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Applications and Opportunities for Operations Research in ...

  1. 1. Applications and Opportunities for Operations Research in Internet-enabled Supply Chains and Electronic Marketplaces ManMohan S. Sodhi Scient 303 E. Wacker Drive Chicago, Illinois 60601 The Internet is creating opportunities for applying optimization. Firms can use operations research (OR) to improve their supply-chain performance within the enterprise whether their supply chains are being Internet-enabled or not. They can increase benefits by using OR to improve planning and execution in Internet- enabled supply chains with an expanded physical scope that includes vendors and customers and with an expanded functional scope that includes product design, marketing, and customer-relationship management. Page 1 of 31
  2. 2. Historically, euphoria over the use of OR in industry petered out in the late 1970s partly because of the difficulty of gathering and maintaining data. The early 1990s saw large- scale (and protracted) ERP implementations to improve supply chain and other operations, developed partly out of fears that legacy systems would collapse in 2000 and partly to coordinate transaction data pertaining to orders, inventory, and cash. ERP implementations created opportunities for OR in three ways. First, they dramatically improved the quantity and quality of data that could be used for OR models. ERP requirements are rigid, and implementations need good data for firms to operate these systems [Hiquet, Kelley, and CCAi 1998]. As consulting companies gathered implementation experience, they learned where to look for data and how to populate the data fields. Given good starting data, ERP systems themselves ensured that the data across different systems remained coordinated. Second, many businesses scrapped their existing OR models when they implemented ERP systems, erroneously believing that these systems would handle planning. Since businesses and even their software vendors do not yet understand how to integrate ERP and OR models, businesses considered it easier to use the ERP packages alone. Third, despite claims, the planning aspect of ERP software was limited or nonexistent even though ERP software alleviated or pointed out immediate and near-term problems. As a result, planners shifted their attention to medium-term horizons and realized that they needed true planning systems. OR professionals did not fully appreciate the changes in information technology (IT) brought about by client-server technologies and ERP and generally did not take Page 2 of 31
  3. 3. advantage of these opportunities. Advanced-planning-and-scheduling (APS) vendors filled the vacuum to some extent. They included Chesapeake (acquired recently by AspenTech), i2, Manugistics, Numetrix (recently acquired by JD Edwards), and Red Pepper (acquired a few years ago by PeopleSoft). These vendors relied largely on heuristics to improve supply chain processes, but they made the term optimization much more acceptable in business than it had been. (In fact, businesses are more aware of this term than of OR.) APS vendors also forced ERP vendors to recognize the importance of providing planning functionality and the tremendous benefits it could provide. This and the difficulty of integrating APS packages with ERP software motivated ERP vendors, such as SAP, Baan, Peoplesoft, and JD Edwards, to develop or acquire heuristics and OR technology to supplement their software. Their progress toward integrating supply-chain planning and OR with ERP software has been slower than they expected. While businesses initially used both ERP and APS software to improve performance within their companies, they wanted to include other members of the supply chain, such as suppliers and large customers. Transportation-planning-software vendors, such as Manugistics, sold software that used electronic data interchange (EDI) for carrier-shipper communication. The APS vendors were nimble in realizing the potential of the Internet, and by early 1998, they announced collaborative planning, supply-chain planning by a firm using the Internet to exchange forecasts and planned production with its customers and suppliers. The Internet supplemented or replaced EDI using a Web-based messaging protocol, Extensible Markup Language or XML. The ERP vendors responded by Page 3 of 31
