The 1998 Franz Edelman Award for Achievement in Operations Research and the Management Sciences, presented on April 28 in Montreal after a public competition, highlights a history of operations research/management science departments that have saved, or earned, their organizational sponsors billions of dollars.
A review of Edelman finalists in recent years demonstrates OR/MS teams saving – or contributing – billions of dollars to corporations and government agencies.
A short list of past Edelman Prize corporate finalists1 includes —
- GAS RESEARCH INSTITUTE:
Formed by a consortium at an industry low point, the GRI R&D program has resulted in 132 commercial products, processes, or techniques. To succeed, GRI designed project appraisal methodology (PAM), which. is credited with half the benefits achieved, which are conservatively valued at $11 billion. (1993)
- AMERICAN AIRLINES:
Sabre Technology Solutions, formerly part of American Airlines, developed yield management for the effective use of AA’s reservations inventory. American Airlines estimates the benefit at $1.4 billion over the first three years of operation. (1992)
- AT&T:
AT&T developed its Call Processing Simulator (CAPS) to design and evaluate inbound call centers. The CAPS tool is the turnkey for more than $750 million in annual profit for AT&T’s business customers who received CAPS studies. (1994)
- DELTA AIR LINES:
Delta’s Coldstart model solved the company’s fleet assignment problem — how to match aircraft to flight legs so that seats are filled with paying passengers —and was expected to save Delta Air Lines $300 million over three years. (1994)
- SOUTHERN COMPANY:
The Wescouger optimization program, an operational software package, helped the electric utility save over $140 million in fuel costs over seven years and deliver electricity to customers in the most reliable and cost-efficient manner. (1991)
- PROCTER & GAMBLE:
As a result of a study restructuring the corporation’s supply chain, P&G is reducing the number of North American plants by almost 20 percent, saving over $200 million in pretax costs per year. (1996)
- DEC:
Digital Equipment Corporation’s introduction of its Global Supply Chain Model (GSCM) has saved the computer giant over $100 million (1995)
- AT&T CAPITAL CORPORATION:
Automating credit and collections decisions at the largest publicly held leasing/financing company in the US have led to business volume gains of $86 million annually, while reducing bad debt losses by $1.1 million annually. (1996)
- NATIONAL CAR RENTAL:
In July 1994, National implemented a state-of-the-art revenue management system, improving revenues by $56 million in the first year. (1996)
- TACO BELL:
Taco Bell relied on an integrated set of operations research models, including forecasting to predict customer arrivals, simulation to determine the optimum labor required, and optimization to schedule and allocate crew members. Through 1997, these models have saved over $53 million in labor costs. (1997)
- BELLCORE:
Bellcore, which is owned by the seven "Baby Bells," developed an algorithm enabling its owners to share R&D costs optimally for different projects, get only the R&D they need, and stay on budget. In 1991, each owner received an average 23 additional existing Bellcore projects — originally priced at $52 million —at no additional cost. (1993)
- HARRIS CORPORATION:
Harris, the semiconductor manufacturer, adopted an optimization-based planning system. It raised on-time deliveries of line items from 75 to 95% without increasing inventories, enabled the sector to expand markets and market share, and helped move the sector from a $75 million loss to profit of over $40 million annually. (1996)
- NYNEX:
Arachne is a decision-support system developed by NYNEX to automate its interoffice facilities planning. It has led to savings of at least $33 million dollars to date. (1996)
- GE CAPITAL:
The credit card services company set a goal of optimally managing delinquency by improving the allocation of limited collection resources. The program reduced annual losses by approximately $37 million and improved customer good will. (1992)
A short list of past Edelman Prize government/nonprofit finalists1 includes —
- MEDICARE:
Diagnostic related groups (DRGs) serve as a basis for budgeting, cost control, and quality control in hospitals. Adopted by Medicare in 1983 as a basis for a prospective payment system for American hospitals, it saved more than $50 billion in Medicare hospital payments through 1990 and extended the Medicare Hospital Trust Fund’s solvency. (1991)
- US POSTAL SERVICE:
The Postal Service’s META (model for evaluating technology alternatives), which supports its corporate automation plan, was expected to yield annual labor savings of $4 billion by the year 1995. (1992)
- NEW YORK CITY:
The New York City arrest-to-arraignment system was improved by a team that saved the city tens of millions of dollars and lowered waiting times from 40 hours (with a high, in some cases, of 70 hours) to under 24 hours (1993)
- NORTH CAROLINA:
North Carolina uses data envelopment analysis to produce a pupil transportation funding process that encourages operational efficiency and reduces expenditures. Between 1990 and 1993, the state saved $25.2 million in capital costs and $27.9 million in operating costs, and it expects savings to continue. (1994)
- NEW HAVEN:
New Haven, Connecticut implemented a needle exchange program in November 1990 to combat the spread of the AIDS virus. We developed a syringe tracking and testing system that provided data for mathematical models of HIV transmission. The models suggest that needle exchange reduced the HIV infection rate among program clients by 33 percent. In response, the Connecticut legislature continued funding the program, expanded needle exchange services to Bridgeport and Hartford, and decriminalized syringe possession. New needle exchange programs and legislation have also been developed in New York City, California, and Massachusetts partially as a result. (1993)
The Institute for Operations Research and the Management Sciences (INFORMS) is an international scientific society with 12,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work primarily in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, the stock market, and telecommunications.