Yale T. Herer BS ’86, Ph.D. ’90 and Retsef Levi Ph.D. ’05 win Daniel H. Wagner Prize
The 2013 Daniel H. Wagner Prize for Excellence in Operations Research Practice was awarded by the Institute for Operations Research and the Management Sciences (INFORMS) to Assaf Avrahami, Yale Herer, and Retsef Levi for a paper describing their project for the largest media company in Israel, Yedioth Group. The three authored “Matching Supply and Demand via Delayed 2-Phase Distribution at Yedioth Group - Models, Algorithms and IT.”
The team carried out a project that increased the efficiency of delivering print magazines to newsstands at a time when the news industry is facing ever increasing competition from the Internet and social media. “Recognizing the importance of reducing the cost of delivering print versions of magazines, Yedioth Group used sophisticated analytics and math modeling to produce outstanding results,” said Dr. C. Allen Butler, President of Daniel H. Wagner Associates and chair of the Wagner prize committee, in presenting the award.
INFORMS has posted a video of the winning presentation, delivered by Levi, who gave a similar talk about the project at a symposium in honor of the retirement of Acheson Laibe Professor Jack Muckstadt in the Fall of 2012.
The prize-winning approach
The Yedioth project dealt with an updated and more complex version of a classic problem in operations research, which is known as the newsvendor problem by analogy with the situation faced by a newspaper vendor who must decide how many copies of the day's paper to stock in the face of uncertain demand and knowledge that unsold copies will be worthless at the end of the day.
Unlike the classic newsvendor situation, for Yedioth the cost of lost sales and unsold copies is born entirely by the publisher. But also unlike the classic newsvendor, Yedioth is able to take advantage of new models and algorithms, process changes, and information technology to alter the tradeoff between lost sales and unsold copies.
Yedioth Group has a strong online presence but print still makes an important contribution to their bottom line, so reducing print costs but not revenue is essential.
In particular the project team made a conceptual breakthrough that builds on the idea of a pooling strategy that stems from work by Gary Eppen ORIE Ph.D. ’64 and Linus Schrage ORIE Ph.D ’66 as well as ORIE professors Peter Jackson and Laibe/Acheson Professor Emeritus Jack Muckstadt and others. Rather than deliver the full number of periodicals to newsstands once a week, the team recommended that Yedioth hold back a portion of production in a pool and make a second delivery (hence “delayed 2-phase” in the winning paper’s title), where the quantities in the second delivery are based on demand information from the first half of the week.
The quantities to deliver at each of the two stages are determined by a detailed “two-stage stochastic program with recourse.” The software implementation of this optimization approach uses information made available through the use of Electronic Data Interchange (EDI), radio-frequency identification (RFID) tags and a “smart newsstand.”
According to Levi, use of the team’s approach has resulted in a 10-15% reduction in production (and hence in production costs), a 35% reduction in the return of unsold copies, but no reduction in sales. Simulation of the system showed that using just two stages captured a substantial portion of the benefits of full pooling, and helped determine the best replenishment day.
Implementing the approach required the involvement of stakeholders (notably the sales agent intermediaries), a change in the incentive structure, a change in processes, and innovative information technology. It also required a new computational algorithm that depends on new theoretical results.
The members of the winning team
Levi is the J. Spencer Standish (1945) Professor of Management and Professor of Operations Management at MIT’s Sloan School of Management. His ORIE Ph.D. thesis was advised by Laibe/Acheson Professor of Business Management & Leadership Studies Professor David Shmoys and Professor Emeritus Robin Roundy. Herer is an Associate Professor at the Technion – Israel Institute of Technology. His Ph.D. thesis was advised by Professor Emeritus Robin Roundy. Avrahami, who did his Ph.D. studies with Herer, is CEO of Yedioth Information Technology (the technology and online company of Yedioth Group).
The Daniel H. Wagner Prize
The prize is named for the founder of Daniel H. Wagner Associates. According to INFORMS, “The late Dr. Wagner strove for strong mathematics applied to practical problems, supported by clear and intelligible writing. This prize recognizes those principles by emphasizing good writing, strong analytical content, and verifiable practice successes.”