  4. 4. announcing even broader sets of systems, including software for managing customer relationships. APS vendors followed with similar announcements. In 1999, electronic business-to-business marketplaces became big. Such marketplaces as SciQuest and Chemdex started lowering procurement costs for buyers and increasing revenues for sellers, but these and other existing marketplaces are transaction based. The marketplaces announced by i2, Manugistics, Oracle, and SAP promise planning and planning-related collaboration. Despite the publicity around these marketplaces, providing planning functionality may take time because the current focus is on tackling the complexity of business-to-business transactions. According to Phillips and Meeker [2000], enabling these transactions over the Internet is difficult because “many systems and business processes have to be restructured” and procurement and fulfillment processes are inherently complex. No wonder then that all of the marketplaces mentioned by Kaplan and Sawhney [2000] are transaction based. The next step for these marketplaces is to make orders visible from inception to fulfillment and allow tracking. Only after that will we see marketplaces emphasizing planning capability. Still, building blocks for planning-related applications do exist in marketplaces and marketplace technology announced by the APS and ERP vendors: (i2), bStreamz (Manugistics), (Oracle), and (SAP). As business use of the Internet grows, opportunities for OR to improve supply-chain performance will abound. Firms can use OR to improve supply-chain management in three ways: Page 4 of 31
  5. 5. (1) To lengthen the decision horizon for planning within the enterprise over that offered by their ERP systems regardless of their supply chains being Internet enabled; (2) To extend the physical scope of their supply chains to include vendors and customers and improve planning for the near and medium term as well as execution for the immediate future; and (3) To extend the functional scope of their supply chains to improve product-design, sales, and customer-relationship management. With current business use of the Internet largely limited to transactions, the Internet offers opportunities for planning parallel to those that ERP systems opened up for APS software. Moreover, the Internet increases the number of other businesses a firm can buy from or sell to and also enables the firm to change its relationships with these businesses in electronic marketplaces. The resulting complexity requires an expanded model that increases optimization opportunities for both planning and execution. Supply-chain- related opportunities for OR continue from the days before e-business became big, but the Internet has opened up several new opportunities: - APS vendors and others have announced electronic marketplaces or marketplace technologies to support supply-chain planning to help firms plan effectively; - New business models for e-commerce, like that of Webvan, will require new supply- chain models; - Business-to-business relationships in electronic marketplaces typically involve more entities, thus creating OR opportunities in marketplaces for both planning and execution; Page 5 of 31
  6. 6. - Businesses are more aware of the value of optimization than they were before APS implementations; and - The possibility of OR and other applications being Internet-hosted means businesses may have fewer IT concerns about implementing OR-based systems. An Example of Using APS with ERP in an Internet-enabled Supply Chain To understand the role of OR in an Internet-enabled supply chain, consider its surrogate, APS, in a global consumer-electronics firm that wants to automate its existing fulfillment process using ERP, APS, and the Internet. Currently, its regional offices around the globe group orders from customers, typically consumer electronics chains, in their regions once a week for 26 weeks of a rolling horizon. They then send the grouped orders to headquarters. Headquarters assigns current and planned inventory to these orders and then fills them directly from warehouses at the plant locations to customer warehouses around the globe. In the future, customers may order from headquarters directly, and external suppliers may fill orders. For the first four weeks of the planning horizon, the orders are firm, while later orders may change in time and therefore serve as forecasts. The headquarters, regional offices (or customers), and plants (or suppliers) can use the Internet, ERP, and APS systems as follows while maintaining the existing fulfillment process, with all steps except 6 and 7 to be run once a week in the following sequence: (1) Regional offices (or customers) send orders through the Internet to a database at headquarters and overwrite the orders for corresponding weeks placed a week earlier. Unfilled orders from past weeks in the ERP system also go to this database. Page 6 of 31
