Information and Decision Support Systems - Principles of Information Systems - page 398

Consider a few examples of how you can use optimization to achieve huge savings. Coca-
Cola, for example, used optimization to schedule and route about 10,000 trucks used to
deliver its soft drinks and products to save about $45 million annually. 5 Bombardier Flexjet
( www.flexjet.com ), a company that sells fractional ownership of jets, used an optimization
program to better schedule its aircraft and crews, saving almost $30 million annually.
Hutchison Port Holdings ( www.hph.com.hk ), the world's largest container terminal, saved
even more—over $50 million annually. The company processes 10,000 trucks and 15 ships
every day, and used optimization to maximize the use of its fleet. Deere & Company, a
manufacturer of commercial vehicles and equipment, increased shareholder value by over
$100 million annually by using optimization to minimize inventory levels and enhance cus-
tomer satisfaction.
A satisficing model is one that finds a good—but not necessarily the best—problem
solution. Satisficing is usually used because modeling the problem properly to get an optimal
decision would be too difficult, complex, or costly. Satisficing normally does not look at all
possible solutions but only at those likely to give good results. Consider a decision to select
a location for a new manufacturing plant. To find the optimal (best) location, you must
consider all cities in the United States or the world. A satisficing approach is to consider only
five or ten cities that might satisfy the company's requirements. Limiting the options might
not result in the best decision, but it will likely result in a good decision, without spending
the time and effort to investigate all cities. Satisficing is a good alternative modeling method
because it is sometimes too expensive to analyze every alternative to find the best solution.
Heuristics , often referred to as “rules of thumb”—commonly accepted guidelines or
procedures that usually find a good solution—are often used in decision making. A heuristic
that baseball team managers use is to place batters most likely to get on base at the top of the
lineup, followed by the power hitters who can drive them in to score. An example of a heuristic
used in business is to order four months' supply of inventory for a particular item when the
inventory level drops to 20 units or less; although this heuristic might not minimize total
inventory costs, it can serve as a good rule of thumb to avoid stockouts without maintaining
excess inventory. Trend Micro ( www.trendmicro.com ), a provider of antivirus software, has
developed an antispam product that is based on heuristics. The software examines e-mails to
find those most likely to be spam. It doesn't examine all e-mails.

satisficing model
A model that will find a good—but
not necessarily the best—problem
solution.

heuristics
Commonly accepted guidelines or
procedures that usually find a good
solution.

Sense and Respond
Sense and Respond (SaR) involves determining problems or opportunities (sense) and devel-
oping systems to solve the problems or take advantage of the opportunities (respond). SaR
often requires nimble organizations that replace traditional lines of authority with those that
are flexible and dynamic. IBM, for example, used SaR with its Microelectronics Division to
help with inventory control. The division used mathematical models and optimization
routines to control inventory levels. The models sensed when a shortage of inventory for
customers was likely and responded by backlogging and storing extra inventory to avoid the
shortages. In this application, SaR identified potential problems and solved them before they
became a reality. SaR can also identify opportunities, such as new products or marketing
approaches, and then respond by building the new products or starting new marketing cam-
paigns. One way to implement the SaR approach is through management information and
decision support systems, discussed next.

The Benefits of Information and Decision Support Systems
The information and decision support systems covered in this and the next chapter help
individuals, groups, and organizations make better decisions, solve problems, and achieve
their goals. 6 These systems include management information systems, decision support sys-
tems, group support systems, executive support systems, knowledge management systems,
and a variety of special-purpose systems. As shown in Figure 10.3, the benefits are a measure
of increased performance of these systems versus the cost to deliver them. The plus sign (+)
by the arrow from performance to benefits indicates that increased performance has a positive
impact on benefits. The minus sign (-) from cost to benefits indicates that increased cost has
a negative impact on benefits.