognized and admired brands in the world. UPS has become the worlds largest package delivery company and a leading global provider of spe- cialized transportation and logistics services. Every day, UPS manages the ow of goods, funds and information in more than 200 coun- tries and territories worldwide. Analytics, specically operations research (O.R.), has been an important tool at UPS for a very long time. In 1954, our then CEO, George Smith, said the following: If we did not have operational research, our rate of growth might have been affected. As we grow in size, our problems increase geometrically. Without operational research, we would be analyzing our problems intuitively only, and we would miss many opportunities to get maximum ef- ciency out of our operation. In the 55 years that have elapsed since Smith made this statement, UPS operations have be- come signicantly more complex and distrib- uted. In 1954, UPS ran a U.S.-only operation that delivered and picked up non-committed volume. In 2009, every UPS driver worldwide services delivery volume with different commit- ted times throughout the day. In 1954, our net- work was limited to the United States and was fed by over-the-road tractor/trailer movements or movements on trains. In 2009, UPS worldwide network includes an airline, built from scratch, which includes 208 aircraft in service each day. With 263 total aircraft in our inventory, UPS has the ninth largest airline in the world. UP5 5IkUCIUk UPS small package operations are divided into: 1) Package delivery/pickup (the Brown trucks you see in your neighborhood). 2) Hub sorting packages. 3) Feeder over-the-road package transport, hub to hub or hub to delivery center. Its called feeder because this operation feeds packages to hubs and delivery centers. 4) Airline package transport via our air network. UPS has developed and actively utilizes operations research models and applications in all four of these operating areas. O.k. IN UP5 PACKAG 0LIVkY/PICKUP OPkAIION5 UPS continues to use O.R. to enhance its award-winning Package Flow Technology (PFT), a technology suite UPS utilizes to opti- mize sortation, dispatch planning and delivery in its small package operation. By leveraging address and map data, customer data and real-time GPS and by integrating O.R. algo- rithms into PFT, UPS is testing O.R. algorithms that will provide real-time guidance to drivers in order to service customers in the most cost- effective manner. UPS is testing this new on-road integrated optimization and navigation system in several locations around the United States. The O.R. algorithm balances optimality and consistency to provide a solution that should drive cost ef- ciencies while meeting service and customer commitments. O.k. IN UP5 HU8 OPkAIION5 UPS has three optimization tools to assist with planning UPS hub operations. They can be classied as long-term planning, medium- term planning and short-term planning. Hub and Feeder Network Optimization (HFNO) is the long-range planning optimiza- tion tool. HFNO is used to determine how to best utilize our UPS capacity while maintain- ing service commitments and minimizing trans- portation costs. HFNO is used for facility capacity needs for at least 10 years into the future. HFNO is also used to set strategy and provide policy +2 u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) ANA|YTlCS ol UPS BY 1E|| WlNTEkS AND DOUG NORk An insidc look ol lbc lccbnicol lools cmpowcring o $50 billion dclivcry ond logislics compony lbol opcrolcs in morc lbon 200 counlrics worldwidc. C Ok P Ok AT E P k O| l | E Headquar ters: Sandy Spri ngs, Ga. Busi ness: The worl ds l argest package del i very company, UPS del i vers more t han 15 mi l l i on packages a day t o 6. 1 mi l l i on cust omers i n more t han 200 count ri es and t erri t ori es around t he worl d. UPS i s al so a l eadi ng provi der of l ogi st i cs sol ut i ons. Web si te: www. ups. com COMPANY NAME: UNI TED PARCEL SERVI CE ,) u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) decisions. For example, HFNO has been used to model what the UPS network would look like prior to acquiring new companies. It gives UPS analysts insight into how the added capacity will t into the UPS network and provides ana- lysts a high-level estimate on impact to operat- ing cost. Network Planners Toolkit (NPT) is the me- dium-term optimization tool. NPT provides de- cision support to assist planners in answering the following questions: What are service feasible alternate ows for packages? How can packages be re-routed to bypass a sort or facility? Can volume be taken out of one load to create a direct load? Can service be enhanced by owing packages a different way? Load Planning Assistant (LPA) is the short- term planning tool. LPA is used to plan what loads will need to be moved two weeks prior to execution. The scope of LPA is to optimize a single day for a single building up to four build- ings simultaneously. This optimization is de- ployed to all of our major hubs in the US. LPA was developed in conjunction with Castle Lab (Princeton University). UPS de- veloped the interface and Castle Lab (Warren Powell and Belgacem Bouzaiene-Ayari) devel- oped the optimization. UPS also has a multi- day, multi-building load planning optimization running at Castle Lab. The next step will be to move this multi-day, multi-building model out of the lab and into UPS operations. O.k. IN UP5 F0k OPkAIION5 Feeder Scheduling and Optimization Sys- tem (FSOS) is an optimization system used by UPS local feeder operations to generate fea- sible, efcient feeder driver schedules which meet all UPS and labor work rules, including minimum and maximum driver hours and driver domicile restrictions. FSOS starts by evaluat- ing all individual feeder movements, and then determines alternative ways for combining these movements into individual driver sched- ules. FSOS repeatedly improves the solution until improvement stops. FSOS is typically run quarterly in each of our operating districts. In addition to the brown feeder eet, UPS needs to hire third-party drivers and driver teams (called Expediters in UPS lingo) to help move the additional package volume the company handles during the busy peak time- frame leading up to the holiday season. The planners use the Expedited Feeder Schedul- ing (EFS) system to develop the routes these drivers run. UPS planners develop a list of the loads that will need to be moved by these third- party carriers, and EFS strings these loads to- gether into a system of round-trip routes that moves all the loads within their specied time window at minimal cost. The planners have es- timated that it would take about 20-plus people three to four months to develop a similar set of routes using traditional manual processes. O.k. IN UP5 AIkLIN OPkAIION5 While UPS created its airline in 1988, the company has been using O.R. to help plan and manage its air operation since UPS be- gan acquiring its own aircraft in 1981. Over the years O.R. tools have been used in a variety of ways to support the air operation including developing simulator training schedules for UPS pilots to