Operations Research applications: Opportunities and accomplishments

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EUROPEAN JOURNAL OF OPERATIONAL RESEARCH ELSEVIER

European Journal of Operational Research 97 (1997) 220-244

Operations Research applications: Opportunities and accomplishments H a n a n L u s s *, M o s h e B. R o s e n w e i n AT& T Laboratories, Holmdel, NJ 07733-0651, USA

Abstract About fifty years have passed since the birth of Operations Research (OR) during World War II. As a relatively young, evolving discipline, the fierce debates in our journals and conferences regarding the future of OR are of no surprise and even healthy. Although OR has penetrated into a wide range of application areas, it is still often viewed as an esoteric academic discipline - certainly not a 'household name'. In this paper, we attempt to demonstrate the impressive impact OR has had since World War II, and to highlight the unprecedented opportunities for OR in future years. First, we discuss opportunities for OR in a sample of diverse application areas, including telecommunications, air transportation, energy, health care, and others. Next, we review significant contributions of OR to numerous, high-impact projects, using the Edelman Award Competition as a data source. Finally, we present OR activities in several corporations that won the ORSA Prize (as of 1995, the INFORMS Prize), in recognition of their effective use of OR through all levels of management decision making. Keywords: OR applications; Large scale applications

1. Perspective Operations Research (OR) may be defined as the scientific approach to decision making. Its mission is to support solving real-world problems, in a wide variety of application areas, using mathematical and computer modeling. Our objective is to demonstrate that OR has indeed had significant impact on our society, and future opportunities are unbounded. We begin by briefly reviewing the evolution of OR since its birth in World War II. During the war, OR groups were established in Britain and the US to

* Corresponding author.

support the military effort. These groups had significant successes in supporting critically important activities including deployment of radar systems, antisubmarine warfare and bombing strategies. The ' O R professionals' were established scientists in other areas such as physics, statistics and psychology. These scientists worked on solving real problems using primarily ingenious ideas, quantitative and scientific reasoning, and common sense. Supportive OR methodologies were essentially nonexistent, and resuits of the studies had to be immediately communicated and implemented. An overview of the history of OR in that period is presented in a series of three papers by McCloskey (1987a,b,c). After the war, the OR problem-solving approach was enthusiastically welcomed to help solve complex problems facing societies that needed to build a

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new world. Major companies, including oil, automobile, telecommunications, steel, airlines, and others, established central OR groups to help solve their strategic business problems. Expectations from OR were extremely high. As a result, the OR profession grew at a fast pace, drawing upon ideas from other disciplines such as engineering, physics, biology, and statistics. In the 60's, OR went mathematical and many important methodologies were developed. Unfortunately, over the years it often appeared that the mathematics of OR became the goal rather than the means to support solving real-life problems. As a result, many central OR groups lost their influence in the 70's and 80's, and much of the OR work emigrated to line organizations within the companies. It appears that corrective steps have been taken in the late 80's and 90's. Many academicians have spent significant effort trying to understand better the real world, and academic programs have started to emphasize more than merely mathematical techniques. All major OR conferences are now devoting numerous sessions to applied work. Over the years, much has been said and published as to whether OR is dead or alive, in crisis or doing well. We will not enter this debate. Let us only refer to Corbett and Van Wassenhove (1993) who classified OR professionals into three groups: theoreticians, who focus primarily on developing new methodologies that enrich the knowledge in OR; management consultants, who focus on using existing, standard methods to solve practical problems; and the 'in-between' people, called (for lack of a better term) operations engineers, who adapt and enhance methodologies in novel ways in order to solve practical problems. The OR pioneers in World War II were essentially operations engineers. However, during the 60's and 70's, academic programs produced primarily theoreticians who lacked understanding of (or motivation to learn about) real world problems. On the other hand, companies often relied on management consultants to solve their OR problems. Many of these consultants simply ignored available methodologies, sometimes justifiably and sometimes for lack of expertise that would facilitate effective use of these valuable methodologies. Thus, OR drifted to two extremes and was lacking a comparable growth in the number of operations engineers. The profession needs to nurture and grow the

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number of operations engineers in order to bridge the gap between the academic and consulting camps and maintain OR as a viable and useful field. This is perhaps the place to comment on severe public relations/educational problems that our profession faces. From time to time, OR receives some headlines (and credit) in the national newspapers. For example, many major newspapers, e.g., The New York Times (1984), reported on Karmarkar's algorithm for solving large-scale linear programs, emphasizing the new opportunities for businesses and government agencies to tackle problems that had been out-of-reach. As another example, the popular US television program, 20/20, of ABC News (1989) featured Professor Richard C. Larson of MIT who described real-world applications of queueing theory, e.g., management of queues at Disney World. However, the OR profession has failed to become a 'household name' - and this is critically important. We, as ambassadors of the OR profession, should have a suite of interesting OR applications, with visible impact on society, that can be easily presented and explained to friends and acquaintances. Many of us who are approached by high school (and even college) students may recall the blank faces when we first mention that we are involved in OR (Operations Research, not operating rooms). It becomes even more frustrating when after ten minutes of desperate attempts to explain what OR people do, the communications gap is still obvious. How come these students have no problem (or at least believe they have none) in understanding what biomedical engineers, rocket scientists, lawyers, and others are doing, whereas OR sounds so mystical and esoteric? Popularization of OR, through appropriate education at high school level and other imaginative actions, is vitally important to the long-term success, and perhaps even existence, of the profession. And after all, it might be more fun (and not more difficult) to learn about the Traveling Salesman Problem or the Diet Problem than, say, about topics in trigonometry. The students of today are the managers and decision makers of tomorrow. Unless we succeed in educating them about what OR can do and has done for them, they will be, at best, suspicious buyers of our professional services. In Section 2, we address opportunities for OR in a sample of application areas. We highlight issues in

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diverse areas such as telecommunications, air transportation, manufacturing, and health care. The opportunities for OR are unprecedented. The world is becoming increasingly complex as globalization and competitiveness are major issues facing countries and companies. Many companies are embarking on major reengineering efforts, attempting to change drastically the way they are running their businesses. The computer, information, and communications revolutions have tremendously affected OR. Enormous amounts of data are now readily accessible for decision making, analysis, and model validation. Inexpensive computing power is readily available to solve complex problems in almost real-time at decision makers' desks. PCs and workstations make it easy to create user friendly interfaces with interactive graphics. Thus, much of the barriers of earlier decades for successful implementation of good OR work have disappeared. The explosive use of spreadsheets brought modeling capabilities to decision makers' desks, as some of these software packages already include some basic modeling tools such as linear and nonlinear programming solvers. We believe that decision makers will therefore also learn to appreciate the potential benefit in using good modeling, well beyond simply applying spreadsheets and canned packages, to solve complex business problems. For more general discussions on trends and opportunities for the OR discipline, the reader is referred to papers by Geoffrion (1992) and by Little (1991) and to an article in OR~MS Today (1990). The latter article presents interviews with prominent members of the Operations Research Society of America (ORSA) and of The Institute of Management Science (TIMS). (These two societies merged in 1995 to form INFORMS - the Institute for Operations Research and the Management Sciences.) Also, note a report sponsored by the British Operational Research Society and prepared by a Commission on the Future Practice of Operational Research (1986) which focuses on the future practice of OR, and a report prepared by a US committee on the next decade in OR - CONDOR (1988) - which emphasizes past achievements of OR methodologies and their promises for the future. In Section 3, we examine a sample of OR accomplishments over the years. A major source of data is

the Edelman Award Competition, established in 1972 by TIMS. Each year, competitors from around the world present successful OR applications with significant, verifiable impact on the sponsoring organizations. The application areas represented in these annual competitions are indeed diverse, covering traditional topics such as telecommunications, transportation, and manufacturing, as well as non-traditional topics such as combating AIDS. A second source of data is the ORSA Prize (as of 1995, INFORMS Prize) established in 1991. It is awarded to companies that demonstrate effective use of OR through all levels of management decision making. The Association of the European Operational Research Societies (EURO) established, in 1995, the EURO annual award for the best applied paper. The 1995 finalists presented their work at the EURO XIV conference held in Jerusalem; see EURO XIV Program and Abstracts (1995, session WEE23). We expect that this EURO competition will gain momentum in the coming years and provide another excellent source of documented OR applications. The presentation in Section 3 displays an impressive array of OR success stories. However, we should emphasize that a successful implementation of OR work requires significant effort beyond the 'OR part', including computer implementation, socialization with potential users, appropriate technology transfer, and more. An effective OR professional must team with others from different disciplines and often lead the team through a long and tedious path. Thus, in addition to being skilled in OR methodology and to approaching problem-solving from an 'OR frameof-mind', an OR professional must gain significant subject-matter expertise and exhibit excellent interpersonal skills in order to gain proper understanding of a problem and credibility with the organization that sponsors the work. We conclude this introduction by emphasizing that the OR discipline contributes to organizations through various means. Of course, the most tangible contributions are in the form of implementable models, algorithms, and software tools. Nevertheless, OR also contributes in a major way through educating and influencing decision makers at all levels to 'think the OR way'. Often, the learning process that decision makers (and the OR professionals) undergo throughout different phases of a project is more

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beneficial to an organization than a software tool that becomes available at a final stage of the project.

