Article predicts major improvements in supply chain management over the Internet using O.R.

April 09, 2001

In the future, operations research will substantially improve performance for Internet-enabled supply chains, according to a study published in a journal of the Institute for Operations Research and the Management Sciences (INFORMS®).

"The Internet provides inexpensive communication and data access while operations research supports strategic, tactical, and operational decision-making using this data," explains Dr. ManMohan S. Sodhi, who recently joined Internet startup Gandiva Inc. having earlier been director of enterprise e-business at Scient.

"Companies will improve their supply chain performance by using operations research and the Internet: (1) to improve execution across companies, (2) to improve planning within and across companies, and (3) to improve other functions within the company, such as product development, marketing, sales, and customer service."

The list of companies including electronic marketplaces supporting the extended supply chain with software that uses operations research innovations is growing (see below).

Dr. Sodhi's article, "Applications and Opportunities for Operations Research in Internet-Enabled Supply Chains and Electronic Marketplaces," appears in the special e-commerce issue of Interfaces: An International Journal of the Institute for Operations Research and the Management Sciences. This special issue, which will be published on April 30, 2001, will be available free online at http://pubsonline.informs.org/. A companion site is at http://www.informs.org/ebiz/interfaces.

Improving Execution in the Extended Supply Chain
In the future, says Dr. Sodhi, firms will use operations research (OR) in supply chain management to work with more suppliers, vendors, and customers.

Currently, companies can use the Internet to share forecasts and production plans with their suppliers and customers, but many use the Internet almost entirely for e-commerce transactions, he observes.

Even e-commerce problems without a planning element will eventually rely on operations research, he says, because challenges like filling customer orders promptly or responding to cancelled orders require immediate decisions for deployment, transportation, and production re-scheduling that only OR-enabled software can make automatically and optimally. Indeed, transportation marketplaces are already gearing up to allow shipping companies to match shippers and carriers using software embedded with OR techniques, he says.

Improving Planning in the Extended Supply Chain Since the 1960s, many companies have used OR for strategic long-term decisions such as opening or closing plants and distribution-centers, as well as for medium-term decisions like planning procurement, manufacturing and transportation to minimize supply-chain costs. OR has also helped companies with short-term decisions involving transportation and production.

Due to data requirements, OR did not gain widespread popularity in supply chain management until enterprise resource planning (ERP) systems made the collection of the needed data possible. In the 1990's, Advance Planning and Scheduling Systems (APS) vendors have been offering tools that benefit from such OR techniques as linear programming, integer programming, and heuristics for supply chain planning to supplement ERP systems.

As the Internet makes it possible to collect data across the enterprise from supply chain partners and customers, use of OR will become further widespread. Indeed, Internet-enabled collaborative planning is already becoming the new rage. It is OR-based software that will make collaborative planning possible, he says.

Improving Other Functions that Interface with the Supply Chain
Within a company, OR will strengthen the interface between supply chain management and other functions that interact with it including product design, marketing, sales, and customer service.

Companies have used operations research in the past to improve design by optimizing product attributes, but the Internet makes it possible to incorporate feedback from the eventual customers in optimizing the product design. As companies begin to use the Internet to share design information within the company and with their supply chain partners, they will use OR to improve resource usage during design and development. Extending beyond design, companies will use product lifecycle management (PLM) software based on OR techniques to decide when to phase products in or out.

To improve sales and customer service, companies are beginning to use OR-based software to use sales and clickstream data to predict demand at the individual level and to improve personalization of e-commerce sites. They will use OR in Customer Relationship Management (CRM) to improve service and to use resources better. Strategic use for CRM includes the design of the entire customer-relationship infrastructure, including call centers. Operational use of OR involves aiding customer-service representatives with customer-specific "up-sell" opportunities or assistance, and aiding customers with improved automated e-mail responses.

Even during these hesitant days for the New Economy, the Internet is generating much interest for the supply chain benefits that it promises.

"Operations research holds the key to realizing a major portion of these benefits," observes Dr. Sodhi. "It brought many benefits to supply chain management before the Internet. As companies find new uses for the Internet, they will improve supply chain performance much more using operations research and the Internet synergistically."

Examples of Companies with OR-based Software for the Extended Supply Chain
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The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with over 10,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, the stock market, and telecommunications. The INFORMS website is at http://www.informs.org.

Institute for Operations Research and the Management Sciences

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