meet currency and training re- quirements, helping determine how many air containers need to be in position at all UPS locations to support the peak operations time between Thanksgiving and Christmas, and developing operational plans for using leased, small jet aircraft to ensure that packages still meet their service commitments in the event of delays in the UPS air system. Currently, the airline is using the Volume, Location, Aircraft Network Optimizer (VOLCA- NO) to help plan the domestic U.S. next-day operation. The initial VOLCANO model was C Ok P Ok AT E P k O| l | E With 263 total aircraft, UPS has the ninth largest airline in the world. ,* u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) lN|OkNS |U|| PAGE AkTWOkK G>P:KMPHKD PAGE 31 developed in conjunction with Cindy Barnhart at MIT. VOLCANO allows air planners to ex- amine changing as much, or as little, of the air network as is needed to solve aircraft and air hub capacity problems. The system will de- termine the least-cost air network needed to move all packages given the available aircraft, their operating restrictions, and constraints on airport and air hub capacities. Recently the air planners have been using VOLCANO to re- duce the number of aircraft that UPS needs to y to deliver all air packages, resulting in lower costs to both UPS and its customers. This model assumed that the package ow was xed. Since the initial model, the O.R. group has added the capability to change the package ow while simultaneously generating aircraft routes and schedules. Operations Research will continue to be an important factor in the success of UPS. As the companys network and business become more and more complex, UPS will rely on op- erations research tools and techniques to as- sist it in maintaining an efcient, reliable and cost effective service. Jeff Winters (jwinters@ups.com) manages a UPS Operations Research group based in Timonium, Md., that specializes in algorithm and application development for UPS small package, hub and over-the-road operations and planning. Doug Mohr (dmohr@ups.com) manages a UPS Operations Research group based in Louisville, Ky., that specializes in algorithm and application development for UPS hub and airline operations and planning. TRE SYSTEN DETEkNlNES TRE |EAST-COST Alk NETWOkK NEEDED TO NOVE A|| PACKAGES GlVEN TRE AVAl|AB|E AlkCkA|T, TRElk OPEkATlNG kESTklCTlONS, AND CONSTkAlNTS ON AlkPOkT AND RUB CAPAClTlES. C Ok P Ok AT E P k O| l | E Where do world-class organizations go to showcase the strategic use of O.R. and analytics? High-Level Panel on Supply Chain and Logistics Chip White, Professor & Chair of Transportation & Logistics, Georgia Tech Chuck Holland, Vice President of Process Management, UPS July Lemke, Executive Vice President and CIO, Schneider National Stephen Lilly, Executive Director, Distribution and Logistics, Merck Hear what top companies around the world have to say about what O.R. and analytics can do for your organization. Disney Parks and Resorts Mark Shafer, Senior Vice President of Revenue Management Federal Energy Regulatory Commission Richard ONeill, Chief Economic Advisor The Kroger Co. - John Osborne II, General Manager, IS Research and Development MIT Sloan School of Mgmt. Center for Digital Business - Michael Schrage, Research Fellow Genentech - Darren Johnson, Sr. Supply Chain Strategic Planner Bucks New University UK - John Boylan, Professor, Head of Research-Faculty of Enterprise and Innovation Integral Analytics - Michael Ozog, Vice President & COO-Smart Grid Products HP - Sanjay Singh, Vice President, Business Analytic Services Kromite - Homie Razavi, Founder and Senior Consultant. CDC - Leslie Lennert, MD, Healthcare Informatics Consultant and former Director, National Center for Public Health Informatics, CDC Stanford University - Warren Hausman, Professor of Management Science & Engineering Intel - Erik Hertzler, Staff Engineer Chevron - Frank Koch, Decision Analysis Practice Leader Veritec Solutions - Warren Lieberman, President Georgia Tech Ellis Johnson, Coca-Cola Chaired Professor, ISYE Business Forecast Systems - Eric A. Stellwagen, Vice President SAS Institute Michael Gilliland, Product Marketing Manager, Forecasting Ford Research and Advanced Engineering - Erica Klamp, Technical Leader Decision Strategies - Patrick Leach, Principal-Oil & Gas Princeton - Hugo Simao, Senior O.R. Engineer & Professor Schneider National - Ted Gifford, Distinguished Member of Technical Staff Plus 40+ speakers Thanks to our sponsor! http://meetings.informs.org/Practice2010 Plus Edelman Competition and Gala The best in applied analytics 2 0 1 0 I NF OR MS C ONF E R E NC E ON O. R . P R AC T I C E APPLYING SCIENCE TO THE Art of Business April 18-20, 2010 Hilton Bonnet Creek Orlando, Florida Register NOW Early Registration deadline April 1, 2010 All meals for two days included! SUBSCkl BE TO :G:ERMB <L Its fast, its easy and its FREE! Just visit: http://analytics.informs.org/ Where do world-class organizations go to showcase the strategic use of operations re- search and analytics? For the past 10 years, the venue of choice has been the INFORMS (Institute for Operations Research and the Management Sciences) conference on O.R. practice, Applying Science to the Art of Busi- ness. This years conference, scheduled for April 18-20 at the new Hilton Bonnet Creek Resort in Orlando, Fla., will once again demon- strate the competitive advantage of analytics. Executives and analysts from companies such as Disney, HP, Chevron, Intel and Ford will share best practices in applying analytics to solve business problems. Academic speak- ers from schools such as MIT, Princeton and Stanford will provide training on strategy and O.R. methodologies. Overall, the program will offer high-quality, in-depth presentations by more than 80 speakers. Mark Shafer, senior vice president of revenue management at Disney Parks and Resorts, will open the conference with a ple- nary talk on Game-Changing Analytics: A Disney Perspective, exploring how one of the most creative companies in the world in- tegrates analytical innovation and decision- making into its business. Richard ONeill, chief economic advisor for the Federal Reg- ulatory Commission, will deliver another plenary on Better, Smarter Electricity Mar- kets: How Optimization Software Can Save Billions. 