2. Opportunities for Operations Research In this section, we present a sample of application areas that provide significant opportunities for OR. We use the term application area quite loosely. Often it simply refers to an industry, e.g., telecommunications. However, we also refer to manufacturing or logistics as application areas although these span over many industries. We first discuss telecommunications and air transportation, industries responsible for the movement of information, people, and cargo around the world. These industries led the way towards the ongoing globalization phenomena. Within seconds, any news item is transmitted through communications channels to television stations in all countries, and, within a day, a person can travel around the world. It has indeed become a 'small, small world'. The next application areas, water resources and energy, represent major resources to society, vitally important to the economic future of developed and developing countries. Management of these resources includes large capital investment decisions for long-term capacity expansions, as well as tactical decisions regarding the effective use of the available resources. We added forestry to this group of application areas, as prudent forest management is extremely important to the preservation of our environment. Next, we present logistics, manufacturing, and marketing. At the end of World War II, much of the world's manufacturing capacity was destroyed, and a rebuilding period ensued. Modem, efficient manufacturing facilities have been built in many countries. Today, the competition among industrial countries and companies is intense. For example, formation of economic partnerships such as the European Common Market and the North American Free Trade Agreement are responses by different regions to better manage global competition. Effective logistics, manufacturing, and marketing operations are essential for the long-term success of all major companies. Accompanying the tremendous industrial and technological development after World War II, peo-

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pie in many countries expect comparable quality and growth in the service sector. We chose to present two service application areas, namely, health services and government services. Much of these services are funded through taxes. As people always strive for improved services and reduced taxation, the opportunities for OR seem unbounded. We end the presentation where OR started, the military. Although the cold war is over, this is not yet a very safe world to live in. For the foreseeable future, countries will feel the need to have strong military forces to protect their political and economic interests. Thus, military OR will continue to support countries around the world. The selection of these areas is somewhat arbitrary, and many other areas could have been selected, e.g., financial services, trucking and railroads, entertainment, and legal systems. Nevertheless, we believe that the selected areas span a wide range of interests and demonstrate the tremendous opportunities for OR in diverse areas. 2.1. Telecommunications For decades, telecommunications has been a fertile ground for OR. Indeed, as a capital intensive industry (according to Standard and Poor's, 1992, the total value of telecommunications plants in the US alone in 1990 exceeded 200 billion dollars), the complex design and management of telecommunications networks invites the use of OR. For example, in the early 80's, A T & T changed the traditional hierarchical routing in its long distance network in the US to dynamic nonhierarchical routing by taking advantage of the capabilities of the signaling network and electronic switches. OR models were used to design the time-dependent routing tables for all switch-pairs in the network in order to minimize the network cost; see Ash et al. (1981). Capacity expansion models that support the planning of network evolution over time are an integral part of network planning. These models balance the significant setup costs associated with frequent new installations against early investment in capacity that will be used only in future years; see Luss (1982). Performance analysis of communications networks frequently rely on queueing methodology to analyze congestion, losses, delays, and related measures in complex net-

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works. A variety of queueing network simulations and analytic tools are routinely used to improve management of telecommunications networks. Telecommunications is one of the world's fastest growing industries. Many countries realize that their long-term economic development depends on building modern telecommunications networks. Network architectures are becoming increasingly complex, as these networks will be expected to carry diverse traffic, including voice, data, video, and multimedia. Technologies that support high speed digital transport, e.g., the synchronous optical network (SONET), already exists. A new generation of switching technology that will support bandwidth-on-demand and the concept of an information super-highway are also already available, e.g., asynchronous transfer mode (ATM). The use of wireless communications is rapidly spreading and will eventually lead to universal personal communications services (PCS), where a unique phone number will be identified with an individual regardless of location. These advances will lead to significantly complex network architectures with challenging opportunities for OR. For instance, the large amount of traffic carried by each fiber optic link in the network highlights the importance of network reliability, as companies cannot afford to lose their communications medium due to a failure, such as a cable cut, even for a few minutes. The SONET technology addresses network diversity and reliability through the design of networks with ring topology. OR methods, quite different from the traditional network design tools, are therefore needed to design effective ring networks; see Cosares et al. (1995). For more details on OR opportunities in telecommunications, the reader is referred to Swain (1992), Fowler and Wright (1994), and Gavish (1995). The effective use of information and communications has become a major factor in the success of many industries. For example, airlines depend on real-time reservation systems, airport controllers depend on accurate information concerning airplane locations, telemarketing groups rely on effective use of call centers, retail chains order items based on information collected at the point of sale, and auto assembly factories can instantaneously view inventories of subassemblies. OR methods have the opportunity to use the available communications media and

the resulting information to provide added value to the corresponding industries and help solve their strategically important problems.

2.2. Air transportation Airlines were among the first industries that applied OR to solve their strategic business problems. As early as 1961, OR practitioners from most airlines joined forces and formed AGIFORS (Airline Group of the International Federation of Operational Research Societies). AGIFORS sponsors annual conferences as well as special interest study groups. In recent years, due to the fierce competition in the airline industry, many airlines have relied on their OR groups to help solve their complex business problems and gain a competitive edge in the market. The opportunities for OR in this industry are abundant. We describe below a sample of airline problems that may significantly benefit from OR. Efficient use of the airplane fleet is absolutely essential for any airline. Given a schedule of flights, an airline must assign different aircraft types to each scheduled flight. The hub-and-spoke networks used by major airlines provide a huge number of possible assignments. Numerous considerations need to be addressed in this process, including seat capacity needed on each flight, maintenance constraints, and others. Solving such fleet assignment problems effectively requires ingenious modeling and state-of-theart linear integer programming solution methods. For an interesting discussion, see Nemhauser (1994). A second very important resource in the airline industry is its workforce. The task of scheduling air-crews (e.g., pilots and air-attendants) is extremely challenging. Pilots are certified to fly only certain types of aircraft. Furthermore, a crew schedule must satisfy a variety of constraints, such as flying hours within a week, return to a home airport, etc. Again, sophisticated optimization approaches have proven invaluable to help address crew scheduling problems. A third issue that has drawn significant attention in the last decade is yield management. Capacity of, say, economy class, on each flight is sold to different markets (e.g., business customers and tourists) at different prices. Based on numerous parameters, yield management models determine at each moment the availability of different fare classes for each flight in

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order to maximize an airline's expected profit. Due to the success of yield management models in the airline industry, similar approaches have been adapted to other businesses, such as hotels and car rentals. Airlines also face long-term strategic issues where decisions today will affect their profitability for many years. Examples include where should new hubs be located and which types of aircraft should be purchased. These decisions are made at the highest management levels in the airlines, and OR groups can benefit from high visibility in airlines. Not surprisingly, several airlines were among the ORSA Prize recipients, in recognition of the effective use of OR in these companies. These include American Airlines, United Airlines, and Federal Express. Note that many of the problems facing passenger airlines, like the former two, are also important for airlines that transport packages, like Federal Express. For more details on OR work in airlines, the reader is referred to a special issue of Interfaces, edited by Cook (1989). 2.3. Water resources Water is one of the most important resources in the world. In addition to being required for our survival, water is used in agriculture, manufacturing, and electricity generation. Water is, by nature, a renewable resource. However, in different parts of the world, during different seasons of the year, the supply of and demand for water do not always coincide. Water resource managers must be able to anticipate, plan for, and remedy flooding and drought conditions. The association of OR and water resource management dates back to Little (1955) who designed schedules to guide reservoir storage water usage that was needed to operate a hydroelectric plant. Since Little's work, numerous successful OR applications in this area have been publicized, for example, the work by Goeller et al. (1985) that addressed strategic planning of water resources in the Netherlands. OR is well-suited to support strategic decisions regarding 'core' water resource management issues. Governments need to allocate limited funds to longterm and costly projects, intended to increase water supply to different regions. Such projects may in-

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clude construction of dams, expansion of water canals, and improvement of flood control systems. As many of these projects are interrelated and their execution is spread over many years, a good master plan must be developed. OR approaches can support the development of such a plan that would be economically prudent and satisfy numerous physical, environmental, and political constraints. OR methodologies can also be used to plan a complex project, for example, to transport water from supply points (e.g., reservoirs) to demand locations. Such a project involves designing a water network consisting of a configuration of rivers, canals, and pipes and determining locations and sizes of pumping plants. OR applications in the water resource area are often related to energy concerns. For example, OR can be used to schedule the release of water from reservoirs in a hydroelectric network that supports multiple power plants. Water distribution must consider the supply of and demand for water at each location, subject to constraints on reservoir storage capacities, constraints on flow capacities of each interconnecting river, canal, or pipe, and legal regulations, such as environmental protection. We conclude by noting several worthy references. Loucks et al. (1984) survey 42 water resource management applications worldwide including the High Aswan Dam in Egypt, the St. John River in Canada, and the Mu River in Burma. Yakowitz (1982) reviews applications of dynamic programming in water resource management (with over 130 references). A thorough, more recent review of OR and water resource management is given by Golden and Wasil (1994). 2.4. Energy Maintaining low-cost, reliable, and environmentally sound sources of energy is a worldwide concern. As recently as 1991, the major industrial countries, led by the US, formed an alliance that engaged Iraq in war, in part, to protect the flow of oil from the Persian Gulf. The disruptions of supply and the escalations in cost that occurred during the 70's due to political instability in the Middle East remain fresh in policymakers' minds. In addition to political considerations that can affect energy policy, environmental consciousness has been raised to unprece-

