June 2000 Billions in Business Benefits By Randy Robinson Good operations research creates competitive advantage, so companies rarely advertise their OR benefits. Nevertheless, we can get a glimpse into the financial impact of OR from an international competition called the Edelman Award, in which the contestants present their work and discuss its estimated impact as endorsed by management. Relatively few organizations become finalists each year — six or seven. And not all are from business, because OR is practiced widely in government and the military. Still, over the 28 years of the competition, business firms reported priced-out benefits (increased revenue and decreased cost) totaling many billions of dollars. Since these numbers come from single projects in a handful of companies, we can conjecture reasonably that the total from all OR projects in all companies everywhere has been in the trillions. And because the potential value of OR is increasing, the future promises realization of benefits at an even faster rate. Further, dollar benefits substantially understate the full influence. Many benefits are qualitative, or, where quantified, expressed in units other than dollars (for instance, a decrease in time from new-product-concept to market or a percentage increase in throughput). To illustrate, in the most recent Edelman competition, on May 7 of this year, Ford Motor Company described their innovative use of operations research to improve testing of new vehicle prototypes in Ford's product development. Ford uses OR optimization methods at the strategic level to budget and plan for all vehicle programs of Ford, Lincoln, Mercury and Jaguar. They use similar OR methods at the tactical level for complicated vehicle prototyping and testing — to determine how many prototypes to build, which tests to assign to particular prototypes, and when to schedule tests and test facilities. The cost of building a single prototype vehicle can range from $250,000 to $500,000, and a complex vehicle program may require from 100 to 200 prototype vehicles. The OR work done at Ford facilitated a reduction of more than $250 million in annual prototype costs. While the $250 million saved per year conveys major impact, it shows only part of the benefit picture. Other gains that resulted from OR included a complete revamping of Ford's prototype management procedures to "global best practices." More importantly, Ford was able to reduce the time required for prototype planning from months to weeks. Moreover, the success in this project inspired other Ford OR projects whose benefits were not summarized in the competition. Ford's highly effective effort addressed improving one management function in one industry. Throughout its life, the Edelman competition has attracted contestants from many different industries, reporting on projects to improve many different management functions. OR is not confined to large companies however. This year, for example, Jeppesen Sanderson, a smaller firm that produces maps and charts for airline pilots, disclosed how OR rescued the company from possible failure. The Edelman Award competition is conducted by the Institute for Operations Research and the Management Sciences (INFORMS) and its practice unit CPMS. Return to the main story A Business Executive's Guide to Modern OR. Table of Contents OR/MS Today Home Page OR/MS Today copyright © 2000 by the Institute for Operations Research and the Management Sciences. All rights reserved. Lionheart Publishing, Inc. 506 Roswell Street, Suite 220, Marietta, GA 30060, USA Phone: 770-431-0867 | Fax: 770-432-6969 E-mail: lpi@lionhrtpub.com URL: http://www.lionhrtpub.com Web Site © Copyright 1999, 2000 by Lionheart Publishing, Inc. All rights reserved.