  7. 7. (2) Plants (or suppliers) use the Internet to enter the planned replenishments by date and ship-from location in the same database. The ERP system maintains records of current inventory at each plant (supplier) location as stocks are added or taken out. (3) The APS system takes all the orders and the planned replenishments for the entire time horizon of 26 weeks from the database and the current inventory from the ERP system. It runs either a heuristic or a linear-programming-based model to allocate current and planned inventory among these orders, balancing delays and customers according to their importance. With either model, the system gives each order an allocated quantity, a target shipping date, and a target shipper location. The firm considers planned replenishments fixed for the first 12 weeks and flexible for weeks 13 through 26, so the APS system takes the first 12 weeks’ replenishment from suppliers as a constraint and the next 14 weeks’ replenishment as a decision variable. (The heuristic for a single shipping location works as follows: taking the time periods in sequence, for each time period, it sorts unfilled orders by due date and customer importance and then allocates the maximum possible inventory to orders starting from the top of the list. The linear-programming-based solution is a multi-time-period network model with current and planned inventory as source nodes, orders as demand nodes, and delay penalties per unit time based on customer importance.) (4) Through Internet-enabled collaboration, the APS system makes the forecast for weeks 13 through 26 available to the suppliers. (5) The ERP system imports orders for the current week from the database and updates unfilled orders from previous weeks. All of these orders now have a shipping quantity and date as determined by the APS module in step 3. Page 7 of 31
  8. 8. (6) Every day, the ERP system executes orders based on the shipping date and the inventory at the shipping location, issuing transportation orders and updating order statuses accordingly. (7) The regional offices (or customers) can use the Internet any time after the APS run to view the shipping quantities and shipping dates for their planned orders. The ERP system provides information for orders in the current or earlier weeks, while the database provides information on later orders. .______________________________________ Figure 1 goes about here .._______________________________________ However, using the Internet and APS technology only to automate an existing process limits the benefits. The electronics firm uses the Internet only for communication and makes only limited use of OR. If this firm were to join an electronic marketplace, it might have to change radically and use OR to make improvements even before joining such a marketplace. One improvement would be to make the process more responsive to changes in demand. For instance, customers might want to change their orders scheduled for shipping within the first four weeks, which is not currently allowed. The firm could let customers enter changes and then rerun the LP model with the existing replenishment schedule taken as fixed and allowing the changes if that improved the overall solution. Such a model could be run any time, so it would be useful to implement before the firm joins an electronic marketplace whose dynamic environment would not accommodate its sequential weekly process. Page 8 of 31
  9. 9. The firm could make the supply chain even more responsive if it allowed changes to the suppliers’ replenishment schedule within the first 12 weeks. Then, it could tie the suppliers’ production scheduling system(s) to its APS system. This would let a customer enter a tentative order through the Web to get an immediate response as to whether or not the firm could fill the order by the specified date. One way the firm could provide this functionality in the present context would be to add this order to the demand and rerun the LP model in the APS system with the first 12 weeks’ replenishments as soft constraints. If no change were required to the existing replenishment schedule, the customer’s order could be met. Otherwise, the APS system would then pass the changes to the supplier’s production-scheduling system to check whether these changes were possible by juggling production. If the answer were yes, the customer’s order could be filled; otherwise the customer would be told that the order could not be met by the specified date. This computation too can be done at any time and would be useful with an electronic marketplace. This simplified example shows the complexity of both technology and business processes, whether a firm simply Internet-enables its existing processes or redesigns them for electronic marketplaces. In either case, OR can be useful. Extending the Decision Horizon for Planning within the Enterprise Independent of the Internet, OR (including APS) allows a firm’s planners to extend their decision horizon for planning supplies to meet forecasted demand from the immediate Page 9 of 31