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dented levels worldwide. The potential dangers of nuclear power, for instance, have unfortunately been realized by the Chernobyl accident in the Ukraine. We limit the discussion below to OR's role within two industries: petroleum and electric power generation. OR, particularly optimization models, have been broadly applied to the petroleum industry for over 40 years. Optimization problems arise, for example, in determining gasoline blending and production schedules for a refinery. A typical refinery may have 20 different petroleum components that must be blended into, say, four grades of gasoline that differ in quality. Each grade of gasoline may require different amounts of between 3-10 different components. As early as 1955, Symonds (1955) of Esso Standard Oil Company published a book on linear programming solutions to refinery problems. OR approaches can provide integrated solutions to complex logistics issues faced by the oil companies. The corresponding logistics systems include shipping crude oil from oil fields to refineries, processing at the refineries, distribution to wholesalers, and marketing. Optimizing the system as a whole, rather than its components, will enhance profitability. OR can also address many other issues such as capital investment in new facilities, and allocation of exploration and drilling resources among different oil fields. Moreover, OR can help address issues that are important on a national level. For example, projects like the Alaska pipeline design face challenging political, environmental, technical and economic problems, providing ample opportunities for OR approaches. Bodington and Baker (1990) provide an excellent review of OR in the petroleum industry and point out that OR models are being used by nearly all of the major petroleum companies. Electric power generation is another important industry in the energy sector in which OR is highly prevalent. For instance, Bessiere (1979) described work used to construct and plan the electric power network in France over a period of about 20 years. Multiple categories of equipment or technologies, e.g., nuclear power plants, gas turbines, and hydroelectric plants, are available to generate electricity. The technologies have different construction costs, operating costs, and operating characteristics. OR may be used to develop strategic plans regarding

electric power supply in a large region (or country) over, say, the next two decades. Such plans involve decisions regarding the optimal mix of different plant types, locations where each plant should be built, and capacity expansion decisions over the planning horizon for each plant. Technological and economic considerations are typically compounded by political and environmental issues. OR may also be used to support tactical decision making. For example, OR may be used to schedule the release of power from, say, a hydroelectric plant to satisfy demands during peak periods of the year. Reservoirs reach their peak levels in the early spring as snow melts and rainfall is plentiful. In contrast, peak demand for energy occurs during the summer months. As another example, the daily demand for energy surges during the day and drops off significantly at night. An efficient operating policy must be determined to produce and 'store' energy during off-peak times in order to supply electricity during peak hours.

2.5. Forestry OR methods and models have been used to solve a diverse set of problems in the forest products industry and in forest management. Recent world attention has been focused on preserving the environment and has increased the importance of effectively managing forest resources. OR can and has played a role in this effort. Some of the problems unique to forestry are prevention of forest fires and land use planing. OR can be used to predict location and evolution of forest fires and to deploy efficiently fire fighting resources (workforce and equipment), thus improving the chances of controlling damage. Forest fires are sometimes ignited under controlled conditions (so-called prescribed fires) in order to achieve such objectives as reducing the accumulation of hazardous fuels that may contribute to more intense wildfires, or to control disease and insects. OR can be used to evaluate potential benefits of igniting a prescribed fire.

OR can also be used by national forestry administration agencies to develop strategic plans regarding land use of forest areas. For example, the US Forest Service is required (by the 1976 National Forest Management Act) to prepare a comprehensive land

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management plan for over 150 national forests every ten years. Such planning considers grazing areas, timber production, wildlife preservation, and recreational activities. OR models can support development of appropriate plans while considering a variety of political, environmental, and economic issues. Like many other industries, the forestry industry faces significant challenges in designing optimal logistics and manufacturing systems. (OR opportunities in these areas are described under separate headings below.) Forest products include numerous types, shapes, and sizes of logs. Major customers for these logs include the construction and paper industries. The logistics chain in forestry includes cutting of trees into logs and distributing logs to customers at many locations. OR methodologies can provide significant support to such problems. For example, Lembersky and Chi (1986) developed a decision support system that aids in cutting tree stems. In general, cutting decisions should not merely minimize waste of raw materials. Rather, they should also consider the implication of cutting decisions on inventory and distribution costs. Golden and Wasil (1994) provide a worthy review of OR and forestry, and, earlier, Harrison and de Kluyver (1984) edited a special issue of Interfaces devoted to successful OR applications in forestry.

2.6. Logistics Logistics is the set of end-to-end, interrelated activities responsible for the flow of materials from points of supply to consumers. Logistics is important in virtually all industries, for in today's global economy, firms move resources and material among numerous locations all over the globe. For example, AT & T (now, Lucent Technologies) purchases raw materials from the Far East to manufacture consumer telephones in Mexico for distribution in the US. Honda designs cars in Japan that are assembled in the US for distribution worldwide. Trends in the marketplace towards shortened product life cycles, a focus on the consumer, and customer-option products have also resulted in increased interest in efficient logistics management. An automotive company may design excellent cars, but lose its market share due to high costs and poor service that result from inadequate logistics systems.

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Numerous OR opportunities exist in logistics. On the strategic level, a firm must choose where to locate its manufacturing plants and warehouses. A firm may choose to design a hierarchy of warehouses. For example, a regional European warehouse may serve as a supplier for local warehouses throughout the continent. The local warehouses may serve as suppliers for field technicians. A firm must also determine the shipment patterns in a distribution network, i.e., which suppliers will supply which customers and by which transportation mode. On a tactical level, a firm must set inventory targets for both raw materials and finished goods so that it maintains minimum levels of inventory needed to satisfy customer service requirements. The location of inventory within a logistics network is also an important issue. The topology of the logistics network affects inventory location decisions. Consider a key supplier that is located in the Far East and a key manufacturing plant that is located in the US. The plant may elect to hold large stocks of raw materials in order to save on sea transport costs and in order to protect itself from variability associated with the (lengthy) transportation interval. Alternatively, it may elect to rely on emergency air shipments while maintaining only minimal raw materials inventory. On an operational level, OR may be applied to determine, for example, the daily routing and dispatching of a fleet of vehicles to satisfy customer demand. Billington (1994) provides a nice survey of OR opportunities in logistics at Hewlett Packard. In addition to its prevalence in business applications, logistics planning and management is essential in the military, as described below. Andersen Consulting (1994) has surveyed almost 1000 software logistics tools, many of which are OR-based.

2.7. Manufacturing In the 70's, Japanese manufacturing demonstrated to the world 'excellence in manufacturing'; see, for example, the Toyota success story documented in Monden (1983). Over the years, the Japanese spent enormous efforts on improving manufacturing. First, they focused on product design and process reengineering; only then they invested in information systems and automation. Their efforts paid off as their products gained significant market shares in diverse

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industries, including automobiles and consumer electronics, at the expense of American and European companies. To reverse the trend, the Western companies have invested heavily in the 80's and 90's in reengineering their manufacturing processes. Concepts like just-in-time and total quality control were thoroughly studied and adapted. Effective manufacturing facilities must be capable of producing diverse products in a short lead time. It must also be flexible to handle short-notice changes in the required product mix, while maintaining minimal amounts of work-in-process inventory. OR methods can support all aspects of manufacturing, including long and short term production planning, shop floor operations, and others. Large optimization models, e.g. linear and nonlinear programs, can be used to drive production plans. For example, Tata Iron and Steel, a major steel manufacturer in India, has used linear programming models that impacted the company's bottom line in a very significant way; see Sinha et al. (1995). Resource allocation models may support the allocation of limited resources. For instance, in high-tech manufacturing, thousands of integrated circuits are allocated among numerous circuit board types. Due to rapid changes in technologies and the large number of components involved, shortages are often incurred. Optimization-based resource allocation models that consider production targets and substitution options among the components could significantly enhance production capability and flexibility. Such models, and others, can be integrated into Material Requirement Planning (MRP) systems, widely used in manufacturing. Queueing simulations and scheduling algorithms can significantly enhance shop floor operations. Analysis of bottlenecks that may depend on the product mix, dispatching rules, and subassembly routing decisions may help increase overall throughputs, while producing finished goods on time. For more details on OR opportunities in manufacturing, the reader is referred to Collins and Baker (1989). We conclude by mentioning a reengineering effort undertaken by A T & T in the late 80's to modernize one of its primary manufacturing facilities, an effort in which the authors were involved. This facility (in Denver, Colorado), manufactures custom-made, complex communications systems, namely, private branch exchanges (PBXs). Each such systems con-

sists of a large number of different circuit boards assembled at multiple assembly lines. The reengineering effort spanned several years and was comprised of a team of engineers and managers from the factory and R & D personnel from Bell Laboratories. Much of the effort was spent on the assembly of a large number of different circuit boards needed for the custom-made products. The project is described in a special issue of the AT& T Technical Journal, edited by Krupka et al. (1990), devoted to manufacturing excellence. The project provided ample opportunities for OR. A major OR contribution was the development of a sequencing algorithm for the final assembly shop. This shop drives the manufacturing of all the feeder shops as they provide the subassemblies, e.g., the circuit boards, to the final assembly shop. Thus, it was imperative that the final assembly sequence smooth the demands imposed on the different feeder shops as much as possible. Other OR efforts included helping design tight inventory controis in the feeder shops, and improving store room operations.