5UPk 8OWL OF APPLI0 O.k. The Edelman Competition, known as the Super Bowl of applied O.R., is always a high- light of the conference. This year, six nalists will showcase their high-impact analytics proj- ects during the day on Monday (see sidebar), with the 2010 winner announced at a gala awards ceremony and banquet that evening. (Admission to the banquet is included in the conference registration fee.) The winner will then repeat their presentation in a plenary ses- sion on Tuesday. Two other high-prole awards will be an- nounced during the gala: the INFORMS Prize and the Daniel H. Wagner Prize. The IN- FORMS Prize honors a company that effec- tively integrates analytics into organizational decision-making and has repeatedly applied O.R. principles in novel and lasting ways. The Wagner Prize recognizes projects in which strong mathematics has been applied to prac- tical problems, emphasizing clear writing and veriable practice success. ,+ u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) WOk|D-C|ASS ANA|YTlCS CON|EkENCE BY TEkESA V. CkYAN GANE-CRANGlNG ANA|YTlCS: A DlSNEY PEkSPECTlVE` P|ENAkY KlCKS O|| NOkE TRAN 80 PkESENTATlONS. Applying Scicncc lo lbc Arl ol Busincss` cvcnl scl lor April 18-20 in Orlondo P k AC T l C E P k E V l E W (Preliminary speaker list) Disney Parks and Resorts Mark Shafer, Senior Vice President of Revenue Management Federal Energy Regulatory Commission Richard ONeill, Chief Economic Advisor The Kroger Co. John Osborne II, General Manager, IS Research and Development MIT Sloan School of Management Center for Digital Business Michael Schrage, Research Fellow IBM Research Arun Hampapur, Director, Business Analytics & Mathematical Sciences Genentech- Darren Johnson, Senior Supply Chain Strategic Planner Areva T&D Avnaesh Jayantilal, Director, Marketing Management Systems Bucks New University UK John Boylan, Professor, Head of Research-Faculty of Enterprise and Innovation Integral Analytics, Inc. Michael Ozog, Vice President & COO-Smart Grid Products HP Sanjay Singh, Vice President, Business Analytic Services University of Cincinnati Jeffrey Camm, Professor, Chair of Quantitative Analysis & Operations Management Kromite, Inc. Homie Razavi, Founder and Senior Consultant CDC Leslie Lennert, MD, Healthcare Informatics Consultant and former Director, National Center for Public Health Informatics, CDC Stanford University Warren Hausman, Professor of Management Science & Engineering Intel Corp Erik Hertzler, Staff Engineer Chevron Corp. Frank Koch, Decision Analysis Practice Leader Veritec Solutions Warren Lieberman, President Georgia Institute of Technology Ellis Johnson, Coca-Cola Chaired Professor, ISYE Business Forecast Systems Eric A. Stellwagen, Vice President Forio Business Simulations Michael Bean, Senior Consultant SAS Institute Michael Gilliland, Product Marketing Manager, Forecasting Ford Research and Advanced Engineering Erica Klamp, Technical Leader Decision Strategies, Inc. Patrick Leach, Principal-Oil & Gas Princeton Hugo Simao, Senior O.R. Engineer & Professor Schneider National Ted Gifford, Distinguished Member of Technical Staff Innovative Decisions, Inc. Donald Buckshaw, Senior Principal Analyst Cypress Venture Group Bryan Guy, Managing Director (Plus more than 40 other speakers) REAL- WORLD COMMENTARY FROM TODAY S BUSINESS LEADERS CON|EkENCE WEBSl TE: http://meetings.informs.org/Practice2010 5UPPLY CHAIN AN0 XCUIIV FOkUM Several new programs will be introduced this year. A high-level panel discussion, organized jointly by INFORMS and the Industry Studies Association with funding from The Sloan Foun- dation, is aimed at bringing cutting-edge re- search and thinking on specic analytics topics to practitioners. Chip White, professor and chair of Transportation and Logistics at Georgia Tech, has put together a panel of prominent execu- tives to discuss trends and challenges in supply chain management, transportation and logistics, including Chuck Holland, vice president of Pro- cess Management at UPS; Judy Lemke, CIO at Schneider National; and Stephen Lilly, executive director of Distribution and Logistics at Merck. They will be joined by several academics known for their research in supply chain management. A new Executive Forum will reach out to mid- and senior-level executives who want an intro- duction to how O.R. can provide a competitive advantage for their companies. Networking op- portunities, a concierge service to identify talks on the program of particular relevance and other high-level takeaways will be offered. IGHIY 555ION5 The conference program, incorporating 80+ sessions, has been designed by a 19-member council of practitioners and academics, chaired by William Klimack, senior consultant at Kromite, Inc. Most of the talks will be delivered by invited speakers, who were selected to address specic topics by the council (see preliminary speaker list sidebar). The invited program will be organized along these tracks: sustainability, service science and healthcare, decision analysis, managing un- certainty and risk, methodology tutorials, supply chain management and logistics, and software tutorials. Additional Select Presentations were identied through a rigorous review process in which space constraints meant that less than half the abstracts submitted could be selected. For the rst time, the conference will also feature a poster session. This brief presentation format has attracted more than 45 submissions, including descriptions of work that is still in prog- ress or can only be presented at a high level. The poster option lends itself to presentations on projects that may not be extensive enough for a 50-minute presentation but that offer useful learning points for other O.R. practitioners. CAkk-8UIL0ING PkOGkAM5 Two special programs within the confer- ence are designed for future analytics leaders. The Young Researcher Connection, for junior faculty and young industry researchers, pro- vides participants with insights into the criti- cal problems facing business, helping them to broaden their research agendas and providing important networking contacts. The INFORMS Professional Colloquium of- fers a full-day, interactive workshop on real-world ,, u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) TRE NEW Rl|TON BONNET CkEEK kESOkT Wl|| ROST lN|OkNS CON|EkENCE AlNED AT PkACTlTlONEkS. P k AC T l C E P k E V l E W Top executives will bring their perspectives and advice on trends and challenges in this exciting arena. They will be joined by leading academics known for their work in supply chain management. Moderator: Chip White, Professor & Chair of Transportation & Logistics, Georgia Institute of Technology Panelists: Chuck Holland, Vice President of Process Management, UPS; July Lemke, Executive Vice President and CIO, Schneider National; Stephen Lilly, Executive Director, Distribution and Logistics, Merck HIGH- LEVEL PANEL ON SUPPLY CHAIN AND LOGISTICS Where do world-class organizations go to showcase the strategic use of operations re- search and analytics? For the past 10 years, the venue of choice has been the INFORMS (Institute for Operations Research and the Management Sciences) conference on O.R. practice, Applying Science to the Art of Busi- ness. This years conference, scheduled for April 18-20 at the new Hilton Bonnet Creek Resort in Orlando, Fla., will once again demon- strate the competitive advantage of analytics. Executives and analysts from companies such as Disney, HP, Chevron, Intel and Ford will share best practices in applying analytics to solve business problems. Academic speak- ers from schools such as MIT, Princeton and Stanford will provide training on strategy and O.R. methodologies. Overall, the program will offer high-quality, in-depth presentations by more than 80 speakers. Mark W. Shafer, senior vice president of revenue management and analytics, Walt Disney Parks and Resorts, will open the conference with a plenary talk on Game- Changing Analytics: A Disney Perspective, exploring how one of the most creative companies in the world integrates analyti- cal innovation and decision-making into its business. Richard ONeill, chief economic advisor for the Federal Regulatory Commis- sion, will deliver another plenary on Better, Smarter Electricity Markets: How Optimiza- tion Software Can Save Billions. 