pwc or/ms in the networked economy melbourne asor agm, march 2001 jay horton applied decision...
TRANSCRIPT
PwC
OR/MS in the Networked Economy
Melbourne ASOR AGM, March 2001
Jay Horton
Applied Decision Analysis
PricewaterhouseCoopers
This evening’s presentation
• Some opening remarks
• Background to PricewaterhouseCoopers’ - Applied Decision Analysis
• How companies are benefiting from OR/MS
• The emergence of Web based Operations Research
PricewaterhouseCoopers
OR/MS in the Networked Economy
Economies of the past:
• “Centralised Allocation” of goods
and services
• Variety of “In-house” capabilities
maintained
• Static planning in a stable
environment
• Local value chain point of view
– Sub-optimal relationships
found
Network Based Economy:
• “Market Based Allocation” of
goods and services
• External services utilised as
needed
• Rapid planning in a dynamic
environment
• Global value chain prospective
– Globally optimal solutions are
feasible
PricewaterhouseCoopers
The need for OR in the Networked Economy
• OR techniques can manage risk in an objective way
– these days, the present is a poor guide to the future
• Analytical techniques (eg. Data mining) required to extract useful information from volumes of data
– IT has left us data rich, but information poor
• Modeling business decisions is a fast way to experiment without risking the performance of a company
– companies need to react quickly and avoid failure
Need for OR Consulting over the Web
PricewaterhouseCoopers
Applied Decision Analysis
• Applied Decision Analysis (ADA) is group within PricewaterhouseCoopers providing OR/MS skills to help clients with corporate and financial strategy
• ADA essentially does “Strategic OR”:
– capital and resource allocation
– value chain strategy
– new business initiatives
– market and auction design
PricewaterhouseCoopers
Applied Decision Analysis
• The modelling skills ADA uses:
– Optimisation (LP & MIP), Constraint Programming
– Decision Analysis and Real Option Valuation
– Simulation, Monte-Carlo Analysis
– Game Theory
– Financial Theory
PricewaterhouseCoopers
Modelling Online
• Modelling tools can be
made available to Clients
over the Web when needed
• Clients access our models
through pwcdecision.com
PwC
How companies are benefiting from OR/MS
PricewaterhouseCoopers
Tactical Planning for the Coal Mining Industry
Block 1 ………Block 2 Block 3Ramp 1Strip &
Mine
Haul
(many more Ramps)
Processor 1
Products
Prod 1
Prod 2
Prod 3Stockpile
Processor 2ROM stockpile
(Many washing options)
..
Block n
Multi-stage process with many choices at each stage
PricewaterhouseCoopers
MOPS is an optimisation planning tool for tactical planning
Mine Operations Planning
System (MOPS) is:
• driven by a mixed integer
optimisation model
• a Web based decision support
system
– Allowing multiple users in
various mines
– Administered in Sydney
online
PricewaterhouseCoopers
MOPS provides rapid tactical plans for operating a mine
MOPS gives:
• Rapid production of plans
• Reduced operating costs
• Product quality ensured
• Proactive risk management
• “What if” analysis capability
PricewaterhouseCoopers
12 plant locations> 20 work centres
Approx. 10,000 products
93 customer locations
Approx. 50 raw materials
Delivering an integrated manufacturing solution for the steel industry• A large producer and distributor of steel, required a strategic
and tactical model to assist in planning production and distribution activities
• ADA developed a Linear Programming model capable of optimising its network of plants, processes and its allocation of products to plants
• Due to the size of the problem, the model needed to be solved using a high powered computer
PricewaterhouseCoopers
A major international airline needed a review of its route allocations
• Matching of routes vs aircraft takes account of many variables
– passenger demands, physical airport limitations, maintenance requirements
• Too many types of aircraft
– Inefficient maintenance
– Lack of economies of scale
• Financial problems/performance
– Low prices, high costs on parts of the network
PricewaterhouseCoopers
A high-level network optimisation model was developed
Network Value
Advisor
Objective: Maximise Profit
Key Constraints:Must meet demandAircraft - route restrictionsFleet hours available, load factors
Objective: Maximise Profit
Key Constraints:Must meet demandAircraft - route restrictionsFleet hours available, load factors
Key Outputs:
Optimal allocation of fleet to routes
Total costs, revenues and profits
Shadow prices for demand and aircraft hours
Key Inputs:
PAX demand & fares by class
Fleet types & number
Routes by leg
Operating costs
PricewaterhouseCoopers
Real Options in 3G Wireless
• A telecommunications firm was considering its future position with the auction of 3G spectrum
• They had a number of decisions to make:
– how much bandwidth to purchase if any
– how to move forward if bandwidth is not purchased
• They also face a number of uncertainties:
– market demand and price
– future developments in technology
PricewaterhouseCoopers
Maintain original plan
Expand early when initial indications are that sales potential is
high
SpectrumCost
Sales Potentialin New Market
Success in New Market
BaselineRevenueGrowth
Early Product
ExpansionBelow estimateAt estimate
Above estimate
Minimal
Moderate
High
Unsuccessful
Moderate
Highly Successful
Unsuccessful
Moderate
Highly Successful
Low
Nominal
High
Low
Nominal
High
YesNoYesNoYesNo
YesNoYesNoYesNo
Real Options in 3G Wireless
• ADA used Real Options Valuation to evaluate the various future paths and to guide decision making
PricewaterhouseCoopers
Bidder support in spectrum auctions
• There is inherent uncertainty in
the auction
• Risk of serious exposure
problems
– Insufficient spectrum
bandwidth
– Insufficient geographic
scope
• Rules are complex
PwC
The emergence of Web based Decision Support
PricewaterhouseCoopers
Why Web based Decision Support?
A Web based approach to decision support:
• Facilitates a Global focus and rapid planning
• Creates economies of scale in:
– expertise
– computing power
• Allows decentralised use, with less hassle
• Allows better support, on-line
PricewaterhouseCoopers
The Web facilitates global planning
Industrydatabase
Consultant
Client
Modellibrary
The Web allows global access to the decision support:– On-line models– Consulting advice– Links to industry data
this means planning can be conducted very rapidly
PricewaterhouseCoopers
Creating economies of scale in decision support
• Powerful hardware and software is usually required for Decision Support Systems
• Putting a system online allows the centralisation of computing power
• With many users, scale is gained. This:
– lowers the cost to users
– increases the model solving capability
‘Over time, operations research, enterprise
systems, advanced planning and scheduling,
customer relationship management and the
internet will gradually become more and more
blended. This phenomenon is now changing
the meaning of the word, operations research,
itself.’
PricewaterhouseCoopers