  10. 10. future provided by the ERP system to the medium and long term. The actual time constituting short or long term depends on the industry – long term in the electronics industry may be short term in the chemicals industry. The distinction is in the flexibility to change the supply-chain parameters during the period. The longer the term, the greater the flexibility. For instance, in the medium term, it may be hard to change the capacity of existing plants, but in the long term, the firm could acquire or build new plants. The existing and potential OR applications deal with different supply-chain issues depending on the decision horizon [Sodhi 2000] just as business drivers vary by the horizon (Table 1): - Long-term decisions are affected by globalization leading to increased competition and expanded presence in other countries, by mergers and acquisitions, and by the costs of physical assets. Since the 1960s, OR has been used for long-term decisions, such as plant and distribution-center openings and closings. APS vendors offer tools that use true optimization with linear and integer programming. - Medium-term decisions are affected by customer-service, inventory, and supply- chain costs, including procurement, manufacturing, and distribution costs. OR can help firms to plan procurement, manufacturing, and transportation to minimize supply-chain costs. APS vendors typically support medium-term decisions by offering tools that use heuristics. - Short-term decisions are affected by transportation costs, finished goods inventory levels, and equipment utilization. OR can help firms to create or, on short notice, to modify their production schedules and inventory deployment. Modification could be warranted by unplanned events, such as the arrival of a new high-priority order, with Page 10 of 31
  11. 11. real-time data obtained using the Internet. APS vendors use genetic algorithms, constraint-based programming, the so-called theory of constraints, business rules, or other heuristics for production scheduling, deployment of inventory, and transportation scheduling. - Immediate decisions usually concern filling customer orders on time. Businesses currently use the Internet almost entirely for immediate transactions, and even problems with no planning element offer opportunities for OR. For instance, in response to a customer’s request for immediate shipment, a firm could use OR to determine the effects of rescheduling production to fill the order and respond quickly to the customer. Firms can also use OR to modify current orders by substituting components or manufacturing locations. ..---------------------------------------------------------------------------- Insert Table 1 around here ..---------------------------------------------------------------------------- Extending Beyond the Enterprise to Customers and Suppliers The “Beer game,” a supply-chain game developed by John Sterman at MIT and supported by the System Dynamics Society, demonstrates that having only local information at different nodes in any supply chain can amplify fluctuation of the customer demand signal as the signal moves upstream to warehouses and plants. Thus, even a small customer demand fluctuation can result in huge inventories or shortages at upstream nodes. The game, played in many business workshops, convinced many Page 11 of 31
  12. 12. businesses to coordinate the information between different nodes in their supply chains to prevent this amplification or bullwhip effect. Recognition of this effect has motivated firms to track the operation of the entire supply chain and use this information to coordinate operations throughout the supply chain. Indeed, ERP systems can coordinate information across production, distribution, and order fulfillment within the company to diminish the bullwhip effect. But why stop at the boundaries of the enterprise? Like ERP systems, electronic marketplaces could provide information on inventory and on current and future demand starting with the supplier’s supplier and ending with the customer’s customer. Then OR applications would provide benefits for execution in the immediate future and for planning in the near and medium term. Execution: Participant firms could use OR for procurement to insure that they meet their contractual agreements with their partners while procuring from other participants. For instance, participants could use OR to modify planned high-volume purchases from preferred suppliers while buying from other suppliers to respond quickly to market changes. Dell [2000] mentions vertical exchanges, such as e-steel,, and Chemdex, beginning to “manage data across larger and larger pieces of the supply chain” and, in his opinion, heading towards a “completely connected supply chain.” Typically a transaction takes place between two parties, but an electronic marketplace could use OR to enable multi-way matching at the request of a participant firm. For Page 12 of 31
