Applications and Opportunities for Operations Research in

Internet-enabled Supply Chains and Electronic Marketplaces

ManMohan S. Sodhi

Scient

303 E. Wacker Drive

Chicago, Illinois 60601

The Internet is creating opportunities for applying optimization. Firms can use

operations research (OR) to improve their supply-chain performance within the

enterprise whether their supply chains are being Internet-enabled or not. They can

increase benefits by using OR to improve planning and execution in Internet-

enabled supply chains with an expanded physical scope that includes vendors and

customers and with an expanded functional scope that includes product design,

marketing, and customer-relationship management.

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Historically, euphoria over the use of OR in industry petered out in the late 1970s partly

because of the difficulty of gathering and maintaining data. The early 1990s saw large-

scale (and protracted) ERP implementations to improve supply chain and other

operations, developed partly out of fears that legacy systems would collapse in 2000 and

partly to coordinate transaction data pertaining to orders, inventory, and cash.

ERP implementations created opportunities for OR in three ways. First, they dramatically

improved the quantity and quality of data that could be used for OR models. ERP

requirements are rigid, and implementations need good data for firms to operate these

systems [Hiquet, Kelley, and CCAi 1998]. As consulting companies gathered

implementation experience, they learned where to look for data and how to populate the

data fields. Given good starting data, ERP systems themselves ensured that the data

across different systems remained coordinated. Second, many businesses scrapped their

existing OR models when they implemented ERP systems, erroneously believing that

these systems would handle planning. Since businesses and even their software vendors

do not yet understand how to integrate ERP and OR models, businesses considered it

easier to use the ERP packages alone. Third, despite claims, the planning aspect of ERP

software was limited or nonexistent even though ERP software alleviated or pointed out

immediate and near-term problems. As a result, planners shifted their attention to

medium-term horizons and realized that they needed true planning systems.

OR professionals did not fully appreciate the changes in information technology (IT)

brought about by client-server technologies and ERP and generally did not take

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advantage of these opportunities. Advanced-planning-and-scheduling (APS) vendors

filled the vacuum to some extent. They included Chesapeake (acquired recently by

AspenTech), i2, Manugistics, Numetrix (recently acquired by JD Edwards), and Red

Pepper (acquired a few years ago by PeopleSoft). These vendors relied largely on

heuristics to improve supply chain processes, but they made the term optimization much

more acceptable in business than it had been. (In fact, businesses are more aware of this

term than of OR.) APS vendors also forced ERP vendors to recognize the importance of

providing planning functionality and the tremendous benefits it could provide. This and

the difficulty of integrating APS packages with ERP software motivated ERP vendors,

such as SAP, Baan, Peoplesoft, and JD Edwards, to develop or acquire heuristics and OR

technology to supplement their software. Their progress toward integrating supply-chain

planning and OR with ERP software has been slower than they expected.

While businesses initially used both ERP and APS software to improve performance

within their companies, they wanted to include other members of the supply chain, such

as suppliers and large customers. Transportation-planning-software vendors, such as

Manugistics, sold software that used electronic data interchange (EDI) for carrier-shipper

communication. The APS vendors were nimble in realizing the potential of the Internet,

and by early 1998, they announced collaborative planning, supply-chain planning by a

firm using the Internet to exchange forecasts and planned production with its customers

and suppliers. The Internet supplemented or replaced EDI using a Web-based messaging

protocol, Extensible Markup Language or XML. The ERP vendors responded by

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announcing even broader sets of systems, including software for managing customer

relationships. APS vendors followed with similar announcements.

In 1999, electronic business-to-business marketplaces became big. Such marketplaces as

SciQuest and Chemdex started lowering procurement costs for buyers and increasing

revenues for sellers, but these and other existing marketplaces are transaction based. The

marketplaces announced by i2, Manugistics, Oracle, and SAP promise planning and

planning-related collaboration. Despite the publicity around these marketplaces,

providing planning functionality may take time because the current focus is on tackling

the complexity of business-to-business transactions. According to Phillips and Meeker

[2000], enabling these transactions over the Internet is difficult because “many systems

and business processes have to be restructured” and procurement and fulfillment

processes are inherently complex. No wonder then that all of the marketplaces mentioned

by Kaplan and Sawhney [2000] are transaction based. The next step for these

marketplaces is to make orders visible from inception to fulfillment and allow tracking.

