Optimization refers to finding an alternative with the most cost effective or highest achievable performance under the given constraints, by maximizing desired factors and minimizing undesired ones. In comparison, maximization means trying to attain the highest or maximum result or outcome without regard to cost or expense. Practice of optimization is restricted by the lack of full information, and the lack of time to evaluate what information is available (see bounded reality for details). In computer simulation (modeling) of business problems, optimization is achieved usually by using linear programming techniques of operations research.
Optimization sounds like an appropriate vision for businesses, but there are many layers underpinning this commonly used business term. Without understanding what you are trying to “optimize” and why, it is hard to achieve success and a lot of money, time, and effort can be spent trying to capture an elusive outcome.
For example, to say, “we want to optimize our scheduling,” is meaningless without defining the parameters for and goals of your optimization. First and foremost it’s an opportunity to drive performance and profitability.
While optimization doesn’t necessarily translate to “automation,” it’s a cornerstone of optimizing success. That’s why I’m amazed that two-thirds of retailers still use some form of manual scheduling. I’ve known some managers to keep two sets of schedules – the official, “optimized” schedule that they submit for corporate review, and the unofficial, manually created schedule that is actually used in the store. This disconnect is often the result of trying to make too big a leap — from manual to fully automated — without considering the change management impact and the optimization goals.
Here are some considerations that can help retailers define what optimization means for their organization:
- Optimize budgets: Helps close the traditional disconnect between finance and store operations by optimizing for the required work in the stores while maintaining fiscal control and governance.
- Optimize collaborative teams: Ensures that the labor model used fully represents how collaboratively the associates in the stores work. Many legacy systems do not provision for sharing of work and optimizing its coverage.
- Optimize labor distribution and payroll spend: Aligns traffic (the best indicator of opportunity,) transactions, or sales with demand coverage needs to provide an optimized fit of labor distribution curves with customer demands.
- Optimize coverage and service quality: Focuses management and employees on the busiest times, days, and seasons. When covered properly, these power hours result in improved service quality, conversion lift and stronger sales growth
- Optimize people and skills assignment: Puts the right person in the right place at the right time with the right skills to cover the specific demand – whether brick and mortar or Omni-channel pack and ship support activities and incentives.
Business Benefits of Optimization
- Maximize operational efficiency: Improve utilization for any sort of resource: capital, personnel, equipment, vehicles, facilities. Assign the best resources to each task, at the best possible time.
- Uncover solutions to the toughest challenges: Explore alternatives in minutes. Cope with the most difficult trade-offs that nobody had ever considered. Extract the maximum yield from every resource. Cope with the toughest conflicts.
- Create measurable return on investment, fast: See results within months, or even weeks. Costs drop, earnings increase and service improves. Customers are happier, and so are your employees. Some applications save thousands of dollars a year, and others save millions—but there is always a return on investment (ROI).
- Applications in every industry: Optimization is at work everywhere: manufacturing, transportation, logistics, financial services, utilities, energy, telecommunications, government, defense and retail.
Some industries have made extensive use of optimization software for specific business problems, such as supply chain optimization, transportation management, and price optimization for retailers. Businesses have barely begun to tap the potential of the technology to be applied to any problem of limited resources — whether those resources are people, fuel, space on a shelf or in a truck, hours in the day, or dollars in the bank.
One of Marriott’s recent optimization successes came when it took the yield management techniques it had applied over many years to the pricing of individual rooms and brought them to the pricing of group deals for weddings and conferences, which previously had not benefited from that kind of automation. This entailed working out the right formula for pricing group rates based on how far in advance the reservation was being made and what other revenue a hotel might be giving up by selling a large block of room and potentially locking out more profitable customers. Marriott attributed a $46 million boost in revenue between 2008 and 2009 to this change.