  13. 13. example, a user could ask the marketplace to match manufacturing capacity, suppliers of raw materials, and those demanding finished goods to use the available capacity to turn the raw material into finished goods. Such three-way matching is possible outside the Internet, but when an electronic marketplace makes all the information available online, a business could use the OR capability of the marketplace to spot an economic opportunity. Three providers have announced exchanges that will use heuristics to facilitate matching shippers with carriers to decrease costs or increase reliability. is developing the Digital Transportation Marketplace (DTM) to leverage its optimization- based carrier software, shipper software, and lane-bidding system. FreightWise, an online marketplace for buyers and sellers of transportation services, has partnered with Manugistics for Web infrastructure and transportation management to enable users “to share, view, and execute transportation services decisions” across multiple modes of transportation and multiple rail carriers. FreightMatrix, using i2’s TradeMatrix technology, will operate a similar marketplace. Planning: We can extend the idea of coordination and visibility of demand and capacity further in marketplaces that would use OR to match buyers’ planned orders with sellers’ planned production at different parts of the chain in the short to medium term. This is the same as supply-chain planning within the enterprise except that many more entities must be considered and they are outside the enterprise. A firm that wants to use information provided via the Internet about its suppliers and customers in planning must expand its Page 13 of 31
  14. 14. models to include many more entities. OR can handle the increased complexity of the model. Before electronic marketplaces emerged, APS vendors and other firms proposed collaborative planning; one industry effort is CPFR (collaborative planning, forecasting, and replenishment). Thus, APS motivated the Internet-enabling of supply chains and extended supply-chain models. Now we have the reverse opportunity: a firm’s customers and suppliers may be on the same electronic marketplace, giving us an opportunity to apply OR techniques to expanded supply-chain models. APS/ERP vendors, including i2, Manugistics, Oracle, and SAP, have announced electronic marketplaces to which they intend to add planning functionality to enable participating firms to extend their decision horizons. For example, i2 and Toyota Motor Sales USA announced the auto parts exchange, iStarXchange, based on i2’s tradeMatrix technology, which will offer “optimization and hosted services” that extend the decision horizon by including demand planning and procurement planning. SAP and six chemical companies recently announced their intention to use both SAP’s ERP software (R/3) for transactions and APS software (APO) for planning on Extending the Functional Scope of the Fulfillment Process Internet-based communications also give rise to opportunities for OR by expanding supply-chain management upstream to design and product-life-cycle management and downstream to the end-consumer. A firm can use Internet-based communications to Page 14 of 31
  15. 15. coordinate design, development, and sales and can use OR to optimize the use of resources in the design and development process. The firm can also use OR-based supply-chain-planning techniques to determine when to phase a product in or out and to help forecast and plan capacity usage. It can use the Internet to conduct market research and study end-consumer behavior on its e-commerce Web site and then use this information for design. It can use OR techniques to analyze overall trends and to react in real time to consumer requests by using the analysis to plan fulfillment through improved forecasting and inventory-deployment. According to David Ross, e-commerce manager at IBM, the new supply-chain model is “sense and respond” instead of “make and sell” [Grebb 2000]. Business drivers in this new model are - Pressure from consumers and industrial customers to customize products to their individual specification, - Ready access to competing Web-sites, - Products’ decreased time to market, - Shortened product life cycles, and - Business customers’ expectations for improved service. The Internet makes possible this extension of supply-chain function to “sense and respond.” It has created opportunities for OR technology to help firms sense customers’ needs for products and customer service, and respond by targeting advertising at the Page 15 of 31
  16. 16. individual Web-site user’s level, reconfiguring orders to meet or accelerate delivery dates, or redeploying inventory using real-time information on supply and demand. Firms can use OR - In design, by optimizing product attributes, by improving the use of design and development resources, and by planning the phase-in for new products and the phase-out of old products. Analysts can use customer data collected in Web surveys to determine desirable product characteristics quickly and improve product designs. Planners can access design and capacity information over the firm’s intranet or extranet to plan for improved resource usage. - In sales, by predicting demand at the individual and aggregate levels more accurately than would be possible otherwise and by deploying inventory effectively to meet changing demands. Analysts can analyze data on Web-site visitors’ navigational paths to predict sales at the individual customer level. They can also predict aggregate sales and redeploy inventory if need be. - In customer-relationship management (CRM) by designing call centers and other service center facilities to improve service and better use resources. CRM permits managers to integrate existing and new channels to support customers, sales, and marketing. These managers can use OR strategically to design call centers and to integrate their customer-relationship infrastructure and resources, and tactically to deploy algorithms to aid in automated and customer-service-representative-aided responses to customer requests. Page 16 of 31