794)6&3;03*%440-)(36 The Edelman Competition, known as the Super Bowl of applied O.R., is always a high- light of the conference. This year, six nalists will showcase their high-impact analytics proj- ects during the day on Monday (see sidebar), with the 2010 winner announced at a gala awards ceremony and banquet that evening. (Admission to the banquet is included in the conference registration fee.) The winner will then repeat their presentation in a plenary ses- sion on Tuesday. Two other high-prole awards will be an- nounced during the gala: the INFORMS Prize and the Daniel H. Wagner Prize. The IN- FORMS Prize honors a company that effec- tively integrates analytics into organizational decision-making and has repeatedly applied O.R. principles in novel and lasting ways. The Wagner Prize recognizes projects in which strong mathematics has been applied to prac- tical problems, emphasizing clear writing and veriable practice success. ,+ u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) WOk|D-C|ASS ANA|YTlCS CON|EkENCE BY TEkESA V. CkYAN GANE-CRANGlNG ANA|YTlCS: A DlSNEY PEkSPECTlVE` P|ENAkY KlCKS O|| NOkE TRAN 80 PkESENTATlONS. Applying Scicncc lo lbc Arl ol Busincss` cvcnl scl lor April 18-20 in Orlondo P k AC T l C E P k E V l E W (Preliminary speaker list) Disney Parks and Resorts Mark W. Shafer, senior vice president of revenue management and analytics, Walt Disney Parks and Resorts Federal Energy Regulatory Commission Richard ONeill, Chief Economic Advisor The Kroger Co. John Osborne II, General Manager, IS Research and Development MIT Sloan School of Management Center for Digital Business Michael Schrage, Research Fellow IBM Research Arun Hampapur, Director, Business Analytics & Mathematical Sciences Genentech- Darren Johnson, Senior Supply Chain Strategic Planner Aveva T&D Avnaesh Jayantilal, Director, Product Management Bucks New University UK John Boylan, Professor, Head of Research-Faculty of Enterprise and Innovation Integral Analytics, Inc. Michael Ozog, Vice President & COO-Smart Grid Products HP Sanjay Singh, Vice President, Business Analytic Services University of Cincinnati Jeffrey Camm, Professor, Chair of Quantitative Analysis & Operations Management Kromite, Inc. Homie Razavi, Founder and Senior Consultant CDC Leslie Lennert, MD, Healthcare Informatics Consultant and former Director, National Center for Public Health Informatics, CDC Intel Corp Erik Hertzler, Capital Supply Chain Staff Engineer Chevron Corp. Frank Koch, Decision Analysis Practice Leader Veritec Solutions Warren Lieberman, President Georgia Institute of Technology Ellis Johnson, Coca-Cola Chaired Professor, ISYE Business Forecast Systems Eric A. Stellwagen, Vice President Forio Business Simulations Michael Bean, Senior Consultant SAS Institute Michael Gilliland, Product Marketing Manager, Forecasting Ford Research and Advanced Engineering Erica Klamp, Technical Leader Decision Strategies, Inc. Patrick Leach, Principal Princeton Hugo Simao, Senior O.R. Engineer & Professor Schneider National Ted Gifford, Distinguished Member of Technical Staff Innovative Decisions, Inc. Donald Buckshaw, Senior Principal Analyst Cypress Venture Group Bryan Guy, Managing Director (Plus more than 40 other speakers) REAL- WORLD COMMENTARY FROM TODAY S BUSINESS LEADERS CON|EkENCE WEBSl TE: http://meetings.informs.org/Practice2010 With approximately 15,000 drivers and in- dependent contractors, Green Bay, Wis.-based Schneider National is one of the largest truck- load carriers in North America. The companys operations include about 14,000 tractors and 40,000 trailers, and Schneiders driver associ- ates collectively cover more than ve million loaded miles per day. Needless to say, a transportation company that big must deal with a host of complex lo- gistic, strategic and tactical problems, not the least of which is developing dispatching poli- cies that help retain drivers in an industry his- torically plagued by 100-percent annual driver turnover rates while simultaneously meeting the needs of customers and optimizing the de- ployment of assets. For help in capturing the dynamics of its massive eet in order to make better corporate decisions regarding such is- sues, Schneider turned to a team of internal and external analysts. Among the questions the team addressed: What will be the impact of changes in federal regulations governing drivers? What is the best way to manage drivers based in Canada? Where should new drivers be hired? How many teams (drivers that work in pairs which can operate 20 hours each day) should the company maintain? Is it possible to get drivers home on a regular basis and make commitments of when a driver will be given time at home? The team included Ted Gifford, Jeff Day and John Nienow of Schneider Nationals Engineering and Research Department and Hugo Simo, Abraham George and Warren Powell of the Department of Operations Re- search and Financial Engineering at Prince- ton University. The team developed a model known as the Tactical Planning Simulator ,. u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) L<AG>B=>KG:MBHG:E KNGLPBMA:G:ERMB<L MHIKH=N<>;>EB>O:;E> K>LNEML%MA>FH=>EA:= MH<EHL>ER?BM:<MN:E ?E>>MI>K?HKF:G<>% F:M<ABG@MA>=><BLBHGL H?:LDBEE>=@KHNIH? =BLI:M<A>KLLNIIHKM>= ;RLM:M>&H?&MA>:KM IE:GGBG@LRLM>FL' Ik^l^gmZmbhgh_PZ`g^kIkbs^&pbggbg`phkd_hkZiieb^]ZgZerlblpbee[^ k^ikbl^]ZmBG?HKFLIkZ\mb\^<hg_^k^g\^' :G:ER M B <L B G :<M B HG With 15,000 drivers and 40,000 trailers, Schneider National trucks are a familiar sight on North American highways. 79440=',%-2 %2()<)'98-:)*3691 Several new programs will be introduced this year. A high-level panel discussion, organized jointly by INFORMS and the Industry Studies Association with funding from The Sloan Foun- dation, is aimed at bringing cutting-edge re- search and thinking on specic analytics topics to practitioners. Chip White, professor and chair of Transportation and Logistics at Georgia Tech, has put together a panel of prominent execu- tives to discuss trends and challenges in supply chain management, transportation and logistics, including Chuck Holland, vice president of Pro- cess Management at UPS; Judy Lemke, CIO at Schneider National; and Stephen Lilly, executive director of Distribution and Logistics at Merck. They will be joined by several academics known for their research in supply chain management. A new Executive Forum will reach out to mid- and senior-level executives who want an intro- duction to how O.R. can provide a competitive advantage for their companies. Networking op- portunities, a concierge service to identify talks on the program of particular relevance and other high-level takeaways will be offered. )-+,8=7)77-327 The conference program, incorporating 80+ sessions, has been designed by a 19-member council of practitioners