Accounts have a fairly narrow definition of assets. To optimizers, assets include any resource that an organization owns or controls that can potentially add value to the business. Some are traditional accounting assets, such as buildings, equipment, and inventory. Others are human assets, such as your employees, vendors, and customers. Still others are intangible assets, such as your reputation, brand, customer loyalty, intellectual property, and access to capital. Whatever the asset, optimizers are driven to maximize its yield.
Identifying assets can be tricky. What you see may not immediately reveal the true value of what you have. Take a national long-haul trucking company. Its highest-cost assets are its fleet of trucks, but the real value of these assets comes from how well they are loaded and deployed: Where should you position them to get the most freight? Which loads should you accept? Which should you turn down? Are they loaded coming and going, or do they have to deadhead one way?
If you are a printer, your presses are clearly large and expensive assets. But their real value is driven by how you decide to load and run them: Are you able to keep them running at full capacity a high percentage of the time? Are you able to provide printing capacity to the most profitable customers on a reliable basis? Can you organize the printing queue in ways that minimize packing and shipping costs?
For a grocer, shelf space is a key asset, but not all shelf space is equal. No matter what you place at eye level, at the front of the store, it sells much more; put the same product near the floor, in the furthest corner, and you will spend more time dusting than restocking. For airlines, planes are clearly assets. But what determines the planes’ true value—and competitively makes or breaks the airline—are the thousand and one decisions that an airline makes about pricing, plane positioning, flight crew assignments, and maintenance schedules.
At Ann Taylor Stores Corporation, time and people are key assets, so maximizing value from them becomes everything. To improve the value per hour from its sales force, the company installed an optimization program that stipulates which employees should work, when, and for how long, with the best sales performers scheduled for the busiest hours. Optimizing workforce management—it makes great sense, given the criticality of human assets to most organizations’ success.
No matter which of your assets you focus on, the goal of an optimizer is not simply to keep an asset busy, but to utilize the asset in a way that adds the greatest value to an organization’s long-term profitability.
How well you accomplish this goal typically depends on a series of complex and often repetitive decisions that juggle constraints and balance multiple interdependent objectives. For example:
- Which prospects should your sales force focus on?
- Should you expand your office space at headquarters or invest in a regional office?
- How much raw material should you order to balance customer demands and inventory expenses?
- What products should you discount this week, where, and what will be the likely cross-impact on other offerings?
- If you add a “plus” feature to a “regular” product or service, do you drive up high-margin volume?
- Should your employees be stocking shelves or waiting on customers?
- Which employees should you pull away from their current assignments to serve on the committee preparing a new proposal?
These and hundreds of other repetitive decisions continuously add or subtract value from your enterprise. Optimization can improve the quality of those decisions, each time they are made, adding millions and even billions to the bottom line, as McDonald’s, UPS, Marriott, Walmart, Amazon, Google, and other early adopters have discovered.
This post is excerpted from The Optimization Edge: Reinventing Decision Making to Maximize All Your Company’s Assets (McGraw Hill) by Steve Sashihara, www.optimizationedge.com.