  17. 17. The large amounts of consumer data collected by retailers and firms’ wish to target individual customers has spurred the growth of data mining [Gillett 1999]. Web sites are collecting further data as users navigate around them. This has motivated development of OR-based tools for predicting individual consumers’ purchasing behaviors in real or delayed time, leading to improvements in forecasting and inventory-deployment. - Collaborative filtering is a way to establish what ads to display to Web users who have browsed some ads or made purchases. Collaborative-filtering software compiles purchasing information on customers to pool them into clusters and uses some cluster members’ purchasing patterns to predict the buying habits of others in the same cluster. It does this in real time and, for instance, puts an ad on the customer’s screen while he or she is making a purchase [Grebb 2000]. - Personalization is the real-time or delayed modification of Web sites to display content or ads for products and services that may likely interest individual users. Collaborative filtering is one way to achieve this, but other methods include Markov chain models. - “Clickstream” analysis is collecting and analyzing users’ navigational paths on Web sites, mining the data they create. Analysis at an aggregate level can be useful for improving Web-site design, and analysis at the individual level can be useful for personalizing [Dahir 2000]. Some of the companies that provide tools and services in this area are DoubleClick for advertising management; Vignette for automated delivery of content; Net Perceptions for real-time personalization; net.Genesis for mining customer data; HNC Software for software to predict customer behavior; IBM for decision support and advanced data Page 17 of 31
  18. 18. mining; Quadstone for predicting customer purchases; and WebTrends for analyzing marketing campaigns. Product life-cycle management (PLM) includes (1) collecting customer feedback to use in designing or improving products, (2) enabling designers to collaborate with marketing, production, and suppliers, (3) improving resource utilization during design, and (4) doing what-if analysis for planning when to phase products in and out. Software to support PLM can use Internet technology to facilitate (1) and (2) and can use OR techniques for (3) and (4). i2's PLM solution comprises heuristics and Internet-based collaboration modules to cover the product-development and product-lifecycle processes from design to phaseout. To improve use of resources during design, a module schedules development across resources using genetic-algorithm-based project scheduling. Another module uses supply-chain-planning algorithms to help planners to determine when to phase products in or out. SAP’s PLM capabilities include Web-enabled collaboration and APS-supported management of design and development using its tool, APO. The intention is to manage the complete product life cycle of the extended supply chain from design and production through sales and maintenance. Available-to-promise (ATP) technology gives a customer (or salesperson) a way to find out whether a firm can fill an order by the requested date. If the firm cannot, instead of just replying in the negative, it can use a variant of ATP called CTP (capable to promise) to determine whether a change in the production schedule, product configuration, components, or shipping location can make filling the order possible. Such tools can use Page 18 of 31
  19. 19. OR models to determine the lowest-cost change to the product, order, or delivery date to satisfy the order. The ATP module of SAP’s APO suite of products is an example of a software product that uses heuristics to make substitutions of components, materials, or shipping locations. Customer-service applications with which customers serve themselves to obtain technical or sales information on Web-sites or through automated e-mail response also provide opportunities for OR. Firms have an economic incentive to offer self-service: the cost of automated or Web-based resolutions to customer queries is a tenth of that of resolutions provided by customer-service representatives on the telephone. Existing applications reportedly use expert systems, knowledge engineering, and