and academics, chaired by William Klimack, senior consultant at Kromite, Inc. Most of the talks will be delivered by invited speakers, who were selected to address specic topics by the council (see preliminary speaker list sidebar). The invited program will be organized along these tracks: sustainability, service science and healthcare, decision analysis, managing un- certainty and risk, methodology tutorials, supply chain management and logistics, and software tutorials. Additional Select Presentations were identied through a rigorous review process in which space constraints meant that less than half the abstracts submitted could be selected. For the rst time, the conference will also feature a poster session. This brief presentation format has attracted more than 45 submissions, including descriptions of work that is still in prog- ress or can only be presented at a high level. The poster option lends itself to presentations on projects that may not be extensive enough for a 50-minute presentation but that offer useful learning points for other O.R. practitioners. '%6))6&9-0(-2+463+6%17 Two special programs within the confer- ence are designed for future analytics leaders. The Young Researcher Connection, for junior faculty and young industry researchers, pro- vides participants with insights into the criti- cal problems facing business, helping them to broaden their research agendas and providing important networking contacts. The INFORMS Professional Colloquium of- fers a full-day, interactive workshop on real-world ,, u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) TRE NEW Rl|TON BONNET CkEEK kESOkT Wl|| ROST lN|OkNS CON|EkENCE AlNED AT PkACTlTlONEkS. P k AC T l C E P k E V l E W Top executives will bring their perspectives and advice on trends and challenges in this exciting arena. They will be joined by leading academics known for their work in supply chain management. Moderator: Chip White, Professor & Chair of Transportation & Logistics, Georgia Institute of Technology Panelists: Chuck Holland, Vice President of Process Management, UPS; Judy Lemke, Executive Vice President and CIO, Schneider National; Stephen Lilly, Executive Director, Distribution and Logistics, Merck HIGH- LEVEL PANEL ON SUPPLY CHAIN AND LOGISTICS career guidance for masters and Ph.D. students who are interested in practice careers. The col- loquium will be held April 18, and students can stay for the remainder of the conference. Participants in both programs can register for the full conference at a steep discounted rate of $355; they must be nominated and selected to at- tend. Limited nancial aid is available for the col- loquium. The nomination deadline is March 30. 8)',2303+=;36/7,347 %2(73*87/-007 463+6%1 While the conference formally kicks off with a Newcomers Orientation and Welcome Recep- tion on April 18, the entire pre-conference day is packed with valuable learning opportunities. Attendees can take advantage of in-depth tech- nology workshops presented by software solu- tions companies, as well as a special workshop on soft skills. The Soft Skills Workshop provides a half- day or full-day training in working successfully with business decision-makers and the people who implement decision analysis and O.R. so- lutions. The morning session focuses on work- ing with individuals and the afternoon session focuses on groups. The sessions are designed to complement one another, so attending the full day will provide a comprehensive review. )%60=6)+-786%8-326%8) Early registration rates of $870 for INFORMS members and $970 for nonmembers are avail- able until April 1. Organizations can take advan- tage of a team discount rate of $715 (by April 1) when they send three or more attendees. All meal functions (breakfasts, lunches, breaks, the Sunday reception and the Monday Edelman banquet) are included in all registration fees. The conference venue, the Hilton Orlando Bonnet Creek Resort, is an upscale complex lo- cated in a private natural setting on 482 acres and surrounded on three sides by Walt Disney World Resort. The reservation cut-off date is March 12. For continuing updates, information on ho- tel reservations and to register, go to http:// meetings.informs.org/Practice2010, phone 800-343-0062 or 401-722-2595 or visit meet- ings@informs.org. Teresa V. Cryan (Terry.Cryan@INFORMS.ORG) is the director of meetings for INFORMS. ,- u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) TRE SO|T SKl||S WOkKSROP PkOVlDES TkAlNlNG lN WOkKlNG SUCCESS|U||Y WlTR BUSlNESS DEClSlON-NAKEkS. P k AC T l C E P k E V l E W Six nalists will compete for the most prestigious prize in applied O.R., the Franz Edelman Award. The competition will take place April 19 and is open to all conference registrants. That evening, the six nalists will be honored and the 2010 winner announced at a gala ceremony and banquet. The winners of two other important practice prizes the INFORMS Prize and the Daniel H. Wagner Prize will also be announced. Edelman nalists include: Delaware River Basin Commission (U.S.), Deutsche Post DHL (Germany), INDEVAL (Mexico), New Brunswick Dept. of Transportation (Canada), Procter & Gamble (U.S.) and Sasol (South Africa). EDELMAN COMPETITION: THE BEST IN APPLIED ANALYTICS Mark W. Shafer, senior vice president of revenue management and analytics, Walt Disney Parks and Resorts Presentation: Game- Changing Analytics: A Disney Perspective Richard ONeill, Chief Economic Advisor, Federal Energy Regulatory Commission Presentation: Better, Smarter Electricity Markets: How Better Optimization Software Can Save Billions THOUGHT- PROVOKING KEYNOTE PRESENTATIONS kEADEkSRl P SUkVEY Give us your opinion: http://vista-survey.com/survey/v2/survey2.dsb?ID=4850246745 career guidance for masters and Ph.D. students who are interested in practice careers. The col- loquium will be held April 18, and students can stay for the remainder of the conference. Participants in both programs can register for the full conference at a steep discounted rate of $355; they must be nominated and selected to at- tend. Limited nancial aid is available for the col- loquium. The nomination deadline is March 30. ICHNOLOGY WOkK5HOP5 AN0 5OFI 5KILL5 PkOGkAM While the conference formally kicks off with a Newcomers Orientation and Welcome Recep- tion on April 18, the entire pre-conference day is packed with valuable learning opportunities. Attendees can take advantage of in-depth tech- nology workshops presented by software solu- tions companies, as well as a special workshop on soft skills. The Soft Skills Workshop provides a half- day or full-day training in working successfully with business decision-makers and the people who implement decision analysis and O.R. so- lutions. The morning session focuses on work- ing with individuals and the afternoon session focuses on groups. The sessions are designed to complement one another, so attending the full day will provide a comprehensive review. AkLY kGI5IkAIION kAI Early registration rates of $870 for INFORMS members and $970 for nonmembers are avail- able until April 1. Organizations can take advan- tage of a team discount rate of $715 (by