Only after that will we see marketplaces emphasizing planning capability. Still, building

blocks for planning-related applications do exist in marketplaces and marketplace

technology announced by the APS and ERP vendors: tradeMatrix.com (i2), bStreamz

(Manugistics), oracleexchange.com (Oracle), and mySAP.com (SAP).

As business use of the Internet grows, opportunities for OR to improve supply-chain

performance will abound. Firms can use OR to improve supply-chain management in

three ways:

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(1) To lengthen the decision horizon for planning within the enterprise over that offered

by their ERP systems regardless of their supply chains being Internet enabled;

(2) To extend the physical scope of their supply chains to include vendors and customers

and improve planning for the near and medium term as well as execution for the

immediate future; and

(3) To extend the functional scope of their supply chains to improve product-design,

sales, and customer-relationship management.

With current business use of the Internet largely limited to transactions, the Internet

offers opportunities for planning parallel to those that ERP systems opened up for APS

software. Moreover, the Internet increases the number of other businesses a firm can buy

from or sell to and also enables the firm to change its relationships with these businesses

in electronic marketplaces. The resulting complexity requires an expanded model that

increases optimization opportunities for both planning and execution. Supply-chain-

related opportunities for OR continue from the days before e-business became big, but

the Internet has opened up several new opportunities:

- APS vendors and others have announced electronic marketplaces or marketplace

technologies to support supply-chain planning to help firms plan effectively;

- New business models for e-commerce, like that of Webvan, will require new supply-

chain models;

- Business-to-business relationships in electronic marketplaces typically involve more

entities, thus creating OR opportunities in marketplaces for both planning and

execution;

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- Businesses are more aware of the value of optimization than they were before APS

implementations; and

- The possibility of OR and other applications being Internet-hosted means businesses

may have fewer IT concerns about implementing OR-based systems.

An Example of Using APS with ERP in an Internet-enabled Supply

Chain

To understand the role of OR in an Internet-enabled supply chain, consider its surrogate,

APS, in a global consumer-electronics firm that wants to automate its existing fulfillment

process using ERP, APS, and the Internet. Currently, its regional offices around the globe

group orders from customers, typically consumer electronics chains, in their regions once

a week for 26 weeks of a rolling horizon. They then send the grouped orders to

headquarters. Headquarters assigns current and planned inventory to these orders and

then fills them directly from warehouses at the plant locations to customer warehouses

around the globe. In the future, customers may order from headquarters directly, and

external suppliers may fill orders. For the first four weeks of the planning horizon, the

orders are firm, while later orders may change in time and therefore serve as forecasts.

The headquarters, regional offices (or customers), and plants (or suppliers) can use the

Internet, ERP, and APS systems as follows while maintaining the existing fulfillment

process, with all steps except 6 and 7 to be run once a week in the following sequence:

(1) Regional offices (or customers) send orders through the Internet to a database at

headquarters and overwrite the orders for corresponding weeks placed a week earlier.

Unfilled orders from past weeks in the ERP system also go to this database.

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(2) Plants (or suppliers) use the Internet to enter the planned replenishments by date and

ship-from location in the same database. The ERP system maintains records of

current inventory at each plant (supplier) location as stocks are added or taken out.

(3) The APS system takes all the orders and the planned replenishments for the entire

time horizon of 26 weeks from the database and the current inventory from the ERP

system. It runs either a heuristic or a linear-programming-based model to allocate

current and planned inventory among these orders, balancing delays and customers

according to their importance. With either model, the system gives each order an

allocated quantity, a target shipping date, and a target shipper location. The firm

considers planned replenishments fixed for the first 12 weeks and flexible for weeks

13 through 26, so the APS system takes the first 12 weeks’ replenishment from

suppliers as a constraint and the next 14 weeks’ replenishment as a decision variable.