2.8. Marketing Each year, large corporations are spending huge sums of money on marketing their products and services. Marketing is concerned with diverse issues such as understanding consumer behavior, designing effective promotional campaigns, pricing and distribution decisions, etc. Consider, for example, the introduction of a new product into the market. A firm must estimate the impact of the new product on the market share of existing products - its own and its competitors. The timing for introducing the new product, the distribution channels, accompanying promotional campaign, and the quantities of the new product to be offered need also to be determined. As another example, consider the monthly allocation of the promotional activities of a firm. Given budget, personnel and other constraints, a firm must decide how much promotional effort of each type, e.g., advertising, discounts, and direct marketing, should be spent in each sales territory for each product. Furthermore, the activities should be planned for multiple months, as the efforts spent in a given month may impact consumers in other months.

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The examples above illustrate the fertile ground for quantitative analysis and OR models in marketing. Indeed, large corporations have used OR approaches to address marketing problems since the late 1950's. Montgomery and Urban (1970)provide an excellent collection of papers that describe early OR applications in marketing. ORSA recognized the importance of this application area and established, in 1982, the Marketing Science journal. Advances in information technology have had a tremendous impact on marketing. For example, direct marketing, based on catalog sales, has boomed in the past decade. Consumers often find it easier to order goods via a toll-free number than to trek to a store or a mall. Likewise, with the proliferation of credit cards and credit checking, a telemarketing agent can efficiently negotiate a sale with a customer. The introduction of Universal Product Codes (UPC) and the ability to scan bar codes optically at cash registers allow retail stores and supermarkets to update their data bases in real time. The availability of vast amount of accurate data, collected in real time and stored in modern data bases, provides excellent opportunities to apply OR models effectively to marketing. For more details, see Little (1991). Well-publicized yield management models (discussed under the Air Transportation heading) are an excellent example of effective use of real-time data by airlines in developing pricing and reservation strategies for different consumer markets. The newly established EURO award for the best applied paper was given in 1995 to Levin et al. (1995) for developing a marketing decision support system for Franklin Mint, a large mail order company for collectible items. The goal of the system is to target the right audiences for each promotion from among a very large data base. 2.9. Health care

The area of health care has garnered a great deal of recent attention in many countries. The main objectives are to increase access to health care services and, at the same time, control spiraling medical costs. OR can be used to provide less expensive and more accessible health care by improving the effi-

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ciency of existing resources, for instance, improving hospital management. Resource allocation models can be applied to allocate expensive diagnostic and surgical equipment among a network of hospitals. Prudent allocation of this equipment will provide patients with access to the best available treatments, while controlling capital and operating expenses. A variety of scheduling problems, that are large-scale and combinatorial in nature, may also be solved effectively with the aid of computers and OR. For example, hospitals must determine an appropriate bed capacity and allocate these beds to different populations, e.g., cardiac care, pediatrics, etc. Furthermore, scheduling patients to beds in order to maintain high utilization, while providing timely services, is a challenging problem. Workforce management (e.g., scheduling nursing shifts) is another important problem faced by hospitals. Emergency rooms operate, typically, at high utilization and under stress. OR models can help streamline operations, quantify bottlenecks, and suggest improved allocation of limited resources. OR can play an important role in a variety of other health related issues. For example, advances in the medical profession are highly dependent on effective research programs. OR approaches can help coordinate worldwide research programs that seek better treatments to, say, cancer or AIDS. Furthermore, efficient manufacturing and logistics methods may help pharmaceutical companies reduce the cost of delivering medicines. In addition to being used to help manage health care delivery, OR methods have begun to be used in detection and treatment of diseases. That is, OR methods are beginning to be integrated into the core of the medical and health care profession. Worldwide attention has been focused on schemes to control the AIDS epidemic. Kaplan and O'Keefe (1993) demonstrated the successful use of OR methods to support the implementation of a needle distribution program for intravenous drug users. By combining OR with Artificial Intelligence methodologies, physicians can diagnose and treat patients with serious diseases. For example, given a patient's medical history and various laboratory test results, an appropriate model can assist a physician in determining the nature of a patient's illness and a treatment program that is most likely to lead to a speedy

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recovery. These methods can also help physicians to treat patients in emergency cases, where a correct, quick diagnosis will often save patients' lives. Pierskalla and Brailer (1994) provide an excellent review of health care applications that have been reported on in the OR literature.

2.10. Government services We limit the discussion below to a local (municipal or regional) government body, responsible for operating a wealth of critical services such as police, fire, education, health, sanitation, and bridges and highways. Government agencies are typically squeezed by taxpayers who desire high-quality and accessible services while simultaneously desiring lower tax rates. Not surprisingly, OR - with its emphasis on achieving efficient operations - has a long association with government service agencies. The first Lanchester Prize (awarded annually by ORSA (now INFORMS) for the best English-written book or paper) was awarded to Edie (1954) for his traffic management work on behalf of the Port Authority of New York. He analyzed delays at toll booths on the George Washington Bridge, connecting New York and New Jersey. More recently, the Office of Management and Budget of the City of New York (with an annual budget exceeding $30 billion) was awarded the ORSA Prize for its widespread and sustained use of OR models and methods, see O R / M S Today (1994a). Obviously, the opportunities for OR are abundant; a few examples are described below. OR methodology can support city planners, concerned with strategic development. Planning a city's infrastructure, e.g., construction or expansion of highways, bridges, school buildings, and justice facilities, has an enormous impact on the long-term well-being of the residents. Quantitative models could greatly support decision makers, faced with complex political, environmental, and economic issues. Location of emergency service stations that dispatch police, fire, or medical vehicles is tied to achieving a specified service performance, e.g., a response time to an emergency call that should not exceed a certain threshold. OR can help design cost-effective emergency systems that provide equitable service to all neighborhoods. Kolesar and

Walker (1974) captured the Lanchester Prize for their work in locating fire stations in the City of New York. Other applications for OR include workforce (e.g., police patrols) deployment, and design of routes and schedules for mass transit, school buses, sanitation trucks, and street sweepers. As government agencies always seek quality-of-life improvements for its constituents, ample OR opportunities are found in studying numerous policy issues. Examples include ways of encouraging the use of mass transit, effects of eliminating (or introducing) toll booths, effects of reserving a highway lane to multi-passenger cars only, and many others. Excellent surveys of OR in the government sector may be found in Larson (1988), Maltz (1994), and Swersey (1994).

2.11. Military As already discussed in the first section, OR was born in World War II, in support of the allied military forces. OR activities supported critically important efforts, including deployment of radar systems on the coast of Britain, anti-submarine warfare, and bombing strategies. After the war, OR expanded into numerous civilian applications in the private and public sectors. Nevertheless, over the years, OR has gained significant influence in the military forces of many countries, affecting major strategic decisions. A military is a huge enterprise. Hence, like any large corporation, it faces large-scale and complex problems in, for example, resource allocation, inventory, logistics and personnel management. Thus, the same opportunities found in private and public corporations are found in abundance in the military. In fact, many OR methodologies were invented in the military and then exported to other application areas. For example, the Project Evaluation and Review Technique (PERT) was invented during the development of the Polaris submarine, and thereafter used in the planning of virtually thousands of complex projects in diverse industries. We will focus below on a few OR opportunities that are unique to the military. Military OR is concerned with preparation for and the fighting of wars. Due to the complexities of modern wars, effective OR support to decision making is essential, for the consequences of bad decisions can be loss of life.

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Planning of multiple war scenarios is extremely complex. Over the years, hundreds of large war simulations have been developed. These simulations facilitate the evaluation of various strategies, the effect of new weapons, etc. Furthermore, the concept of simulation has been expanded to war games, where models of warfare train humans to make decisions in real time; see Washburn (1994). Simulation tools were extensively used in the Persian Gulf war in 1991. Senior military staff used simulation results to analyze, for example, the air defense networks in Saudi Arabia and Iraq, as well as to evaluate various air and ground war strategies. For more details, see Appleget (1995) and Case et al. (1995). We now describe additional OR opportunities that arose in the Persian Gulf war. The transport of personnel, weapons, and other cargo to the Persian Gulf was characterized as the largest airlift in history, delivering over 350 000 people and hundreds of thousands of cargo tons from the US alone during a very short time interval. Successful accomplishment of this operation required the use of sophisticated optimization tools that coordinated the scheduling of needed resources such as airplanes, airfields, and aircrews. In the war zone area, over 100000 sorties were flown during 40 days. To gain perspective, this load is equivalent to the flight volume of a major airline. However, whereas a daily schedule followed by an airline is relatively stable, the sorties schedule during the war changed significantly from day to day. OR methods played an important role in the effective planning of the daily sorties during the war. On the ground, a difficult logistics problem is to supply equipment, fuel, water, medical supplies, etc. to the right places at the right time. OR models were used to guarantee the appropriate supplies to the ground forces. For more details, see Schuppe (1991), Kraemer and Hillard (1991), and Staats (1991). Many OR opportunities in the military are classified for obvious reasons. These include planning and testing of complex weapon systems, intelligence and counter-intelligence methods, and others. 3. Samples of success stories

In the previous section, we presented examples of diverse application areas that provide ample opportu-

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nities for OR. In this section, we review a sample of success stories. The OR profession has sought to encourage the dissemination of OR practice success stories among its membership. Although 'narrow' technical and methodological contributions are typically easy to publish, much less attention is focused on documenting other components of OR practice. Assad et al. (1992) give several reasons for the paucity of detailed reports on OR applications. Unlike academics, practitioners, i.e., those that implement OR, are often not rewarded for publishing articles. Also, some firms may believe that releasing information on business success stories benefits their competitors and is, thus, counterproductive. Thus, certain breakthroughs in OR practice remain proprietary for many years.

