How to make better decisions in business?


Scientific methods can be used to plan, schedule, manage risk and improve productivity. It has been proved that by using scientific methods, businesses have reduced cost and investment, have improved revenue, resulting in better ROI.

Almost all business problems have many possible solutions; but the challenge is to pick the BEST solution that consumes the LEAST resource. To solve such problems just by mere  gut feeling alone could result in wasted resources and cost.

The following example shows how one could save cost in a simple warehouse lease planning situation by applying scientific methods.

Ace Hardware sells household hardware products through an organized marketing campaign on FaceBook. It needs substantial warehouse space for storing its merchandize. The management is coming up with a plan to lease space for storage for the next six months. The space requirement for each month is as follows:

Month

space required

(square feet)

1 33,000
2 17,000
3 10,000
4 20,000
5 40,000
6 65,000

Discount is available for longer lease duration, as shown below. So, it is reasonable to lease the maximum needed warehouse space for the entire period of 6 months.
A lease is signed for a minimum period of one month. The cost to lease the warehouse is as follows:

Leasing Period Cost per square feet Leased (Rs)
1 30
2 50
3 70
4 85
5 100
6 110

The objective is to minimize the total cost incurred for leasing the space for six months and at the same time meeting the space requirements.

Many decision makers follow the brute force method, where they lease the minimal space requirement (10,000 sq.ft – month #3 requirement) for 6 months duration and then lease the additional requirements on a monthly basis.

Brute force method may not be the best decision, as it may  result in increased and unnecessary expenses.

This problem can be solved using scientific methods (aka Operation Research Models) to identify the best leasing plan for the given requirements.

The following presentation has the details of how to solve the problem using EXCEL.

Download the EXCEL file along with the solution here.

The same methodology can be extended to solve multi-location warehouse leasing problems.

This entry was posted in Uncategorized. Bookmark the permalink.

One Response to How to make better decisions in business?

  1. google says:

    I liked your article is an interesting technology
    thanks to google I found you

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>