April 1) when they send three or more attendees. All meal functions (breakfasts, lunches, breaks, the Sunday reception and the Monday Edelman banquet) are included in all registration fees. The conference venue, the Hilton Orlando Bonnet Creek Resort, is an upscale complex lo- cated in a private natural setting on 482 acres and surrounded on three sides by Walt Disney World Resort. The reservation cut-off date is March 12. For continuing updates, information on ho- tel reservations and to register, go to http:// meetings.informs.org/Practice2010, phone 800-343-0062 or 401-722-2595 or visit meet- ings@informs.org. Teresa V. Cryan (Terry.Cryan@INFORMS.ORG) is the director of meetings for INFORMS. ,- u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) TRE SO|T SKl||S WOkKSROP PkOVlDES TkAlNlNG lN WOkKlNG SUCCESS|U||Y WlTR BUSlNESS DEClSlON-NAKEkS. P k AC T l C E P k E V l E W Six nalists will compete for the most prestigious prize in applied O.R., the Franz Edelman Award. The competition will take place April 19 and is open to all conference registrants. That evening, the six nalists will be honored and the 2010 winner announced at a gala ceremony and banquet. The winners of two other important practice prizes the INFORMS Prize and the Daniel H. Wagner Prize will also be announced. Edelman nalists include: Delaware River Basin Commission (U.S.), Deutsche Post DHL (Germany), INDEVAL (Mexico), New Brunswick Dept. of Transportation (Canada), Procter & Gamble (U.S.) and Sasol (South Africa). EDELMAN COMPETITION: THE BEST IN APPLIED ANALYTICS Mark Shafer, Senior Vice President of Revenue Management, Disney Parks and Resorts Presentation: Game- Changing Analytics: A Disney Perspective Richard ONeill, Chief Economic Advisor, Federal Energy Regulatory Commission Presentation: Better, Smarter Electricity Markets: How Better Optimization Software Can Save Billions THOUGHT- PROVOKING KEYNOTE PRESENTATIONS kEADEkSRl P SUkVEY Give us your opinion: http://vista-survey.com/survey/v2/survey2.dsb?ID=4850246745 ,1 u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) ( +)*) that you would be part of the people aiding and abetting government expenditure on thermo- nuclear war. Nothing could be further from the truth! In my many years in the mathematics divi- sion I can honestly say that not one study done by this department has ever been of any use to anyone on the real side of the house. We have been outrageously paid to do what we pleased. And we pleased to do pure mathematics. To get straight to the point, if you join us, not only are you NOT accepting tainted mon- ey, you are diverting government money that was going to bomb design and improvement to support your salary so you may continue to campaign for peace. And remember, every dollar you absorb is a dollar that didnt go into the design and improvement of thermonuclear devices. If you join us and work very hard you can divert more money from atomic weapon studies than any other way. So you see, the best way you can siphon away bomb-directed money and support peace is to join us! Yours for peace, (Name withheld) Gene Woolsey (robertwoolsey83@comcast.net) is professor emeritus at the Colorado School of Mines, a past president of The Institute of Management Sciences (TIMS) and a former editor of several journals including The Production & Inventory Management Journal, Interfaces, The Journal of Operations Management and The Transactions of The Institute of Industrial Engineers. BGFRF:GRR>:KL BGMA>F:MA>F:MB<L =BOBLBHGB<:GAHG>LMER L:RMA:MGHMHG> LMN=R=HG>;RMABL =>I:KMF>GMA:L>O>K ;>>GH?:GRNL>MH :GRHG>HGMA>K>:E LB=>H?MA>AHNL>' E :L M PHK = @:FL ?NEEI:@>:KMPHKD G>P:KMPHKD I:@>,1 OPTIMIZATION Europe GAMS Software GmbH Eupener Strasse 135-137 50933 Cologne, Germany phone +49-221-949-9170 fax +49-221-949-9171 mail info@gams.de web http://www.gams.de USA GAMS Development Corporation 1217 Potomac Street, NW Washington, DC 20007, USA phone +1-202-342-0180 fax +1-202-342-0181 mail sales@gams.com web http://www.gams.com www.gams.comm High-Level Modeling The General Algebraic Modeling System (GAMS) is a high-level modeling system for mathematical programming problems. GAMS is tailored for complex, large-scale modeling applications, and allows you to build large maintainable models that can be adapted quickly to new situations. Models are fully portable from one computer platform to another. Wide Range of Model Types GAMS allows the formulation of models in many different problem classes, including Linear (LP) and Mixed Integer Linear (MIP) Quadratic Programming (QCP) and Mixed Integer QCP (MIQCP) Nonlinear (NLP) and Mixed Integer NLP (MINLP) Constrained Nonlinear Systems (CNS) Mixed Complementary (MCP) Programs with Equilibrium Constraints (MPEC) Conic Programming Problems Stochastic Linear Problems GAMS Integrated Developer Environment for editing, debugging, solving models, and viewing data. Scheduling and Planning at BASF Close cooperation between logistics, information services and the scientific computing group of BASF, Prof. Dr. C. A. Floudas (Princeton University), Dr. A. V. Eremeev and Dr. P. A. Borisovski (Omsk Branch of Sobolev Institute of Mathematics SB RAS), SAP AG, and Mathesis GmbH led to a number of successfully deployed applications based on exact and hybrid optimization techniques. One of the results is a novel modeling approach of batch and continuous plants: State-task network formulation resulting in mixed-integer linear program Unit-specific, event-specific continuous-time formulations Hybrid methods and decomposition schemes to handle large instances Tight lower bounds derived from auxiliary models Implementation in GAMS with parallel GAMS/CPLEX New interfacing technology and integration approaches to connect to SAP-APO Used on a daily basis to improve planning and scheduling State-of-the-Art Solvers GAMS incorporates all major commercial and academic state-of-the-art solution technologies for a broad range of problem types, including global nonlinear optimi- zation solvers. A>EI IKHFHM> :G:ERMB <L Its fast and its easy! Visit: http://analytics.informs.org/button.html With approximately 15,000 drivers and in- dependent contractors, Green Bay, Wis.