3.1. Edelman competition The most effective mechanism for encouraging reports of successful OR practice has been the Franz Edelman Award. The Edelman award competition was launched in 1972 by the College on the Practice of Management Science (CPMS) - a special interest group under TIMS. CPMS's mission is devoted to focusing attention of the worldwide management community on the value of OR. Originally known as the Annual International Management Science Award Competition, the award was renamed in 1985 as the Franz Edelman Award for Management Science Achievement in memory of the late Franz Edelman who established and led the OR group at the RCA corporation for many years. As described in its eligibility requirements, the competition seeks to recognize and reward outstanding achievements of OR in practice. An entry must report upon a completed, practical application and should describe results that had significant, verifiable, and preferably quantitative impact on the performance of a client organization. The Edelman competition has steadily grown in prestige and visibility. In 1996, $15000 were distributed among the finalists, including an award of $10000 to the winning entry. Based on detailed abstracts that include a summary of a project's impact and interviews with the client organizations, a panel of judges selects approximately six finalists. Each finalist presents its work at a day-long session

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during the spring semi-annual meeting of ORSA/TIMS (now INFORMS). The finalist papers are published in a special issue of Interfaces. The final presentations are also videotaped, and these videotapes may be obtained from TIMS. The top prize is hotly contested, and, according to Edelman folklore, selection of a winner is typically made in the early hours of the morning following the day-long competition. Below, we present summaries of the Edelman winning entries from 1985 through 1996. We also provide some information on all finalists, dating back to 1975. Although the winners (and finalists) span a large range of industries and application areas, they have some common features, e.g., a model (or models) served a key role in supporting management's ultimate decision direction. As pointed out by Gass (1983), the role of a model as a catalyst for change and improvement in an organization distinguishes OR practice from a productivity improvement or cost cutting exercise. The summaries below are based on papers published in special issues of Interfaces devoted to the competition. The finalist papers were published in the following issues of Interfaces. Year of competition

Interfaces Issue

1975-1977

Part 2 of No. 1, V.6-8, 1975-1977 Part 2 of No. 2, V.9, 1979 No. 5, V.9, 1979 No. 6, V.10-13, 1980-1983 No. 1, V.15-27, 1985-1997

1978 1979 1980-1983 1984-1996

For each winner, we list the title of the entry (based on the title of the corresponding Interfaces article), the full set of authors, the client organization, and the application area, e.g., telecommunications, health care, etc. Edelman competition award winners 1996: "Guns or butter: Decision support for determining the size and shape of the South African National Defense Force (SANDF)" - S. Botha, I. Gryffenberg, R. Hofmeyr, J. Lausberg, R. Nicolay,

W. Smith, S. Uys, W. van der Merwe, and G. Wessels (South African National Defense Force - Military) In early 1994, the chief of SANDF commissioned a team to help determine the appropriate size and shape of SANDF, in the absence of a major external threat and given a limited budget. As part of the project, the OPTIMUM decision support system was developed. OPTIMUM is comprised of multiple modules, including a risk model that explores various defense contingencies, a growth model for different force elements, a zero-based budgeting cost model, and a mixed integer programming and model that ties the various pieces together and determines optimal resource allocations under various sets of assumptions. The system enabled a thorough analysis of over 50 force structure options. Previously, the creation and analysis of a single option required about 20 person-years. The analysis highlighted major strategic choices, and led to a consensus view among the different branches of SANDF on a vision for an affordable and sustainable force structure. The project resulted in savings of more than 22%, which translates to an annual savings of about 1.1 billion dollars. 1995: "IMPRESS: An automated production planning and delivery quotation system at Harris Corporation" - R.C. Leachman, R.F. Benson, C. Liu, and D.J. Raar (Harris Corporation / Semiconductor Sect o r - Manufacturing) In order to provide improved on-time service to customers and in order to manage over 30 manufacturing facilities worldwide, Harris implemented IMPReSS (Integrated Manufacturing Production Requirements Scheduling System) in late 1992. IMPReSS is a large-scale, linear programming-based decision support tool that plans production of over 10000 products for Harris. IMPRESS provides each factory with a weekly, capacity feasible, manufacturing plan and also provides quotations of delivery dates in response to customer requests for product deliveries. IMPRESS considers several complexities that are particularly important in semiconductor manufacturing. These include product routing that involves many processes that may be revisited periodically over several weeks, and possible substitutions among multiple components. Implementation of IMPRESS resulted in significantly improved on-

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time performance (the percentage of line items delivered on-time rose from 50% in 1991 to almost 95% in 1993), and the elimination of lost sales (estimated at $100 million in 1990). Improvement in on-time performance was achieved without increasing inventory as a percentage of sales. IMPRESS had a vital role in restoring the Semiconductor Sector of Harris to profitability. 1994: "Strategic and operational management with optimization at Tara Steel" - G.P. Sinha, B.S. Chandrasekaran, N. Mitter, G. Dutta, S.B. Singh, A.R. Choudhury, and P.N. Roy (Tam Steel - Manufacturing) The Tata Iron and Steel Company, one of the largest companies in India, developed a production planning model to determine its most profitable iron and steel product mix, over time, subject to scarce, available power resources. Large quantities of power are needed to operate each production process in metal manufacturing, e.g., blast furnaces which convert raw materials into molten iron. Each product may require a different processing time for each production process, and the amount of power allocated to each process determines a process's available capacity. The model influenced Tata management in making various strategic decisions such as justifying purchases of more expensive power in order to maintain finishing mills at a high utilization level. Based on the model's recommendations, management ceased the manufacture of certain, unprofitable products. The model was implemented in late 1986 and was responsible for $73 million in savings in the first year. It continues to be used at Tata Steel and has been adapted by two other Indian metal manufacturers. 1993: " A T & Ts Call Processing Simulator (CAPS) operational design for inbound call centers" - A.J. Brigandi, D.R. Dargon, M.J. Sheehan, and T. Spencer III (AT& T - Telecommunications) In 1993, over 350000 businesses in the US had call centers to receive and handle their 800 (i.e., inbound) calls. '800-line' service is used to conduct such business functions as order taking and field support. A call center refers to a set of agents who reside at a location and handle 800 calls. The management of a call center involves deciding the number and types of lines to lease, policies for call

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routing, and the number and types of agents. A T & T developed a simulator for their business customers to support these businesses in designing and operating call centers. The simulator was used in more than 2000 studies for A T & T customers. Although the benefits of the simulator do not directly benefit A T & T , A T & T significantly leveraged the simulator as an effective marketing tool for its customers. By employing the simulator, A T & T was able to increase, protect, and regain more than $1 billion in an $8 billion 800-network market. In addition, the simulator was a catalyst for achieving more than $750 million in annual profit for A T & T ' s business customers. 1992: "Let the needles do the talking, t Evaluating the New Haven needle exchange" - E.H. Kaplan and E.O'Keefe (City of New Haven, Connecticut Health care) In November, 1990, the city of New Haven, Connecticut implemented a needle exchange program to combat the spread of the AIDS virus. AIDS may be transmitted among injecting drug users through sharing of needles. A needle exchange program may reduce needle sharing and, thus, limit the spread of AIDS. Nevertheless, needle exchange programs are politically controversial. Kaplan and O'Keefe modeled the HIV virus transmission process and calibrated the model with actual data from New Haven. They showed that a needle exchange program can reduce the HIV incidence rate among injecting drug users by one third. Based on this study, New Haven decided to continue the program, and several other Connecticut cities were in the process of establishing their own needle exchange programs. 1991: "Yield management at American Airlines" B.C. Smith, J.F. Leimkuhler, and R.M. Darrow (American Airlines - Air transportation) For an airline, the area of yield management refers to the airline's dynamic control and management of its seat inventory as it seeks to maximize profitability. It involves deciding how many reservations to sell for a particular flight, i.e., an overbooking policy, and the number of seats to allocate for each fare class. These issues are dynamic - a daily examination of these decisions may result in policy changes for flights that are scheduled over a one-year

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time horizon. At American Airlines, yield management involves 250 million daily decisions. Yield management is further complicated by the airline's hub-and-spoke network. That is, a particular flight segment into a hub may be carrying passengers that are destined to 30 different destinations. Thus, effective yield management must evaluate the revenue implications from selling a seat (on the in-bound hub segment) that ultimately serves different markets. Using a variety of management science models, American developed a yield management system. It estimated an increase in revenues of $1.4 billion over 1989-1991 and projected an annual contribution of $500 million in the future.

beginning, ABB realized that they must lure customers from its competitors. The firm used multiattribute choice modeling for determining customer preferences and for segmenting the market. ABB was able to identify customers who were most likely to switch suppliers and, thus, tailored marketing strategy appropriately. Moreover, ABB selected new products that were likely to be preferred by customers and for which ABB could become the lowcost producer. During the period of ABB's explosive growth, six US transformer manufacturers left the industry completely and two others closed major manufacturing facilities. No new firms entered the market.

