Managing Innovation Cases from the Services Industries (1988) / Chapter Skim
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Operations Research and the Services Industries
Operations Research and the Services Industries
Pages 115-143
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From page 115... ...
A social service volunteer in Atlanta, Georgia is using two card files to assign drivers to vans and vans to routes to deliver "meals on wheels" to elderly and handicapped individuals. A vice president of a large railroad is scrutinizing a consultant's report that recommends an ambitious $1 .5 billion capital investment program over the next 5 years.
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From page 116... ...
Despite an impressive array of successful implementations, the market penetration of OR/MS in services industries in the United States is low, raising several questions related to operations research. How does a firm choose to invest in ORJMS and what determines success or failure in implementation?
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From page 117... ...
Since its focus is on improved decisions, we may regard operations research as a decision-aiding technology and thus admissible to a discussion of technologies in services industries. Institutionally, operations research is carried out by consultants, in-house technical groups, university professors, and-ever more frequently software firms.
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From page 118... ...
Queuing theory, which focuses on the development of mathematical models of waiting lines, had its roots in Denmark during the period 1910 to 1915 when the Danish telephone engineer Erlang used probabilistic reasoning to develop the first queuing models to help engineers determine the capacity of telephone switching systems. Graph theory, which has been used extensively by operations researchers to model transportation networks, is rooted in the efforts of the Swiss mathematician and physicist Leonhard Euler who in 1736 attempted to route a parade over the seven bridges of Konigsberg (now Kaliningrad)
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From page 119... ...
Of the 24 applications-driven winners, 14 (or 58%) are clearly directed at services industries.
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From page 120... ...
The first and third topic areas are directly focused on services industries: logistics and work force planning. The second is "production-related services," selected to indicate how OR;MS provides technical engineering service in the goods-producing sector.
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From page 121... ...
The organization is staffed with a combination of volunteers and near-minimum-wage employees; resources are scant, and a state-of-the-art computer for solving complex mathematical optimization problems is out of the question. Yet distribution costs represent a large fraction of direct costs of operation, and even casual observation of operations revealed that then current methods of distribution were far from optimal.
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From page 122... ...
According to Martland, "The Service Planning Model in and of itself did not cause the benefits, but provided an impetus to create an effective interden~rtm~.ntn1 Planning process" (Martland, private communication November rim r~-^^^^^^^= rip - ~ 19874. Operations research has produced other major strategic planning impacts
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From page 123... ...
Another component was the Route Capacity Model that estimates train delays by simulating operations of trains over a rail line under specified track maintenance activities. The resulting analyses produced a package of cost-effective improvements for capacity expansion, which included a combination of control technology (closely spaced signals)
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From page 124... ...
According to Davis, the OR/MS implementation effort lasted 270 days and cost BancOhio $80,000 (Davis, private communication, November 19871. Urban Services The use of operations research in logistics is not confined to the private sector.
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From page 125... ...
. DOS personnel, while performing numerous production runs with BOSS, identified a savings through 1990 of at least 10 barges and perhaps 20 barges without impeding service levels.
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From page 126... ...
For years the "production paradigm" has been successfully used to model certain services industries [see, for example, Heskett (1986)
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From page 127... ...
The OR model required 540 days to develop and implement, at a cost of $50,000. Like the PG&E case, the model originally developed for near- and mid-term operational planning is now the focal point for longer term generation expansion-planning activities (Terry et al., 1986; Terry, private communication, January 19881.
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From page 128... ...
Operating efficiencies improved dramatically during the same period of time, although net effects are difficult to quantify (Oliff and Burch, 1985~. The OR/MS development cycle lasted about 120 days, costing OCF approximately $30,000 (Oliff, private communication, December 19871.
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From page 129... ...
The system reportedly required less than $100,000 to develop and is saving $400,000 to $750,000 in distribution costs annually, representing approximately 5 percent of the variable costs of production and distribution (Liberatore, private communication, December 19871. It has also resulted in improved coordination and communication between manufacturing and marketing and the development of new sales forecasting procedures.
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From page 130... ...
This total "service time" was roughly 75 percent drill time and 25 percent drill movement time, the latter required to position the drill for the next hole. Anyone who watched the machine operate could see that the drill was routed "all over the place," crisscrossing previous paths, thus significantly increasing total service time per board.
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From page 131... ...
This example illustrates as well as any the interchangeability between software and hardware, and between services and goods. ILLUSTRATIVE CASES IN WORK FORCE PLANNING One of the most important areas of application of operations research to the services industries has been in deploying and scheduling of personnel.
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From page 132... ...
The profitability resulted in part from an ambitious expansion plan implemented in the previous year which brought about a 6 percent growth in revenue with only a 2 percent growth in costs. A major factor in cost containment is the airline's newly created computerbased work force planning system for scheduling shift work at its reservation offices and airports.
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From page 133... ...
Prior to the following season, the FSG developed a linear programming work force planning tool that, based on projected work loads, developed hiring needs and shift assignments for the 6-week period (well in advance of that period)
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From page 134... ...
This example, coupled with the earlier "urban services" cases, demonstrates that significant returns to investment in operations research are available in the public as well as private sectors. CONCLUSIONS What have we learned from our tour of OR/MS applications in services industries and in production-related services?
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From page 135... ...
The field's limited impact to date may be due to excessive academicism in the field, fear of technical approaches by operating managers, need until recently to use mainframe computers, and exclusion by many operations researchers of broader nonmathematical aspects of the problem. · Operations research offers the potential for great productivity improvement in languishing services sectors, improvements often greater in percentage terms than those typically associated with the manufacturing .
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From page 136... ...
Sheffi, private communication, October 19871. The emphasis on large benefit/cost ratios was repeated by others.
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From page 137... ...
According to the principal author of the work, Marshall Fisher, with regard to evaluating the benefits, Air Products was quite thorough and methodical in this regard and developed a model of how distribution costs related to various parameters of the distribution operation, such as location and volumes of customer demands during a particular time period. This model was used to predict what costs would have been in the future if the vehicle schedule system had not been introduced, and therefore to provide a benchmark against which to assess improvements (Marshall Fisher, private communication, December 1987~.
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From page 138... ...
OR/MS products implemented on a day-to-day basis, by affecting information flows and providing immediate evaluative results of decisions, can markedly change managerial behavior. In increasingly competitive environments one can argue that the effective processing of data to develop decision consequential information remains for many services industries a viable mechanism for achieving competitive advantage.
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From page 139... ...
, the senior officer declared that the data I was using were inaccurate; after all, his officer in charge of the Communications Division had informed him that there were few problems and that the loud public outcries were not representative of the service levels being provided. Luckily, the two lieutenants and I had worked together side-by-side within the Communications Division for 1 month; when questioned by the senior officer, the lieutenants verified the accuracy of the data.
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From page 140... ...
[see Larson (197211. Unlike many other operations research studies, this one was implemented in its entirety within 1 month after completion.
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From page 141... ...
1963. Linear Programming and Extensions.
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From page 142... ...
1986. Management science and productivity improvement in Irish Milk Cooperatives.
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From page 143... ...
1986. Polishing the big apple: How management science has helped make New York cleaner.
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