What is the role of optimisation in aiding in decision making by management?

In industry, resources like capital, equipment, facilities and manpower are limited and have opportunity costs.  Optimization is a set of techniques that helps to arrive at optimal solutions while respecting the limitations of such resources, multiple objectives of the management, and other real world constraints.  In complex decision situations such calculations cannot be easily performed by ordinary methods or software.  However it is important to note that optimization techniques can be effectively used when the required data is measurable and accessible.

Could you give me examples on how optimisation can be used in industry?

Optimization can be used in a wide range of decision problems like (i) optimal location and sizing of plants, warehouses and retail outlets, (ii) long-range operational planning so as to decide on product-mix; market-mix; supplier-mix, supplier-plant-market allocations, etc., (iii) transportation planning for route-mode choices, (iv) marketing and media planning, (v) financial investment planning with risk and return objectives, and (vi) routine operational control decisions like inventory stocking, scheduling of resources and orders within facilities.

These techniques have been successfully applied to a wide range of sectors like manufacturing (both discreet and process industries), transportation and logistics, retail, telecommunications, energy and utilities, agriculture and food processing, and policy making in sectors like infrastructure and the environment. Worldwide experience suggests that such models can result in 5-30% improvement in profit margins, costs, resource utilization, and other performance indicators.

For instance, consider a company that produces several consumer durable products and transports them up to various dealer points via some warehouses. A supply-chain wide optimization model for such a firm can help it simultaneously decide the production mix at every plant, transportation plan from plants to warehouses including route-mode selection, transportation plan from warehouses to dealers, and even directly from plants to dealers (wherever appropriate), and inventory stocking plan at warehouses and dealer points over the next several weeks so that the entire organization’s expected profit margin is maximum. In addition, such models can immediately identify bottleneck plants, equipments, warehouses, dealer points in the entire chain, and indicate relative priority of different such bottlenecks. In a temporary period of supply shortage, for example due to unexpected equipment or route breakdown, the model can immediately recommend optimal reallocations of production and logistics schedules.

Is it a just another high end software solution?

We at IGSA Labs specialize in developing customized optimization models and DSS tools for specific client needs. Each customer has some unique set of objectives and constraints that need to be modeled explicitly. Hence our approach is to first understand clients’ business and operational requirements and develop specific mathematical models for each client. Our software capability is geared towards facilitating user-friendly interface and efficient data transfer between client’s existing information system and our model.

Who are the prominent players in the optimisation market?

On the one hand there are large ERP systems like SAP, i2 and Oracle that offer optimization as an add-on. Our approach being focused on optimization for individual client differs completely from the configuration of existing systems approach followed by these vendors. On the other hand, there are several analytics companies that specialize in specific sectors. We differentiate by combining strong consulting experience with mathematical modeling R&D expertise, which allows us to quickly offer solutions for different situations where optimization can be used.