What is Optimisation?

In business, Optimisation means finding and/or doing the ‘best’ you can - with the resources, assets, capabilities, information and constraints you have (or will have) at a particular point in time.

Why Even Optimise?
What Makes Optimisation So Special

Unlike other forms of business analysis and financial modelling, optimisation does not concern itself with probability or attempt to predict the future by looking at what happened in the past. It takes your internal knowledge, facts, costs and yields, available resources and demand, goals and constraints - and finds the best possible solution using mathematics and logic.

 

It allows managers to make smarter decisions - faster. It often delivers cost savings of 20% or more against a manual approach and it reduces or even eliminates management biases, filters and presumptions. It is not limited to specific industries or company size, and it provides a 100% measurable and transparent solution every time.

 

While it’s not obvious, Optimisation has actually been used by industry leaders for over a decade. Airlines and major logistics companies use it to solve complex hub, route, plane and passenger pricing combinations (UPS even have a whole department just dedicated to optimising). Media companies and major hotel chains use it to optimise advertising space and yield per room. Companies like Google and Amazon use it with every customer click and transaction to optimise search and upsell opportunities.

 

Optimisation is only now reaching the mainstream. That’s because it required supercomputers to solve the massive number of possible combinations and skilled programmers with a mathematics PhD to write the complex optimisation algorithms.

 

New developments in software have made it possible to develop low cost user friendly in-house optimisation models and tools, and computing power has progressed to such a point that a laptop can now find an optimal solution in a matter of seconds or minutes – not days. Optimisation can:

 

  • Increase sales and maximise profit

  • Lower unit operating costs

  • Increase asset utilisation and employee productivity

  • Optimise labour allocation and contractor costs

  • Improve output and production while reducing inventories and waste

  • Maximise product or customer pricing and yieldImprove risk and return trade-offs

  • Postpone capital investment and improve ROI/ROA

 

Optimisation provides the ultimate competitive advantage. But it requires special optimisation tools and skills to solve the complex optimisation problems that staff, spreadsheets and traditional software or operating systems cannot possibly solve.

 

If you’re not using optimisation tools and models in your everyday business, then you’re clearly sacrificing profit. And if your competitors are, then it’s highly likely you’ll eventually be left behind. It can make that much of a difference and it will be that much of a game changer in the coming decade.

 

Industries that are now embracing it include manufacturing, mining, transportation, logistics & freight, farming & agriculture, utilities, civil construction, road construction, FMCG, advertising, banking and finance, insurance, stock trading, sales and marketing, HR, entertainment and more.

 

 

But why bother with optimisation anyway? Well, optimal means best and the optimal solution can increase productivity, schedule flexible staff rosters, manage inventory and save money; in financial markets it can execute trades and manage stock portfolios and risk; in pharma it can identify new possibilities for drug discovery and genome sequencing.

 

In daily operations optimal can mean getting the right staffing levels so your customers aren't kept waiting, cutting queues, speeding through checkouts or managing traffic volumes through traffic lights. optimal targeting can increase the take-up of a new product, identify customers at risk of leaving you, increase the success of a promotional offer and increase brand engagement, while making sure your deliveries are routed to consume minimum fuel and produce minimum waste.

 

Finding the optimal solution means finding the best solution under the circumstances, taking all the factors into account.

 

 

An optimisation model is a carefully defined set of inputs, demand, resource, costs, assumptions, constraints, preferences and goals - expressed in matrices and logic statements that find the best solution to a business planning or scheduling problem. The output is an optimised plan or schedule with information about the best possible solution, its binding constraints, and the underlying economics and operational efficiency. Here are some examples for the structural components of a model:

 

  • Goals (Individual or in Combination): Minimise empty or total mileage, one cost or total costs, handling, idle or total cycle time, particular risks or total risk. Maximise revenue, throughput, profitability, customer satisfaction or employee preferences... and so on.

  • Resources Available: Trucks, containers, airplanes, rail cars, people of various skills or seniority, machines, assembly or packaging lines, hospital beds, inventories (raw materials, work in process, finished goods), just in time (JIT) deliveries, consumers who could buy a product and so on.

  • Demand To Be Filled or Services To be Performed: Products to be built, customer orders to be filled, patients to the cared for, marketing offers to make, classes to be scheduled, and so on... sometimes this requires forecasting the best case worst case and most likely case over one or multiple time periods.

  • Operating and Capital Costs: Hourly labour rates, overtime premiums, mileage costs, depreciation expense, supply costs, switchover costs, inventory carrying costs, shrinkage costs, marginal costs, cost of capital for new equipment purchases, and so on.

  • Yield/Throughput Assumptions: Average driving speed between Warehouse A and Customer B, minutes to dock and unload a truck. cars painted per hour, regular patients served safely by a nurse, percent of customers who will agree to accept a marketing offer in exchange for a discount, revenue per customer at different times of the day, and so on.

  • Global Operating Constraints: A manufacturing facility can only produce 5,000 units per month and must choose between 10 different items to produce, a call centre can only call 10,000 for a marketing campaign and must decide which segments to call, workers can be rotated between certain shifts, but not others... and so on.

  • Individual Operating Constraints and Preferences: Customer a will not take deliveries between 11am and 1pm, doctor C requires nurse D and E to be assigned to his operating rooom, transition time of Product A from Machine A to Machine B is non standard... and so on.

 

When these components are put together into an optimisation model and executed using one or multiple optimisation engines, the result is the best possible plan, schedule or set of schedules to achieve the goal or set of goals. For example, the final output could be a supply chain network design, a multi year production plan, a detailed, to the minute, production schedule for the week, a one month workforce schedule, a set of routes to deliver a day's worth of goods or services, a set of trades to bring a stock index fund back into compliance, a set of price offers or marketing offer assignments that will produce the best results, and so on.

 

 

When we talk about the value of optimisation to business, we mean finding the best balance between conflicting goals. We often want to maximise customer service, profitability and employee satisfaction or fairness at the same time. Optimisation modelling can find this balance. More specifically, optimisation can help organisations to:

 

  • Lower unit operating costs

  • Postpone capital expenses

  • Increase asset utilisation

  • Shorten production and service delivery cycle times

  • Provide better, more flexible and precise service to customers

  • Provide more flexible and personalised schedules to employees

  • Manage risk

  • Reduce inventories

  • Maximise profitability

  • See into the future

 

The value of optimisation models, algorithms and technology is twofold - it helps you gain a better understanding of your business' economics and operational options while it helps you to generate the best possible plans and schedules. And the combination of these two things is very powerful for any organisation.

 

Creating a great optimisation model will always require a deep understanding of the business - its products and services, it's goals and operational processes. Fortunately, Always Optimise has the knowledge, tools and experience to help your company develop powerful and flexible optimisation models based on your own unique operating structure and environment.

 

Our applications not only help find the best solution to your complex problems, they also make it possible for operations managers, planners and strategists to explore the entire universe of possible scenarios and solutions. Now, every company can enjoy the benefits of optimisation modelling to gain a sustainable competitive advantage in their industry.

How Optimisation Works
The Value of Optimisation to Business