1990: "Diagnosis related groups: Understanding hospital performance" - R.B. Fetter (US Department of Health and Human Services - Health care)

1988: " A break from tradition for the San Francisco police: Patrol officer scheduling using an optimization-based decision support system" - P.E. Taylor and S.J. Huxley (San Francisco Police Department - Government services)

Diagnosis related groups (DRGs) classify acutecare patients into groups that should receive similar hospital services. DRGs were developed to enable hospitals to control costs while providing quality service. Hospital performance may be measured and evaluated by classifying acute-care patients and making available a bundle of goods and services for diagnosis and treatment purposes for each group. In conceiving and implementing DRGs (a two-decade effort), Fetter applied economic models, e.g., trading off cost and quality, to hospital management. For each DRG, a rate is set for a given illness, considered to be fair payment to the hospital. The US Federal government adopted DRGs as the mechanism for reimbursing hospitals for Medicare patients. By implementing DRGs, a $50 billion savings in Medicare payouts, from 1983-1990, were realized. Private insurers, state Medicaid programs, and more than 20 countries are developing or have adopted DRG-based systems. 1989: " A choice-modeling market information system that enabled ABB Electric to expand its market share" - D.H. Gensch, N. Aversa, and S.P. Moore (ABB Electric - Marketing)

ABB Electric was formed in 1970 to design and manufacture power transformers for the North American market. Over two decades, ABB became the dominant firm in the industry, garnering a dollar market share of 40%. In order to survive in its

The San Francisco Police Department implemented an optimization-based, decision support system for deploying patrol officers. The system forecasts hourly needs and schedules officers to maximize police coverage. Captains may evaluate policy options and schedule changes. The tool, which embeds a specialized heuristic to solve a complex combinatorial scheduling problem, enabled 25% more patrol units to be available in times of need, equivalent to adding 200 officers or a savings of $11 million per year. Furthermore, response times improved by 20%. The tool was instrumental in facilitating negotiations between the Department and the Police Officer Association regarding work rules and staffing. The system is PC-based, and interest in the system spawned development of a companion system to design patrol beats. 1987: "Sales force sizing and deployment using a decision calculus model at Syntex Laboratories" L.M. Lodish, E. Curtis, M. Ness, and M.K. Simpson (Syntex Laboratories - Marketing)

In order to improve its position in the pharmaceutical marketplace, Syntex Laboratories undertook development of a variety of models to support sales force sizing and deployment. Using a modified Delphi method, response functions (i.e., sales levels as a function of sales force size) were estimated by a

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team of managers and salespeople. The models were better predictors of sales than existing forecasts and were a catalyst to Syntex increasing its sales force and changing its deployment. The company witnessed an eight percent annual increase in sales $25 million - over a three year period (1982-1985) as the model was deployed. The models also supported Syntex's product planning such as introduction of new products and withdrawal of existing products.

1986: "The successful deployment of Management Science throughout Citgo Petroleum Corporation" - D. Klingman, N. Phillips, D. Steiger, and W. Young (Citgo Petroleum - Energy) Citgo Petroleum Corporation was acquired by Southland Corporation in 1983. Citgo had lost money for several years prior to the takeover and, in fact, sustained a $50 million pretax toss in 1984. In 1985, bolstered in large part by the application of management science methods and tools throughout its organization, Citgo achieved a pretax profit of $70 million. Among the contributions of the management science team were a linear programming model to plan refining operations. Among the performance improvements were a reduction in crude inventories as a result of improved schedule deliveries from crude suppliers, and a better ability to adjust production runs and alter petroleum product mix in response to changing market conditions. A second optimization tool (that embeds a minimum cost network flow model) was developed to support such decisions as where to sell products, where to buy or trade products, pricing, and transportation mode selection. In conjunction with the management science team's efforts, Citgo's management took ambitious steps to integrate information systems and reorganize its management structure. 1985: "Weyerhaeuser decision simulator improves timber profits" - M.R. Lembersky and U.H. Chi (Weyerhaeuser- Forestry) Weyerh~euser is one of the largest forest product companies in the world. Efficient usage of raw materials (i.e., trees) is critical to the company's success. Weyerhaeuser developed a dynamic programmingbased model to optimize the use of raw materials. Although a system based on the model was imple-

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mented in 1976, Weyerhaeuser kept its contents proprietary until 1982 due to the perceived competitive edge that the technology offered. The system supports decisions such as how to crosscut a particular tree into logs and to which markets to allocate the resulting logs in order to maximize profit. Different decisions on crosscutting and market allocation lead to different revenue flows for the firm. Through 1985, Weyerhaeuser realized $100 million in increased profits by using the system. The system was also of note since it represented (at the time) a significant breakthrough in the use of visual graphics and animation in management science practice. In addition to providing detailed summaries of recent winners, we also present in Table 1 information on all Edelman finalists, dating back to 1975. (Prior to 1975, finalists did not publish their reports in Interfaces.) The finalists are clustered by industry classes, e.g., energy, government, health care, telecommunications, etc. For each finalist, we provide the client, year of competition, and topic. (An asterisk adjacent to a client denotes a winning paper.) The interested reader is referred to the relevant issues of Interfaces (1975-1997) for more information. A somewhat different table of presentation is given in Assad, et al. (1992) for the years 1980-1989. Note that our choice of industry headings is somewhat arbitrary. For instance, the energy industry could have been split into petroleum, electric power, and other industries. As another example, air transportation, sea transportation, trucking, and railroads could have been combined into a single transportation industry group. In general, we classified finalists under an appropriate industry based on the client, e.g., all A T & T finalists are classified under telecommunications. However, when the client was a government entity and the topic matched well with one of the other industries, we classified the corresponding finalist based on the topic, e.g., a Federal Aviation Administration (FAA) finalist was classified under air transportation. As displayed in Table 1, OR has been successfully deployed in a wide variety of industries. Indeed, as discussed in Section 2, these industries (or application areas) are faced with extremely complex strategic and tactical problems that can benefit tremendously from effective use of OR. Of the 142

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finalists over the past 22 years, energy (20), government (16), health care (12), telecommunications (12), financial services (12), and air transportation (10) are the most highly represented industry groups. These six industry groups account for almost 58% of the finalists (these numbers are, of course, affected by our groupings). The other finalists span over I1 industry groups, demonstrating the breadth of suc-

cessful OR applications. These groups include metals/chemicals, military, computers and electronics, automotive, food, housing/land use, sea transportation, trucking, miscellaneous consumer products, paper/forestry, and railroads. The relatively low number (nine) of military finalists may be explained by the sensitive information that may be contained in military OR projects.

Table 1 Summary of f'malists in the Edelman Award Competition for Management Science Achievement Industry/client

Year

Topic

Energy: National Energy Board of Canada Syncrnde Canada* Arizona Public Service Exxon Getty Oil Exxon Potomac Electric Power Company Standard Oil Company (Amoco) Air Products and Chemicals * Pacific Gas and Electric Centro de Pesquisas de Energia Electrica Santos Ltd. Mobil Citgo Petroleum * Texaco Electric Power Research Institute Hidroelectrica Espanola Southern Company Gas Research Institute Chinese State Planning Commission

1975 1977 1979 1979 1980 1982 1982 1982 1983 1985 1985 1986 1986 1986 1988 1988 1989 1990 1992 1994

Trans-Canada pipeline project evaluation Mining equipment selection Water supply system for a nuclear power plant Gasoline blending Risk analysis of oil and gas explorations Selection of energy improvement projects Capital expansion policy Merchandising automotive products Deliveries of industrial gases Water releases for hydroelectric plants Allocation of hydro and thermal resources Natural gas production planning Marketing and distribution operations for petroleum products Oil refining and marketing operations Gasoline blending Fuel inventory control Reservoir management for hydroelectric power Allocation of hydro and thermal resources R & D project appraisal methodology Coal and electricity procurement and distribution

1975 1976 1977 1982 1984 1985 1987 1988 1989 1989 1991 1992 1992 1993 1994 1996

Solid waste management operations Eligibility and benefits of pension program Transportation infrastructure design for the Sudan Maintenance policies for highways National water management policy Street cleaning operations Automating postal operations Patrol officers deployment Institutionalization of decision support systems Mass transit scheduling Automating postal operations Arrest-to-arraignment system's operations Deployment of fire department resources School bus routing and scheduling Automated highway traffic control system Maintenance planning for a network of bridges

Government: City of Cleveland US Veterans Administration Sudan State of Arizona Department of Transportation * Netherlands Rijkswaterstaat * Department of Sanitation NYC US Postal Service San Francisco Police * Cabinet of Egypt Montreal Urban Community Transit Authority US Postal Services New York City New Haven Fire Department North Carolina Department of Public Instruction Hanshin Expressway Public Corporation Federal Highway Administration/California Department of Transportation

