The Stream by River Logic

Still Using Excel for Optimization Modeling? Stop.

August 13, 2015 | By Nathan Goldstein

I love lazy Sunday afternoons, especially when it’s August in Texas, the Dallas Cowboys haven't kicked off the new season, and the weatherman insists I unwind on the couch and watch a little golf.

Recently, I found myself in exactly this situation. As you might imagine, the golf was not entirely occupying my attention, and I found myself catching up on new social media content. In particular, I was drawn to a thread on my B-school group page discussing the woes of building optimization models in Excel.

Someone suggested my old classmate review a series of videos in which the author walks through the process of building an optimization model using Excel’s Premium Solver. Given my background in prescriptive analytics, I could not resist watching a few myself.

Before I knew it, the golf tournament was over, 60Minutes had less than a half hour left, and I was more convinced than ever that not only is Enterprise Optimizer® more dynamic than Excel and other programming-based systems, it’s easier to use.

The Downfall of Excel's Premium Solver

Each video I watched was focused on solving a simple set of decision variables within a single functional silo. One model solved for product mix. Another solved for shipment volume between plants and warehouses, another solved for production volume within a plant, and yet another solved for optimal procurement mix.  

None of the models were integrated despite the fact that these critical planning decisions are most certainly inter-related in the real-world. Worse yet, each video stepped through an incredibly arduous equation-building process and resulted in a one-trick pony that very few business decision makers would be able or have the time to comprehend.  

Most poignant was the fact that all of these examples took at least twelve minutes to build. I couldn’t help but consider: 

    • How long would a real-world model used to optimize one of these silo-based decisions take to build?  
    • How would the modeler communicate the equation-based rationale to key decision makers? 
    • How valid would the results be (e.g. optimal product mix) without accounting for all the inter-related constraints and marginal economic impacts?

Business Optimization Modeling Example

 

Enterprise Optimizer Does More than Excel ... in Half the Time

In the above video, I model a theoretical chemical company in River Logic’s code-free optimization modeling platform, Enterprise Optimizer®.

The model simultaneously optimizes a series of inter-related planning decisions: 

    • Product Mix – How much of which products to sell into each customer segment/market? 
    • Order Allocation – How much of each product to produce on each reactor? 
    • Procurement – How much of each material to purchase from each vendor? 

Not only does the model solve for each set of decision variables simultaneously, the planned level of combinations are dynamically translated into a full set of audit-quality financials for the firm, and a proprietary solution output metric used to quantify the marginal economic value of binding constraints in true business terms. 

Could it get any better, you ask? It does! I was able to use Enterprise Optimizer® drag-and-drop visual modeling language to build, populate, and solve the entire model in five minutes without writing a single equation!

And for even more information on the benefits of EO, you can download our Optimization product comparison below.

Optimization in IBM vs River Logic

 

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