case-based reasoning. These applications typically respond to e-mail or assist customer-service representatives by matching queries with knowledge bases that include both content and rules for routing and problem escalation. For instance, the software may react to a customer’s e-mail by deciding that the customer is reporting a problem. It could then respond by searching through the knowledge base for information that it considers of potential use to this customer and then e-mailing it to him. It could also route the original e-mail message along with its response to a specific engineer to follow up. Examples of software companies with products in this area are Edify, Inference, Silknet, and ServiceSoft. Thus, while OR has already contributed to supply-chain performance outside the Internet environment, it can contribute even more within an Internet-enabled environment. These benefits, over and above those for planning within the enterprise, are for planning and Page 19 of 31
  20. 20. execution across enterprises with suppliers and customers and for extending the functional scope of supply-chain management as it interfaces with marketing, design, and product-life-cycle management. (Table 2) ..______________________ Insert Table 2 around here ..____________________ Where to Run OR Applications The Internet affords many different choices for running OR applications. An application service provider (ASP) may host an application on the Internet for a particular firm, an electronic marketplace may provide the application to all participating firms, or a firm may run the application locally, possibly using the Internet to retrieve data from external sources. APS vendors, who could use a hybrid of these options, are not very specific yet about what they will actually provide with the marketplaces they have announced. Indeed, creating the best application architecture may itself be an OR opportunity! Where firms and vendors should run OR applications is not obvious because of a number of factors: - Where the data such applications would use resides and the response rates users require are factors in determining where to run the application. If the data resides on the Web-site, the application would likely have to reside on this server too to provide users with real-time responses using real-time information. If the data resides on a Page 20 of 31
  21. 21. company’s internal database, and planners wish to run many what-if scenarios quickly, it would make sense to run the applications locally rather than use a hosted application. - Vendors’ cost structures or the market may affect where to run applications. Pay-per- use or pay-by-month models suit ASPs while buy-and-maintain models suit local applications. - Perceived security and sensitivity of data can tip firms toward local applications. - The type of analysis and the time it takes can be a factor. Time-consuming computations for statistical analysis, for instance, are best done off-line especially because real-time responses are not required. Data-mining applications would therefore run off-line even though the data come from a Web-site. - Frequency of use can affect deployment. A firm’s IT department might be reluctant to adopt and maintain infrequently software, such as planning software for long-term decisions that may be run only once or twice a year. Internet-hosted software would make sense in such a case. - The number and the geographical spread of users can determine whether OR-based applications should be Web-hosted. If all the potential users of an application connect to the same local network, running the application on that network would be sensible. For example, the global electronics firm discussed earlier could use SAP's APO software locally for internal supply-chain-planning, and could use marketplace for sharing planning-related information with its supply chain partners. Page 21 of 31
  22. 22. Internet-hosted applications may be of particular interest to OR developers because firms can run such applications locally on their own intranets and remotely on Web-sites. An Internet-hosted optimization server, NEOS, of considerable sophistication already exists [Fourer and Goux 2001]. Although NEOS is not specialized for supply-chain-modeling, the conceptual leap from NEOS to such a specialized application is small. Conclusion OR-based applications can benefit transaction-based Internet marketplaces just as APS systems benefited firms with ERP systems. But the history of APS implementations for firms with ERP systems suggests that implementing OR will not be easy for Internet- enabled supply chains, although Internet-hosted OR applications will make things a little easier for businesses. Just as firms require considerable consulting to implement APS solutions, partly because companies must reengineer their processes, they will also require consulting to implement Internet-based OR solutions. Opportunities for OR professionals should expand provided they keep two things in mind. First, OR professionals must understand the technologies for electronic marketplaces, for Internet-based applications, and for thin-client applications requiring the user to run only a Web-browser, and use these technologies to adapt and develop algorithms to exploit these opportunities. Second, OR professionals must understand supply-chain processes to provide consulting. The Internet can take OR professionals to Page 22 of 31
