The Operations Research / Management Science Blog

A special issue of Interfaces named “Operations Research in the E-Business Era” published several years ago included a number of journal articles on the applications of Operations Research (OR) in e-business. The issue delivered a simple but important message: OR plays a critical role in the digital economy. I have always been interested in the applications of OR in e-business, which mainly refers to internet-enabled electronic commerce. I have read some of the articles in this special issue and found that some of the examples of OR applied in e-business mentioned are really interesting. In addition, I realized that not only does OR make e-business operations more efficient and effective, but e-business also imposes new challenges on OR research, provides new opportunities for OR applications and stimulates advancement that will take OR to a whole new level, so the impacts between OR and e-business are mutual.

According to Dr. Arthur Geoffrion and Dr. Ramayya Krishnan in their article “Prospects for Operations Research in the E-Business Era“,

We may be living through the business equivalent of the Cambrian explosion when, after 3.5 billion years of sluggish evolution, a vast array of life forms suddenly appeared in only 10 million years. New business models and ways of organizing and operating businesses are appearing in comparably rapid profusion, driven by stunning advances in the information technologies.
As managers pursue organizational change on a massive scale, they have focused to the point of preoccupation on the opportunities presented by modern information technology. The need for more decision technology has been growing all the while, but only recently have competitive pressures begun to build for more applications.
Fortunately, new data sources, operational business software, intermediaries, and data-exchange standards are emerging that are very conducive to decision technology. Thus the digital economy is entering a phase in which decision technology seems poised to rise and join information technology as a vital engine of further development.
What kinds of opportunities does the dawning e-business era offer OR, and how has OR fared in taking them up? We have inquired widely in academia and in industry over an extended period. We find that, after a slow start perhaps obscured somewhat by secret projects (we encountered more than a dozen), OR practitioners are now beginning to capture some of their abundant opportunities.

The digital economy needs OR and has been creating lots of opportunities for OR applications. Numerous projects have been successful in applying OR to areas such as online shopping, electronic marketplaces, e-business infrastructure, airline planning, real-time decision support, dynamic pricing, online auctions, OR software packages, online financial services, supply-chain management and travel-related services. I think that OR and e-business are perfect match for each other due to many reasons, which include:

1. E-business processes can be much more closely monitored with all kinds of software technologies compared to the traditional “Brick and Mortar” ways of doing business. For example, you can check which products a customer looked at before he/she made the final decision on which one of them to purchase. This is usually difficult to do in a physical store and makes it much easier for OR analysts to model an entire process more descriptively and accurately.
2. Data collected from e-business systems is of unprecedented abundance due to the digital nature of information technology. In addition, e-business data is much more accurate compared to data collected from traditional business systems, and thus eliminates the need of using some statistical methods to estimate certain quantities. For example, the number of visitors to an online store over a year can be recorded as an exact number by server applications whereas the same quantity can only be estimated for a physical store. In OR, the quality of the final solutions depend closely on the quality of the input data. Therefore, more abundant and accurate data means that the final solutions developed by OR analysts will be more valuable for decision makers.
3. Recognizing the importance of OR is critical to the success of e-business owners. In the world of e-business, where multiple online stores targeting the same markets can be easily and conveniently compared side by side by the consumers, the competition becomes more intense. Two stores selling the exact same products or products of very similar quality can have vastly different reputation and sales record. Many areas other than product quality, such as product delivery and customer service, are becoming keys to successful online businesses. These areas usually require an extensive amount of coordination, which can be greatly improved with the help of OR. There are millions of online stores where you can buy an iPod. All of them are equally accessible for you from your browser so location is less of an advantage for a store. In the end, you, as a consumer, would make your choice based on factors such as how much the shipping cost is (routing), how fast the delivery is (routing and scheduling), and how much time you will have to wait before a customer service representative answers your call (call center queuing)
4. E-business takes mass customization to the next level. A classic example would be Dell’s direct online sales model which allows consumers to easily customize and build the computers that suit their needs and preferences. Although the same kind of customization can be achieved over the phone, it is really the online stores that made customization more popular. From the business perspective, mass customization requires more responsive and flexible supply chains and better supply chain management, which in turn require the help of OR. For online stores that provide consumers the option to customize their products, the supply chains need to be optimized so that the time between the point where raw materials enter a chain and the point where the final products are delivered to the customers can be greatly shortened. If a customer has to wait for 2 months for a computer to be delivered to him/her, he/she will most likely find another store to shop in the future.

References
“Introduction Operations Research in the E-Business Era“, Interfaces, Mar–Apr 2001
“Prospects for Operations Research in the E-Business Era” by Arthur M. Geoffrion and Ramayya Krishnan, Interfaces, Mar–Apr 2001