(The heuristic for a single shipping location works as follows: taking the time periods

in sequence, for each time period, it sorts unfilled orders by due date and customer

importance and then allocates the maximum possible inventory to orders starting

from the top of the list. The linear-programming-based solution is a multi-time-period

network model with current and planned inventory as source nodes, orders as demand

nodes, and delay penalties per unit time based on customer importance.)

(4) Through Internet-enabled collaboration, the APS system makes the forecast for weeks

13 through 26 available to the suppliers.

(5) The ERP system imports orders for the current week from the database and updates

unfilled orders from previous weeks. All of these orders now have a shipping quantity

and date as determined by the APS module in step 3.

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(6) Every day, the ERP system executes orders based on the shipping date and the

inventory at the shipping location, issuing transportation orders and updating order

statuses accordingly.

(7) The regional offices (or customers) can use the Internet any time after the APS run to

view the shipping quantities and shipping dates for their planned orders. The ERP

system provides information for orders in the current or earlier weeks, while the

database provides information on later orders.

.______________________________________

Figure 1 goes about here

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However, using the Internet and APS technology only to automate an existing process

limits the benefits. The electronics firm uses the Internet only for communication and

makes only limited use of OR. If this firm were to join an electronic marketplace, it might

have to change radically and use OR to make improvements even before joining such a

marketplace. One improvement would be to make the process more responsive to

changes in demand. For instance, customers might want to change their orders scheduled

for shipping within the first four weeks, which is not currently allowed. The firm could

let customers enter changes and then rerun the LP model with the existing replenishment

schedule taken as fixed and allowing the changes if that improved the overall solution.

Such a model could be run any time, so it would be useful to implement before the firm

joins an electronic marketplace whose dynamic environment would not accommodate its

sequential weekly process.

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The firm could make the supply chain even more responsive if it allowed changes to the

suppliers’ replenishment schedule within the first 12 weeks. Then, it could tie the

suppliers’ production scheduling system(s) to its APS system. This would let a customer

enter a tentative order through the Web to get an immediate response as to whether or not

the firm could fill the order by the specified date. One way the firm could provide this

functionality in the present context would be to add this order to the demand and rerun

the LP model in the APS system with the first 12 weeks’ replenishments as soft

constraints. If no change were required to the existing replenishment schedule, the

customer’s order could be met. Otherwise, the APS system would then pass the changes

to the supplier’s production-scheduling system to check whether these changes were

possible by juggling production. If the answer were yes, the customer’s order could be

filled; otherwise the customer would be told that the order could not be met by the

specified date. This computation too can be done at any time and would be useful with an

electronic marketplace.

This simplified example shows the complexity of both technology and business

processes, whether a firm simply Internet-enables its existing processes or redesigns them

for electronic marketplaces. In either case, OR can be useful.

Extending the Decision Horizon for Planning within the Enterprise

Independent of the Internet, OR (including APS) allows a firm’s planners to extend their

decision horizon for planning supplies to meet forecasted demand from the immediate

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future provided by the ERP system to the medium and long term. The actual time

constituting short or long term depends on the industry – long term in the electronics

industry may be short term in the chemicals industry. The distinction is in the flexibility

to change the supply-chain parameters during the period. The longer the term, the greater

the flexibility. For instance, in the medium term, it may be hard to change the capacity of

existing plants, but in the long term, the firm could acquire or build new plants. The

existing and potential OR applications deal with different supply-chain issues depending

on the decision horizon [Sodhi 2000] just as business drivers vary by the horizon (Table

1):

- Long-term decisions are affected by globalization leading to increased competition

and expanded presence in other countries, by mergers and acquisitions, and by the

costs of physical assets. Since the 1960s, OR has been used for long-term decisions,

such as plant and distribution-center openings and closings. APS vendors offer tools

that use true optimization with linear and integer programming.

- Medium-term decisions are affected by customer-service, inventory, and supply-

chain costs, including procurement, manufacturing, and distribution costs. OR can

help firms to plan procurement, manufacturing, and transportation to minimize

supply-chain costs. APS vendors typically support medium-term decisions by

offering tools that use heuristics.