-based Schneider National is one of the largest truck- load carriers in North America. The companys operations include about 14,000 tractors and 40,000 trailers, and Schneiders driver associ- ates collectively cover more than ve million loaded miles per day. Needless to say, a transportation company that big must deal with a host of complex lo- gistic, strategic and tactical problems, not the least of which is developing dispatching poli- cies that help retain drivers in an industry his- torically plagued by 100-percent annual driver turnover rates while simultaneously meeting the needs of customers and optimizing the de- ployment of assets. For help in capturing the dynamics of its massive eet in order to make better corporate decisions regarding such is- sues, Schneider turned to a team of internal and external analysts. Among the questions the team addressed: What will be the impact of changes in federal regulations governing drivers? What is the best way to manage drivers based in Canada? Where should new drivers be hired? How many teams (drivers that work in pairs which can operate 20 hours each day) should the company maintain? Is it possible to get drivers home on a regular basis and make commitments of when a driver will be given time at home? The team included Ted Gifford, Jeff Day and John Nienow of Schneider Nationals Engineering and Research Department and Hugo Simo, Abraham George and Warren Powell of the Department of Operations Re- search and Financial Engineering at Prince- ton University. The team developed a model known as the Tactical Planning Simulator ,. u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) SCRNElDEk NATlONA| kUNS WlTR ANA|YTlCS TO PkODUCE BE|lEVAB|E kESU|TS, TRE NODE| RAD TO C|OSE|Y |lT ACTUA| ||EET PEk|OkNANCE, NATCRlNG TRE DEClSlONS O| A SKl||ED GkOUP O| DlSPATCREkS SUPPOkTED BY STATE-O|-TRE AkT P|ANNlNG SYSTENS. Prcscnlolion ol Wogncr Prizc-winning work lor opplicd onolysis will bc rcpriscd ol lN|OkNS Proclicc Conlcrcncc. A NA |Y T l C S l N AC T l ON With 15,000 drivers and 14,000 trailers, Schneider National trucks are a familiar sight on North American highways. (TPS) that produces a highly detailed simu- lation of fleet operations, capturing the dy- namics of drivers and loads at a very high level of detail. As the authors note, To produce believ- able results, the model had to closely t ac- tual eet performance, matching the decisions of a skilled group of dispatchers supported by state-of-the art planning systems. To capture the behavior of drivers in a realistic way, it was necessary to model drivers using 15 sepa- rate attributes. All work rules had to be repre- sented to capture driver productivity. We also had to model customer service requirements, and other operational details such as driver relays and the proper handling of geography- constrained drivers [such as the Canadian and regional drivers]. The probl em i s formul ated as a very l arge-scal e stochasti c opti mi zati on prob- l em to capture the col l ecti ve i ntel l i gence of the di spatch center. When the team model ed operati ons at the l evel of detai l requi red both for proper cal i brati on and to provi de sensi ti vi ty to key pol i cy stud- i es, the resul t was a stochasti c l i near programmi ng wi th an effecti vel y i nfi ni te number of rows. The problem was solved using approxi- mate dynamic programming, which over- comes the high dimensional state variables using methods from machine learning. This logic captured the critical ability of the dis- patch center to anticipate the impact of de- cisions made now on the future. This logic made it possible to capture not only a 15- dimensional attribute describing each driver, but also uncertainties in loads (demands) and travel times. Considerable attention was put into capturing a host of real-world details so that the model closely matched a number of performance metrics. The work not only saved Schneider Na- tional millions of dollars in multiple applica- tions since its introduction two years ago, it also earned the 2009 Daniel H. Wagner Prize for Excellence in Operations Research Prac- tice from INFORMS (Institute for Operations Research and the Management Sciences). Gifford, Day, Nienow, Simo, George and Powell describe their prize-winning work in the paper, Approximate Dynamic Program- ming Captures Fleet Operations for Sch- neider National. The winner was announced at the IN- FORMS Annual Meeting last October following a competition involving ve nalists. The other nalist presentations included: A Queuing Model-Based System for Semiconductor Production Planning at IBM Hub Group Implements a Suite of OR Tools to Improve its Operations Extending Bass for Improved New Product Forecasting at Intel Optimizing Helicopter Transport of Oil Rig Crews at Petrobras The award-winning Schneider National presentation will be reprised at a special ses- sion and honored at the awards gala dur- ing the INFORMS spring practice meeting in Orlando, Fla., April 18-20 (see page 32). The Wagner Prize is given in memory of the late Dr. Daniel H. Wagner. While president of his own practice-oriented consulting rm, Dr. Wagner brought many high-quality mathema- ticians into the operations research commu- nity, leading to signicant applications for U.S. Navy, U.S. Coast Guard and several other organizations. The prize honors Dr. Wagner by emphasizing the quality and coherence of analysis used in practice. Dr. Wagner strove for strong mathematics applied to practical problems, supported by clear and intelligible writing. This prize recognizes those principles by emphasizing good writing, strong analytical content and veriable practice successes. ,/ u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) TRE WOkK NOT ON|Y SAVED SCRNElDEk NATlONA| NU|Tl-Nl||lONS O| DO||AkS lN NU|TlP|E APP|lCATlONS, lT A|SO EAkNED TRE 200 DANlE| R. WAGNEk PklZE |Ok EXCE||ENCE lN OPEkATlONS kESEAkCR PkACTlCE. WAG NE k P k l Z E W l NNE k Wagner presentation videos: www.livewebcast.net/INFORMS_ AM_Wagner_Prize_2009 Wagner Prize-winning paper: www.castlelab.princeton.edu/Papers/Wagner_ Jan012010.pdf Wagner Prize information: www.informs.org/wagnerprize INFORMS Spring 2010 Practice Conference: http://meetings.informs.org/Practice2010 Schneider National: http://viewer.zmags.com/publication/840980b8 #/840980b8/48 FOR MORE ON THE STORY SUBSCkl BE TO :G:ERMB <L Its fast, its easy and its FREE! Just visit: http://analytics.informs.org/ Some years ago there was a nameless Na- tional Laboratory somewhere in this great land of ours. The laboratorys main reason for exis- tence was to improve the design of various kinds of thermonuclear devices, build them and store them. But like all government laboratories, its reason for existence slid glacially and asymp- totically toward pure research. The way to get promoted or raised was to publish more papers in the respectable journals in the eld. The most far-out department was the mathematics group. In theory their job was to provide what- ever applied mathematics and optimization that any other part of the plant might need. The truth, however, was that its members happily had been doing, were doing and proposed to continue to do, pure research in whatever area of pure mathematics ran their motor. Now the mathematics department was an aggressive recruiter and scouted out mainly those university math departments that sat- ised its requirement of outstanding ability in pure mathematics. The result was, with a few exceptions, the mathematics department was made up of rather weird haystack-haired peo- ple who adored pure mathematics, chess and Kriegspiel. Kriegspiel took place every day at noon and is, in essence, playing chess where you and your opponent have a board and piec- es but cannot see each others board. Only the referee and spectators can do that. The ref- eree tells you when it is OK to move a piece to an unoccupied square and when you take a piece. In short, it is simulated warfare pretty close to reality. But I digress. Many people who worked at this laboratory were blissfully unaware that it was operated