Applying operations research to service system design and management

Flexibility and optimization at all levels are the ultimate
goals in service systems design and management.
In designing a supply chain, firms are often faced with the competing
demands of improved customer service and reduced cost. CITRIS researcher Max
Shen has developed a model that incorporates supply chain-related costs while
ensuring that certain service requirements are satisfied. His results suggest
that significant service improvements can be achieved relative to the minimum
cost solution at a relatively incremental cost.

Businesses also need to take steps to deal with disruptions,
which can happen to any supply chain, logistics system, or infrastructure
network. Today’s firms tend to assemble final products from increasingly
complex components procured from suppliers rather than produced in-house. Shen
and colleagues are developing models to understand the interdependence of risks
faced by a supply chain or a service system, and are working to design service systems
that are robust and resilient.

Another area of research is that of service resource
allocation. Decisions on resource allocation are made based on assumptions and
estimates of demand levels. But those same decisions also affect demand levels,
so a complete service system design model should recognize the impact of
customer satisfaction on current and future demand. Shen, a Berkeley professor of Industrial Engineering
and Operations Research, and colleagues have studied queuing and resource
allocation models that respond to satisfaction of previous demand.

In most practical situations, the decision maker does not
know the exact demand for each product. Shen has been developing models that
can help the decision maker learn the demand distribution. By offering
different product assortments, observing resulting purchases, and inferring the
demand distribution from past sales and assortment decisions, businesses can
quickly learn customer preferences and generate close to optimal profit.