- Short-term decisions are affected by transportation costs, finished goods inventory

levels, and equipment utilization. OR can help firms to create or, on short notice, to

modify their production schedules and inventory deployment. Modification could be

warranted by unplanned events, such as the arrival of a new high-priority order, with

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real-time data obtained using the Internet. APS vendors use genetic algorithms,

constraint-based programming, the so-called theory of constraints, business rules, or

other heuristics for production scheduling, deployment of inventory, and

transportation scheduling.

- Immediate decisions usually concern filling customer orders on time. Businesses

currently use the Internet almost entirely for immediate transactions, and even

problems with no planning element offer opportunities for OR. For instance, in

response to a customer’s request for immediate shipment, a firm could use OR to

determine the effects of rescheduling production to fill the order and respond quickly

to the customer. Firms can also use OR to modify current orders by substituting

components or manufacturing locations.

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Insert Table 1 around here

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Extending Beyond the Enterprise to Customers and Suppliers

The “Beer game,” a supply-chain game developed by John Sterman at MIT and

supported by the System Dynamics Society, demonstrates that having only local

information at different nodes in any supply chain can amplify fluctuation of the

customer demand signal as the signal moves upstream to warehouses and plants. Thus,

even a small customer demand fluctuation can result in huge inventories or shortages at

upstream nodes. The game, played in many business workshops, convinced many

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businesses to coordinate the information between different nodes in their supply chains to

prevent this amplification or bullwhip effect. Recognition of this effect has motivated

firms to track the operation of the entire supply chain and use this information to

coordinate operations throughout the supply chain. Indeed, ERP systems can coordinate

information across production, distribution, and order fulfillment within the company to

diminish the bullwhip effect.

But why stop at the boundaries of the enterprise? Like ERP systems, electronic

marketplaces could provide information on inventory and on current and future demand

starting with the supplier’s supplier and ending with the customer’s customer. Then OR

applications would provide benefits for execution in the immediate future and for

planning in the near and medium term.

Execution: Participant firms could use OR for procurement to insure that they meet their

contractual agreements with their partners while procuring from other participants. For

instance, participants could use OR to modify planned high-volume purchases from

preferred suppliers while buying from other suppliers to respond quickly to market

changes. Dell [2000] mentions vertical exchanges, such as e-steel, FastParts.com, and

Chemdex, beginning to “manage data across larger and larger pieces of the supply chain”

and, in his opinion, heading towards a “completely connected supply chain.”

Typically a transaction takes place between two parties, but an electronic marketplace

could use OR to enable multi-way matching at the request of a participant firm. For

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example, a user could ask the marketplace to match manufacturing capacity, suppliers of

raw materials, and those demanding finished goods to use the available capacity to turn

the raw material into finished goods. Such three-way matching is possible outside the

Internet, but when an electronic marketplace makes all the information available online, a

business could use the OR capability of the marketplace to spot an economic opportunity.

Three providers have announced exchanges that will use heuristics to facilitate matching

shippers with carriers to decrease costs or increase reliability. Logistics.com is

developing the Digital Transportation Marketplace (DTM) to leverage its optimization-

based carrier software, shipper software, and lane-bidding system. FreightWise, an online

marketplace for buyers and sellers of transportation services, has partnered with

Manugistics for Web infrastructure and transportation management to enable users “to

share, view, and execute transportation services decisions” across multiple modes of

transportation and multiple rail carriers. FreightMatrix, using i2’s TradeMatrix

technology, will operate a similar marketplace.

Planning: We can extend the idea of coordination and visibility of demand and capacity

further in marketplaces that would use OR to match buyers’ planned orders with sellers’

planned production at different parts of the chain in the short to medium term. This is the

same as supply-chain planning within the enterprise except that many more entities must

be considered and they are outside the enterprise. A firm that wants to use information

provided via the Internet about its suppliers and customers in planning must expand its

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models to include many more entities. OR can handle the increased complexity of the

model.

Before electronic marketplaces emerged, APS vendors and other firms proposed

collaborative planning; one industry effort is CPFR (collaborative planning, forecasting,

and replenishment). Thus, APS motivated the Internet-enabling of supply chains and

extended supply-chain models. Now we have the reverse opportunity: a firm’s customers

and suppliers may be on the same electronic marketplace, giving us an opportunity to

apply OR techniques to expanded supply-chain models.