by a phone company under contract with the Atomic Energy Commission. What that meant in prac- tice was as follows: If you applied for a math- ematics position in parts of the phone company and that organization didnt nd you desirable, they would automatically forward your applica- tion, as a courtesy, to the math department at the National Laboratory where it would land on the math department heads desk. In time a very bright, young Ph.D. from a prestigious nameless western school we shall call Berkeford, applied to a mathematics division of the phone compa- ny. He was brought out but, alas, didnt make the cut. A week or so later he received a letter offer- ing him an interview in the math department at the National Laboratory. This young man was a Class A Ban the Bomber San Francisco pot-using hippie and wrote a letter to the department head stating how outraged he was to be contacted by a bomb factory. The letter continued in an ex- plosive way that he would see us all in Hades before even considering working for such an evil organization that designed thermonucle- ar devices with which to kill people. He also sent a copy of this letter to the vice president of human resources at the phone company, demanding that the process of forwarding peaceful applicants to that den of sin and iniq- uity should be stopped, forthwith! Our department head handled this rather well. He posted the young mans letter on the bulletin board and challenged any member of his department to write a reply; the author of the best response would receive a bottle of Chteau Latte-Rothschild. It wasnt long before some re- ally witty letters were put up, including one that everyone agreed was the winner. For political reasons, it couldnt be sent as it was not classi- ed, but it was too truthful. The letter follows: Dear Dr. Hippie, As I am sure you know, your letter telling us all to go to hell provoked some interesting re- actions here. There was a contest for the best reply, which follows. Firstly, you must realize that at one time this facility was really pretty much a bomb factory, no question. However, as the years passed, its con- nection to anything real and anything having to do with the design, improvement and storage of thermonuclear devices has become a minuscule part of our expenditure. Our math department is really an ivory tower full of Ph.D.s. Our job is to push back the frontiers of pure mathematics while being paid a salary to research on what we damned please while being compensated with salaries that can only be described as amazing, municent or wonderful. You stated in your letter that you didnt want to join us because this would make you a con- tributor to the proliferation of thermonuclear devices. And by accepting a salary you said ,0 u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) A RlklNG lNClDENT lN TRE DESEkT BY GENE WOO|SEY TRE NATRENATlCS DEPAkTNENT WAS NADE UP O| kATREk WElkD RAYSTACK-RAlkED PEOP|E WRO ADOkED PUkE NATRENATlCS, CRESS AND KklEGSPlE|. | A S T WOk D ,1 u : G: ER M B <L F:@: S B G> ' <HF : G: ER M B <L u F:K <A ( : I K B E +)*) ( +)*) that you would be part of the people aiding and abetting government expenditure on thermo- nuclear war. Nothing could be further from the truth! In my many years in the mathematics divi- sion I can honestly say that not one study done by this department has ever been of any use to anyone on the real side of the house. We have been outrageously paid to do what we pleased. And we pleased to do pure mathematics. To get straight to the point, if you join us, not only are you NOT accepting tainted mon- ey, you are diverting government money that was going to bomb design and improvement to support your salary so you may continue to campaign for peace. And remember, every dollar you absorb is a dollar that didnt go into the design and improvement of thermonuclear devices. If you join us and work very hard you can divert more money from atomic weapon studies than any other way. So you see, the best way you can siphon away bomb-directed money and support peace is to join us! Yours for peace, (Name withheld) Gene Woolsey (robertwoolsey83@comcast.net) is professor emeritus at the Colorado School of Mines, a past president of The Institute of Management Science (TIMS) and a former editor of several journals including The Production & Inventory Management Journal, Interfaces, The Journal of Operations Management and The Transactions of The Institute of Industrial Engineers. lN NY NANY YEAkS lN TRE NATRENATlCS DlVlSlON l CAN RONEST|Y SAY TRAT NOT ONE STUDY DONE BY TRlS DEPAkTNENT RAS EVEk BEEN O| ANY USE TO ANYONE ON TRE kEA| SlDE O| TRE ROUSE. | A S T WOk D GANS |U|| PAGE AkTWOkK G>P:KMPHKD PAGE 38 OPTIMIZATION Europe GAMS Software GmbH Eupener Strasse 135-137 50933 Cologne, Germany phone +49-221-949-9170 fax +49-221-949-9171 mail info@gams.de web http://www.gams.de USA GAMS Development Corporation 1217 Potomac Street, NW Washington, DC 20007, USA phone +1-202-342-0180 fax +1-202-342-0181 mail sales@gams.com web http://www.gams.com www.gams.comm High-Level Modeling The General Algebraic Modeling System (GAMS) is a high-level modeling system for mathematical programming problems. GAMS is tailored for complex, large-scale modeling applications, and allows you to build large maintainable models that can be adapted quickly to new situations. Models are fully portable from one computer platform to another. Wide Range of Model Types GAMS allows the formulation of models in many different problem classes, including Linear (LP) and Mixed Integer Linear (MIP) Quadratic Programming (QCP) and Mixed Integer QCP (MIQCP) Nonlinear (NLP) and Mixed Integer NLP (MINLP) Constrained Nonlinear Systems (CNS) Mixed Complementary (MCP) Programs with Equilibrium Constraints (MPEC) Conic Programming Problems Stochastic Linear Problems GAMS Integrated Developer Environment for editing, debugging, solving models, and viewing data. Scheduling and Planning at BASF Close cooperation between logistics, information services and the scientific computing group of BASF, Prof. Dr. C. A. Floudas (Princeton University), Dr. A. V. Eremeev and Dr. P. A. Borisovski (Omsk Branch of Sobolev Institute of Mathematics SB RAS), SAP AG, and Mathesis GmbH led to a number of successfully deployed applications based on exact and hybrid optimization techniques. One of the results is a novel modeling approach of batch and continuous plants: State-task network formulation resulting in mixed-integer linear program Unit-specific, event-specific continuous-time formulations Hybrid methods and decomposition schemes to handle large instances Tight lower bounds derived from auxiliary models Implementation in GAMS with parallel GAMS/CPLEX New interfacing technology and integration approaches to connect to SAP-APO Used on a daily basis to improve planning and scheduling State-of-the-Art Solvers GAMS incorporates all major commercial and academic state-of-the-art solution technologies for a broad range of problem types, including global nonlinear optimi- zation solvers. RE|P PkONOTE :G:ERMB <L Its fast and its easy! Visit: http://analytics.informs.org/button.html