  23. 23. the water of Internet-based supply-chain management, but they must choose to drink themselves. URLs AspenTech ( bStreamz ( Chemdex ( Collaborative filtering ( CPFR ( DoubleClick ( Edify ( e-steel ( ( FreightMatrix ( FreightWise ( HNC Software ( i2 ( IBM ( Inference ( JD Edwards ( ( Manugistics ( ( Page 23 of 31
  24. 24. NEOS ( net.Genesis ( Net Perceptions ( Oracle ( ( PeopleSoft ( Quadstone ( SAP ( SAP’s PLM capabilities ( SciQuest ( ServiceSoft ( SilkNet ( System Dynamics Society ( ( Vignette ( WebTrends ( Webvan ( References Dahir, M. 2000. “Watching you,” The Industry Standard, May 8. Retrieved October 27, 2000 from,1151,14732,00.html?nl=nr Page 24 of 31
  25. 25. Dell, A. 2000, “Meeting supplier demand,” Business 2.0, March, p. 78. Retrieved October 27, 2000 from Fourer, Robert and Goux, Jean-Pierre 2001, “Optimization as an Internet resource,” Interfaces, Vol. 31, No. 2 (March-April), pp. xx-xx. Gillett, F. E. 1999, “On-line retail data strategies,” Forrester Report, May. Retrieved October 27, 2000 from,1338,7294,FF.html (subscribers only) Grebb, M. 2000, “Behavioral science,” Business 2.0, March, pp. 112-114. Retrieved October 27, 2000 from Hiquet, B. D., Kelly, A. F., and CCAi, Inc. 1998, SAP R/3 Implementation Guide: A Manager’s Guide to Understanding SAP, Macmillan Technical Publishing, Indianapolis, Indiana. Kaplan, S. and Sawhney, M. 2000, "E-Hubs: The new B2B marketplaces," Harvard Business Review, Vol. 78, No. 3 (May-June), pp. 97-103. Page 25 of 31
  26. 26. Phillips, C. and Meeker M., 2000, The B2B Internet Report: Collaborative Commerce, Morgan Stanley Dean Witter, Equity Research, North America. Retrieved October 27, 2000 from Sodhi, M. 2000, "Getting the most from planning technologies," Supply Chain Management Review – Global Supplement, Vol. 3, No. 4 (Winter), pp. 19-23. Page 26 of 31
  27. 27. Planning Business drivers OR opportunities horizon Long  Costs of building and owning assets  Determining which plants, distribution term  Globalization centers, and lanes to open or close  Mergers and acquisitions Medium  Customer service  Planning procurement, manufacturing, and term  Inventory transportation to minimize supply-chain  Supply-chain costs costs Short  Customer service  Creating and modifying production term  Equipment utilization schedules  Transportation costs  Improving deployment of finished-goods inventory  Minimizing transportation costs Imme-  Fulfillment  Real-time tentative rescheduling of diate production to check whether requested dates for orders can be met.  Reconfiguring orders to meet request dates Table 1: Business drivers to improve supply-chain management and the type of OR opportunities depend on a firm’s planning horizon. Page 27 of 31
  28. 28. Supply chain OR benefits in supply-chain Benefits of adding OR to Internet- extension management without using the enabled supply chains, including Internet electronic marketplaces 1 Extended decision • Improved capacity utilization • Same horizon for • Improved customer service planning within the • Improved rates for enterprise procurement and transportation contracts • Reduced inventories 2 Extended physical • Improved capacity utilization scope, including • Improved customer service customers and • Improved rates for procurement and suppliers in the transportation contracts near and medium • Matching of shippers and carriers term • Matching of raw-material sellers, manufacturers, and finished-goods buyers • Reduced inventories 3 Extended • Improved use of resources • Individual-focused marketing functional scope, • Planning product phase-in • Accelerated time-to-market including product and out • Full product-life-cycle management development and • Customer self-service customer- • Available-to-promise relationship management Table 2: Electronic marketplaces and other Internet-enabled supply chains can enable firms to extract additional supply chain benefits by using OR. Page 28 of 31
  29. 29. Page 29 of 31
  30. 30. Shipment order Current inventory Order status status ERP Current inventory status Forecasted Unfulfilled past orders Order demand (13-26 First week’s Customers status weeks) (regional APS Suppliers orders offices) (plants) Orders for next Planned 26 weeks DB replenishments from suppliers Database Web interface to Web interface to customers suppliers Page 30 of 31
  31. 31. Figure 1: A global electronics firm can use the Web in conjunction with its ERP and APS systems to improve supply-chain management. Page 31 of 31