The finalists for the competition, sponsored by the Institute for Operations Research and the Management Sciences (INFORMS®), include:
HP for “Analytics for Product Portfolio Management.”
The Problem: HP offers a wide spectrum of innovative products to meet diverse customer needs. A broad product portfolio gives customers choices and increases market reach. However, product variety also comes with significant operational costs and challenges.
These challenges were prevalent in virtually every HP business, from desktop PCs to high-end servers, to printers, to spare parts. The issues manifested themselves differently in each case. Some of HP’s businesses, such as business critical servers and high-end imaging and printing products, have high variety-driven costs associated with creating, developing, testing, and launching new SKUs. Other businesses, such as HP’s Personal Systems Group (PSG), which sells configurable PC products, face comparatively low per-SKU costs, but high costs for managing inventory and availability on a large number of parts simultaneously. HP needed an approach to managing its portfolio that was robust enough to handle the different cost profiles and challenges of HP’s businesses.
The O.R. Solution: HP developed two powerful operations research-based tools for product variety management that, together, address the diverse needs of its businesses throughout their products’ lifecycles.
The first is a framework for evaluating the projected complexity-adjusted return on investment for each proposed new product, prior to its creation, using a Complexity ROI Calculator that is customized for each business. The ROI Calculator is a spreadsheet tool that is developed through a one-time analysis of the up-front and ongoing costs and revenue impacts of introducing and managing products. The one-time analysis uses stochastic inventory modeling and a range of statistical techniques to identify the right costs to focus on and the right strategies and guidelines for managing them. The calculator is then used on an ongoing basis to evaluate new products. Products that do not meet a threshold ROI level are targeted for exclusion from the proposed line-up.
Once products have been launched and a sales history is available, HP applies a second OR tool called Revenue Coverage Optimization, or RCO. This tool embodies a state-of-the-art breakthrough optimization algorithm to identify a core portfolio of products offering maximum order coverage – defined as the portion of the number, revenue, or margin of orders that can be completely fulfilled with products in the portfolio. The results enable HP businesses to prioritize among products for promotions, improved turnaround time commitments, or rationalization.
The Value: Together, RCO and the Complexity ROI Calculators provide HP with systematic processes for evaluating new products, honing existing product portfolios, and ultimately improving operational focus. These tools have led to hundreds of millions of dollars in bottom line savings for HP, as well as a more streamlined product offering, improved execution, faster delivery performance, lower overhead, and increased customer satisfaction and market share.
The six 2009 Franz Edelman finalists are:
- CSX Transportation for “CSX Railway Cashes in on Optimized Equipment Distribution.”
- HP
- IBM for “Analytics-Driven Solutions for Increased Sales Force Productivity.”
- Marriott International for “Group Pricing Optimizer.”
- Norske Skog for “Norske Skog Benefits as Operations Research Plays a 'Pivotal' Role in the Battle for Improved Profitability.”
- Zara for “Zara Uses Operations Research to Reengineer Its Global Distribution Process.”
This is the 38th year of the prestigious Franz Edelman Competition. The winner will be announced at a special awards banquet on April 27 at Applying Science to the Art of Business: the 2008 INFORMS Conference on OR/MS Practice.
Additional information about the 2009 Edelman Competition can be found online here. Additional information about the INFORMS Phoenix conference is here.
About INFORMS
The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 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, financial engineering, and telecommunications. The INFORMS website is www.informs.org. More information about operations research is at www.scienceofbetter.org.
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