APS/ERP vendors, including i2, Manugistics, Oracle, and SAP, have announced

electronic marketplaces to which they intend to add planning functionality to enable

participating firms to extend their decision horizons. For example, i2 and Toyota Motor

Sales USA announced the auto parts exchange, iStarXchange, based on i2’s tradeMatrix

technology, which will offer “optimization and hosted services” that extend the decision

horizon by including demand planning and procurement planning. SAP and six chemical

companies recently announced their intention to use both SAP’s ERP software (R/3) for

transactions and APS software (APO) for planning on mySAP.com.

Extending the Functional Scope of the Fulfillment Process

Internet-based communications also give rise to opportunities for OR by expanding

supply-chain management upstream to design and product-life-cycle management and

downstream to the end-consumer. A firm can use Internet-based communications to

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coordinate design, development, and sales and can use OR to optimize the use of

resources in the design and development process. The firm can also use OR-based

supply-chain-planning techniques to determine when to phase a product in or out and to

help forecast and plan capacity usage. It can use the Internet to conduct market research

and study end-consumer behavior on its e-commerce Web site and then use this

information for design. It can use OR techniques to analyze overall trends and to react in

real time to consumer requests by using the analysis to plan fulfillment through improved

forecasting and inventory-deployment.

According to David Ross, e-commerce manager at IBM, the new supply-chain model is

“sense and respond” instead of “make and sell” [Grebb 2000]. Business drivers in this

new model are

- Pressure from consumers and industrial customers to customize products to their

individual specification,

- Ready access to competing Web-sites,

- Products’ decreased time to market,

- Shortened product life cycles, and

- Business customers’ expectations for improved service.

The Internet makes possible this extension of supply-chain function to “sense and

respond.” It has created opportunities for OR technology to help firms sense customers’

needs for products and customer service, and respond by targeting advertising at the

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individual Web-site user’s level, reconfiguring orders to meet or accelerate delivery

dates, or redeploying inventory using real-time information on supply and demand. Firms

can use OR

- In design, by optimizing product attributes, by improving the use of design and

development resources, and by planning the phase-in for new products and the

phase-out of old products. Analysts can use customer data collected in Web surveys

to determine desirable product characteristics quickly and improve product designs.

Planners can access design and capacity information over the firm’s intranet or

extranet to plan for improved resource usage.

- In sales, by predicting demand at the individual and aggregate levels more accurately

than would be possible otherwise and by deploying inventory effectively to meet

changing demands. Analysts can analyze data on Web-site visitors’ navigational

paths to predict sales at the individual customer level. They can also predict

aggregate sales and redeploy inventory if need be.

- In customer-relationship management (CRM) by designing call centers and other

service center facilities to improve service and better use resources. CRM permits

managers to integrate existing and new channels to support customers, sales, and

marketing. These managers can use OR strategically to design call centers and to

integrate their customer-relationship infrastructure and resources, and tactically to

deploy algorithms to aid in automated and customer-service-representative-aided

responses to customer requests.

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The large amounts of consumer data collected by retailers and firms’ wish to target

individual customers has spurred the growth of data mining [Gillett 1999]. Web sites are

collecting further data as users navigate around them. This has motivated development of

OR-based tools for predicting individual consumers’ purchasing behaviors in real or

delayed time, leading to improvements in forecasting and inventory-deployment.

- Collaborative filtering is a way to establish what ads to display to Web users who

have browsed some ads or made purchases. Collaborative-filtering software compiles

purchasing information on customers to pool them into clusters and uses some

cluster members’ purchasing patterns to predict the buying habits of others in the

same cluster. It does this in real time and, for instance, puts an ad on the customer’s

screen while he or she is making a purchase [Grebb 2000].

- Personalization is the real-time or delayed modification of Web sites to display

content or ads for products and services that may likely interest individual users.

Collaborative filtering is one way to achieve this, but other methods include Markov

chain models.

