This article gives examples of how Linear Programming Solutions saved companies millions of dollars.
Operations Research is a method of mathematically based analysis of problem-solving and decision-making for providing a quantitative basis for management decisions. The concept of operations research arose during World War II by military planners. After the war, the techniques used in their operations research were applied to addressing problems in business, the government and society. The objective of operations research is optimization, that means “to do things best under the given circumstances and information.” What is so amazing about Operations Research is that it is a general concept that can be applied to a wide variety of fields for example, in agricultural planning, biotechnology, distribution of goods and resources, emergency and rescue operations, engineering systems design, environmental management, financial planning, health care management, inventory control, manpower and resource allocation, manufacturing of goods, military operations, production process control, risk management, sequencing and scheduling of tasks, telecommunications, and traffic control.
There are many very impressive examples on how Operations Research can save you a lot of money.
1. Wastewater Plant Saves $200 million by using existing capacities effectively
The Louisville Metropolitan Sewer District (MSD) was faced with increasingly frequent and intense rainfall that can overwhelm urban wastewater collection and treatment systems and threaten local water environments. MSD partnered with Tetra Tech to implement a real-time control solution using Csoft®, Tetra Tech’s software platform that uses data analytics to optimize the management of sewer networks in real time based on rain forecasts and sensor readings. The solution realized more than $200 million in savings for the local community by reducing the cost of capturing wet weather overflows.
Tetra Tech’s researchers developed Csoft as a cost-effective solution for water utilities to use existing treatment plant storage in lieu of building additional storage facilities. Csoft enables water utilities to respond to rainfall and actual system conditions by maximizing all available storage, conveyance, and treatment capacities. Excess wastewater is diverted and temporarily stored until it can be redirected toward the appropriate treatment plant.
This work has been rewarded with the Franz Edelman Award 2019.
2. Hewlett-Packard improves their profit by $500 million through revenue management
HP offers a wide spectrum of innovative products to meet diverse customer needs. While this has helped the company achieve unparalleled market reach, it has come with significant costs and challenges. HP developed two powerful OR-based solutions for product variety management that address the diverse needs of its businesses throughout their products’ lifecycles. The first uses custom-built ROI calculators to evaluate each proposed new product before it is introduced. The second, HP’s Revenue Coverage Optimization (RCO) tool, is used to manage product variety after it has been introduced. By identifying a core portfolio of products most important to order coverage, RCO enables HP businesses to increase operational focus on the most critical products in their offerings. Using these tools, HP achieved over $500M in profit improvements across several business units since 2005. HP also streamlined its product offering, improved execution, achieved faster delivery performance, lowered overhead, and increased customer satisfaction and market share.
This work has been rewarded with the Franz Edelman Award 2009.
3. Billions in Savings through the Application of Mixed-Integer Programming in the Energy Sector
Over the past few years, the Midwest Independent Transmission System Operator, Inc. (MISO) has transformed the electric utility industry in 13 Midwestern US states through the development and implementation of energy and ancillary services markets. MISO uses mixed-integer programming to determine when each power plant should be on or off. Operations research methods set energy output levels and establish the prices at which energy trades. These new markets increased the efficiency of the existing electric infrastructure (power plants and transmission lines) in the Midwest, improved the reliability of the grid, and reduced the need for future infrastructure investments. These advances enabled the MISO region to realize between $2.1 billion and $3.0 billion in cumulative savings from 2007 through 2010. We expect additional savings of $6.1 billion to $8.1 billion through 2020.
This article features several Edelman Award winners. For more than 40 years, winners of the Edelman Award have been recognized for transforming how organizations approach some of the world’s most complex problems. First awarded in 1972, the prize is named in honor of Franz Edelman, who founded the Operations Research division within RCA, one of the first corporations to embed research as a business imperative.