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A breakdown of Edelman winners by industry group reveals five winners from the health care industry, three winners from energy, government, and computer and electronics, and two winners from telecommunications. The remaining seven winners were spread over the other industry groups. (In 1984, two winners were selected.) The winners in the health care industry focused on pharmaceutical marketing and distribution (2), blood distribution, hospi-

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tal management, and disease control. As our health is indeed dear to our hearts, we should well appreciate these major OR success stories. The topics addressed within each industry group vary significantly. For example, the telecommunications industry includes topics that focus on network design, call centers, credit screening, and others; the air transportation industry includes topics on crew and fleet scheduling, reservation office operations,

Table 1 continued

Health Care: multiple hospitals Cahill May Roberts * Becton Dickinson Greater New York Blood Program * American Edwards Laboratory Massachusetts Department of Public Health Pfizer City of Austin, TX Syntex Laboratories * US Department of Health and Human Services * City of New Haven* British National Health Service

1975 1978 1979 1979 1981 1981 1984 1984 1987 1990 1992 1996

Menu planning for institutional feeding programs Pharmaceutical product distribution Production planning of medical supplies Blood distribution system Production planning of heart valves Forecasting the need for dialysis Inventory control of pharmaceutical products Deployment of emergency medical service vehicles Sales force deployment Diagnosis related groups (DRGs) for hospitals Needle exchange program to combat AIDS Allocation of funds among hospitals

Telecommunications: AT&T * AT&T AT&T AT&T AT&T AT& T GTE Bellcore Bellcore AT&T * Bellcore Nynex

1976 1977 1979 1981 1982 1989 1991 1992 1993 1993 1994 1995

Directory assistance charges Design of telephone directories Bond calling and refunding strategies Scoring rules in credit screening Marketing residence long distance services Site location for telemarketing centers Customer access network design Management of R & D project utilization Purchasing under business volume discounts Design of network of inbound call centers Ring network design Interoffice facilities network planning

Financial services: Liberty National Bank & Trust Cleveland Trust Farm Credit Banks Wells Fargo Bank New England Merchants Leasing MPT Associates Prudential Securities GE Capital Yasuda Fire and Marine Insurance Key Corp Bank Al-Manakh Stock Market AT & T Capital

1975 1976 1977 1978 1982 1983 1991 1991 1993 1995 1996 1996

Asset/liability management Commercial bank check processing operations Bank borrowing strategies Financial investment portfolios Lease portfolio planning Equity investment strategies Mortgage valuation Delinquent consumer credit management Asset/liability management Customer service in branch offices Debt settlement Credit and collection decisions

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yield management, and others. Thus, OR had major impact on a variety of strategically important issues that are encountered within an industry. Although the majority of finalists were culled from projects performed in the private sector, the public sector has supported about one third of the total number of finalists (mostly, but not exclusively, in government services, energy, and the military). OR has been prevalent at both large, international organizations and smaller more medium-size firms.

For example, among the air transportation finalists are the US giants, United Airlines and American Airlines, as well as smaller carriers such as the Australian company, Quantas Airways, and the now-defunct US carrier, National Airlines. Although most of the finalists were associated with US-based enterprises, excellent contributions were made from all over the world. In the 1994, 1995, and 1996 competitions, three of the six (or seven) finalists in each year were from countries

Table 1 continued Air transportation: FAA United Airlines National Airlines Quastas Airways United Airlines American Airlines American Airlines American Airlines * Delta Airlines NASA

1976 1977 1978 1978 1985 1990 1990 1991 1993 1993

Training program for air traffic controllers Airline's salesforce deployment Aircraft fueling management Backup crew scheduling Workforce scheduling at reservation stations Crew scheduling Arrival slot allocation Yield management Assignment of aircraft to flight legs Risk analysis of space shuttle tiles

Metals / chemicals: Bethlehem Steel Swift Chemical Agrico Chemical Monsanto LTV Steel Bethlehem Steel Reynolds Metal Merit Brass Tata Iron and Steel *

1975 1975 1979 1984 1987 1988 1990 1992 1994

Production scheduling of a large machine shop Phosphate rock production for fertilizers Logistics system for chemical fertilizers Production system for chemical products Caster scheduling Ingot molding and sizing Centralized trucks dispatching Production planning of brass products Production planning of steel products

Military: US Navy US Army US Air Force US Army US Air Force Military Airlift Command US Army Israeli Air Force South African National Defense Force*

1978 1980 1984 1987 1988 1991 1994 1995 1996

Helicopter fleet mix planning Army workforce planning Aircraft utilization in airlift operations Army workforce planning Jet engine repair facility layout Lifting of cargo and personnel to the Persian Gulf Army workforce planning Aircraft squadron operations Army size and shape planning

Computer & electronics: Xerox * Xerox Xerox ABB Electric * IBM IBM DEC Harris *

1975 1977 1980 1989 1989 1989 1994 1995

Customer service operations New product introduction Forecasting system for computer printers Electrical equipment marketing Manufacturing system for semiconductor products Spare parts distribution network management Global logistics supply chain planning Production planning for semiconductor products

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other than the US; in 1994: India (Tata Iron and Steel), China (Chinese State Planning Commission), and Japan (Hanshin Expressway Public Corporation); in 1995: Brazil (Sadia), Israel (Israeli Air Force), and

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the United Kingdom (Sainsburg); and in 1996: Kuwait (Al-Manakh Stock Market), South Africa (South African National Defense force), and the United Kingdom (British National Health Service).

Table 1 continued Automotive: Hertz Kelly-Springfield Tire * General Motors General Motors General Motors National Car Rental

1977 1980 1983 1986 1986 1996

Fleet utilization for a car rental agency Production planning for tire manufacturing Shop floor scheduling Production, distribution, and marketing planning Automotive parts shipping from suppliers to plants Rental revenue management

Food: Booth Fisheries Burger King Standard Brands Sadia Sainsbury

1976 1981 198 ! 1995 1995

Frozen seafood production and distribution Fast food restaurant operations Finished goods inventory of nut products Poultry production planning Food and grocery retail operations

Housing / land use: State of Kansas DuPage County Homart Marriott istanbul Chamber of Commerce

1975 1978 1986 1988 1988

Reclamation of land that was strip mined for coal Land use planning Divestiture of shopping malls and office buildings New hotel chain design Turkish housing availability planning

Sea tran.sportation: Canadian Department of Transport lngalls Shipbuilding St. Lawrence Seaway Authority Columbu s-America Discovery Group

1978 1980 1981 1991

Coast Guard fleet planning Shipbuilding project management Canal capacity planning Search plan to locate a wreck at sea

Trucking: ANR Freight System* North American Van Lines Yellow Freight System Vilpac

1981 1987 1991 1992

Line haul productivity for a motor carrier Real-time truck dispatching system Network design and vehicle routing Shop floor control at a truck manufacturer

Miscellaneous consumer products: Armour-Dial, Procter & Gamble, and others Blue Bell * L.L. Bean Procter & Gamble

1983 1984 1990 1996

Forecasting sales of new packaged goods Apparel inventory control Deployment of telemarketing resources Supply chain planning

Paper/Jorestry: Canadian Forest-Products Weyerhaeuser * Kodak

1976 1985 1990

Plywood production and distribution Log cutting operations Photographic color paper cutting

Railroads: Chessie System Southern Railway Canadian National Railway

1980 1983 1985

Railroad freight car fleet planning Train dispatching Rail line capacity planning

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In the past, projects from such countries as Australia, Brazil, Canada, Egypt, Ireland, the Netherlands, and Sudan have also been represented.

3.2. ORSA Prize (now, INFORMS Prize) In addition to the Edelman competition that seeks to recognize individual achievements in OR practice, the ORSA Prize, established in 1991, recognizes organizations for on-going exemplary use of OR. This prize is the highest honor that ORSA bestows upon an organization. The prize committee seeks to reward organizations that have shown a sustained commitment to OR through infusion of OR models and methods into operational and strategic decisionmaking throughout an organization. A listing of past winners and a summary of the impact of OR in the respective winners' organizations appears below. In three of the first five years in which the award has been given, two winning organizations were selected.

ORSA Prize winners 1995: Bellcore (Telecommunications) Bellcore is a leading provider of telecommunications software and consulting services. The company was formed after the divestiture of A T & T in 1984. Its charter was to provide research and development support to the Regional Bell Operating Companies (RBOCs). In addition, the company provides consulting services to other industry clients. Bellcore employs over 200 OR professionals. They have helped to introduce the OR culture into all levels of management and have successfully applied OR methods into diverse application areas; a few examples are given below. Bellcore has been involved in developing sophisticated network design tools for such new technologies as SONET and ATM. These tools have been used by the RBOCs and are being marketed to other telecommunication firms. Some of the technology and algorithms underlying the tools are presented in a recent book by Wu (1992). OR methods were instrumental in developing a decision suppport system for procurement decisions. The system was successfully deployed by the RBOCs and led to significant savings. As an example of OR's impact on internal business matters, Bellcore developed

methodology for selecting a mix of projects that benefit their client base in an equitable way while effectively utilizing internal resources. Bellcore was a finalist in the Edelman competition for three consecutive years (1992-1994). For more information, see OR~MS Today (1995).

