Page 45 - DCAP208_Management Support Systems

Management Support Systems

Notes
costs, we must also address other considerations, such as the volume effect, auction and
transportation scheduling, depreciation, and insurance and risk factors (cars might be
damaged or stolen in transit). The volume effect kicks in as the number of similar cars for
sale grows. If we send many similar cars to a single auction site—which is reasonable,
assuming it offers the best net price—the volume will result in less money per car (see
figure 2).
Figure 2: The Volume Effect

Past a certain point, selling many similar cars at the same auction reduces the price per car.
Say, for example, the current average sale price for a 2002 Toyota Corolla on a particular
auction site is $7,200. We would likely get this price if we ship up to seven cars to that
location. However, transporting 30 similar cars to that site would drop the average price to
$6,900. To complicate this further, “similar” doesn’t mean the same make, model, and color.
Even though the makes and models might differ, shipping 30 silver sedans to the same
auction gives buyers more options, thereby depressing the average sales price per car. Also,
the volume effect’s curve is different for different types of cars. With Toyota Corollas, for
example, the volume effect is significant, whereas for Porsche 911s, it is moderate.
Scheduling is also a major issue. Every auction has a typical sales day, such as at 11 a.m.
every second Friday. So, let’s say we have 20 cars that we’d like to ship to an auction site,
the transport time is 10 days, and the next auction is 11 days away. If there is even a slight
delay in the delivery of these 20 cars, then we might miss the auction. The cars would then
have to sit in the auction’s parking lot for almost two weeks. This is bad—not only because
the company wants them sold as soon as possible, but because the cars would lose value
each day. The price depending on distribution volume. In contrast, if a smart decision-
support system improves the daily car distribution and thereby lifts net sales by, say, $200
per car (which is only a 1.33 percent increase in the price of an average $15,000 off-lease
car), the leasing company would increase its annual profits by hundreds of million of
dollars. Exploring this possibility is clearly worthwhile.
Solution
To address this problem, we developed an intelligent system comprising several building
blocks, including prediction, optimization, and adaptation modules. All three modules
involve research challenges, which we briefly review in the “Research Issues in Dynamic
Optimization” sidebar.
Question

Discuss the concept of adaptive business intelligence.
Source: http://cs.adelaide.edu.au/~zbyszek/Papers/IEEE.pdf

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