- “Clickstream” analysis is collecting and analyzing users’ navigational paths on Web

sites, mining the data they create. Analysis at an aggregate level can be useful for

improving Web-site design, and analysis at the individual level can be useful for

personalizing [Dahir 2000].

Some of the companies that provide tools and services in this area are DoubleClick for

advertising management; Vignette for automated delivery of content; Net Perceptions for

real-time personalization; net.Genesis for mining customer data; HNC Software for

software to predict customer behavior; IBM for decision support and advanced data

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mining; Quadstone for predicting customer purchases; and WebTrends for analyzing

marketing campaigns.

Product life-cycle management (PLM) includes (1) collecting customer feedback to use

in designing or improving products, (2) enabling designers to collaborate with marketing,

production, and suppliers, (3) improving resource utilization during design, and (4) doing

what-if analysis for planning when to phase products in and out. Software to support

PLM can use Internet technology to facilitate (1) and (2) and can use OR techniques for

(3) and (4). i2's PLM solution comprises heuristics and Internet-based collaboration

modules to cover the product-development and product-lifecycle processes from design

to phaseout. To improve use of resources during design, a module schedules development

across resources using genetic-algorithm-based project scheduling. Another module uses

supply-chain-planning algorithms to help planners to determine when to phase products

in or out. SAP’s PLM capabilities include Web-enabled collaboration and APS-supported

management of design and development using its tool, APO. The intention is to manage

the complete product life cycle of the extended supply chain from design and production

through sales and maintenance.

Available-to-promise (ATP) technology gives a customer (or salesperson) a way to find

out whether a firm can fill an order by the requested date. If the firm cannot, instead of

just replying in the negative, it can use a variant of ATP called CTP (capable to promise)

to determine whether a change in the production schedule, product configuration,

components, or shipping location can make filling the order possible. Such tools can use

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OR models to determine the lowest-cost change to the product, order, or delivery date to

satisfy the order. The ATP module of SAP’s APO suite of products is an example of a

software product that uses heuristics to make substitutions of components, materials, or

shipping locations.

Customer-service applications with which customers serve themselves to obtain technical

or sales information on Web-sites or through automated e-mail response also provide

opportunities for OR. Firms have an economic incentive to offer self-service: the cost of

automated or Web-based resolutions to customer queries is a tenth of that of resolutions

provided by customer-service representatives on the telephone. Existing applications

reportedly use expert systems, knowledge engineering, and case-based reasoning. These

applications typically respond to e-mail or assist customer-service representatives by

matching queries with knowledge bases that include both content and rules for routing

and problem escalation. For instance, the software may react to a customer’s e-mail by

deciding that the customer is reporting a problem. It could then respond by searching

through the knowledge base for information that it considers of potential use to this

customer and then e-mailing it to him. It could also route the original e-mail message

along with its response to a specific engineer to follow up. Examples of software

companies with products in this area are Edify, Inference, Silknet, and ServiceSoft.

Thus, while OR has already contributed to supply-chain performance outside the Internet

environment, it can contribute even more within an Internet-enabled environment. These

benefits, over and above those for planning within the enterprise, are for planning and

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execution across enterprises with suppliers and customers and for extending the

functional scope of supply-chain management as it interfaces with marketing, design, and

product-life-cycle management. (Table 2)

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Insert Table 2 around here

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Where to Run OR Applications

The Internet affords many different choices for running OR applications. An application

service provider (ASP) may host an application on the Internet for a particular firm, an

electronic marketplace may provide the application to all participating firms, or a firm

may run the application locally, possibly using the Internet to retrieve data from external

sources. APS vendors, who could use a hybrid of these options, are not very specific yet

about what they will actually provide with the marketplaces they have announced.

Indeed, creating the best application architecture may itself be an OR opportunity!

Where firms and vendors should run OR applications is not obvious because of a number

of factors:

- Where the data such applications would use resides and the response rates users

require are factors in determining where to run the application. If the data resides on

the Web-site, the application would likely have to reside on this server too to provide

users with real-time responses using real-time information. If the data resides on a

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company’s internal database, and planners wish to run many what-if scenarios

quickly, it would make sense to run the applications locally rather than use a hosted

application.