1994: AT& T (Telecommunications) A T & T employs hundreds of people with OR expertise throughout the corporation, including several centralized OR groups. Hence, OR is firmly embedded in the decision making culture across various application areas. The most significant impact of OR has been in the design and operation of telecommunications networks. Numerous optimization-based network design and network expansion software tools, as well as queueing models and simulation tools have been developed to aid decision makers and engineers to plan the ever-evolving A T & T network. As new technologies emerge and network architectures become increasingly complex, the use of OR models and methods is essential to A T & T ' s efficient operation of its networks. As a manufacturer of telecommunications equipment, A T & T has used OR for a range of applications including circuit board design, production scheduling, inventory management, and distribution network planning. Finally, OR has been applied in diverse business applications including work force scheduling, telemarketing centers site selection, and credit management. A special issue of the AT& T Technical Journal devoted to optimization, edited by Luss (1989), presents applications of OR to telecommunications network design, product design and manufacturing, and speech and language processing. Klincewicz (1994) describes a variety of network optimization applications in telecommunications and logistics in AT&T. As new A T & T businesses emerge, e.g., acquisition of McCaw, new OR applications will be developed. For more information, see O R / M S Today (1994b). 1994: US WEST (Telecommunications) US WEST, one of the seven Regional Bell Operating Companies that were created in the US after the divestiture of A T & T in 1984, provides telephone services to more than 25 million residential and business customers in 14 western and midwestern

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states. Since its formation, the OR group at US WEST has provided internal consulting services including model development and analysis, software simulation, and optimization-based tools to various levels throughout the corporation. OR approaches have helped to shape key strategies that have improved business, engineering, and operations decisions throughout the company. Upper management acknowledges that OR's biggest impact has been felt in the company's reengineering initiatives (e.g., a major initiative that was launched in 1993), increasing US WEST's competitiveness in designing telecommunications networks, and developing tactics for moving into strategic business areas. An example of an OR project at US WEST is the expansion of interoffice fiber-optic networks in major metropolitan areas in the US WEST region; see Cox et al. (1993). This work further enabled the OR group to become involved in the design of fiber-optical ring networks for major metropolitan areas, a 'hot' area in telecommunications network design in the 90's. For more information, see OR/MS Today (1994b).

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1993: United Airlines (Air transportation) United Airlines is one of the largest US airlines and employs a sizable OR group. The carrier serves 150 cities on five continents with over 500 aircraft and 2000 flights daily. Many of the contributions of OR at United are similar to those described below at American Airlines which won the ORSA Prize in 1991. At United, OR models have become an integral part of systems and business planning, employed to improve 'core' airline operations. The list of OR applications at United includes long-term strategic issues such as resource planning (e.g., fleet expansion, and introduction of new hubs), and operational issues that affect the daily running of the airline such as yield management, aircraft maintenance operations, crew scheduling (for a roster of 8000 pilots and 17 000 flight attendants), and others. The use of OR has been acknowledged by United to having supported the airline's improved productivity and enhancing the airline's competitive edge. In fact, it would be quite impossible to run a large airline like United without the use of OR. For more information, see OR / MS Today (1994a).

1993: Office of Management and Budget of the City of New York (Government services)

1992: San Miguel (Food)

New York City's Office of Management and Budget (OMB) is responsible for managing the budget of New York City - approximately $32 billion in 1993. OMB reviews the allocation of scarce funds to government service agencies and approves all expenses of the City. Among OMB's units is an Operations Unit that supports OMB decision making with various OR models and methodologies. OR has become an integral part of the budget planning process and is central to the evaluation of public services for New York City. OR's biggest impact has been in personnel staffing, e.g., firefighters, emergency personnel, and child welfare caseworkers. In addition, OR activities at OMB include forecast modeling to predict the demand for different services such as demand for Medicaid and demand for foster care, economic analysis of city services such as cost per mile of rebuilding streets and highways and cost per foster child care, and inventory modeling to manage the City's reserves of general supplies. For more information, see OR / MS Today (1994a).

San Miguel is one of the largest private companies in The Philippines, employing about 40000 people and generating about 4% of the Phillipines' gross national product. Although the company is best known for its beer, San Miguel also manufactures a wide assortment of food and beverage items such as meat, fish, and soft drinks. In 1991, San Miguel's net sales were $2 billion. In addition to a corporate OR group, people with OR backgrounds are spread throughout the corporation as plant managers, production schedulers, and other upper management positions. This has helped to apply OR approaches at virtually all levels of the organization. OR models and methods have supported San Miguel on various business decisions including capacity planning, production scheduling, product mix design, site location, distribution, risk management, portfolio management, and marketing. OR played a role in a major growth initiative, including the establishment of 22 manufacturing plants that was embarked upon in 1987. For more information, see Homer (1992).

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1991: American Airlines (Air transportation) From 1982 through 1991, the number of OR professionals grew at American from 12 to 325. By 1988, the OR department spun off as a separate division, American Airlines Decision Technologies (AADT). (In 1993, AADT was reorganized as part of American Airlines' SABRE Decision Technologies). At American Airlines, OR input has played key roles supporting senior management in important strategic decisions such as hub locations, aircraft purchasing, and expansion of airport operations. In addition, a long list of OR-based tools were developed to support many complex, daily operations of the airline. These include decision support tools for flight scheduling (e.g., assignment of aircraft types to passenger legs and choice of nonstop flights), crew scheduling for a workforce of 8000 pilots and 16000 flight attendants, yield management for overbooking and dynamic seat allocation decisions, allocating arrival slots at airports for aircraft in situations when flights are delayed or canceled, and others. An Interfaces issue, edited by Cook (1989), presents several applications of OR in American Airlines. Due to the tremendous success of OR at American Airlines, the scope of AADT's charter was expanded to include extemal consulting to other airlines and other related industries such as railroad and car rental companies. For more information, see Homer (1991).

1991: Federal Express (Air transportation) At Federal Express, the OR department reports directly to the CEO and has been involved in the company's long range decision making process throughout its lifetime. OR techniques were actually involved in the founding of the company. Federal Express's founder, Frederick W. Smith, described the notion of a hub-and-spoke network for air transport in his OR senior thesis. At the time (early 70's), the air transportation industry practiced point-to-point pickup and delivery for both freight and passenger transport. Upon founding the company, Smith's ideas evolved into Federal Express's decision to locate a single hub in Memphis, Tennessee. Since its inception, additional hubs were located in other cities, based, in part, on analysis performed by the OR group. Design and operation of hub-and-spoke networks have become standard practice in air trans-

portation today. OR has also been involved in a variety of other strategic areas at Federal Express. The costs and benefits of employing wide-body aircrafts were evaluated by the OR group several years before the corporation introduced them into service. OR has also been involved in Federal Express's development of an air-ground international network, i.e., the coordination of truck and air schedules. The coordination of multiple transport modes is becoming a hot topic in freight transportation as customers seek 'one-stop', global distribution alternatives. In addition to its work on several long-term strategic initiatives, the OR department contributes intemal consulting support on a variety of tactical transportation and logistics studies. For more information, see Homer (199 t). We observe that the ORSA Prize has been captured three times by air transportation companies, three times by telecommunications companies, once by a government agency, and once by a food manufacturer. It is perhaps not surprising that air transportation and telecommunications firms have, to date, dominated the competition. The prize is given for long-term penetration and impact of OR within a company. In both air transportation and telecommunications, " c o r e " business problems such as air-crew scheduling and routing of telecommunications traffic are intrinsically OR problems. Indeed, the air transportation and telecommunications industries were among the first to use OR methodologies to solve their strategic business problems. In the future, we expect to see the ORSA (INFORMS) Prize captured by companies and organizations in a wide range of industries like those represented in the Edelman competition. Even in the short five year history of the award, some diversity of industry groups has been evidenced, as both a government agency (OMB) and a non-US based company (San Miguel - The Philippines) have captured the prize.

4. Final remarks In this paper, we provided our views regarding opportunities for OR applications and past accomplishments. As a relative young discipline, born about 50 years ago during World War II, OR has come a

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long way. In Section 2, we presented opportunities for OR in a sample of application areas: telecommunications, air transportation, water resources, energy, forestry, logistics, manufacturing, marketing, health care, government services, and military. As this section demonstrated, opportunities for OR professionals in both the private and public sectors are unbounded. The continuing explosion in computer power, accessibility of virtually unlimited information sources, and capability of instantaneous information networking through modern communications networks will further enhance the future use of OR. For example, numerous interrelated large-scale models will be routinely used to provide real-time control of global, complex communications, transportation, and logistics systems. In Section 3, we presented a sample of past accomplishments. We chose to highlight these accomplishments through the finalists in the Edelman competition and through the companies that won the ORSA (INFORMS) Prize. We described a sample of the corresponding work in order to provide a perspective on the depth and breadth of OR accomplishments. The paper also provides a table that documents all of the finalists in the Edelman competition since 1975. The future of OR as a thriving discipline is quite promising. We hope that this paper, and indeed all the success stories published in this issue, convey this message. The complexities of the problems facing governments and companies are truly enormous, and thus the OR discipline will find ample opportunities to help solve these problems. However, the OR community needs to educate the public and promote OR as a 'household name', and the academic OR programs need to produce more professionals who excel at bridging the gap between the academic and management consulting camps. And, like many other disciplines, OR needs to adapt more rapidly to technological and business changes, cooperate more effectively with related disciplines, and listen and respond to feedback from practitioners and customers.

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