Application Case 6.2 Ingram Micro Uses Business Intelligence Applications to Make Pricing Decisions Questions for Discussion 1. What were the main challenges faced by Ingram Micro in developing a BIC? 2. List all the business intelligence solutions developed by Ingram to optimize the prices of their products and to profile their customers 3. What benefits did ingram receive after using the newly developed Bl applications? Pearson Copyright C 2018, 2014, 2011 Pearson Education, Inc. All Rights Reserved
Copyright © 2018, 2014, 2011 Pearson Education, Inc. All Rights Reserved Application Case 6.2 Ingram Micro Uses Business Intelligence Applications to Make Pricing Decisions Questions for Discussion 1. What were the main challenges faced by Ingram Micro in developing a BIC? 2. List all the business intelligence solutions developed by Ingram to optimize the prices of their products and to profile their customers. 3. What benefits did Ingram receive after using the newly developed BI applications?
Structure of mathematical models for Decision Support Non-Quantitative Models(Qualitative) Quantitative Models: Mathematically links decision variables, uncontrollable variables, and result variables Independent Variables Uncontrollable variables Dependent variable Decision Mathematical Result variables relationships variables Intermediate variables Pearson Copyright C 2018, 2014, 2011 Pearson Education, Inc. All Rights Reserved
Copyright © 2018, 2014, 2011 Pearson Education, Inc. All Rights Reserved Structure of Mathematical Models for Decision Support • Non-Quantitative Models (Qualitative) • Quantitative Models: Mathematically links decision variables, uncontrollable variables, and result variables
Examples- Components of models Table 6.2 Examples of Components of Models Uncontrollable variables Area Decision variables Result variables and Parameters Financial Investment alternatives Total profit, risk Infiation rate investment and amounts Rate of return on investment(ROD Prime rate Eamings per share Competition Marketing Advertising budget Market share Customers income Where to advertise Customer satisfaction Competitors actions Manufac What and how much to Total cost Machine capacity produce Inventory levels Quality level Technology Compensation programs Employee satisfaction Materials prices Accounting Use of computers Data processing cost Computer technology Audit schedule Error rate Tax rates Legal requirements ransportation Shipments schedule Total transport Use of smart cards Payment float t cost Delivery distance Regulations Services Staffing levels customer satisfaction Demand for services Pearson Copyright C 2018, 2014, 2011 Pearson Education, Inc. All Rights Reserved
Copyright © 2018, 2014, 2011 Pearson Education, Inc. All Rights Reserved Examples - Components of Models Table 6.2 Examples of Components of Models Area Decision Variables Result Variables Uncontrollable Variables and Parameters Financial investment Investment alternatives and amounts Total profit, risk Rate of return on investment (ROI) Earnings per share Liquidity level Inflation rate Prime rate Competition Marketing Advertising budget Where to advertise Market share Customer satisfaction Customer’s income Competitor’s actions Manufacturing What and how much to produce Inventory levels Compensation programs Total cost Quality level Employee satisfaction Machine capacity Technology Materials prices Accounting Use of computers Audit schedule Data processing cost Error rate Computer technology Tax rates Legal requirements Transportation Shipments schedule Use of smart cards Total transport cost Payment float time Delivery distance Regulations Services Staffing levels Customer satisfaction Demand for services
The Structure of a mathematical model The components of a quantitative model are linked together by mathematical(algebraic) expressions equations or inequalities Example Profit -P=R-c Where P= profit, R= revenue, and c= cost Example: Simple Present-Value formulation 100.000 62092 十l 1+0 where P= present value, F= future cash-flow, i= interest rate, and n= number of period/years Pearson Copyright C 2018, 2014, 2011 Pearson Education, Inc. All Rights Reserved
Copyright © 2018, 2014, 2011 Pearson Education, Inc. All Rights Reserved The Structure of a Mathematical Model • The components of a quantitative model are linked together by mathematical (algebraic) expressions— equations or inequalities. • Example: Profit - P = R − C – where P = profit, R = revenue, and C = cost • Example: Simple Present-Value formulation ( ) ( ) 5 100,000 62,092 1 1 0.1 n F P i = = = + + – where P = present value, F = future cash-flow, i = interest rate, and n = number of period/years
Modeling and Decision Making -Under Certainty, Uncertainty, and risk(1 of 2) Certainty Assume complete knowledge All potential outcomes are known May yield optimal solution Uncertainty Several outcomes for each decision Probability of each outcome is unknown Knowledge would lead to less uncertainty Risk analysis (probabilistic decision making) Probability of each of several outcomes occurring Level of uncertainty Risk(expected value) Pearson Copyright C 2018, 2014, 2011 Pearson Education, Inc. All Rights Reserved
Copyright © 2018, 2014, 2011 Pearson Education, Inc. All Rights Reserved Modeling and Decision Making - Under Certainty, Uncertainty, and Risk (1 of 2) • Certainty – Assume complete knowledge – All potential outcomes are known – May yield optimal solution • Uncertainty – Several outcomes for each decision – Probability of each outcome is unknown – Knowledge would lead to less uncertainty • Risk analysis (probabilistic decision making) – Probability of each of several outcomes occurring – Level of uncertainty → Risk (expected value)