1: Write a summary 5- 7 sentences of the PALCO company. Include both the financial benefits and non-financial benefits. BE SPECIFIC.
The Pacific Lumber Company (PALCO) is a large timber-holding company with headquarters in Scotia, California. The company has over 200,000 acres of highly productive forest lands that support five mills located in Humboldt County in northern California. The lands include some of the most spectacular redwood groves in the world that have been given or sold at low cost to be preserved as parks. PALCO manages the remaining lands intensively for sustained timber production, subject to strong forest practice laws. Since PALCO’s forests are home to many species of wildlife, including endangered species such as spotted owls and marbled murrelets, the provisions of the federal Endangered Species Act also need to be carefully observed.
To obtain a sustained yield plan for the entire land-holding, PALCO management contracted with a team of management science consultants to develop a 120-year, 12-period, long-term forest ecosystem management plan. The management science team performed this task by formulating and applying a linear programming model to optimize the company’s overall timberland operations and profitability after satisfying the various constraints. The model was a huge one with approximately 8,500 functional constraints and 353,000 decision variables.
A major challenge in applying the linear programming model was the many uncertainties in estimating what the parameters of the model should be. The major factors causing these uncertainties were the continuing fluctuations in market supply and demand, logging costs, and environmental regulations. Therefore, the management science team made extensive use of detailed sensitivity analysis. The resulting sustained yield plan increased the company’s present net worth by over $398 million while also generating a better mix of wildlife habitat acres.
2: Write a summary 5- 7 sentences of the HP company. Include both the financial benefits and non-financial benefits. BE SPECIFIC.
Hewlett-Packard (HP) offers many innovative products to meet the diverse needs of more than 1 billion customers. The breadth of its product offering has helped the company achieve unparalleled market reach. However, offering multiple similar products also can cause serious problems—including confusing sales representatives and customers—that can adversely affect the revenue and costs for any particular product. Therefore, it is important to find the right balance between too much product variety and too little.
With this in mind, HP top management made managing product variety a strategic business priority. HP has been a leader in applying management science to its important business problems for decades, so it was only natural that many of the company’s top management scientists were called on to address this problem as well.
The heart of the methodology that was developed to address this problem involved formulating and applying a network optimization model. After excluding proposed products that do not have a sufficiently high return on investment, the remaining proposed products can be envisioned as flows through a network that can help fill some of the projected orders on the right-hand side of the network. The resulting model is a special type of minimum cost flow problem (related to the special type discussed in the next two sections).
Following its implementation by the beginning of 2005, this application of a minimum cost flow problem had a dramatic impact in enabling HP businesses to increase operational focus on their most critical products. This yielded companywide profit improvements of over $500 million between 2005 and 2008, and then about $180 million annually thereafter. It also yielded a variety of important qualitative benefits for HP.
These dramatic results led to HP winning the prestigious first prize in the 2009 Franz Edelman Award for Achievement in Operations Research and the Management Sciences.