Enterprise Optimization (EO) is "a systematic process of planning, integrating, coordinating and executing all dimensions of enterprise activities for best-possible mission-focused results".
It is a sub-field of
management science
Management science (or managerial science) is a wide and interdisciplinary study of solving complex problems and making strategic decisions as it pertains to institutions, corporations, governments and other types of organizational entities. It is ...
. The purpose of EO is to answer the basic question "What do we need to do to earn best-possible profits under continually changing market conditions?" As a practical field of management Enterprise Optimization is both a science and an art.
Linear programming
Linear programming (LP), also called linear optimization, is a method to achieve the best outcome (such as maximum profit or lowest cost) in a mathematical model whose requirements are represented by linear relationships. Linear programming is ...
(LP), originally developed and commonly used for optimal allocation of scarce resources, is the primary mathematical tool of Enterprise Optimization.
Concepts
Enterprise Optimization defines 5 types of resources: Capital,
Procurement
Procurement is the method of discovering and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. When a government agency buys goods or s ...
options, Sales opportunities, Production capabilities, and Information. EO can be thought of as the optimization of the procurement and the use of these resources.
Opportunity Values (OVs) are a by-product of Linear programming. Positive OVs show how much bottom-line profit gain will come with each constraint relief. For controllable variables with negative OVs, this value shows how much any profit-forfeiting activities are costing. In the field of
Operations research
Operations research ( en-GB, operational research) (U.S. Air Force Specialty Code: Operations Analysis), often shortened to the initialism OR, is a discipline that deals with the development and application of analytical methods to improve decis ...
Opportunity values are called
Shadow price
A shadow price is the monetary value assigned to an abstract or intangible commodity which is not traded in the marketplace. This often takes the form of an externality. Shadow prices are also known as the recalculation of known market prices in o ...
s or sometimes Marginal values.
Field of opportunities (sometimes also called Profit Gap) is another concept of Enterprise Optimization. Field of opportunities is defined as the distance between the best-possible level of enterprise performance and the current performance.
History
The first known application of Linear Programming for the purposes of enterprise optimization was a computerized LP system for an Oregon forest products company in 1967. The term "Enterprise Optimization" is attributed to Eugene L, Bryan, PhD in 1970.
Applications
Enterprise Optimization has been applied in the forest
[{{Cite book, url=https://www.amazon.com/The-Best-Possible-Sawmill-Guidebook/dp/0879304669, title=The Best Possible Sawmill: Guidebook for the High-Tech Journey Ahead, last=Bryan, first=Eugene L., publisher=, year=1997, isbn=, location=, pages=]
plywood, and sawmill industries since 1970s. It has also been applied in the foo
stee
and other manufacturing industries.
References
Strategic management