- Vendors’ cost structures or the market may affect where to run applications. Pay-per-

use or pay-by-month models suit ASPs while buy-and-maintain models suit local

applications.

- Perceived security and sensitivity of data can tip firms toward local applications.

- The type of analysis and the time it takes can be a factor. Time-consuming

computations for statistical analysis, for instance, are best done off-line especially

because real-time responses are not required. Data-mining applications would

therefore run off-line even though the data come from a Web-site.

- Frequency of use can affect deployment. A firm’s IT department might be reluctant

to adopt and maintain infrequently software, such as planning software for long-term

decisions that may be run only once or twice a year. Internet-hosted software would

make sense in such a case.

- The number and the geographical spread of users can determine whether OR-based

applications should be Web-hosted. If all the potential users of an application

connect to the same local network, running the application on that network would be

sensible.

For example, the global electronics firm discussed earlier could use SAP's APO software

locally for internal supply-chain-planning, and could use mySAP.com marketplace for

sharing planning-related information with its supply chain partners.

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Internet-hosted applications may be of particular interest to OR developers because firms

can run such applications locally on their own intranets and remotely on Web-sites. An

Internet-hosted optimization server, NEOS, of considerable sophistication already exists

[Fourer and Goux 2001]. Although NEOS is not specialized for supply-chain-modeling,

the conceptual leap from NEOS to such a specialized application is small.

Conclusion

OR-based applications can benefit transaction-based Internet marketplaces just as APS

systems benefited firms with ERP systems. But the history of APS implementations for

firms with ERP systems suggests that implementing OR will not be easy for Internet-

enabled supply chains, although Internet-hosted OR applications will make things a little

easier for businesses. Just as firms require considerable consulting to implement APS

solutions, partly because companies must reengineer their processes, they will also

require consulting to implement Internet-based OR solutions.

Opportunities for OR professionals should expand provided they keep two things in

mind. First, OR professionals must understand the technologies for electronic

marketplaces, for Internet-based applications, and for thin-client applications requiring

the user to run only a Web-browser, and use these technologies to adapt and develop

algorithms to exploit these opportunities. Second, OR professionals must understand

supply-chain processes to provide consulting. The Internet can take OR professionals to

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the water of Internet-based supply-chain management, but they must choose to drink

themselves.

URLs

AspenTech (www.aspentech.com)

bStreamz (www.bstreamz.com)

Chemdex (www.chemdex.com)

Collaborative filtering (www.acm.org/siggroup/collab.html)

CPFR (www.cpfr.org)

DoubleClick (www.doubleclick.com)

Edify (www.edify.com)

e-steel (www.e-steel.com)

FastParts.com (www.fastparts.com)

FreightMatrix (www.freightmatrix.com)

FreightWise (www.freightwise.com)

HNC Software (www.hncs.com)

i2 (www.i2.com)

IBM (www.ibm.com/e-business)

Inference (www.inference.com)

JD Edwards (www.jdedwards.com)

Logistics.com (www.logistics.com)

Manugistics (www.manugistics.com)

mySAP.com (www.mysap.com)

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NEOS (neos.mcs.anl.gov)

net.Genesis (www.netgen.com)

Net Perceptions (www.netperceptions.com)

Oracle (www.oracle.com)

oracleexchange.com (www.oracleexchange.com)

PeopleSoft (www.peoplesoft.com)

Quadstone (www.quadstone.com)

SAP (www.sap.com)

SAP’s PLM capabilities (www.sap.com/plm)

SciQuest (www.sciquest.com)

ServiceSoft (www.servicesoft.com)

SilkNet (www.silknet.com)

System Dynamics Society (www.albany.edu/tree-tops/cpr/sds/index.html)

tradeMatrix.com (www.tradematrix.com)

Vignette (www.vignette.com)

WebTrends (www.webtrends.com)

Webvan (www.webvan.com)

References

Dahir, M. 2000. “Watching you,” The Industry Standard, May 8. Retrieved October 27,

2000 from www.thestandard.com/article/display/0,1151,14732,00.html?nl=nr

Page 24 of 32

Dell, A. 2000, “Meeting supplier demand,” Business 2.0, March, p. 78. Retrieved

October 27, 2000 from

www.business2.com/content/magazine/ebusiness/2000/03/01/11061

Fourer, Robert and Goux, Jean-Pierre 2001, “Optimization as an Internet resource,”

Interfaces, Vol. 31, No. 2 (March-April), pp. xx-xx.

