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Making Better Fulfillment Allocation Decisions on the Fly

Event

Bronfman Building 1001 rue Sherbrooke Ouest, Montreal, QC, H3A 1G5, CA

Friday November 18th, 2011

12:00 PM - 2:00 PM

Bronfman Bldg., Rm. 310 1001 Sherbrooke St. West, Montreal

Making Better Fulfillment Allocation Decisions on the Fly

Prof. Steve Graves

Abraham J. Siegel Professor of Management Science

MIT Sloan School of Management

Editor-in-Chief, Manufacturing & Service Ops. Mgmt. (M&SOM)

Abstract

Online retailers manage large distribution networks, holding inventory in multiple locations to serve geographically-dispersed customers with varying service requirements. What is the best way to fulfill each customer's order when customers have different service-time requirements? We partner with a company that sells products online to examine this question, by first comparing a myopic strategy with a perfect hindsight optimization for a set of orders to characterize the potential improvement gap. We then report on the development of a heuristic that makes fulfillment decisions by minimizing the sum of the immediate cost plus an estimate of future expected opportunity cost of the decision. These estimates are derived from the dual values of a transportation problem assuming deterministic demand. In our experiments, we find that we can capture around 40% of the opportunity gap, leading to improvements on the order of 1%.

(research with Jason Acimovic).

A light lunch will be served.

Bio:

Stephen C. Graves is the Abraham J. Siegel Professor of Management Science at MIT. He was the deputy dean at the MIT Sloan School, 1990 - 1993 and the co-director of the MIT Leaders for Manufacturing (LFM) Program (1989- 1990 and 1994 - 2001) and the System Design and Management (SDM) Program (1999 - 2001). He served a two-year term as the Chair of the MIT Faculty, 2001 - 2003. He has joint faculty appointments with both the Mechanical Engineering Department and the Engineering Systems Division at MIT. He is a Faculty Fellow of the Singapore-MIT Alliance. He has conducted industry-based research projects with numerous companies, including Amazon.com, AT&T, Boeing, Eastman Kodak, IBM, Intel, General Motors, Mitsubishi, Monsanto, Polaroid, Staples, and Teradyne. As of January 2009 he is the editor-in-chief of Manufacturing & Services Operations Management, the INFORMS journal for operations management. He has been recognized as an INFORMS Fellow, a MSOM Fellow and a POMS Fellow