Gillett, F. E. 1999, “On-line retail data strategies,” Forrester Report, May. Retrieved

October 27, 2000 from www.forrester.com/ER/Research/Report/0,1338,7294,FF.html

(subscribers only)

Grebb, M. 2000, “Behavioral science,” Business 2.0, March, pp. 112-114.

Retrieved October 27, 2000 from

www.business2.com/content/magazine/marketing/2000/03/01/15576

Hiquet, B. D., Kelly, A. F., and CCAi, Inc. 1998, SAP R/3 Implementation Guide:

A Manager’s Guide to Understanding SAP, Macmillan Technical Publishing,

Indianapolis, Indiana.

Kaplan, S. and Sawhney, M. 2000, "E-Hubs: The new B2B marketplaces,"

Harvard Business Review, Vol. 78, No. 3 (May-June), pp. 97-103.

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Phillips, C. and Meeker M., 2000, The B2B Internet Report: Collaborative

Commerce, Morgan Stanley Dean Witter, Equity Research, North America.

Retrieved October 27, 2000 from www.msdw.com/techresearch/b2b/info.html

Sodhi, M. 2000, "Getting the most from planning technologies," Supply Chain

Management Review – Global Supplement, Vol. 3, No. 4 (Winter), pp. 19-23.

Page 26 of 32

Planning

horizon

Business drivers OR opportunities

Long

term

Costs of building and owning assets

Globalization

Mergers and acquisitions

Determining which plants, distribution

centers, and lanes to open or close

Medium

term

Customer service

Inventory

Supply-chain costs

Planning procurement, manufacturing, and

transportation to minimize supply-chain

costs

Short

term

Customer service

Equipment utilization

Transportation costs

Creating and modifying production

schedules

Improving deployment of finished-goods

inventory

Minimizing transportation costs

Imme-

diate

Fulfillment Real-time tentative rescheduling of

production to check whether requested dates

for orders can be met.

Reconfiguring orders to meet request dates

Table 1: Business drivers to improve supply-chain management and the type of OR

opportunities depend on a firm’s planning horizon.

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Supply chain

extension

OR benefits in supply-chain

management without using the

Internet

Benefits of adding OR to Internet-

enabled supply chains, including

electronic marketplaces

1 Extended decision

horizon for

planning within the

enterprise

Improved capacity utilization

Improved customer service

Improved rates for

procurement and

transportation contracts

Reduced inventories

Same

2 Extended physical

scope, including

customers and

suppliers in the

near and medium

term

Improved capacity utilization

Improved customer service

Improved rates for procurement and

transportation contracts

Matching of shippers and carriers

Matching of raw-material sellers,

manufacturers, and finished-goods

buyers

Reduced inventories

3 Extended

functional scope,

including product

development and

customer-

relationship

management

Improved use of resources

Planning product phase-in

and out

Individual-focused marketing

Accelerated time-to-market

Full product-life-cycle management

Customer self-service

Available-to-promise

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Table 2: Electronic marketplaces and other Internet-enabled supply chains can

enable firms to extract additional supply chain benefits by using OR.

Page 29 of 32

Page 30 of 32

Page 31 of 32

ERP

APS

DBOrders for next26 weeks

Customers(regionaloffices)

Shipmentorder

Suppliers(plants)

Orderstatus

Database

Current inventorystatus

Fir

st w

eek’

sor

ders

Plannedreplenishments fromsuppliers

Forecasteddemand (13-26weeks)

Web interface tocustomers

Web interface tosuppliers

Currentinventorystatus

Unf

ulfi

lled

past

ord

ers

Orderstatus

Figure 1: A global electronics firm can use the Web in conjunction with its ERP and APS systems to improve supply-chain

management.

Page 32 of 32